Analysis Let’s Begin

New York Times writer, Steven M. Davidoff, recently dubbed the Federal Reserve, “the most successful hedge fund around.” After reading the article, we concluded that Mr. Davidoff is the most creative financial writer around. As such, Mr. Davidoff may be the perfect apologist for today’s dysfunctional monetary “system.” Certainly, he possesses the cerebral alacrity to dodge whatever cold, hard facts may be standing in the way of a good story. “I call the Fed a hedge fund,” Davidoff cheerily explains, “because it is operating like one, leveraging its balance sheet to earn huge profits.” We might have been able to embrace Davidoff’s analysis were it not for one nettlesome fact: the Fed is absolutely nothing like a hedge fund. The Fed is, instead, more like a crime syndicate — a racketeer ...

I have to tell you what’s on my mind this morning after watching the price action again yesterday… I know, it’s just me, and no one else in the writing/analyst world will tell you this, because they have no proof… I don’t either, but that never stops me from saying what’s on my mind regarding these markets now, does it? After watching time and time again, the overseas markets take the dollar to the woodshed, and then when the New York traders come in, the price action all gets reversed. I thought to myself, “Self, doesn’t it look like New York traders have orders from the top of the house to make sure the dollar doesn’t fall off a cliff? Why, yes, self, it does look like that!” Now let’s get back to reality… Here’s an illustration that shows us just how dumb the markets are these days… ...

“I want to go to war with China,” declared a presidential candidate last night on national TV. Granted, we’re taking this declaration out of context. A little, anyway. “I don’t want to go to a trade war,” said former Sen. Rick Santorum. “I want to beat China. I want to go to war with China and make America the most attractive place in the world to do business.” Before we begin, we have to say we’ve been dutifully ignoring the “China issue” for months. Jim Chanos’ dire prediction of a collapse of the red charade amid our own fledgling effort to get a publishing business started in Beijing have put a damper on much of our enthusiasm since spring 2010. Not to mention the fact that following our trip to China in May of that year, we made a series of stock recommendations for Chinese ...

In today’s column, I’d like to share with you a few ideas I presented at the recent Agora Financial Investment Symposium in a speech titled You Can’t Make This Stuff Up. I called it that because it’s hard to fathom serious people writing lines like this: The renewed willingness and confidence to spend money we don’t have is vital to the continuing recovery. That gem comes from The New York Times. Unfortunately, it reflects a common opinion. When I read stuff like that, I think we are truly doomed. I mean, is this really that hard? Spending money we don’t have is what got us into this mess in the first place! The US debt ceiling fiasco makes that clear. The US is bleeding money. Every month requires huge amounts of financing just to keep the lights on. So far, creditors have been ...

Let the boxing match begin!…In the near corner, we find deflation, with its furious fists of debt liquidation and credit contraction… And in the far corner, we’ve got Ben Bernanke’s printing press, with its menacing inflationary uppercut. Inflation will win this contest eventually, but the match might go the full 12 rounds. Deflation is no slouch. He packs a mean punch. Borrowers of all types – from single-family mortgage-holders to national governments – are defaulting on their loans…or moving rapidly in that direction. As the weakest of these borrowers fails, asset prices fall and confidence wanes, both of which produce additional defaults. Once this vicious cycle gains fury, all but the strongest – or least leveraged – borrowers endure. If Greece defaults, for example, Ireland might ...

Are you paying attention, Fellow Reckoner? What may well go down as the greatest tragicomedy in history is playing out right before our very eyes. Lucky us! Some time today – or was it yesterday? And does it even matter? – The United States of America will crash through its so-called “debt ceiling,” the somewhat arbitrary $14.29 trillion dollar mark above which it must implement “extraordinary measures” in order to keep the lights on and its “services” running. Such are the extraordinary times in which we live. The event – which inspired little more than a rather sanguine “Humph” in the markets yesterday – sets in motion what The Wall Street Journal describes as an “uncertain, 11-week political scramble to avoid a default.” No doubt about it. The Leviathan is starving, unable to sustain ...

As we begin a new week, the morning papers are full of headlines about an alleged rape committed by a high-profile politician. There are also a few stories about IMF Chief, Dominique Strauss-Kahn, assaulting a hotel maid. According to reports, Strauss-Khan dragged her kicking and screaming into his hotel bedroom. But let’s return to that rape story… It seems that at least one very prominent politician wishes to continue violating the US taxpayer by raising the nation’s debt ceiling, without also proposing a viable means of reducing the nation’s debt. (At least those are the shocking allegations by his accusers). It is not our place to name names. We are neither judge nor jury, just bystanders with a keyboard and a website. So we will allow the accused and the accusers to speak for ...

First, did you notice? Gold shot up $25 on Friday. At this rate, it will be at $1,600 by the end of this week. Why? The smart money is betting that the feds will keep pushing inflation. But today, let’s ignore the feds and talk about what’s happening in the economy. You saw the latest GDP numbers last week. In the first quarter, the economy grew at a 1.8% annual rate, said the estimate. That is equivalent to the average real rate of growth for the US economy since 1925. The only trouble is, this growth isn’t real. It’s counterfeit. It’s phony. The feds blamed the decline in growth on the weather. Krugman blames the feds for being too timid. Bernanke said growth wasn’t so bad. He said it was “moderate.” So, let’s step back. What do you see? Real estate is still going down. No doubt ...

Much as it feels good to get rich quick, the reality of successful financial investing is much less dramatic. It’s about steady accumulation of profits. And profits on those profits, through the “power of compounding.” But to make it all work, you also must avoid “ruinous losses.” Imagine you make 10% a year for 10 years after all taxes, dealing costs and other fees. If you reinvested the profits every year, it works out at a total profit of over 159%. $100,000 becomes $259,374, in other words. Now imagine you make 20% every four years out of five. But you lose 30% every fifth year. Over 10 years you have eight years with 20% gains and two years with 30% losses. This time you make a total profit of only 7.5% – or an average of 0.7% a year. Your original $100,000 has become just $107,495. ...