It’s as if 2008 never happened.
Once again the worlds investors are pumping up bubbles that will probably explode in their faces. After the popping of a real estate bubble led to the first global recession since the 1930s, world markets are frothing like shaken Champagne. Pundits claim to have spotted price increases that are unsupported by economic fundamentals in assets ranging from U.S. farmland to Israeli biotech to Australian housing to Chinese cemetery sites. Commodities have soared. Global junk-bond issuance hit a record in the first three months of the year … this is the granddaddy of them all, an almost-encompassing bubble right at the heart of monetary systems. – Peter Coy & Roben Farzad
Business Week has an excellent slide show on various bubbles that are in progress around the World and this article is a must read for fans of reality, as is Paul Farrel’s “2008 Crash Deja Vu” from Market Watch (which follows on with my article from last week “How to Make 500% On the Next Crash” – which you’d better read too – just in case), in which he notes:
Another crash is coming, unavoidable, just like 2008. Not because our totally dysfunctional government is collapsing into anarchy, thanks to the 261,000 Super-Rich Lobbyists. Not just because our monetary system is run by the Bernanke Printing Press Company. And not just because a soulless conspiracy of Wall Street CEOs cares nothing for democracy and the public interest, only for their stockholders and their year-end bonuses.
Another crash is coming soon because we’re back playing the same speculative games as we did for years prior to the 2008 crash. When we collapse, it will be because America’s leaders never learn the lessons of history. Never.
David Fry (his charts here) does a great job of summing up our strategy this morning of outlining the conflict we face as we are fundamentally disgusted with the markets and by the policies being set by our government but, for the sake of staying with the market, technically bullish. As David says: “It’s a con plain and simple. I’ve bought into it because I must. Overall we’re long and will be until the jig is up. Until then, I’ve advised subscribers for many months our Lazy Portfolios are the path to success as Fed policies steamroll most technical systems beyond HFTs. When it ends, and it will, it’s back to business as usual.”
The great con of course remains current inflation which Bernanke alluded to briefly in his comments today. They cling to “core” inflation as their measure of choice while we commoners who shop everyday for essentials know better. Turbo Tim even had the nerve to say the other day high gas prices are something we’ll just “adjust to” and “won’t hurt” the recovery. He has a government car and driver. He also had the nerve to reiterate the necessity to maintain a strong dollar. Yikes!
As you can see from the chart above, the Dollar is down 20% in 12 months with half of that decline coming in the first 4 months of 2011 as the Fed’s policies continue to kick our currency while it’s down. So what then, does that say about both corporate earnings – which are barely improved from last year or our National GDP, which was $14,446.4Bn in Q1 of last year. In order for GDP to keep up with the decline in the dollar – we will need to see at least $17.335Tn for Q1 2011 and I’m kind of doubting we are even up to $15Tn actually.
Do you want to measure GDP in real stuff? No you do not because it’s ridiculously depressing but I’ll do it because it’s my job so, like a doctor who has to rip off a band-aid, I will now painfully point out the reality of our situation. Last April, $14.5Tn bought us 181.25Bn barrels of oil at $80 a barrel, this year, it buys us 128.88Bn (down 28.9%). Wholesale gasoline was $2.40 last April so our GDP was good for 6.041Tn gallons. At $3.37 yesterday, we’re down to just 4.302Tn gallons – 28.7% less. Gold was $1,150 and our GDP bought us 12.6Bn ounces but this year we will disappoint a lot of rappers with just 9.5Bn onces at $1,526, 24.6% less teeth to cap. Are we starting to see a trend here?
- Copper was $3.25 a pound and we had 4.46Tn of them last year, now it’s 3.41Tn pounds at $4.25 a pound (down 23.5%)
- Silver was $18 an ounce last April and our GDP was good for 805.5Bn ounces. At $47.80, that’s dropped to 303.3Bn ounces (down 62% – ouch!) – I guess we’d better ignore that one, right?
- Corn was $3.60 a bushel and that gave us 4.027Tn of them last year. This year, many will go hungry as our GDP now buys just 2.636Tn bushels at $5.50 (down 34.5%)
- Wheat came in at $500 a ton last year for 29Bn tons worth in our GDP but this year, not so much at $750 and just 19.3 tons (down 33%)
- Rice has held steady at $12 and that’s pretty much the only thing staving off global starvation at the moment so, yay, I guess.
So thank goodness for the weak dollar or consumers in this country would probably be getting downright depressed as our real economic numbers and real corporate earnings fall off a cliff. That’s why the Russell 2000 index is at an all-time high, punching past it’s July 2009 bubble top at 855 yesterday as our small-cap companies exist almost entirely in the weak-Dollar bubble. Hopefully, Uncle Ben and Timmy can keep the dollar at all-time lows so we don’t get a repeat of that nasty little incident in 2008 when we had a flight to the Dollar that sent it back from 71.31 in July of 2008 up to 88.46 in November (up 24%), which caused the Russell to drop all the way to 371 (down 56%).
Now the Dollar is back to 73 and the Russell is back to that 855 range and we are throwing a party as if we have accomplished something other than setting the economy up for another multi-trillion dollar value shock. Based on the declining buying power of our dollars, if your stock is not up about 30% from last April, you are losing ground to inflation! One way we try to keep our heads above water is through our inflation hedges and I listed on on USO and one on GLD on Monday, both with short-term 400% return potential and if you take one of those (which I don’t believe in fundamentally) to hedge against our 500-1,000% disaster hedges – you can be in pretty good shape whichever way things turn out.
As we are still, like Dave Fry’s group, bullish in our long-term positions, we keep pecking away at bearish day trades, hoping to be in the right place, when it is finally the right time. Yesterday we caught a nice break with a 60% gain on our QQQ puts from the Morning Alert but all that really does is make up for 3 20% losers and, clearly, most days have been up and up. We took a bearish posture into the close in our $25KP, which is short-term directional but that leaves a lot riding on the 8:30 GDP number and the market’s reaction to it.
Ahead of the Fed we took a bullish play on the Dow with a DDM June $62/66 bull call spread at $2.40 – just in case we got a Gentle Ben speech (which we did) and the Dow popped. Those were offset with the sale of the DIA July $120 puts at $1.60 and the Dow proceeded to pop 65 points from there and that little move already jacked the $62/66 spread up to $2.80 and dropped the July $120 puts to $1.40 raising our net .80 spread to net $1.40 for a nice 75% gain in 3 hours. We don’t usually worry about one-day moves in mid-term spreads but I want to point out (again) that we have no reason to fear inflation – we can use our leverage to make profits that will far, far out-pace any expected rates of Dollar destruction. The important thing is to have some hedges in place because the conventional wisdom that “you can’t fight the Fed” has proven true for 2 years now and it’s very clear from Bernanke’s speech last night that he’s willing to drop our buying power another 30% in the coming year – if that’s what it takes to make his Banker buddies happy.
IN PROGRESS
