Friday, December 31, 2010

2010 Recap: Macro Trends Playing Out as Expected with Some Surprises...

From Mike Krieger of KAM LP

Macro Themes for 2011

Death may come invisible, or in the holy wall of fire
In the breath between the markers, or on some black I-80 mile
From the madness of the government, to the vengeance of the sea
Everything is eclipsed by the shape of destiny

- Conor Oberst/Bright Eyes, No One Would Riot for Less

2010 Recap:  Macro Trends Playing Out as Expected with Some Surprises...
Heading into 2010 I focused on three investment areas that I thought would benefit the most from the insane policies of desperate global Central Banks and governments adhering to the orders of the financial oligarchs that control them.  They were to be long precious metals, agricultural commodities and oil.  Not only was I a believer that most globally traded “hard assets” (as opposed to residential real estate) would do well as global fiat currencies are competitively devalued, but I thought that the three subgroups mentioned above would do particularly well since they are also strategic commodities.  Basically, in a world going through the type of dangerous geopolitical shift we are in at the moment (these happen once in a generation and are called “Fourth Turnings” by Neil Howe and William Strauss) governments and in fact all institutions become subject to upheaval and revolution.  Since governments are made up of human beings (generally narcissistic power hungry ones) we can generally forecast how they will react to such tension.  In their attempt to maintain power and status governments usually do one of two things.  They turn on their own people (or minorities within their own societies) or they turn the anger of the populace on a foreign enemy.  In an environment where the global financial system is based on digital monopoly money created with a keystroke by Banana Ben and company, money itself will become suspect and any large foreign government with even a basic understanding of money matters will buy all the gold they can so that if necessary they have real money to use the basis for a new currency if necessary down the road.  Just as gold is a necessary hedge for individual Americans that can see the destruction of currency values by their own government, it is too a hedge for China, Russia and others against their U.S. dollar reserve assets and indeed the global financial system to which they are a major participant.  Agricultural commodities are just as important since if a nation like China cannot provide food at a reasonable cost to its citizens there will be revolution overnight.  In fact , this is true in any nation.  Oil fits in to the equation as a hedge if the whole thing breaks into global warfare which can occur once a nation loses the financial war happening now.  If you don’t have access to enough oil you will lose any major conflict.  Why do you think we are in the Middle East and are looking for an excuse to attack Iran?  To spread Democracy?  Don’t make me laugh.

There were two things that surprised me this past year.  First, was the effectiveness of propaganda and market manipulation.  Despite, the obvious lack of any real economic recovery other than phony aggregate demand increases due to inflationary policies many people actually think things are getting better.  The Larry Summers’ of the world and other economic magicians like him have one economic policy and that is expectations management, which really means create enough propaganda, push the stock market up, and people will then believe things are getting better and then things will get better in reality.  I believe this policy has been half successful so far.  It has been successful is kicking the can down the road but it has not been and will not be successful in improving the standards of living for the American people and it is becoming more and more widely understood that this “respite” is merely being used by the small oligarch class in Washington D.C. and Wall Street to steal what little is left and push the middle class into serfdom.  When this thing collapses again let’s never lose sight of this and remember who did what during these days of “recovery.”

The second thing that surprised me was the strong performance of consumer discretionary stocks and retail in general.  I think the main thing that caused this particular group to perform so much better than expected in 2010 was the fact that crude remained range-bound for most of it.  It is really only in the past couple of months that crude has broken out of its range.  I think mature retail companies will be amongst the worst performing groups in 2011 and I will explain why in the section below.

2011: Back to the Basics (Again)

Just like the political world has been divided into two fake categories to keep us peasants in a controllable paradigm (Democratic/Republican, Red Team/Blue Team nonsense), it seems as if the investment world is similarly divided into China Bulls or U.S. Bulls.  There is this idea that one nation is doing things so much better than the other and there will be this big winner to emerge.  I hate to break it to everyone but there will be no winner in the intermediate term.  The entire global economy is linked in a gigantic financial ponzi scheme based on a completely worthless reserve asset (the U.S. dollar) and none of the players will be able to extricate themselves from this easily.  This is precisely why China has not allowed the yuan to strengthen materially.  There is one reason and one reason alone for this.  The government is terrified beyond belief of the near-term consequences of this since their only objective in reality is to maintain power.  As a result, it is not just the U.S. that is digging themselves into a disastrous position but it is indeed much of the entire world.

The strategy of the Keynesian economic magicians in control of the levers of finance globally has been to stimulate artificial aggregate demand via a number of policies, the central component of which is buying worthless assets with equally worthless paper.  Why not!  In any event, of course this succeeds in boosting aggregate demand as it has since 2009.  The problem is if the demand represents “malinvestments” based on phony signals what you end up with is pure inflation and no real increase in standards of living.  This is manifesting itself in different ways in different countries like China and the U.S. but it is manifesting itself in one important way in both.  The widening gap between rich and poor.  This is becoming an enormous problem in both countries which is why in Beijing they recently announced a plan to raise the minimum wage next year by 21%, which is the second such increase in the past six months.  How about this quote from the FT on Tuesday:

“In just the last three months we’ve already had to raise entry-level starting wages 60 per cent just to get people to come to a job interview,” said Jade Gray, chief executive of Gung Ho Pizza, a Beijing-based gourmet pizza delivery service. “With rising rents, the much higher cost of ingredients and now wage inflation, many businesses in the services industries are going to find it impossible not to pass on much higher costs to consumers.”

People in the U.S. think there is no inflation because wage growth has been subdued and because they still believe the most manipulated statistic in world history, the “core” CPI.  Here in America, purchasing power has been maintained through transfer payments and extending unemployment insurance.  The most disgusting thing about all of this is that Washington D.C. comes out and pretends to be heroes by doing this.  Oh yeah, continuing to give people the same amount of money for more expensive bread while they rob you blind.  That’s some leadership.

It’s Falling Apart as We Speak
As I read stories recently about China reducing supplies for rare earths, I watched oil and grains skyrocket to new highs I couldn’t help but think to myself: “we are going back to real trade again.”  What I mean is that the prices for all the real “stuff” that at the end of the day makes the world go round are still in the early stages of being revalued to a realistic level.  We want China’s rare earths, they want our grains.  Ok, we can probably make a deal there.  Despite what they may say publicly no one wants dollars and neither should you.  We are still in the middle of a secular bull market in commodities.  In times like these real assets that were grossly undervalued relative to financial assets in the prior secular bull become revalued.  Money also becomes revalued.  We are still working off the bubble in financial assets and the bubble in fiat currencies (especially the dollar) that popped in 2000.  It will be over when the Dow Industrials = the price of gold wherever that may be.  It is still 8:1.  It reached about 1:1 in both the 1930s and the late 1970s.  In terms of gold the S&P500 was down 12% this year.  Pathetic.

All of the phony aggregate demand that has been created has now led to the surging commodity prices we are witnessing at the moment.  This is a very important signal that must not be ignored.  Just as the surge in late 2007-mid 2008 was a huge warning of things to come.  It is telling us the current global economic model of GDP growth at all costs is failing.  It is telling us we are using up all of the world’s resources without any understanding of sustainable development.  The U.S. government is actually encouraging people to buy homes and spend money on trinkets made abroad rather than figure out new sources of energy.  We had our window to show real leadership and make the tough decisions and we failed miserably.  The Kondratieff winter is knocking on our door and will blow in with reckless abandon in 2011/2012.

This is not to say I am bearish on mankind or the world 10-20 years from now.  I am not.  I think once we finish the next 5-10 years which could be very, very difficult we can emerge into a New Renaissance.  We just need to clean out the trash first.  That means the current group of political and economic leaders that have infected the global economy.  My advice remains the same.  You must accept the fact that the current model has failed and will be replaced.  This is why I am so bearish on retail.  The business model for too many of them is based on sourcing cheap goods abroad and selling them here.  Those days are over.  They are over because of wage and other inflation in China and the business model will also be slammed by the cost of shipping things once oil breaches $100/b again, which I expect in early 2011.  Precious metals, agriculture and oil remain my favorite themes.

The War on Terror Sham
I witnessed 9/11 in person and it had a huge impact on me emotionally.  For a while it blinded me to the ways the government was using the war on terror against its own people.  After many years of deep introspection and not jumping to any quick conclusions I unfortunately have come to the conclusion that the war on terror is a sham.  This isn’t to say there aren’t real risks of terrorism.  There are.  There are also real risks to life in general.  It is risky to drive a car.  It is risky to go skiing.  It is risky to live in a big city.  That said, once a society trades freedom for safety it is finished.  Pigs are safe in their pens too as are all livestock being prepared for slaughter.

What I am saying is that I think the “war on terror” is being used to generate fear in the hearts of unsuspecting citizens so that the government can put in a police state.  The top levels of intelligence understand what is to come in the economy and are desperate to put in the police state grid at all costs.  I am not telling anyone what to think on this matter.  I am only asking you TO THINK.  The fate of the nations depend on it.  The following was posted on Zerohedge last week but many on my email list may not have seen it.  Please read and think about the implications of this…

Two very important articles came out last week that you must take the time to read thoroughly.   The first is from the Washington Post and is entitled:  “Monitoring America.”  It is a lengthy article worth your time since it shows in no uncertain terms how the U.S. government has now officially started to turn war on terror technology and military weaponry on AMERICAN CITIZENS domestically.  Stuff that had formerly only been “used in Iraq or Afghanistan” is now being turned on Americans and this newspaper reports it in a matter of fact manner.  It also describes how anyone can just say that they think a fellow citizen is acting suspiciously and then all of a sudden the government’s “fusion centers” start snooping on you and a file remains “open” for five years.  For nothing more than someone saying they thought you were acting suspiciously.   Welcome to East Germany.  This is where tax dollars are going, that and to pay bankster bonuses.  Link is below.

Second article also encompasses and interview with Attorney General Eric Holder.  In it he clearly explains that enemy number one is the domestic America citizen and that is where the war on terror is now focused.  This is exactly as I predicted earlier this year.  That the “war on terror” would be soon reversed onto average everyday citizens.  So how about this one.  In the interview, Holder talks about Anwar al-Awlaki and talks about how this guy is enemy number 1 now and as dangerous as Bin Laden.   Well, interesting because this guy was invited to DINE AT THE PENTAGON after 9/11.  This is a fact.  It was reported by all the mainstream news sources.  See these links on it….

Anwar al-Awlaki - the radical spiritual leader linked to several 9/11 attackers, the Fort Hood shooting, and the attempted Christmas Day bombing of an airliner - was a guest at the Pentagon in the months after 9/11, a Pentagon official confirmed to CBS News.

Awlaki was invited as "...part of an informal outreach program" in which officials sought contact "...with leading members of the Muslim community," the official said. At that time, Awlaki was widely viewed as a "moderate" imam at a mosque in Northern Virginia.

This is what Holder said today about him:  "He's an extremely dangerous man. He has shown a desire to harm the United States, a desire to strike the homeland of the United States," Holder said. "He is a person who -- as an American citizen -- is familiar with this country and he brings a dimension, because of that American familiarity, that others do not."

CBS reports

MSNBC reports

Fox News Reports

So our government is so trustworthy on intelligence that we had the most dangerous terrorist in the world over for dinner at the Pentagon!  So either we are really retarded beyond belief or the whole “WAR ON TERROR” is a total SHAM to place in the police state.  More on the interview with Holder, he is consistently demonizing the internet with statements like.

“"The ability to go into your basement, turn on your computer, find a site that has this kind of hatred spewed ... they have an ability to take somebody who is perhaps just interested, perhaps just on the edge, and take them over to the other side," he said.”

Full article here:

This is all good news and bad news.  The good news is that the global plantation owners would not be moving so aggressively unless they were losing the info war.  Clearly they are, which is why they are freaking out.  The next thing that is likely to happen is a false flag attack where the “attacker” ends up being a libertarian with a Ron Paul sticker.  That way they can move from Al Awlaki to the folks they are really afraid of: Good caring and armed American people that still have the capacity to think rationally.

Final Thought
It is snowing outside my window right now.  The weather out here on the Colorado foothills is really interesting.  It is either sunny or it is snowing.  It never seems to just be “gray.”  It’s really distinct from the weather back in New York and it fits my personality well.  Despite all the hardships we face, life is beautiful and good and it is all about embracing great people and experiences.  I wish everyone a happy, safe and prosperous 2011.

Below is a link to a video that uses the full song whose lyrics I quoted at the top.  This is not a political video in that it is not endorsing either major party.  Bush and Obama make me want to vomit with equal vigor.  I have no patience for fake Messiahs.  It’s just a great song.

Signing off on 2010 from Colorado,

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