Et tu, Euro?

Many financial pundits have declared the eventual death of the USDollar as the world's reserve currency, as the Fed continues it's currency debasement program (despite claims of a "strong dollar policy"). Some have taken this cue to pile into the Euro, believing it to be a safe haven from USDollar destruction.

No so fast. It seems the southern nations in the EU are having huge debt problems--much like its ally in north America. This includes Greece, Italy, Spain, Portugal, and Ireland (albeit a northern European country). Their sovereign debt has either been downgraded, or in danger of imminent downgrades, exacerbating the debt problems as their borrowing costs increase with each downgrade. These indebted countries want more Euros, but the more fiscally sound EU countries refuse to print more currency, desiring currency stabilization. Hence, the bifurcation and increased tensions among EU countries.

If Greece were to opt out of the Euro in order to resolve their sovereign debt problem (it certainly isn't the correct long-term solution, but it temporarily alleviates their fiscal problems), expect other nations to follow suit, putting the Euro itself in danger of being scuttled.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6804156/Greece-defies-Europe-as-EMU-crisis-turns-deadly-serious.html

These are indeed interesting times. So what other currencies are acceptable havens in a world of cascading currency debasement? Countries rich with natural resources should perform relatively well in a global credit contraction. The currencies of Norway, Canada, Australia, and Brazil (how things have turned around--Brazil's real has traditionally been an inflation hot potato) are good candidates.

But the ultimate store of value--real money with no counter party liability, leads us back to gold and silver.

Another doomsday prediction

This forecast is from Matterhorn Asset Management, a Swiss-based wealth management firm. Obviously, Egon von Greyerz ia a proponent of the Austrian School of Economics, and a disciple of Ludwig von Mises.

http://matterhornassetmanagement.com/2009/12/07/gold-is-not-going-up-paper-money-is-going-down/

Energy costs

Currently, these are the approximate costs for the following energy sources (in cent/kilowatt hours):

solar - 18
crude oil - 10
natural gas - 7
wind - 6.5
geothermal - 6.5
coal - 4.5
nuclear - 4.5
hydro - 4.5

Geothermal energy generation is impervious to weather conditions (it doesn't require wind or sunshine) so power generation can occur 24 hours, 7 days a week. Energy loads are more predictable and efficient, and geothermal energy plants require less capital cost. Since geothermal energy is already economically feasible, it doesn't need government subsidies to remain viable. However, our government needs to provided more incentives to tap into this ultimate green energy source.

US financial disaster (part 2)

Porter Stansberry's rant on the US financial disaster (part 2):

http://www.pinnacledigest.com/sector-insight/porter-stansberry:-why-u.s.-road-financial-disaster

John Paulson's new gold fund

To view this Wall Street Journal article you may need a subscription:

http://online.wsj.com/article/SB10001424052748704533904574543713428787876.html

Highlights, for those who can't read the full article:

One of the biggest investors is placing a huge new bet on gold.

John Paulson, who scored about $20 billion of profits between 2007 and early 2009 wagering against the housing market and financial companies, is launching a hedge fund dedicated to buying up shares of gold miners and other bullion-related investments, according to investors.
...
The affinity for gold represents something of a shift for Mr. Paulson, who gained recent recognition as a contrarian. As the dollar has fallen, investors lately have flocked to gold, which traditionally served as an alternative to paper currencies. As the supply of these currencies has risen lately amid government efforts to stabilize global economies, some investors believe their value will fall, helping gold.
...
Mr. Paulson at Tuesday's investor meeting countered that the bull run was only beginning for gold.

He noted that central banks around the globe have gone from sellers of gold to buyers, and that the global supply of gold is constrained.

While harmful inflation isn't on the horizon, he said, Mr. Paulson argued that there is a risk of a burst of inflation down the road. That's because in the past there's been a lag between a surge in money supply and higher inflation. Gold often does well when inflation rises.

Mr. Paulson told investors that the Federal Reserve will prove reluctant to raise interest rates, given the weakness in the economy, which also could pave the way for higher inflation, at least at some point, another reason for his growing conviction about gold.

Worth about $6 billion, Mr. Paulson said he was starting the new fund in part to give himself more personal exposure to gold, according to an investor at the meeting.

The embrace of gold is relatively new for Mr. Paulson. The hedge-fund manager, who mostly invested in merger deals until detecting a housing bubble in 2006, had done no gold investing as of a year ago.

US financial disaster (part 1)

Porter Stansberry's rant on the US financial disaster (part 1):

http://www.thedailycrux.com/reports/internal/20091207-CRX-Disaster-Report.asp

Recessions and violence

This article is not positive--and not surprising, linking violent crimes with recessions.

http://rawstory.com/2009/12/bankers-public-wrath-literally/

Hopefully, citizens keep cooler heads in times of financial crisis.

Senator Harry Reid accuses the Chinese

Senator Harry Reid is accusing the Chinese government of unscrupulous currency manipulation and intellectual property theft. While I can agree on the latter, the currency manipulation accusation seems shallow, considering the Chinese are merely pegging their yuan to the USDollar. Currency manipulation by the US Treasury and the Fed is causing manipulation in the yuan, ex post facto. Reid can't accusing the Chinese of currency manipulation without accusing the US government of doing the same.

http://thecable.foreignpolicy.com/posts/2009/12/11/harry_reid_demands_that_china_fix_its_economic_policies

Also, it's ill-advised to make blind accusations toward your creditor. They may just stop lending the US government any capital, driving up interest rates in the process. Reid and US Treasury Secretary Tim Geithner should consider changing their accusatory tone to one which is more conciliatory.

US Treasury bills

In his December letter to investors, Bill Gross, manager of the PIMCO, the world's largest bond fund, laments his cash's 0.01% yield. Gross says at that rate of return, it would take 6,932 years to double his money.

Take into account the ravages of inflation (and taxes) over time, and the rate of return is negative. It's equivalent to giving the US government money, so they can hold it for you. To make matters worse, that US government is also bankrupt.

The only consolation is the holding period for Treasury bills is 3 months. But to tie up your money for 30 years, only to have it yield 4.3%, is insane to me. But that's exactly what buyers of 30-year US Treasury bonds were doing several months ago. Inflation alone wipes out bond investors. Even with a weakening economy, if demand for long-dated US bonds remain tepid, yields have to increase to attract demand. We saw that last week.

A weak economy results in low bond yields, but any uptick in economic activity would cause yields and interest rates to rise, causing bond prices to decline. That's the bubble I'm expecting to burst: long-expiring US Treasury bonds.

Servicing debt payments

According to Darryl Robert Schoon:

In the early stages of capitalist systems, interest and principal can be serviced out of the debtor’s cash flow. In the final stage of “mature capitalist systems”, they cannot.

Capitalism’s final stage is what Minsky calls “ponzi-financing”, when debt payments can only be made by additional borrowing. This is what the US, the UK and Japan are doing today, having to borrow against tomorrow in order to pay yesterday’s bills.

Government salaries surging

There's no recession in the Federal government. Just as millions in the private sector are losing jobs, or earning considerably less taking jobs just to make ends meet, government salaries are bulging.
http://www.usatoday.com/news/washington/2009-12-10-federal-pay-salaries_N.htm?loc=interstitialskip

It's befitting to see government officials denounce Wall Street's high salaries and bonuses. Perhaps they should also talk to the mirror.

Wireless power

This is an awesome demonstration of wireless electricity. It's green, it reduces our dependence on foreign energy sources, it reduces our wiring rat's nest, and it will create jobs.

http://www.ted.com/talks/eric_giler_demos_wireless_electricity.html

Smoking and obesity

The benefits of the anti-smoking campaign are paying off, as the life expectancy of the average American has increased. However, obesity has surged, and will likely undermine any life-extending benefits we have achieved from smoking cessation.

Studies show that at current rates, 45% of Americans will be obese by 2020. It is time to stop smoking AND stop over-eating.

http://www.dailyfinance.com/2009/12/06/weve-stopped-smoking-but-were-getting-fat-net-loss-eight-mon/

This will reduce healthcare costs by billions of dollars, extend life expectancy, and improve overall quality of life.

Doug Casey on the Roman empire

Along with the Greeks, the Romans form the base of Western civilization. We know a lot about Rome now, and they were people exactly like us. And the rise of Rome does in many ways parallel the rise of America. Its rise, its peak - and at this point I think you can even see its decline reflected in the distant mirror of Rome.

We see the same change from a republic to a highly bureaucratized state with tentacles all over the world and great importance placed on the military. The population relying on welfare (after the time of the conquest of Egypt by Caesar, most of the grain and olive oil, the two big commodities of the ancient world, were no longer grown in Italy; they were imported from Africa and given for free, or nearly free, to the people in Rome). Even what went on in the Circus Maximus, the Coliseum, and their many copies in smaller cities, has its parallel in today’s massive football events - not to mention cage fighting and other grisly sports. The big one, of course, is the gradual destruction of the currency.

Quite interesting to me is that in the days of the republic, Roman coins portrayed mythical figures, like gods and goddesses, and ideal concepts. They changed to portraits of the emperor after Caesar.

In the U.S., 1913 - which was a pretty bad year overall, with the initiation of the income tax - was the year the first coin with a dead president’s head on it was introduced, the Lincoln penny. Before then, we only had things like Liberty, Indians, buffaloes, etc. on our coins. Since then, all our coins have had dead emperors on them. We started out with semi-mythic figures like Washington and Jefferson. But now we do the recently dead - Roosevelt, Kennedy, Eisenhower.

It’s simply wrong to put the features of your rulers on the coinage. And the Romans, before Augustus, agreed. And, of course, gold was taken out of daily circulation in 1933, silver in 1965, and copper from the penny in 1982.

Nothing new.

-Doug Casey

A contrarian's dilemma

From Tocqueville's John Hathaway, on the topic of gold:

http://www.tocqueville.com/media/A_Contrarians_Dilemma.pdf

Read the appendix to gain historical perspective.

Jim Cramer--trouble brewing?

We all know Jon Stewart called Jim Cramer out on the carpet on his comedy show. But things are getting serious at Cramer's thestreet.com. They've already been removed from the Russell Index of microcap companies, as the market capitalization was below minimum threshold levels. And they are delinquent on their 10-Qc regulatory filings for 6/30/09 and 9/30/09.

http://www.sequenceinc.com/fraudfiles/2009/11/20/trouble-keeping-the-books-at-thestreet-com/

http://wallstcheatsheet.com/breaking-news/jim-cramer-says-sell-sell-sell-the-street-com/?p=2982/

Also, note the mass exodus of key executives and directors:
http://www.zerohedge.com/article/taking-it-streetcom

Caveat emptor.

BioCryst revisited

Shares of BioCryst Pharmaceuticals (BCRX) have declined over 40% from its peak as fears of the complicated H1N1 pandemic flu virus have waned, but recent developments may be bullish for the investigational drug company.

According to this article, the CDC is receiving a request for the antiviral Peramivir at a rate of one per minute, under the FDA's Emergency Use Authorization (EUA). It's a convoluted way of ordering Peramivir, but for now, it's the only method for doctors to obtain the life-saving drug for critically ill patients.
http://www.minnpost.com/craigbowron/2009/12/09/14111/the_fury_of_h1n1_meeting_the_virus_in_its_most_virulent_form_face_to_face

Green Cross, a marketing partner for BCRX's Peramivir, recently received an EUA for South Korea.
http://seekingalpha.com/article/177249-biocryst-s-korean-partner-receives-emergency-use-authorization

Former CEO and Chairman of Glaxo and former Vice Chairman of Squibb Charles Sanders was elected to BCRX's Board of Directors. This could signal a buyout from a big pharmaceutical company.
http://www.google.com/hostednews/ap/article/ALeqM5iJXedGlOvEnPut4_IJ9UgVWBgZIwD9CFQKQ80

BCRX partner Shionogi has received fast-track review designation in their quest for regulatory approval in Japan. This gives Peramivir at least a year head start in Japan, as Peramivir is still undergoing Phase III clinical trials in the US. Approval in Japan for Peramivir should occur in the first half of 2010.
http://seekingalpha.com/article/177446-biocryst-h1n1-antiviral-partner-gets-fast-tracked-for-japanese-review

Disclosure: long BCRX shares.

Currency revaluation in North Korea

In North Korea's case, a currency revaluation means a complete currency collapse. Iceland learned this last year, and many more countries could in the near future.

http://www.timesonline.co.uk/tol/news/world/asia/article6940482.ece

This is what happens when a financial system and the masses rely on a decrepit paper currency.

Socialism and Czars

According to Casey's Daily Report, here are 3 profiles on our "Czars":

Carol Browner – “Climate Czar”

Carol Browner's official title is “Assistant to the President for Energy and Climate Change.” She formerly served as Environmental Protection Agency administrator during the Clinton administration and was Florida secretary of the environment.

Browner was a member of the Commission for a Sustainable World Society at Socialist International, a group that Discover the Networks reports is the "umbrella for 170 'social democratic, socialist and labor parties' in 55 countries."

The Washington Times explained Browner's group called for "global governance" and asserts rich countries must shrink their economies to address climate change.

Cass Sunstein – “Regulatory Czar”

According to Cass Sunstein, administrator of the White House Office of Information and Regulatory Affairs, global climate change is primarily the fault of U.S. environmental behavior and can, therefore, be used as a mechanism to redistribute the country's wealth.

In a recent paper penned by the Obama czar, he advocated that U.S. wealth should be redistributed to poorer nations. (Doesn’t the U.S. government already do this to a substantial degree?) He also wrote, “It is even possible that desirable redistribution is more likely to occur through climate-change policy than otherwise, or to be accomplished more effectively through climate policy than through direct foreign aid.”

Furthermore, in his 2004 book The Second Bill of Rights, Sunstein used the precedent of the Great Depression to point out that historic economic crises "provided the most promising conditions for the emergence of socialism in the U.S."

John Holdren – “Science Czar”

A longtime climate-change alarmist who has advocated ideas such as enforcing limits on world population growth, Holdren's official titles are: Director of the White House Office of Science and Technology Policy; Assistant to the President for Science and Technology; and Co-Chair of the President's Council of Advisors on Science and Technology.

Apparently, Holdren's name was in the e-mails hacked from the Climatic Research Unit at East Anglia University in the U.K., which show that some climate researchers declined to share their data with fellow scientists, conspired to rig data, and sought to keep researchers with dissenting views from publishing in leading scientific journals.

FrontPageMag.com noted Holdren has endorsed a “surrender of sovereignty” to “a comprehensive Planetary Regime” that would control all the world’s resources, direct global redistribution of wealth, oversee the “de-development” of the West, control a World Army and taxation regime, and enforce world population limits.

Greece downgraded

Greek equities and bonds tanked as their government debt was downgraded by credit ratings agencies, as fears of a default were raised. I predicted that after Iceland's economy collapsed, other countries would follow suit. Other countries at risk of default include Dubai, Ireland, Latvia, Hungary, Argentina, Venezuela, Lithuania, Ukraine, Japan, Spain, Italy, the UK, and believe it or not, the US, as all these countries are technically insolvent, burdened with too much debt. The cascading dominoes have only begun to fall...

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6755179/Greece-put-on-standby-for-debt-downgrade.html

The USDollar will eventually share the same fate as the Drachma, as do all fiat currencies.

Climate-gate in Copenhagen

Luminaries, climatology pundits, government leaders, celebrities and paparazzi (er, journalists) are gathering in Copenhagen to discuss the hazards of carbon dioxide, and how we're all going to choke on ourselves. Which means sovereign governments (and banks) will need to legislate and commercialize carbon credits to regulate said carbon emissions. Never mind such actions will guarantee financial doom first (ed. note).

Meanwhile, 140 personal jets are descending upon Copenhagen's airport. Since Copenhagen doesn't have enough limousines to chauffer around the Anthropogenic Warming intelligentsia, 1200 more limos will need to be driven in from Sweden and Germany--hundreds of miles each way. Apparently, Dr.'s Leonardo DiCaprio, Daryl Hannah, Helena Christensen, and Prince Charles can't share a cab. Besides, what celebrity would be caught dead exiting a taxi in a red carpet moment?

All told, 41,000 tons of carbon dioxide will be released during the Copenhagen Climate Summit. How's that for a green carbon footprint?

USDollar debasement

James Grant, editor of Grant's Interest Rate Observer, is widely followed by financial professionals on and off Wall Street alike, for his keen insight and witty historical references.

This Wall Street Journal op-ed clearly and succinctly maps out the history and fates of paper currencies (you may need a subscription to read the whole article):
http://online.wsj.com/article/SB10001424052748704342404574575761660481996.html

This excerpt is particularly poignant:

Section 19 of this country's founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people's money.

Japanese real estate bust

According to the Case-Shiller Index, which tracks real estate in the US, home prices have declined more than 30% since their peak, and more than 60% in some neighborhoods.

By contrast, since the peak in 1990, Japanese residential prices have dropped more than 90%, while commercial real estate prices--including Class A office space in Tokyo, have dropped more than 99%!

Ben Bernanke's re-nomination

US Senator Jim DeMint (R-South Carolina) grills Ben Bernanke in testimony for the Fed Chairman's re-appointment.

"Under Mr. Bernanke's leadership, the Fed has lent several trillion dollars to failing financial institutions that should have been held accountable by market forces. The total amount of these bailouts exceeds the entire annual budget of the United States. Yet the public has not been given adequate information about these bailouts. In fact, Mr. Bernanke has the led the fight against bipartisan legislation in the House and the Senate to require a full audit of the Fed so Americans know what has taken place and what mistakes have been made.

"Mr. Bernanke's failures extend beyond what critics like me of an overly powerful Fed have cited. He's even failed his own standards. During his first confirmation hearing before the Senate in 2005, Mr. Bernanke outlined what he believed were the responsibilities of the Fed. On virtually every one, whether is was containing systemic risk, promoting the soundness of our banking system, or conducting monetary policy in a way that maximized employment, Mr. Bernanke has failed. We've seen systemic risk in our financial system like never before, the soundness of our banking system has been shaken to its core, and unemployment is now over ten percent," said Senator DeMint.

GE's balance sheet

Look at General Electric's debt--$518 billion. That should scare any bean counter. They've lost their AAA credit rating, yet the government gives them cheap loans, keeping their borrowing cost at 3.3%. Even at that low borrowing rate, they have trouble covering their expenses. For reference, GM's debt was $82 billion at one point. I'm not even sure how GE Capital accounts for their bad loans and toxic assets, since the government allowed for mark-to-fantasy accounting instead of GAAP mark-to-market accounting standards.

http://www.reuters.com/finance/stocks/incomeStatement?stmtType=BAL&perType=INT&symbol=GE.N

No wonder they are selling assets like NBC Universal. Gotta keep the lights on.