Saturday Notes

Capital markets rally huge on Friday as the World Gov'ts intervene in the mkts. Banning short selling in the finacials resulted in a massive short squeeze. Other events-guaranteeing MMKT funds, creating a RTC and/or RFC type gov't agency to take the bad debts off the banks balance sheet. What has become clear in the last month is that US Financial Institutions are a protected species. They are also an endangered species are on the protected list-NO HUNTING US BANKS.

Interesting timeline. IN 2004 the SEC granted 5 US Broker Dealers with the ability to leverage themselves up from 10-12X to 30-40 X. Who were they-Bear Stearns, Lehman, Merrill Lynch, Morgan Stanley, and Goldman.
3 of the 5 have blown up or been married off. If that was not bad enough, the top talent from these firms went off to set up hedge funds which in turn were levered 20 to 40X. So the capital pyramind not only get bigger, but it almost got more unstable. NOTICE the SEC created this mess and the greed on Wall Street amplified the mess. Was this a plan by the NEOCONS to finance the US economy. This entire leveraging experience is going to unwind. The process is 1/3 to 1/2 way through.

The FEDS are taking the inflation way out. Instead of letting asset prices fall to a clearing level-DEFLATION, they are going to maintain asset prices by deflating the value of the USD. All of these plans by the government are going to require new debt to be issued and new money to be created to pay for this. The US TAXPAYER is going to get creamed in the next decade. The US is going to muddle along for years as the excesses are unwound. The fraud is coming out and it is just like ENRON and Worldcom-only larger. Interest rates are going a lot higher as they full faith of the US GOV'T has been compromised. Foreign investors are skeptical of the US Gov't actions. The theory it will never happen due to mutual economic destruction (similiar to the Nuclear arms race) is now toast. The Chinese, Middle East, and Europeans are going to build their domestic economies up and stop relying on the US for there products. The Chinese have 1.2 Trillion of reserves and part of that is going to be used to maintain a positive domestic economy.

Hang on-my fearless forecast: Interest rates, Precious Metals up, oil prices flat at 80-120, copper up (due to the electrification of global economies), base metals down to flat, food crops up as the third world wants to eat, stocks down as the higher interest rates will decrease the multiple investors are willing to pay. In addition as the demographics swing to a retiring population, the asset mix is going to favor fixed income/dividend products. Corporate bonds are trading at wide spreads as default rates rise. If 5 yr corporate bonds are yield 6%+, why buy equities?