Propaganda

Once again, Charles Hugh Smith of Of Two Minds, explains the facts beautifully.

Click here.

If you want to know what will happen and why, this is it.

Examine point three very carefully.

3. Since the only endgames to ballooning debts and declining household incomes are runaway inflation or renunciation of debt, the Status Quo has only one choice left to preserve its neofeudal arrangement: do more of what has failed spectacularly, i.e. inflate more asset bubbles as a way to mask the system’s phantom collateral for a few more months or perhaps years.

Unfortunately for central banks and their politico cronies, serial asset bubbles face the headwinds of diminishing returns. All the Fed and Federal agencies had to do to launch the first housing bubble was lower interest rates and encourage subprime mortgages.

Take a look at that Case-Shiller House Price Chart, can you say unsustainable? The Fed is purchasing billions in mortgages each month and the US government is insuring any and all new mortgages and it is still a basic flat line. Spending lots of money just to stay in place….unsustainable.

And take a look at that stock market chart, adjusted for CPI (which is the lowest inflation indicator), stocks have not rebounded. But you would never guess that from listening to the financial talking heads. With this chart in mind, there is still movement up for stock prices, but just keep in mind that is up just to get where you were in 2007. And look at the scary volatility in the stock market since 2007. Bumpy ride.

But the scariest chart, the one that will ensure an economic depression for the next 20 years (whether that is a deflationary depression or a hyperinflationary depression or both, one after the other). It is the spread between real income and real expenses and the widening of that gap that will keep the US in a depressive economic situation for years to come.That spread can happen in a deflation or hyperinflation, same outcome for Main Street. And Main Street, the consumer, is 70% of GDP.

That increasing spread will make sure more defaulted consumer and mortgage debt, lower GDP, and more bail outs and bail-ins for entities holding that debt. Add to this an aging population those income naturally declines after retirement.

These charts tell the whole story.

Cyprus

Well, this is certainly an interesting Monday morning. If they were looking to stabilize and create confidence in the European and global banking systems, gg thinks they missed.

This is just one more lesson in the past 5 years. Banks are not a safe place to keep money, you will be penalized for saving money, and saving the current collapsing system is the prime directive.

side musing: it also confirms what Martin says, there can be no conspiracy because they have no idea what they are doing five minutes before they do it. A well-thought-out plan would not piss off the Russian government. The powers-that-be are only reactionary and use every new crisis (whether they indirectly created it or not) as much as possible to retain power, influence, and wealth until it doesn’t work anymore. Then they move to the private sector and use their reactionary-crisis skills to destroy investor funds.

Click here for zero hedge comments. And here.

Update: seems to be going well…yeah right! They just extended the “bank holiday” to Wednesday/Thursday. Click here.

Another update: it just keeps getting more interesting. Problem is that Europe/IMF doesn’t have time for another option to bail out Cyprus, this was it (or Germany front the money…..) Click here. So more interesting than the Russian mob money, the citizen riots, and what this will mean for future “bailouts” of southern European countries is: what will they do in Cyprus, if they don’t do this?

Kunstlercast with Nicole Foss

groovygirl finally was able to listen to all of the January 31, 2013 podcast with Nicole Foss (about an hour). Click here.

Very good interview. Nicole is full of good information. Note: Nicole is in the deflationary depression camp.

The best idea from the interview: technology without energy is just expensive artwork.

The Google Search

groovygirl knows alot of people who have made the search this week. Click here.

Not necessarily because of Obama, but it is clear that we are going to go in the same direction we have so far. For those wanting to preserve capital, renouncing citizenship could be part of that plan. Especially if you have a lot of capital to preserve.

401k talk with Chris Martenson

Chris Martenson has a great audio interview with New Harbor Financial Group.

Click here for audio or transcript. Muses of the Moment readers are always asking about their retirement plans and planning during this economic crisis. There were very good ideas discussed in this interview.

Food Prices determine revolution

Groovygirl thought this paper from 2011 was very interesting. Click here.

It is 15 pages, but only about the first seven contain the actual report.

This falls into what Celente always says: when people have nothing to lose, they lose it. It seems people will grumble politely through peaceful cultural channels; but a lack of affordable basic needs, like food, will trigger action.

Life Time Investing

Let’s talk a little about long-term investing. Actually, life-time investing.

During the winter season, people tend to listen more than during the harvesting time.

You may use the K-wave theory to your advantage over your life time without needing to hit every high and every low perfectly. Transitions between seasons may be 3-5 years, so you don’t miss the opportunities. Groovygirl likes this way of investing because it is less stressful and you can pick and chose investments within the larger scope to really study and research if you want to.

As an example, let’s pretend it is 2000 and you have just started working, therefore, saving some of your paycheck. Yes, life time investing requires that you save something every year/every paycheck. A foreign concept to most. Stay out of debt and save some money. (Note: you will notice that groovygirl has no dollar amounts in the life time investing outline below. That is because each season’s investment can be $100 or $1 billion. The concept is the same, so no excuses.)

What types of investments do you put your extra money into for the long haul? This is not money you are saving for a big purchase or to use for expenses; this is money for investments over  a life time. Money you want to keep and grow over a long period of time. Something you would hand down to your children or retire with.

Well, 2000, or depending on who you read, 1999-2001, was the start of the Winter Season of the K-wave cycle. Each season lasts about 15-20 years. GG thinks this one will last closer to 20, so for this example, we will go with that. (For this scenario, gg is assuming each “season” is 20 years, but they can be 15 years.)

During the winter season, the best investments are gold, “cash”, and after the credit crunch, bonds. So you would purchase gold, “cash” (gg suggests holding cash in the least depreciating currency/s). And after the debt collapse, money will bring in a hefty return in interest, since it will be so rare without easy credit/debt/ low rates. At this point (2012) we are not quite there, countries still believe they can “create” or “imagine” their way out of a debt collapse.

The signals that spring is coming are a high in gold and low in DOW (inflation-adjusted DOW).  Spring is characterized by slow steady growth, inflation (the good kind), but in the beginning, a fear of return to winter.

So at that point, you would sell gold and buy stocks or real estate, since the best investments during the spring season are stocks and real estate. Think about the last spring season: 1948-1966. It was slow growth, but the types of stocks that had constant and steady growth were AT&T, Caterpillar, GM…

Look for those types of stocks, not necessarily, those stocks. But stocks of companies and technologies that will build a new, more efficient infrastructure that will set the next 50 years or so. Things like alternative energy, appliances, and transportation, water filtration systems, technology/software that links systems already in place and makes them more efficient, internet infrastructure and data exchange.

Remember the housing market boom in the 1950′s? Thousands of returning GIs married and built houses. Remember they all wanted the efficient modern houses with all the latest conveniences? A similar thing will happen, but this time it will be a home of alternative energy and energy-saving systems and high speed internet-data transmission. Don’t worry about credit. After the debt collapse, a solid credit system will return slowly.

So for the sake of argument, let’s suggest that the spring season started in 2020 and lasts 20 years. So, now we are around 2040, start of summer.

A signal for the end of spring and start of summer is a high in stocks. Summer is a time of inflation, the bad kind. The last summer season started in 1966 and some say it ended in 1982, others, the 1987 crash. Think of the high inflation of the 1970′s and the fall of the inflation-adjusted DOW, ending with the ’87 crash.

Best investments in the Summer season are precious metals, commodities, and real estate, mostly because of inflation. But interest rates are high, so, make sure any new real estate you purchase can stand an increase in rates. At the end of summer, you could sell some of the real estate you bought in the Spring season, if you need some cash for retirement or a child’s college education.

So summer ends and we see a low in stocks and a high in precious metals/commodities. In our example, we are in 2060. Fall is like the 1990′s: euphoria. Stocks are a good place to be, practically every stock goes up.

So fall ends and by 2080, and we are into another winter. If you are retiring or need cash for long-term health care in late fall or winter seasons, remember to sell at the high of stocks and real estate and move into cash and gold again.

The goal of this type of life time investing is to keep capital intact, even in the face of inflation or deflation and be able to start to cash out when you retire or need money for long-term care expenses. Use the seasons to your advantage, and don’t take (all the) profits when moving from one type of investment to another. Roll the profits from the last investment into the next one. That is the growing part of the equation.

Important note: when gg is referring to real estate investments, she doesn’t mean your own residence(s). A season may influence when you buy or sell your own home, but your home is not an investment. Because on a yearly basis, it takes more money out of your pocket and doesn’t put money in. A real estate investment is a house/condo you rent, apartments, hotels, warehouses, office buildings, land you rent, shopping centers, farms, etc. Anything that produces an income. Ideally, more income than expenses.

Side musing: even if you are half way thorough life, you can still take advantage of the seasons left. There is always a best investment and a worst investment in each season. So, you always have an opportunity.

Middle Class Death Rattle

The Burning Platform has issued a series of posts on the declining wealth of the US middle class. This is an excellent series and worth the long read.

Click here for part 1.

Click here for part 2.

Click here for part 3.

I think this is one of the best detailed explanations of what I refer to as the Wall Street Suicide. Many others have touched on this. And still others shake their head in unbelief.

Why would Wall Street destroy the very thing that is keeping them alive? Although Burning uses the scorpion analogy of it’s just the nature, groovygirl likens Wall Street (or expanding-government for that matter) to the addict. The addict is completely unaware that his/her behavior is alienating him from society and will ultimate be his complete downfall, even as it is happening. It is why dictators are so surprised when their people revolt. The possibility that reality is not as they see it, never even enters their mind.

Commerical Real Estate

groovygirl wanted to bring up a point for a while now. Reggie’s recent blog post on the implosion in European CRE (commercial real estate) brings the perfect opportunity. Click here. You will immediately notice the similarities between US Real estate crash and the coming European Real Estate crash (caused by a European banking crisis). Deja vu!

Long term view:

The creditor nations (like China) are using their excess dollars to buy things. Pre- 2007, they were buying up commodities and mining industries in Africa. Recently they have been using their excess dollars to buy bankrupt US commercial real estate and invest in commodity-related companies. They are also sitting on a lot of euros from trying the help out Europe/Greece situation the last few years. As soon as the European CRE market  hits bottom, they will play the same hand. Buy real estate cheap with excess fiat currencies they don’t want long-term. They are trading fiat currency for tangible assets.

The Western nations, or debtor nations, are creating more fiat currencies and national debt to try and plug the their debt/banking implosion and keep their populations from rioting in the streets.

Now, I understand that China’s economy is deflating and their own banking/housing market is in jeopardy, but just as the US came out of the Great Depression owning the world, so to will China.

Between moving away from the dollar/euro for trading (setting up their own trading, reserve, and SWIFT systems) and using excess dollars/euros to buy the globe’s tangible assets, they will be the next world economic power.

Having said all this, gg is not advocating investing in China right now. This is a macro-world empire change, not necessarily investment advice.

Side musing: it is this macro-economic lesson that suggests becoming a creditor and not a debtor, and holding onto the purchasing power of your money. This will allow you, too, to buy tangible assets (and income-producing assets) at fire-sale prices.

Right now there are a lot of income-producing assets that are eating investors alive because of the debt to income ratio. Income decreased from the economic depression, and they can not service the debt. The only thing making that income-producing asset a loss is the debt. If another investor came in with straight cash, bought it at a discount, the asset would all of sudden be solvent again. As the economy continues to drag, more investors/businesses will be in this situation.

Barbaric Relic is Tier 1 investment?

Of course, muses of the moment readers already knew that. That’s why they are buying it, not selling it.

The “barbaric relic”, physical gold, is now being considered by Basel III as a tier 1, not tier 3, investment. That means it will have the same “credit rating” in the global banking world as AAA treasuries. Maybe The Oracle of Omaha should revise his statements on gold?

Click here.

When debt implodes, it gets harder and harder to find ANY collateral, let alone a physical asset gaining in value.

Now that central banks have leased out their own physical gold at 100:1, they will need more to “expand” global credit with.

And Germany is willing to accept Greece’s gold as payment. How nice!

Here is another link from Jim Sinclair’s website on the same subject.

Hold onto your physical gold and silver with both hands.

As groovygirl has said before, don’t worry about selling your gold in the future. Banks will be falling all over themselves to loan you money against your gold or buy your gold outright for the very reason outlined in the link: there is a shortage of all collateral. And it will just get worse.