Free their minds and their asses would follow

There’s general alarm about Net Neutrality going away.

I’ve been saying for ten years that our Owners would not allow the internet to go on in its free form. The surprise is that Google is the lead dog.

It’s rather like education itself, which was suddenly made plentiful and cheap post 1945, as a kind of Thank You card to the Citizen Soldier, and looking forward to decades in the US when skilled labor would otherwise be in short supply.

But by 1974 our Owners had realized that an educated working class is a pain in the ass. And the dawning Globalization would mean they didn’t need one.

The defamation and starvation of the public schools began, quite abruptly. Direct federal aid to colleges was frozen in the 80s and has never been thawed.

The Pesident of St John’s College in Annapolis, Christopher Nelson, spoke in public for five minutes about the Fed freeze at a fancy fundraiser in New York three years ago, in response to my question re same (itself a response to being told the news by a man who served on the SJC Board of Governors for 20 or 30 years).

Mr Nelson explained that, indeed, the face dollar amount of direct Fed aid was frozen, during the Reagantime, and now, degraded by inflation, gets spread across millions of more students.

Thus the Buying Power Per Student that SJC receives in Fed aid is a pittance of what it was when I was a student in the early 80s — a big part of the reason why tuition skyrocketed not long after we left. And the story, of course, is the same all over.

Put this together with the so-called pension reform of … 1987, if memory serves. (Defined Benefit plans out, Defined Contribution plans in. The 401k Casino.)

What could be clearer? Fordism died under the Reaganauts. Maybe “The Fourth World” is the best name for where most Americans are headed.

Krugman calls it:
The Third Depression

So much for that.

http://www.nytimes.com/2010/06/28/opinion/28krugman.html?hp

Sheila Bair blesses
the Finance Reform bill

If Sheila is happy I guess I must be happy.

Obama sides with Volcker, finally, contra the Zombie Banks

Is Tiny Tim going to cry? Gonna get a spanking when he gets home to Broad and Wall tonight?

Poor Paul looks like he’s STILL not sure the Prez’ll give the word.

The more things change …

Alfred Hitchcock presents …

… a fine elderly unemployed couple, about to be bounced out of their home, try to work things out.

… the trauma of losing your job.

Ye Olde Retirement Account:
Whither the Buck?

Since Pearl Harbor Day, everybody — everybody — in the money world has setting up for a dollar rally in early 2010, to correct the Buck’s big fall in 2009. The rally — or at least a snap of the dollar’s downtrend — began in December.

But recent US economic news has been mixed, with housing optimism again failing. And yesterday’s unexpected drop in the monthly Jobs report — when the whisper numbers, reported by Todd H at Minyanville, were as sunny as 100,000 jobs created, not the 85,000 lost in fact reported — has people scratching.

And has a lot of fat set-ups suddenly looking pale. If the dollar were to turn down here with any authority, it would touch off a panic sell. And gold would soar.

Here’s the past year for the DXY index, which measures the Dollar against the Euro, Yen, Pound, Swiss Franc, Swedish Kroner and … Aussie dollar, if memory serves.

You can see the year’s tumble, the upturn in December, and the flatline since, as people puzzled and waited for yesterday’s US job number — which sent the dollar down.

Also this past week, bad employment news in Europe and an unusual public disagreement in Tokyo enriched the currency picture.

The new Japanese Finance Minister on his first day loudly renounced his predecessor’s Strong Yen bias — but the next day the Prime Minister rebuked the new Finance guy.

Nevertheless, people seem to think the Japanese bank may begin to publicly intervene — buying dollars — to weaken the Yen, trying to recover the balance that was broken this past year as the Dollar tumbled. (A relatively weak Yen helps Toyota and Sony sell stuff to the corpulent American consumer.)

So. New employment weakness in Europe will promote a weaker Euro.

Tokyo wants a weaker Yen.

But the (mixed) weakness in USA economic numbers across the past month will also blunt the momentum that had been building at the Fed to raise its bank rates sooner than later, blunting the Dollar’s heavily anticipated rise.

So. The three big currencies seem ready to race each other to the bottom.

Makes it very difficult to guess or bet on the currency pairs (ie, to trade dollar versus euro, euro vs yen, dollar vs yen, etc).

But if all the central bankers are intent on keeping their currencies weak, it seems gold — despite the recent trend in thinking re the Dollar rebound — will benefit again this year.

So I got back into some gold yesterday in my retirement account (having sold out early December, on the report of the November employment numbers).

And may prove a bit early getting back into gold now, if indeed the Dollar bid of December holds a while longer. As always we shall see. The dollar was down yesterday, on the bad US employment news.

I also got into a Japan fund this week, inspired by the new Finance Minister. The chart here is inviting — for Japanese stocks have suffered of late, not like American, worse than Chinese. Thus obvious room for upside if the Strong Yen is truly dead. And Japan would serve as something of a hedge on my new gold bet if the dollar were to rock a bit skyward against the yen.

Am still 40% cash in the retirement account. Would like to get back in technology if the stock markets provide an opening (ie, go down) sometime. They’ve been up, generally speaking, since March last year — perhaps (another story this week) with direct help from Tsy and Fed, who may have been buying S&P Mini Futures on the sly (again).

(They began doing so in March 2003 to support the Iraq war. Fiendish. A great sickness. Free market capitalism? Don’t be silly.)

An excuse to can Geithner?

This story about AIG and 2008, although in essence not important, could be used by the White House to begin the business of easing Tiny Tim into the dumpster.

If the White House were so minded. No evidence yet that it is. Reactions worth watching.

Money’s New Decade:
Tower of Babel,
Tuna or your House

Yesterday’s spectacular debut of the world’s tallest building — twice as tall (!) as the Trade Center towers were — in Dubai, whose related sovereign debt is number six on a recent list of Most Likely To Fails after its corporate sister pleaded poverty in December …

Leaves me speechless.

Floyd Norris managed to say something. Hear him, sigh.

And check out the business prospects for this white mammoth. Those prospects are nil, but Murdoch’s man closes with assurance that the “image of yesterday’s fireworks display” will surely mean alot to Dubai in years to come.

Meanwhile, farther east, into the creditor hemisphere, a single tuna sells for $177,000. In Japan. Our second biggest banker.

Back at the ranch, a prominent finance CEO today accused the Fed and Tsy of steadily buying stock futures during 2009 to ignite and prop the miraculous rally of March-November.

The money-management world is full of serious people who are certain this began in March 2003 — in an effort to support the (world?) war also set in motion that month by Bush-Cheney. “The Market That Will Not Go Down” then ran up despite news and experience in highly abnormal fashion until the weight of the credit crisis finally crushed it in October 2007.

Meanwhile, more mundanely, the media are full of forecasts for the year. Here is a quick summary of twelve prominent money minders, all foretelling doom as Obama cements his administration’s feet in the status quo ante on the finance front.

In same vein, the Times editors today forecasted doom for US real estate this year in light of Team Obama’s Do Nothing agenda.

Finance. Pakghanistan. Health Care. No Change We Need in any of these, and very little change at all.

Who would have thought, fourteen months ago?

“He went down with the ship.”

My own thoughts about the year ahead in the markets are almost entirely neutral, having been neutralized by the odd three years now past. The future is a mist and the postwar’s First World is as fragile as it has ever been. No reason for long-term confidence of any sort. Investments are all trades.

The stock market just had a fabulous, perhaps basically fraudulent, run, so one must be cautious. And yet if the combined forces, public and covert, of the Fed and Tsy and their international investors continue to juice the markets perhaps there’s some profit yet to be had in being long stocks.

My retirement account went all cash in early December, selling its gold fund FGLDX near peak (on the report of the November employment numbers, which juiced the dollar, breaking gold’s uptrend). Had already sold its China and Tech in May and summer (too early). And its energy by September. So the autumn was about 40% gold and 60% cash, until cashing out entirely in December.

Yesterday I stepped back in with some China. About 14% of the account. Rest is still cash.

Why China. Simply because it’s in a fundamentally sound position, bad news is less likely to appear here, or cash in reaction to flee from here, and the chart is somewhat more inviting than the others.

In my mother’s account of free cash I bought some CTL, the fourth-largest telecom in the US last time I looked, something of a takeover possibility, with a very healthy dividend and rather nice chart. I should have bought it before Christmas — had been watching — but was without an internet connection when the opportunity arose. I’m unhappy buying it here — 36.75 — but will be even less happy if it breaks out over $37, which bad news elsewhere is likely to make it do. The buy was a small lot, about a third of what one hopes to buy if things work out.

In short: I’m trying to get my head back in the morass.

Gold jumped the past two days as the dollar (which broke its downtrend late in the year) sank a bit — but then gold sold off this afternoon and its bulls seem flummoxed again, after 36 hours of unrestrained crowing.

The big news here is Friday’s December employment numbers, which will clarify the dollar (and thus gold) picture. I will be looking for the right time to get back into gold. Perhaps already missed the best time, but there’s plenty of upside left if the bull thesis has merit. Gold’s LONG-TERM prospects seem secure, up up and up as the postwar First World continues its descent into the maelstrom for wont of political will to regulate capital and large corporations.

But it’s not clear yet that the dollar’s late-year rebound is done. I tend to think not, and thus have done nothing. If Friday’s numbers are unexpectedly not bad, the dollar should resume its rise and the time to restock gold will have been pushed further into the future. If the numbers are unexpectedly poor, the dollar may roll over and gold go off again to the races.

Finally, if the dollar continues to rise, it will pressure american stocks down in general, although other factors may be countervailing.

Otherwise, there are certainly some inviting tech stories. But for now the macro picture outweighs in my mind any stock-picking enthusiasms, all of which will get funnelled into short-term trades or the trash.

This has been a poorly written report from a mind mostly elsewhere.

Dollar, gold, sovereign debt woe

I had half my rather pathetic IRA account in a a gold fund FGLDX all fall, until two weeks ago, when I cashed out half. Then cashed out the other half last Friday on the employment number.

Theory being that the dollar seems near or at its midterm bottom, because the economic numbers (despite many disconnects to economic reality) are likely to bring Tightening talk into the Fedspeak.
Juicing the dollar. Hurting gold.

The world is the other consideration of the moment. Two weeks ago Dubai asked forbearance. Now Greece is waving a flag. Snowballing here seems likely to also help the dollar, short and mid term.

Team Obama are already on the tightening wagon, already talking down Job Creation and talking up the need to rein in the deficit. Quite the good boy.

So. At the moment — all cash in my retirement account. The juicing dollar also exerts downward pressure on stocks, which of course had a very good year. People generally look for Santa Claus here, this time of year, but if Greece goes belly up on its sov debt …

Wait and see with cash for the moment. Even if we have a year-end flourish, January seems forbidding. Maybe it’s just me.

Scalped

Perhaps the best tickets I ever scored on the fly outside the gate were at the Greek Theater in Los Angeles, an amphitheater, for Rickie Lee Jones in 1991, near the end of the summer’s FLYING COWBOYS tour.

Third row. Most memorable was an exquisitely theatrical “Something Cool.” June Christy’s signature tune. The sad song of Blanche DuBois.

Days later, a similar score in San Diego. And then, the tour closer, in Santa Barbara — where I danced in the grass before the stage with the Celestial herself during “Ghetto of My Mind.”

Earlier on, closer to home, I once got into Madison Square Garden for Springsteen without a ticket of any sort, by paying a brazen snappy fellow, reminiscent of Michael Parks in Then Came Bronson, whom I — and four others — simply followed past an elderly black ticket-taker, a distinguished looking gent with grizzled lambchops, who granted entry to each Vandal with a sober nod, summing, I imagine, his piece of the action.

Dem was the daze.

But dose days are gone.

This past Sunday, this veteran of Gotham — and a visiting friend, under his aegis — walking south for John Hammond and The Blind Boys of Alabama at City Winery in the Village, were taken for fools and parted from their money by a pair of slicky boys hocking bogus Van Morrison tickets on 33rd and Seventh.

Marx warned us about technology. Advances in home printing have brought us to the pass where none but a box-office expert may now distinguish false ducats and the real thing.

But surely, you wonder, would even the most credulous of chowderheads not have balked at the $300 face?

Well … That’s what the high-ends were going for at the Box. Van is cashing in his chips with this Astral Weeks extravaganza. And this wasn’t the Garden’s basketball arena, but the former Felt Forum, a sideshow theater with about seventeen hundred seats.

Even so, you may wonder if something less than a perfect putz might have at least nosed a whiff of suspicion when the sellers agreed to $80 per.

Well … The thought was that showtime was ten minutes off and the boys were happy, at that point, to dump at any price, eighty bucks being better than zero by multiples indeterminate.

Imagine my humiliation …

An insult all the more peccant and piquant when perceived piling on my unemployed back.

With a friend on my arm.

Under my aegis.

Her first time in New York for anything more than business affairs.

Oh it burns. It burns. The city’s red face, and my red ass.

The fish rots from the head. Bear Stearns and Lehman. AIG and Goldman Sachs. Bernie Madoff and …

And now one can’t trust the local scalpers.

I imagine, indeed, they no longer exist — the honest brokers, I mean. For the falsifiers have burst the bonds of trust and surely none but a ditzy dunderheaded diptstick would dare, henceforth, to buy tickets off the street.

Dem daze indeed are done.

Whither hence, my friends?

Theyre selling postcards of the hanging
Theyre painting the passports brown
The beauty parlor is filled with sailors
The circus is in town
Here comes the blind commissioner
Theyve got him in a trance
One hand is tied to the tight-rope walker
The other is in his pants
And the riot squad theyre restless
They need somewhere to go
As lady and I look out tonight
From Desolation Row …

Geography of Lost Jobs & Homes

A map of jobs lost and gained.

A political pattern?

And here’s a map of foreclosure rates.

The two maps don’t synch as much as one might think. The wave of unemployment foreclosures, if coming, is not yet reflected in the one.

The New Jeremiah:
Alan Greenspan says
Break up the big banks

Watching:

– the news since June re big banks buying Treasuries with their governmental loans and new capital — instead of lending into the economy, and

– now (this week and next) the quarterly results of the big financials,

it became clear that Bill Seidman’s Zombie diagnosis of the winter was correct.

And today (!) we find Alan Greenspan reiterating the prognosis.

Off with their heads!

Weekly Dollar & Disaster Update

1. WEEK THAT WAS

As surmised last Sunday, it was a bad week for the greenback and good for gold and other precious commodities.

Gold rocketed to a new high circa $1,060 and settled on Friday about $1,045.

The dollar dived then bounced a bit. Still roughly $1.47 to the euro.

Many commentators sense the Europeans won’t let the euro climb much more any time soon.

If so, we may be approaching the end of the dollar’s slide for this cycle, and that would likely temper gold’s ardor and, to a degree, that of the stock markets.

Ie, the dollar turning up against other major currencies would almost surely hurt gold a bit, and would pressure the stock of corporations that sell alot of stuff overseas, and to a degree US stocks in general (as dollar-denominated assets) as a mere matter of exchange.

But where precisely the turn shall be … What do you think?

Thats the DXY index for the past 18 months or so, measuring the dollar against six other currencies.

Does it look like it’s done going down? That 72 level still seems to beckon. But perhaps not now …

( The DXY is weighted this way: Euro 57.6%, Yen 13.6, Brit Pound 11.9, Canadian Loonie 9.1, Swedish Krona 4.2 and Swiss Franc 3.6. )

2. LIKE I CARE

Maybe us Net Debtors shouldn’t care — indeed, should applaud the dollar’s drowse.

Then again, here’s an excellent piece from Bloomberg on the quiz:

“The Washington theory is that dollar weakness will benefit the U.S. by inflating our way out of debt and causing more exports,” Encima’s Malpass said in a Sept. 25 note to clients. “The problem with this theory is that it assumes capital stays put while the dollar devalues.”

There’s the rub.

When capital begins to flee … You have Argentina, 2001: Not only do Asian bankers stop investing, but eventually the domestic rich move their money to Switzerland (or Uruguay), leaving the domestic banks to get run on and close.

Those not footloose enough to flee get f#%*$d. Lose (access to) their money. Default on their mortgages — and then the banks (perhaps yet shuttered) take the real estate.

The editor of a Buenos Aires daily walked me through this in 2006, in painful detail. Citibank, he said, owned a good deal of Buenos Aires at that point, having foreclosed en masse on the middle class during the bank closures of 2001-02.

It can certainly happen here. The FDIC was about broke a few weeks ago. And after dishing out hundreds of billions to the big banks last year, nobody in D.C. seemed able to come up with the $10 billion the FDIC held out its hat for. Geithner should never have been hired.

If it were to happen here, our plastic Rugged Individualist society would … Well.

Indeed, something’s happening here (same article says) already in the New American Century:

The dollar’s 15 percent decline against the euro and 11 percent depreciation versus the yen since early March are increasing concern among world leaders. At the same time, Americans are getting poorer.

Per capita net wealth tumbled to $172,749 in August from a peak of $212,599 in September 2007, government figures show.

A United Nations Human Development Report released Oct. 5 showed America’s quality of life dropped to No. 13 in a 2007 global ranking from No. 5 in 2000.

The last refers to the UN Human Development agency’s global 2009 report, which contains its annual Human Development Index:

1. Norway 0.971 No change
2. Australia 0.970 No change
3. Iceland 0.969 No change
4. Canada 0.966 No change
5. Ireland 0.965 No change
6. Netherlands 0.964 Up 1
7. Sweden 0.963 Down 1
8. France 0.961 Up 33
9. Switzerland 0.960 No change
tie Japan 0.960 No change
tie Luxembourg 0.960 Down 3
12. Finland 0.959 Up 1
13. United States 0.956 Down 1
14. Austria 0.955
15. Spain 0.955
16. Denmark 0.955
17. Belgium 0.953
18. Italy 0.951
19. Liechtenstein 0.951
20. New Zealand 0.950
21. United Kingdom 0.947
22. Germany 0.947
23. Singapore 0.944
24. Hong Kong 0.944
25. Greece 0.942
26. South Korea 0.937
27. Israel 0.935
28. Andorra 0.934
29. Slovenia 0.929
30. Brunei 0.920
31. Kuwait 0.916
32. Cyprus 0.914
33. Qatar 0.910
34. Portugal 0.909
35. United Arab Emirates 0.903
36. Czech Republic 0.903
37. Barbados 0.903
38. Malta 0.902

Independent: Gulf Arabs, France, Russia, China & Japan plan to dump Petrodollar system

Zheeesh, when I surmised over the weekend that the dollar might “abruptly” sag, I had no guess about the two things pounding it this morning.

1. Diversifying the near-global business of selling oil in dollars has been talked about for years.

According to The Independent’s top mideast correspondent this morning, Robert Fisk, based in Beirut, something concrete has been agreed to, to kick in across nine years. He cites banking sources in the Persian Gulf and Hong Kong.

In reaction: a rash of news stories quoting finance ministers saying “Stuff and nonsense!” Quite a media teapot tempest …

2. The Austrailian central bank also surprised, everybody, by raising its interbank rate overnight (from 3 to 3.25%) — the first major-currency CB to do so since the crisis kicked in.

These two items have the dollar reeling and gold rocketing to new highs — $1043 last I looked.

From the Independent:

The demise of the dollar

In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading

By Robert Fisk
Tuesday, 6 October 2009

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

END QUOTE

Here’s another:

End of the Dollar Spells the Rise of a New Order

And here’s five years of gold:

Ye Olde Retirement Account:
Update re Dollar’s slide

NOTA BENE: None of this is sophisticated thinking. Just musing aloud over the Sunday Times …

Seems an update’s in order re recent hesimeditations about whether the dollar’s slide is over.

The G7 finance peeps the other day barely peeped about the weak dollar. Something of a surprise, to find them so supine.

This encourages one to think — after a month of low visibility — that the dollar will continue to slide. Perhaps even abruptly. And that gold, therefore, will indeed hold the $1000 mark and now shoot for something higher.

THEN AGAIN:

1. If our current wars — on each side of Iran — were to enlarge as a result of the latest contretemps, it could push people to the dollar anyway, seeking safe harbor.

But … The recent Iran story was mostly about public perception, in that the Western powers and Israel had the intelligence on the underground site before. Some heightened visibility perhaps …

But the talks with Iran last week were apparently net positive, and it seems best guess that the Western powers will try to build on them, rather than set things afire anew.

2. And it will be interesting to see how the Irish vote on the Lisbon treaty will effect the Euro-Dollar trade. Centralization, at any given moment, can cut either way, I suppose.

European manufacturers consider $1.50 (per Euro) a line in the sand of sorts: they don’t want the Euro to cross it. Currently roughly $1.47.

If it jags to $1.50 this week in the wake of the G7, the big question will be how stiffly the Euro banks will come in to protect it (by buying dollars).

So maybe, to be conservative: If that $1.50 line gets decisively crossed, tested and holds … There is no telling how far the dollar may fall, or how high gold (in dollars) may rise.

That’s the DXY index, which measures the dollar against a basket of six major currencies. Dollar bulls in August said 78 was the bottom. Past two weeks were thinking 76. Now … Perhaps destined to test that old 72 level, sooner than later.

But who knows?

Case-Shiller housing index rises in July across 18 of 20 cities

WASHINGTON (MarketWatch) — The market value of U.S. homes in 20 major cities rose by 1.6% in July compared with June, the third monthly increase in a row, according to the Case-Shiller home price index released Tuesday by Standard & Poor’s. In July, prices rose in 18 of 20 cities. In the past year, prices are down 13.3% in the 20 cities. The figures are not seasonally adjusted. The figures indicate a “stabilization in national real estate values,” said David Blitzer of S&P, who cautioned that the expiration of the first-time home buyer tax credit and increased foreclosures could put more downward pressure on prices.

Ye Olde Retirement Account update

As a followup to my musings toward the end of this recent brood about my own retirement account:

Today I sold half the gold fund (FGLDX) money to cash. Continuing however to hold China and energy.

Why sell half the gold?

Tomorrow the Fed speaks. And there are hints, it seems to me, that they might adjust their language a bit to the Tight side. Just a smidgen.

But it would be enough to juice the sorely depressed dollar, and thus kick King Gold in the pants. He’s been feeling the resistance of that magic $1000 an ounce level and is

looking a bit ragged. The slightest juice to the dollar would send him tumbling down the hill a while.

It will also hurt US stocks in general. Financials. Tech. Industrials (which have been roaring the past month). It might even be the thing to set off the big correction every trader on the planet has been waiting for since the Fourth of July.

But China stocks should benefit from the juiced dollar, grossly speaking.

And energy … mixed, re the dollar juice — but the current supposedly positive macro environment (everybody on TV says so!) bodes well for energy, and the charts here are looking rather smart.

Then again — I may be wrong to think the Fed will drop any Tight hints.

In that case, I may have some regrets a few weeks hence to have let some gold go. But it’s come a long way, and that chart is looking toppy.

The euphoria of the moment is strong. So if the Fed is entirely Loose tomorrow (as it has been for a while now), US stocks should continue to appreciate for a while. Or at least a week until the quarter ends on Sept 30. Or …

But take a gander at the last three charts in the Hussman piece linked in the 1930s post directly below.

The 1930s look familiar

Re what to do, what to do, about those Retirement Account Blues — check out the charts in this piece, particularly the last three, by a respected fund manager.

Is China going to allow its currency to rise dramatically against the Dollar?

Some people have been guessing in the past two weeks that this is in the works.

Might explain some of the strange things happening with stocks and bonds and gold and the universe.

The strange things, in a nutshell: Bonds are saying the world is mired in deflation and not likely to change soon, and US bonds in particular — where the short and medium and long term Treasury yields are low (showing no worries about inflation) and the inflation-protected Treasury bonds (called TIPS) are stagnant.

Bonds in short are saying things are bad and going to get worse.

But the US stock market has been rallying since March, and refusing to go down despite a world of traders expecting it to do so. As if things were much improved and going to get better.

The dollar is crashing thru what some had hoped as late as a week ago was short-medium term support. And gold is rocketing, thru the $1000/oz psych level. These (like the bonds) would seem to say things are cruising for a bruising. So why are stocks rocketing?

And why are people buying US bonds (driving those yioelds down) if there is a panic underway with the dollar (which when devalued hurts bonds denominated in dollars)?

A scenario which makes sense of these apparent broad contradictions is a sudden revaluation of the Chinese currency (some call it Yuan, some REmimbi) against the dollar.

The chinese for a long time thru their Great Industrialization these past years held the Yuan fixed against the dollar. This Peg was relaxed a bit a few years ago but the chinese government still holds the Yuan low vs dollar with stern intent — by buying dollar-denominated bonds with the great influx of cash (in many currencies) it enjoys as the world’s sweatshop manufacturer of choice.

But at the same time, of course, Peking has been moaning and groaning as first Bush-Cheney and now Obama pursue policies that have broken all prior restraints on the US national debt. For the future here is clear — inflation. Which devalues that trillion in Treasuries Peking holds.

So the chinese are floating down river with a leg in the Buy Dollars boat and a leg in the Sell Dollars boat. (They want the Yuan low against the dollar to continue to fertizlize their industirial growth — but they see and fear the inflationary future of their dollar denominated holdings.)

If Peking does allow the Yuan to rise dramatically vs the dollar, gold would likely go to the moon, Chinese stocks in general would suffer, the dollar would tumble against all the major currencies, and everything one buys with dollars (eg oil, US Treasuries) would cost more merely as a matter of exchange, regardless of fundamentals.

It might trip off, sooner than anticipated, the Great Inflation / Dollar Devaluation that everyone sees on the horizon as the only way out of the great debt hole Uncle Sam has dug for himself since the 9/11 attacks.

The cure always begets another disease. Greenspan took us down to super low interest rates to try to keep things going post Tech Bubble Pop and 9/11.

Those low rates begat the credit and real estate bubbles.

Their popping begat the meltdown of the New York-London-based high-tech global financial system.

That has begotten this Depression, to treat which Washington a year ago went banannas with new debt.

Which leaves the Chinese with a foot in each of two boats, which the tides of history are pushing apart. They’ve been jawboning about the Dollar and reducing their dollar assets for several years now.

Perhaps the moment for the big move — allowing their currency to float — ie, CEASING to buy tons of dollars/dollars assets to keep their currency down — is upon us.

Here’s the last 18 months of the dollar. The DXY index.

Bottoming circa 78 or ready to revisit that 72 level??

Life During Wartime:
LOST DECADE in STOCKS
What’s to Be Done?

Back in town picking up life’s pieces, attention turns to ye olde Retirement Account. What’s to be Done?

To begin: some perspective as to what we’ve gone through so far this century:

That’s the tech-heavy NASDAQ Comp index.

Let’s see if the S&P 500 — more diversified than the NAS — looks much different … Hm.

It’s interesting to pin the major geopolitical events. 9/11/2001. 3/19/2003. Katrina, late August 2005. Obama’s election.

A. The New American Century: Blame it on the Banks

The greater recovery seen in S&P — compared to the Nas — from nadir early 2003 to Halloween 2007, and then the greater fall, are due in part to the rise of big banks and other financial giants, which took advantage of Alan Greenspan’s extremely low interest-rate regime (tonic for the Tech Crash and 9/11, or so it seemed) to mint money in the early years of this decade.

That is: Those profits and the correlate stock price gains meant the Financials came to comprise a much larger chunk of the S&P 500.

Here are the Financials themselves (the BKX index of banks):

It’s interesting to note that the Financials began to roll over in 2007 a few months before the S&P. It’s a useful old saw: As go the Piggies (the banks), so goes the poke. Perhaps it will be some help trying to ascertain when its safe to go back in the water.

Along those lines, here’s the past three years of a major Financial ETF (the XLF):

And here’s the past year:

Does it look like the Piggies are done going down? Reasonable people disagree. The declining volume (vertical bars along bottom) during the current run-up is not encouraging. And there’s been some news this week suggesting autumn downturn. But more on that later.

B. Blame it on the Invisible Hand of Bush-Cheney

Note the slow steady rise in stocks that began — like the Iraq war — in March 2003. This was the beginning of the recovery from the double whammy of the tech crash of 2000 and the 9/11 attacks.

We now know what many traders suspected and declared during this oddly steady recovery: That it was held so steadily in place by a Bush-Cheney Treasury trading outfit, conducting focused raids on the S&P E-Mini futures contracts, in order to support the Iraq war.

This frequent covert intervention — visible typically in the last hour on days when it was clear (by experienced lights) that the markets should turn down and enter a phase of correction — was driving professional traders crazy for years: The Market That Will Not Go Down.

Articles were written, complaints with regulators filed, investigations initiated. One thread was traced to a Chicago brokerage account … Finally, the dam burst when the Housing bubble popped, triggering what Jim Cramer accurately identified in August 2007 as “Armageddon in fixed income.”

THUS: One should note that it was not only Chairman Greenspan’s super-low interest rates that helped create the asset and credit bubbles that now pain us, but also prolonged, unprecedented politicized intervention in the stock market — in support of a war that, by all measures of international custom and law pre-existing Bush-Cheney, was indefensible.

C. Blame it on the Free Marketeers

Also note that the fall of the Financials in early 2007 was not rooted merely in worries about US housing — but a pending accounting regulation — Financial Accounting Statement 157 — which came fully in effect at Nov 2007 but was already being implemented by institutions roughly a year in advance.

FAS 157 suddenly required banks et al. to “mark” arcane structured finance instruments on their books at “market prices” — even when no market worthy of the name for such things had ever existed or been intended to exist.

The first shock here was HSBC, the big British bank, in Feb 2007, reporting something like $20 billion (if memory serves) in structured finance writedowns (paper losses).

This marked the peak in the XLF (see chart above), and touched off a mini crash in the broader markets, which the latter managed to shake off until the Bear Stearns failures in June — and even thereafter, for a while, rallying to the all-time highs in October ….

Then FAS 157 came fully into effect, in November, and the stuff hit the fan.

It’s one of the worst ideological regulatory moves in finance history. The last gasp of Reaganite Free Market fever. But hardly ever noted as such in the mainstream financial media.

D. Blame it on the Robots

1. Personal Computers, too, caused the Tech and Financial Bubbles

The great Tech Stocks bubble that began to collapse in March 2000 (see first chart) was, of course, an effect of the Personal Computer revolution.

But it’s less commonly noted that the Financial Stocks bubble of the present decade was also caused by personal computers — on the desks of bankers, analysts and finance lawyers in New York, London, Frankfurt, Honk Kong and Tokyo.

That is: Without personal computers, spreadsheets and the like, the explosion of securitized debt and complex swaps at the core of the current crisis would not have achieved critical mass needed to melt down the global finance system.

That is: These high-tech deals could not, without Excel, have been conceived, structured and managed across time. Securitization as we know it was born with the Wang office networks of the late 1980s.

2. Personal Computers turned Stocks into Trading Vehicles

Finally, note that personal computers are responsible for the explosion of professional traders worldwide, who each day overwhelm the volume of “investment” activity in markets by many multiples.

Stocks and commodity contracts are now trading vehicles, primarily. And traders don’t Buy and Hold. Their busy-bee activity makes the old notion of putting Blue Chip stock certificates in a safety deposit box a dangerous strategy.

SO THEN: One may largely explain, and perhaps to some extent excuse, our Lost Decade — its bubbles and busted long-term charts — as all but inevitable side effects of radical technological progress. The semiconductor & software revolution came at a price. We are living thru an epic battle in the war of Man and Machine and it’s not clear Man is winning.

Perhaps we’ll know in fifteen years or so, when most retirees will be people who got killed in the stock market between Reagan’s Pension Reform and Obama’s inauguration …. Statistics on poverty, homelessness and suicide among the elderly will clue us in thru the rear view mirror.

None of which would have surprised Karl Marx, who concluded that technology, on balance, was more trouble than its worth for the human race.

E. Blame it on Reaganite “Pension Reform”

Another Bubbly megatrend, evinced in this S&P 500 chart going back to 1970 …

… was ignited by the so-called Pension Reform of … 1987, was it? Which replaced conventional Defined-Benefit pensions with the Defined-Contribution plans — the 401(k) revolution.

This radical policy, which passed thru the Congress with hardly a public notice let alone debate, not only took Uncle Sam’s big corporations off the hook for the well being of the working class — an essential first step (like the AT&T breakup) toward Globalization — but also suddenly threw a lot of money at the stock markets. As seen in the volcanic eruptions of the S&P chart above.

That is: Before Pension Reform, pensions were managed professionally, and the investments that funded them were long- and medium-term bonds, by and large.

But with the advent of self-managed 401(k) and their ilk … People who didn’t know better, encouraged by Fed regulations written by lobbyists for the securities biz, had their Contributions taken from their weekly paychecks and wired to the stock markets.

And lordie, lordie, have they been reamed: The S&P today is roughly where it was in 1997. And that’s AFTER the big run-up (percentage-wise) we’ve had since last Thanksgiving — and with the near certainty of more stormy weather ahead before the current crisis may be thought to have established an Urgrund not an Abgrund in the stock markets. A True Bottom, not a False Bottom.

I recall Jim Rogers, a self styled maverick investor type, being asked circa 2001 if the worst of the Tech Crash was over and it was time to get back into stocks.

He smiled sadly and said, lordie, lordie, no. This ain’t no Mud Club or CBGBs … “This was a death in the family. It’s going to take a long time to get over this.”

Mr Rogers was right. And none of the major indices have YET gotten over it. (See the ten-year charts above: all well below the day the New American Century dawned. )

And of course, since the Tech Crash we’ve had several other deaths in the family. The Suburban got crushed by a garbage truck out on Highway 61.

F. Stabilities of an Entirely New Kind

Looking at a bit more than a Lost Decade, then, one might wonder if stocks — as long-term investments — will ever be the same as they were before Pension Reform and Personal Computers. I think (tiresome habit) of Walter Benjamin between the wars in Weimar Berlin:

Among stock phrases that lay bare the stupidity and cowardice of the way of life of the German bourgeois, the locution referring to impending disaster — ‘Things can’t go on like this’ — is noteworthy.

The helpless fixation on notions of security and property deriving from past decades keeps the average citizen from perceiving the remarkable stabilities of an entirely new kind that underlie the present situation.

Because the relative stability of the prewar years possessed him of benefits, he feels compelled to regard any dispossession as unstable.

But stable conditions need by no means be pleasant conditions, and even before the war there were strata for whom stabilized conditions amounted to stablized wretchedness.

To decline is no less stable, no more surprising, than to rise. …The assumption that things cannot go on like this will one day find itself apprised of the fact that for the suffering of individuals as of communities there is only one limit beyond which things cannot go: annihilation.

Written in 1928. (Walter wasn’t wrong — just early.)

We certainly were conditioned, in the postwar decades of the late century, to regard Hard Times as unstable and fleeting, and prosperity routine.

But then the last Liberty Tree died, in Annapolis, in 1999. And Bush-Cheney were installed. And the postwar order was, quite consciously, set aflame.

Most pundits opine as if finance were a realm of science, and economics governed by natural law. Tis a Dismal Pseudo Science, to be sure — political to its core.

And as for those (legion) currently Calling the Bottom in stocks and singing Happy Days Are Here Again, why they seem to me vile fools.

(But let it clearly be said, contrary to the old saw, that trading fools can make a bundle when the stars align. Smart fools know when to take their money and run.)

(I traded at two (small) professional houses in the 90s, one at 30 Broad just steps from the NYSE. Lots of muscleheads …)

G. So What’s to Be Done with my freakin’ retirement account?

The world since the advent of Bush-Cheney has undergone shocks that may only be compared to the world wars, and the correlate economic dislocations (ahem), in their character and quantities, are unprecedented.

If some hiding remains advisable, where to hide?

And — almost as important — when?

Here’s ten years worth of GOX — an index of gold mining companies for the most part:

And here’s ten years of an Oil index — the OIX:

Note that both the GOX and OIX are well above their January 2000 levels — in sharp contrast to the NASDAQ, Dow Industrials, S&P 500, Financials et al.

But to qualify these, let’s bring the Dollar into the picture — with the DXY — which measures the US Dollar against six (if memory serves) other major currencies. The Euro, Brit Pound, Swiss Francs, Japan’s Yen, Australian Dollar …

Gold and oil often trade inversely to the dollar — since if the dollar sinks against other currencies gold and oil, each priced in dollars, get more expensive as a matter of exchange, aside from whatever notions of intrinsic value may be at play.

Here, for example, the past 20 months of the Dollar (DXY) — against performance of the GOX (blue line) and OIX (brownish line):

One can see the little uptick in the DXY was matched by rather sharp downturns in gold and oil.

The Dollar chart paints a big current question. Dollar Bulls everywhere at the moment are stomping and singing that the Dollar is thru going down, and is about to reassert itself as the globe’s master.

If that were so, one might hesitate about jumping into gold and oil (and other metals and commodities, for that matter) right now.

What to do, what to do …

My retirement account three weeks ago recovered the high it had attained in early 2007, before the collapse of the two Bear Stearns mortgage-bond funds in June.

I achieved this recovery with funds focused on China, Gold, Energy and, to a lesser extent, Technology.

I sold all that Tech this past May — and thus missed the big NASD run up since.

The old saw — Sell in May and go away … til November — failed here, as they will when all the charts have been so thoroughly busted and abused. For now, all the usual seasonality notions remain suspect until confirmed in the rear view mirror, when of course it’s too late to make hay.

I sold about half my Energy in July.

And sold about half the China in early Aug, near the peak (so far), on advice from the woman who heads a decent china fund (AACFX) that profit taking was indicated for the short term. (If a fund manager says that about her baby — run!)

Here’s a China ETF (the FXI ):

The basic notions behind this recent selling were simply that:

– we’ve had a big steep ride up in the past ten months, and what goes up so steeply usually corrects.

– we are still far from out of the woods economically.

E.g., 2009 was milder than 2008 and 2007 for Adjustable Mortgages coming due for reset — but in 2010 they will spike again. (See the chart at the very end of this article, above Mr Potato Head.) This may crush current optimism about a Housing recovery.

I think the big run up since Thanksgiving was in part Obama euphoria. In part simply the big banks stepping back from the brink of dissolution. And in part just a big Dead Cat Bounce after the trouncing all sectors took since Halloween 2007. I think we’ve had a death in the family.

Nevertheless, there are a lot of people and fund managers with cash on the sidelines who have watched the big run up this year with increasing panic — failing to participate. Those people may now be loading their guns to buy on the current Dips.

So it’s not at all clear yet what the next month, three months and six months may look like.

Of the cash raised by recent sales, I’ve put a little more into gold, however. (Or, rather, a gold biz fund: FGLDX). So I guess I DON’T think the dollar is ready to reassert its old primacy. The chinese are increasingly unhappy and the Euro chart looks more promising to my half-cocked eye …

One thought out there is that the dollar’s recent, less than gangbustin’, rise, will peter out now that we’ve heard from the central banks of England and Japan and — tomorrow — will hear from Uncle Sam’s Fed Reserve. This view expects the dollar downtrend, after the recent correction, to continue.

But Mostly: For now I’m not ready to risk much of my hard-won recovery. Waiting and seeing. In mourning.