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
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.

Tuesday, May 17, 2011

The Parable of the Zoo, A Crack-up Boom on the Horizon as Currency and Debt Markets Decouple

5/17/2011 Portland, Oregon – Pop in your mints…
Last week we raised the specter that the Job, Sovereign Debt, and Housing markets were essentially carcasses, mere shadows of an economy that was.   While the financial authorities all across the globe are spending their time and other people's money trying to revive the carcasses, a new economic model is springing up largely beyond their reach.
We offer you a brief recap of where we are, disguised as a zoo metaphor.
The financial authorizes first built the zoo to cage the capitalist beasts in North America back in 1913 when the creation of the Federal Reserve hijacked the money supply.  They took them down and dragged them to the zoo one by one as FDR signed the order to confiscate gold on April 3, 1933.  The beasts have been languishing in captivity for nearly 80 years.  Some of them have grown old and passed away in captivity.
By the time they died, the beasts had become so lethargic that all they did was sit around and eat all day.  The beasts had become so bloated that the zookeepers didn't even to bother to take them out for their daily exercise.  Why would they?  They had grown fat themselves charging the price of admission to see the beasts.
In their lethargic state, all the zookeepers could do was make their daily rounds to feed the beasts, not even bothering to see if they are alive or dead.
Such is the state of things today, circa 2011.  The FEDs shovel cheap money and credit into the cages and assume that the beasts eat and are satisfied.
The Health Care Industry wasting away in the Zoo
 What they don't know, due to their self delusions and inner laziness, is that the food the leave is no longer being consumed by the caged beasts, rather, beasts that are still in the wild enter the zoo unimpeded and snatch away the food.
Even if the zookeepers were aware, their own lethargic state (see the current US Debt ceiling standoff) leaves them helpless to put a stop to it.
And so we watch as the carcass of housing rolls over, and Sovereign Debt begins to rot.  Finance, the best fed of all the caged beasts, is going into cardiac arrest and Health Care is helpless to save it, hopelessly caged in and wheezing, while the auto industry struggles in its shackles.
Meanwhile, commodities, technology, and their offspring, which have either never been caged or managed to escape along the way, are now openly raiding the zoo and taking down the stores of food as quickly as the zookeeper sets it out.
Soon, the stores of food will be gone and the agile beasts will once again forage in the forest, remaining nimble, while the caged beasts and their keepers perish.
As we see in this parable, we are witnessing a dramatic decoupling of the currency and debt markets.  The food is currency and the debt markets are the bloated and dead carcasses.  Now that the debt markets are unable to absorb the flood of currency, bizarre manifestations of depression and hyperinflation (what Ludwig Von Mises referred to as a "Crack-up Boom") are beginning to rise to the surface, like a boiling cauldron.
Something new is forming outside of the Federal Reserve's US Dollar system and the agile industries are busy building it, using what is naturally available outside of the system (the entire world!) and sustaining itself on what is left of the food at the US Dollar zoo.
The visitors of the zoo are those seeking employment inside of the old system.
The logical conclusion?  One is better off taking their chances out in the wild.
Stay Fresh!
P.S.  Please check out our latest 72 Hour Call at
Key Indicators for Tuesday, May 17th, 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.