FIRST FINANCIAL INSIGHTS: CREDIT BUBBLE BIGGER THAN 2008

FIRST FINANCIAL INSIGHTS: CREDIT BUBBLE BIGGER THAN 2008: 

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CREDIT BUBBLE BIGGER THAN 2008 (Also Read Recent "The Telegraph" Article )  How could credit circumstances be worse than 2008? Did we not le...

"Why would you ever trade government guaranteed bonds for highly-levered, riskier, de facto bank equity that poses as a debt instrument? Is there a smell of personal interest here?" 

International Bank Regulator - 2013

Did you ever wonder who was selling all those long treasury bonds to the Fed? Where was all that money going? Bonds? Investments? Bonuses?  Well, gleaning from the content, in both the FFI and The Telegraph articles, the money trail looks pretty clear. Here is what we make of it, in a nutshell.

Big Banks sell their bonds to the Fed, then take the proceeds and buy other Banks' debt, that may be converted to equity should the other Bank's ratio fall, say, below 10%. An event that is almost certain to occur once rates spike upwards and all the Banks have to mark to market monetary assets. Marked to market accounting of these assets is sure to result in write-offs that correspondingly affects each Bank's capital structures. These debt instruments are simply a clever way to inject capital into the banks, so that they remain solid even as the rest of us suffer when interest rates rise.

This is also what you call a "Country Club Bail-Out' that quietly escapes the attention and scrutiny of  the media, pundits, public and, of course, our brilliant politicians. So under the radar, Uncle Ben is shelling-out up to $85 Billion monthly, to shore up Banks prior to the much anticipated interest-rate driven write-offs - "without congressional authorization." Nice trick. What's worse? Even if you explained this simple shell game to those political wizards, sadly there is no guarantee they would show even a slight flicker of understanding. 

For the stability of the financial system this is, however, a good move and should avoid the recording of losses by Banks provided that the conversion price provides for an equal dollar for dollar exchange of securities. Afterwards though, the capital positions of these Banks could be exposed to market fluctuations - so it is still fraught with risk issues down the road.

Banksters should also be personally happy with this short-term bail-out insurance, provided to protect their loans, businesses and  huge bonus entitlements  Who loses? Well, in the end it's the taxpayers who are quietly bailing out the Banks, without anyone being the wiser simply because they are doing it ahead of time with an invisible financial wand. Real estate will also get clobbered, unless owners have hedged their positions; say, by shorting long bonds. And long-term the economy and future generations will get to pay the biggest price!    

Just clever, sneaky or magical finance? Or fraudulent tricks? Hmm.

Dr Peter G Kinesa
September 21, 2013  

The Real QE Magic... 
Is it DEBT or EQUITY? 


   

Where Have All the Fish GONE?

Where Have All the Fish GONE?

Can you believe it? Not only are we running out of oil and many other non-renewable resources, but soon; it seems, we will also be runnung out of fish. This is much more than a staple, as fish has provided many dietary essentials, including protein, to places food alternatives are in short supply  So if you have some free time this weekend, you may want to do a quick read of the FAO report (linked above) which also covers many other foodstocks.

Recreational fishing may be a thing of the past in a few short decades or years, however the bigger concern is that populations continue to grow, while fish are dwindling in supply. Albeit there are some positive signs that with proper management some stocks have improved.  Nonetheless it is something else to think about.

Dr Peter G Kinesa

July 12, 2013 

WHAT! You mean they ate them ALL??? 

   

BBC News - Canadian Glaciers Face "Big Losses"

BBC News - Canadian Glaciers Face "Big Losses"

click here

Once , a long  time ago, the Artic was as warm as the Everglades; ask any geologist. By all accounts, we are prematurely heading back that way at a rapid rate. Climate denial will not stop the existential feedback systems that warm the planet taking human enterprise to its knees. We cannot just click our heels and return back to Kansas.  The neo-classic economic fairy tale is coming to a very dreadful end. We are melting under its growth mantra.

Dr Peter G  Kinesa

April 8, 2013

"Look what you've done, I'm melting, melting..."

If only the planet could talk -

Marc Faber BLOG: The Market will push Interest Rates Higher

Marc Faber Blog : The Market will push Interest Rates Higher

In this video interview with Marc he suggests that markets could push rates higher regardless of what the FED does. So far, the FED has been winning the war with the markets as it throws liquidity into the banking system. And as Marc observes, little has trickled into the real economy. Raising the question as to whether the bank bail-outs are still on-going?

Are Bonds in a bubble? Let's try some simple calculations assuming that in ten years rates will normalize back to 6.4% and inflation averages a modest 4.2% over this period. We will use 30 year treasuries that are currently yielding 3.2% on a simple interest basis.

Cash yield from $10,000 Bond @ 3.2% =    $320
Inflationary cost of holding @ 4.2%       =    $420   
Principal loss due rate mean reversion =    $500 

EXPECTED LOSS HOLDING IN 10yrs =  $600?

Wow! This means on a simple interest basis, the bonds pay a negative 6% a year, assuming a modest inflation rate and a return of interest rates to normal levels. This may be a best case calculation, as higher inflation rates are more likely to occur, with the pundits expected shortages in key raw industrial materials along with the climatic impacts on food and water costs. 

Anyway, something to think about along with using shorts on Bonds as an inflation hedge. Hmm.

Dr Peter G Kinesa
March 15, 2013

When will it Burst?

Marc Faber - A Correction Could Start Any Day

Marc Faber - A Correction Could Start Any Day

But remember, no one rings a bell at bottom nor blows a horn at the top. So what's likely to trigger a real sell off of in the markets? Our best guess is: Bonds, Bonds, Bonds - so how goes the bond market should bring the equities along with them. However, equities appear to be discounting earnings at a 5-6% cap rate with overall PEs hovering near multiples of 18 . Whereas, if the bond markets were expected to hold rates at 2-3%, then PE multiples should be approaching 35 to 40 times earnings. Hmm...

This is an interesting case where the equities are pricing in real inflation and telling us the bond market isn't, and thereby as everyone pretty much knows - overprices the Bonds. The downside on equities should therefore not be as gruesome, unless a much more dramatic move in rates occurs. 

Still remember too, that interest rate increases pose a double hazard to stocks as they attack earnings and cap rates, concurrently. Such are the perils of "Valuation Traps" and explain why countries look to debase their currencies in order to hold notional asset values domestically while retaining global trade advantages. Be sure to keep a eye on Japan as they have been trying to find an escape hatch from the trap for more than a decade. 

Dr Peter G Kinesa
March 4, 2013 

So who has the horns?  

Marc Faber - US is in 50-100 trillion worth of Debt!

Marc Faber - US is in 50-100 trillion worth of Debt!

(Click Above)

This is exactly what I said two days ago - is Marc reading our posts? - You betcha he is. 

Anyway whether its Faber, Gross or Kinesa making this somewhat obvious statement of fact, the main point I believe that needs to be emphasized, is the value of the liability in physical terms. Using OIL as a surrogate for dollars, there is 1.200 trillion known barrels of reserves, globally. Using $90 a barrel as the unit value, then the  total reserves equates to nearly $108 trillion. Meaning to repay all the US'$s debts today, would require the use of nearly all physical global oil reserves,;this does not include provisions for any interest carrying charges,increased demand or new debt. 

Now you can see the big problem we got  here. What's left over to run the economy now and tomorrow, once all this US debt is repaid. NOTHING. Moving to another planet is not a solution, nor should we expect a Santa Claus magic invention to save the day. This is not a movie. Thus, we can either make drastic cuts in demand -even 2% a year compounded could get us there - or we face a future, where global hostilities and unrest will dominate every waking moment.

Sleep and anti-depressent drugs offer  counter market opportunities.

Dr Peter G Kinesa
March 3, 2013  

US Debt Repayment - A Staggering Physical Need

INVESTORS' INSIGHTS - Jim Rogers:Facebook Is not an Investment, It's a Waste of Time

INVESTORS' INSIGHTS - February 18, 2013

"I told you we should LISTEN -"

Failing to listen. The list of corporate failures that can ultimately be blamed on this seemingly simple, but so often overlooked human attribute, has draged down so many of the once great and mighty. Reminding all of us, of the costs associated with thinking we know it all - when we are drunk in our current success. When in truth, the only thing that we can ever certainly know in this deterministic world  - is that we know nothing . 

So we continue to humbly listen, again and again and again.

Dr Peter G Kinesa

February 21,2013  

Jim Rogers: Facebook Is not an Investment, It's a Waste of Time

Click Above

Jimmy in this phone conversation says he is neither long nor short Facebook; he is simply just not investing. In investment parlance this means, he thinks the stock is garbage and would not touch it with a ten-foot pole. We agree.

First, Facebook ascribes to one of the worst American business practices and has little "human touch" in its business model. American businesses that fail on the world stage are often swept away by global competion because they do not have a High Touch with their customers. Any company that does not have a real person available to assist customers with service issues is doomed to fail - it happens all the time. The first rule of business success: "Listen, listen, listen, and then when you have heard enough, listen again and again and again " 

And the second rule that follows: Don't let your accountants run the business - need we say more? 

Second, its software is not intuitive, particularly for business, and again faces customer service challenges that will turn this market off in the early going. This market is where the real money is made.  They will not return once they have been turned off.

Facebook faces powerful copycat competition from the likes of Google, Twitter, Microsoft and others, who have other complimentary platforms where the combined functionalities of hardware and software configurations create synergies that could easily see Facebook's consumer markets stolen. Moreover, these powerful competitors have a strong presence and trust in the more lucrative commercial markets that are critical to long-term success and profits. We don't see a lot of businesses tying their destinies to what is perceived be to a kid's fad and consumer product. 

It is unlikely that Facebook can hold its valuations. The markets may give it a couple years, at most, to generate commensurate profits. Right now, that appears highly unlikely considering the tough competition in its most lucrative markets.

We go beyond Jimmy and expect this puppy to sink well below $10 in the next 12 to 18 months. More so, if interest rates climb in this period. So don't waste your time or your money on the long side of this hyped-up generational fad.

First Financial Insights

February 18, 2013

High Tech minus High Touch, Spells Disaster 

Detroit Continues Its Descent into the World of Mad Max

Detroit Continues Its Descent into the World of Mad Max

WHAT HAPPENED?

Want to look into the future? America's future? The global future? Then look no further than Detroit. Or Newark, Buffalo. Akron, New Orleans or many other American cities. And we can ask so many questions? Like why do they look like Third World nations? Is this really the richest country on Earth? Or how's about a simple; What happened to America?

If anything tells us that the metrics used by economists; measures such as GDP, are meaningless as a means of managing real world activties, then these everyday examples of inner city decay, should prove the point beyond any doubt. Sure it is well documented that Americans migrated to the cozy suburbs miles from the cities, as the automobile provided a means of escape. But add to this, the stripping away of the industrial heartland by Walmart and China, the shifting to a service-based economy, and the conversion of homes into ATM machines; these all created and contibuted to this civil destruction. So the crabs that are now left in the inner-city barrel, have  little hope of rising above theses dark depressed streets of despair - the streetcar named desire does not travel their anymore. Stellaaaa...

Some believe that these cities will be revived when gas prices drive the automobile to its inevitable extinction. But will the jobs return  to these cities? Will the manufacturing base return back from China? Unlikely, as the scarcity of  raw materials is going to make any sort of manufacturing anywhere on this planet difficult. In the end, the only thing still missing from this permanent picture of the American Dream and Global future is - MAX!

And how sad, this all is...

Dr Peter G Kinesa
February 21, 2013   

Who will run our cities?

  

Marc Faber: Invest Overseas, The Fed Party Is Over

Marc Faber: Invest Overseas, The Fed Party Is Over

What's in a number anyway? Faber says the FED balance sheet is over $3 trillion. However, the US government owes about $14 trillion, thusly, putting the total US government balance sheet at $14 trillion number. Does it include the FED's balance sheet? Actually, I don't know right now.

But, I can report what the legendary fixed income guru - Bill Gross; PIMCO, estimates. He puts total US government debt at a figure of  over $100 trillion. His number also includes all future payments and contingencies on a present value basis. Put another way, this is the value of all known oil reserves that are set to exhaust in about 40 years.

Ever wonder if this debt can ever be repaid ? Do not spend a lot of time thinking about it.

Dr Peter G Kinesa
February 20, 2013

What do you mean we're broke?  

Filipino super-typhoon an ominous warning of climate change impact

Filipino super-typhoon an ominous warning of climate change impact

click above

If anyone has any doubts about climate change and its impacts, you should read thsi article from The Guardian/ If you can still sleep at nights - you probaly still don't get it or you are enjoying your medications.

Dr Peter G Kinesa

Febraury 19, 2013

Wake up call ???

  

INVESTORS' INSIGHTS -Marc Faber Interview with MoneyControl.com

INVESTORS' INSIGHTS - February 12, 2013

Markets at Tipping Point of Funny Money Games

There is little doubt that the inflation and bond market funny money game will come to an end sending the teetering bond and equity markets into a free fall. The yellow flags are out because interest rates have been too low for too long, and inflation is dramtically higher than reported. 

Investors can only tolerate negative real returns for so long before they seek higher ground. Finding the higher ground is the gist of their challenge.

Dr Peter G Kinesa

February 13, 2012  

Marc Faber Interview with MoneyControl.com

Marc believes markets are topping out and points to Apple's 30% decline as to how stocks can rise then fall back again. So short term, he thinks that a 10 to 30% reversal is still in the cards. He points to the sell off that occurred in 1987, when stocks collapsed 40% in two month after a preceding 44% run up.

We concur with Faber, that the risks are high in the short-term, but we know that markets can climb the wall of worry, despite rational fundamentals. It has its own mind; perhaps abetted by the flash- traders dance, thereby becoming more of a casino. However, as there is no strong rational for any long-term positive sentiment, we are biased towards short positions particularly in US Banks, Brokers and Treasuries. Tech companies should also see valuations punished more than the broader market. Facebook and Apple are still high on the list.

The turning point will be the collapse in Bond Market that is long over due, as everyone knows that the inflation figures are being rigged by Washington to keep rates low. This game cannot last, as sooner or later the market sees through such things; albeit the FED can continue to prop it up by printing more money.

These are times to be extra careful. Period

First Financial Insights
February 12, 2013

Funny Money Games: When Seven is Eleven?

Jim Rogers: How to Become a Multi-Billionaire

Jim Rogers: How to Become a Multi-Billionaire  (Click Here for Video)

Everyone who invests, saves, manages money or is in some way affected by the markets should watch this video clip and garner solid insights from one of the best in the business. Jimmy is great. Colourful, sharp and a sparkling character that you would just love to take home forever - a cuddly puppy dog.

But be careful. Remember Rogers, Buffet, Bogle, Soros and all the rest made their money and wealth in the very best of economic times. It was comparable to shooting fish in a barrel when measured against present investment, market and economic circumstances. Those days are long gone. Long gone. 

Why? When these guys made their fortunes the world population stood around two billion, while today it stands at over seven billion, adding another one billion every ten years. This spells disaster ahead in a few short years as the real wealth generating capacity of the planet collapses under the weight of the resource demands of this untenable population load. A major war can be expected as history proves itself again.

Moreover, this exploding population is drying up all the critical resources needed to drive the consumer-industrial-military complex including arable farmlands. Climate chaos is also expected to affect most of the US bread basket in the next twenty-five years according to official US agricultural agencies. Add to this the fact most non-renewables will be economically depleted in less than fifty years - the outlook spells out a collapse in the "Real Economy" by mid-century, if not much sooner.

Why much sooner? Well remember currencies are abstracts - merely symbols that convey the idea that a some point they may be converted into a real usable object. Also remember that conventional economics is an utter farce and fraud, that promotes a ponzi scheme creating these abstracts or fiats exponentially without any regard or relationship to the underlying "Real Economy". When the planet can no longer produce real usable objects because all it resources are exhausted these currencies, abstracts and fiats become absolutely useless and meaningless. 

And there's more. The ponzi schemer's greed has created a valuation trap, whereby they cannot raise global interest rates. Because if they do asset valuations will collapse by 50% or more across the board sending the global economy into its final "Dark Ages" prior to the outbreak of hostilities. The point here is interest rates will rise at some point soon because hyper-inflation is guaranteed, inevitable, unavoidable and inescapable when you have more and more people and declining resources and food stocks created by flawed economic beliefs perpetrating a ponzi scheme.

A scheme premised on the infinite creation of abstract and fiat currencies with an exponential weight of false promises that will collapse the global financial system faster than the wildest of predictions of any of the doom and gloom gurus. In the end - its just the MATH of it all.

NOTHING WILL ADD UP!

So buy Jimmy's book as a keepsake, highlighting the beginnings of the great economic fraud, of times when clever game players could exploit the weaker, when abstractions and fiats were the operative reality, when Mother Earth didn't matter, but did. And in the end, we will learn that we ultimately had to play by her rules - and for so many; it will be all too late. Indeed quite sadly, all too late.

Better yet, buy a cute cuddly puppy and take him home forever...

Dr Peter G Kinesa
February 12, 2013

What is it about Books, Guru's and Puppy dogs?

Jim Rogers : I have my money invested mainly in natural resources and currencies

Jim Rogers : I have my money invested mainly in natural resources and currencies

Jim what happened to your farms in Iowa? Noticeably there is no mention of stock and bonds. 

Why? Despite what John Bogle from Vanguard professes, stocks and bonds are set for an unprecedented collapse in values once the inflation demons and rising interest rates ravage their valuations back to never never land. John has no touch with the physical realities of our times and cannot see the onset of a market collapse that few investors may ever recover from. 

So John stick to your charts, trends and speculations and we will bet on the existential realities that determine the real values required to sustain the human enterprise. Values that operate under the governing laws of physics and mathematics. Laws that cannot be negotiated, regulated or speculated away by Vanguards, Buffets or Goldman Sachs. Laws that will dictate the few winners and many losers.

Oh yeah, by the way, we like Jim's approach; but where's the farm?

Dr Peter G Kinesa
February 7, 2013 

Vanguard to launch new FARM FUND?