Thursday, May 19, 2011

Colors, Protests in Madrid, Greek Employment Crash, and The Chinese Bet on a US Default

5/19/2011 Portland, Oregon – Pop in your mints…
It is a bright and sunny day in Portland, the type of day that makes you feel like you are on another planet.  After seven months of rainfall the sunshine overcomes the gray and the world takes on the most vivid of colors.  It is amazing.  
They are shooting a movie at the old US Customs House these days and today quite a crowd was gathered outside.  We later found that the movie is called "Gone." From what we can tell, it is a teenage thriller of the "Scream" genre and will come out in February 2012.
That explains the school buses and scores of teenage extras roaming the neighborhood.
In Portland people literally hibernate for the winter.  One would think the population figures grossly overstated if they only visited during the rainy months.  Once the sunshine hits, then city springs to life and one wonders where all of these people came from.  It is like living in two worlds, depending upon the season, and the difference is marked here like nowhere else.
Maybe we are on another planet.  We hardly recognize what is going on around us.
The Socialists in Greece and Spain are implementing austerity measures…
The LinkedIn (LNKD) IPO shot to the moon…
The Chinese are net sellers of US Treasury Debt…
Are we still on planet earth?  The answer would be a resounding NO from anyone who had fallen asleep in 2006 and been recently awakened to this news.  They would think these are headlines from The Onion.
Yet what once would have seemed absurd is now coming to pass. 
One can no longer chastise the Socialists as spendthrifts.  The Socialist governments of Spain and Greece did not gain power by running on austerity driven platforms.  Yet there they are, forced to do the dirty work as their disillusioned electorates take to the streets in protest.
A union leader in Greece warned of an "Employment Crash" that will occur as the Greek economy digests the latest round of tough love from its fellow Eurozone members.  What exactly is an "Employment Crash"?  From what we can gather, there is not much work being done in Greece at the moment anyhow.
Any reduction would be a mere fender bender.
Then there is the LinkedIn IPO, which at face value appears to be a miracle.  Up 110% on its opening day?  Time to party like its 1999, right?
Upon further examination, the LinkedIn IPO appears to have been a product of an extremely limited stock offering which then shot to the moon without the danger of being sold short.  The market essentially prohibited any short bets being made against the stock, removing any restraint to its initial rise.
This is not how healthy markets operate.  But at this point, mortgage backed securities can be held at face value with no hope of near term price discovery.  Hence, no one in their right mind would pay face value for them, which of course explains why the FED did just that.
And what about the Chinese?  Aren't they raking in Billions of US Dollars in excess reserves each day with which they are "obligated" to buy US Treasury debt?  Yet since January, they have been reducing their holdings.  What gives?
It appears that China, along with Mexico and Bolivia, are pouring these reserves into Gold, infrastructure, anything tangible in anticipation of the debt ceiling debacle in the US spiraling out of control.
Yes, the impasse in Washington appears to be heading towards the "unthinkable," namely the US defaulting on its debt.  We predicted this here at The Mint earlier this year and frankly are shocked that it may take place.  Yet there it is, and the behavior of the Chinese makes us believe that a default is on the horizon.
So will the US give the shaft to its foreign creditors or its domestic dependents?  Maybe the more relevant question is, will the US go to war with China or fight a Civil war?
All we can say is come, Lord Jesus!
Stay Fresh!
P.S.  Please check out our latest 72 Hour Call at www.davidmint.com
Key Indicators for Thursday, May 19th, 2011

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.