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The risks of a crash in the financial system are mounting as
imbalances become both more widespread, with an increasing number of
unsustainable bubbles, and more extreme regarding the sheer magnitude of
those bubbles. An implosion becomes more likely when investors are lulled
into a false sense of security that their backs are covered, just as they get
increasingly offside as far as their exposure and leverage is concerned. The
lack of analytical abilities, and basic knowledge of economics, leaves the
masses, both public and professional, susceptible to be led astray from even
a modicum of financial good sense regarding investments and the deployment of
capital. Meanwhile, the stewards of our economic future such as Alan
Greenspan, who do in actuality know better, have long ago sold us out in favor of the ruling elite. Investors and the media hang
on his every word as he programs those so entranced that any problems that
arise will be handled. His manner increasingly can be likened to whistling
past the graveyard as he more frequently drops just a hint that in fact is a
bombshell. The latest example was his recent proclamation that at some point
foreigners will no longer be willing to add to their dollar debt. Ya think? We have to wonder when he first came to that
conclusion. This seems similar to his recent comments that those that
haven’t yet prepared for higher rates must wish to incur losses, and
this only months after practically ridiculing those that chose fixed rate
mortgages over adjustable rate mortgages. I think a more appropriate
statement would be that anyone that pays any attention whatsoever to what
Alan Greenspan is saying must wish to incur losses. His monetary policy
resembles Donald Trump; borrow so much money that you have the creditors at
your mercy.
When the vast majority of investment advisors and financial
professionals lack the knowledge to arrive at a reasonable conclusion when
observing data, what hope has the average American? There have been many
financial writers that do understand basic economics that have ridiculed
Greenspan, calling him arrogant, irrational, boneheaded, and other similar
such terms. I think they are missing the point as he has amply displayed his
substantial understanding of basic economic concepts over the past 30-40
years. If this is so, they might ask why Greenspan has taken actions that
have encouraged dangerous leverage, while hollowing out the U.S. economy and creating
enormous imbalances.
It must be understood whom the man really works for. It is not the
people and it is not the government, but rather the international bankers and
the power elite. His true job is to set up money making opportunities for the
international banking machine. The power elite have an agenda that would not
be so easily followed if people had a choice. So how do you control the
masses? The answer is elementary. How do you enslave someone? Overload them
with debt and then put them in a position where they are at the mercy of the
creditor. This is where we have arrived as insiders unload equities at an
unprecedented pace. Meanwhile, the public with record levels of debt may soon
be forced to accept whatever deal is offered when they can no longer pay back
their borrowings with just a slight hike in interest rates.
Dr. Kurt Richebacher points out in hard
numbers the failing U.S.
economy in his monthly newsletter “The Richebacher
Letter”. He points out that U.S. working-age population is
growing 1.2% which requires an additional 2 million in job creation a year.
Despite this, overall wage and salary income in real terms remains below the
levels of December 2000! This clearly points to the fact that we are losing
high-paying jobs in favor of inferior and part-time
jobs. He also points out that a lot of the profit rebound of corporations in
recent years has come from inventories, as commodity prices have surged, and
financial engineering. It has gotten to the point that corporations can
report whatever profits they fancy through selective use of derivatives as we
have seen all too clearly with Fannie Mae. Yet that stock remains firm
despite this. This week it was reported that a Chinese company lost over a
half billion dollars in oil derivatives trading. These are the types of risks
that are being undertaken to create a financial profit. It just so happens,
this example involves the airline industry attempting to cope with uneconomic
jet fuel costs. Expect more occurrences moving forward as we believe this is
just the tip of the iceberg.
By far the most incredible in subterfuge is the not widely understood
practice of hedonic pricing. This practice adjusts the real price of a
product for quality adjustments and is widely used for high tech products,
particularly computers. By this method if a computer has more power for the
same price in previous years, the sale of the computer is counted as more in
GDP. For example, if an $800 computer you bought this year has three times
the power as the one you bought for $800 last year, then it is reckoned this
should count as $2400 to GDP. Mind you, the company counts it as an $800 sale
while the economy counts it as a $2,400 sale. So since about 1986, the GDP
numbers have been accumulating and compounding sales and growth that never
happened. Now I have only been around since 1957, but since the first caveman
rolled a log and made a wheel to move a rock there have been quality
improvements in products. Only in 1986, some genius decided we have to get
more credit for quality improvements that have ALWAYS been the case.
That point marks the time when government statistics have increasingly
had little relationship to reality. They were adjusted to defraud you and
make you believe things are better than they actually are. So now when an
economic number is released, do what I do; view it, digest it, and if it’s
bad, say to yourself, “Holy cow, is that the best number they can make
up?” Managing money in a fiat money system gone mad is a challenging
task. The one question that cannot be reckoned with is, “how much
longer are investors and providers of capital going to believe in this
complete and utter fraud?”
The US
economy has depended on financial engineering and the housing bubble for
equity extraction to a tremendous degree over the past few years. What can be
done going forward? Already in the media we can detect the initial stages of
building the case to attack Iran.
With Iraq, it was weapons
of mass destruction and when Iraq
felt the walls closing in, and began to relent, Bush pushed forward to carry
on his plan of oil asset control. The foreign press presents a much different
view of what is transpiring. As the paper pushing industry wanes, the current
leadership of the US
may see only one industry as its future. Hint: It should be good for
employment as we will need many soldiers. Alan Greenspan knows all too well
the job of holding up the economy gets ever more difficult. Desperate times
call for desperate measures yet the mainstream media would have you believe
that the future is ever so bright.
As the day of reckoning approaches I have but one bit of senior advice
own: gold and silver!
Richard J. Greene
Managing
Partner, Portfolio Manager
Thunder Capital Management
More articles by the
author can be accessed by the "Research Articles" choice at: www.thundercapital.com
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