Wednesday, May 26, 2010

How Close To The Edge Are We?

The attorney down the hall told me this morning his Stifel Nicolaus advisor told him the market had bottomed. Ouch. With the Dow Closes Under 10,000 For First Time Since February 7 maybe that bottom call was a bit premature. You really can trust all the information coming from those brokerages, I promise!

Yes, in my office there is an attorney group, an accountant group and little old me. None of these people even care what I do or say. One does listen and he is very happy. One calls me chicken little. The others just move along like nothing is happening. It is amazing how people can be so disjointed from reality. Do these people read anything but the local rag and watch anything other than Fox news? Hell, do they even watch Fox news? The problem may be that they watch CNBS! Funny moment the other day when discussing investments with a friend. I asked if their broker has used SH, SDS or other measures to hedge the recent fall. the blank stare I got after explaining the strategies was priceless.

Even after the latest plummet they are talking correction and great buying opportunity and throwing out various names their advisors have hand picked. I just keep my mouth shut now. I guess their advisors are doing a great job controlling the panic and keeping them in their clutches to drive up fees in these wild and crazy times? Whats $10k or more in commissions over the next few weeks to these guys anyway? Remember, brokers first loyalty is to the mother-ship that pays their performance based bonuses. Then to their wallet and somewhere you come in the picture after that.

On to the news of the day - The most important (other than BP trying to stop the gusher - day 37!) tidbits to me were South Korea On Alert As North Korean Subs Disappear In East Sea and Is China Preparing To Divest Its $630 Billion In Eurozone Bond Holdings? both from ZH.If China starts pulling out of the Eurozone all hell is gonna break lose. Speaking of warfare, while the Korean's spat may be a big deal, the biggest deal is going to be financial blackmail (as already exhibited by our TBTF's on America). China and the large treasury/bond holders now control the fate of nations. In these days where liquidity rules, the mad grab may be on and a grab will only cause a great disturbance in the force. Look for some of these moves to really stress some relationships (not to mention economies).

Most of my readers know the inevitable is coming. The great crash or credit bubble burst (I'm sure CNBS will come up with some cute name with a ring to it). Apparently our leaders are in denial. Mish reports Geithner on "Sustaining the Unsustainable"; Bill Gross, Robert Mundell say Sovereign Default Likely Inevitable where he says (and I agree), "For Europe, $1 trillion is not enough, nor would $10 trillion. There is no plan that can possibly work. But that will not stop politicians from trying. Politicians do not care about math or logic, or the fact that piling on more debt cannot possibly be the cure for a problem of too much debt with no possible way to pay it back." In that post the possibility of sovereign default is mentioned. My long time readers know that I am a firm believer that GLOBAL default leading to massive deflation will be the only way out of this mess.  HERE, Bill Gross Discusses Sovereign Debt Default Risk.

Michael Pinto always brings a smile to my face, especially when he's betting there will eb a double dip recession.

Prag Cap brings you thoughts from Rosie in CAN WE EXPECT A 30-40% CORRECTION?  "This morning, David Rosenberg discussed the possibility of a 30-40% correction in the equity markets.  Rosenberg thinks we could go as low as 850 on the S&P" What is not clear is that on the first wave or not?

Jesse's Cafe American brings to us this nugget Obama Skips Presidential Visit to Arlington National Cemetery on Memorial Day Did you expect anything else from our leader? I guess he's got some other muslim celebration to attend that is more important? Way to inspire the troops big guy! Superior job. Jesse also does a nice job in the Shortly After the Comex Close Gold Is Allowed to Trade Above 1200 post pointing to the blatant manipulation of the shiny metal.

We are on the brink of total collapse. I believe the Fed and Treasury have now lost all control. they are doing their best wrangling job trying to reign in the Eurozone, but those horses are out of the gates now. All the liquidity in the universe won't help now (we've almost used up all the liquidity in the world). At some point it all ends and at that point all ends. It is gonna be really nasty. I suggest gold and silver coins, a months supply of food, a Vespa or bike and a garden. Oh yeah, almost forgot the ammo. No, I am not kidding. when the contagion spreads no country will be immune. The deflation that comes will destroy everything, yes possibly governments and nations as well. When the real crash happens, no one will avoid it's wrath. The great bubble will explode. We can only hope it does not lead to the next great war. What was that date in 2012 the Mayans predicted? Hmmm.......

That is enough for now. I'll be reporting from the gulf coast (Florida panhandle (Seaside to be exact) tomorrow as the span of never ending vacations begins. Florida, Alaska, Colorado all thru July 4th. Have computer and wifi will travel and post and work.

GL and thanks for all the views!