Wednesday, June 24

Weekly Update 27 June 2009

Curse the Darkness or Light a Candle?

These are indeed interesting times we live in, and we must be careful not to be people who complain yet do nothing to improve the world in which we live. There is no glory in saying "I told you so" when your dire predictions of doom prove to have been accurate. If you see trouble coming, don't merely talk about it - or worse, complain about it - do something constructive. Light a candle.

This week I finally started reading The Sovereign Individual: Mastering the Transition to the Information Age. It's been on my "must read" list for several years, but I didn't get to it until just today. The authors pinpoint many of the challenges facing our modern world, including the collapse of the economy, but their message is optimistic, not "gloom and doom". They consider the nation-state a relic of the industrial age and predict the end of nation-states as viable political entities. To put that into terms we can understand, they predict that the Government of The United States of America will cease to have political authority over Americans. What it does
not mean is "the end of America".

As I was telling a friend this week, it is important that we make a clear distinction between the government and our country. The US government is a dying pig that makes promises it cannot keep and bullies people around. America is a country, an idea and a people who share that idea and that geography. America can get along just fine without that ravenous, lying, violent government. In fact, we will get along a lot better without it. The transition will cause a lot of pain and fear, but we can take hope knowing that the end state is going to be a lot better.

With that in mind, let's see what's happened in the world this week.

Headlines of the Week

What it is:
Goldman-Sachs to pay record bonuses Goldman-Sachs told employees this week to expect the biggest bonuses ever.
Why it matters: When the government gave AIG some $80 billion late last year to "save them", AIG turned right around and sent $15 billion of that money to Goldman-Sachs. So your tax money is paying bonuses to the richest, most corrupt bankers on the planet. Think about that Goldman-Sachs banker sipping rare scotch on the porch of his vacation home in the Hamptons when you are trying to figure out how to make your mortgage payment.
What it means to the world: GS continues to make sure everyone else pays for their mistakes. If you or I had sold a bunch of worthless bonds to investors and then bought a bunch of worthless credit- default swaps on those bonds from AIG, we would first go broke and then go to jail when the government found out we had committed fraud. Not Goldman-Sachs though.
What it means to you: Your tax bill will be higher for years to come so that a handful of GS bankers can keep their vacation homes in the Hamptons. Remember that when the government fails, we won't have to put up with this kind of crap anymore.

What it is
: Riots in CHina After months of calm, there have recently been a spate of riots being reported in the Chinese media, or on the internet. Is this because media restrictions have been lifted, allowing news of riots to spread, or has there been a genuine increase in social tension in the countryside? It is impossible to tell. China no longer publishes the figures for how many riots take place each year, but most people put the figure at around 80,000 and the vast majority go totally unnoticed.

Why it matters:
The nattering boobs of the talking-head media machine are convinced that China will recover from the recession first and then lead the world into a brighter consumer future. But China is not recovering and in fact has deep, intractable issues that must be resolved before any sort of recovery or growth can occur.

What it means to the world:
There are several pieces to this puzzle:
  • China has millions of people who used to be peasants, then achieved middle class status, and are now out of work - people who will not willingly accept peasant status now. How you gonna keep 'em down on the farm (after they've seen Paree)
  • Political leaders always try to divert attention from their failings.
  • War is the most potent diversion there is.
  • China has a huge army.
  • China has a huge imbalance between the number of young men and marriageable women.
Put the pieces together.

What it means to you
: Do not plan on China pulling the US economy out of its slump. It's not gonna happen. You need to make plans to survive without the help of the Chinese dragon.

What it is: China - Economic Catastrophe Unfolding This falls into the category of "Important" as opposed to "Urgent" news. I urge you to read this entire article.

China has a real estate bubble just like we do, and a stock market bubble, just like we did, and an unwillingness to book losses, just like Japan did. In addition, they have a huge population of peasants who moved to the cities during the boom, (as the article says, "the largest migration of a population in human history"), and now they cannot find jobs. Exports are plummeting, the government is lying about the numbers, and - as per the previous story - riots are breaking out all over the country.

Why it matters: China is a tinderbox and we'd better pray that there are no budding Lenins, Stalins, Hitlers or Maos whiling away their time in a Chinese prison right now.

What it is: Insider Selling is the Fastest in 2 Years The people inside the largest publicly held companies in the us - people with intimate knowledge of their companies' propsects for the future, believe that the stock prices in their companies are going down, not up.
Why it matters: Since March 6th, the S&P500 index of the 500 largest companies in America has risen by more than 40%, from a low of 666 to a high of about 950. That means that the "dumb money" is driving this rally. The smart money is selling in anticipation of a fall.
What it means to the world: This stock market rally is a classic bear-market rally that traps the unsuspecting and destroys them. It is not a new bull market.
What it means to you: If you hold any long positions in the market, make sure you are either hedged or have stop-loss orders in place to protect your profits when the market falls.

What it is: Some additional updates on the bearer bonds saga:
Nothing about this story makes sense, other than this: worldwide confidence in the ability of the US government to pay its debts is growing increasingly shaky.

Till next week: Light a candle!

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