This Has Absolutely Nothing To Do With Anything

I read somewhere that a great way to get readers to a blog is to post pictures of pretty women. So, here you go. Monica Bellucci may be the easiest-on-the-eyes woman out there. (Next to my own wife, of course.) Enjoy.

The Government Put

What, another Cullen Roche post? Well, when the guy is on, he's on.

The Global Government Put is a short and telling comment on investing in the modern era. "The global government put has come to dominate every twist and turn in the markets.  There is no buy and hold.  There is no value investing.  There is only one big roller coaster of volatility based on the decisions of clueless politicians..."

The good news (to me anyway) is the knowledge that while history doesn't repeat, it does often rhyme. The 70s were a particularly ugly time for investing for a lot of the same reasons we see today. And yet ... yet ... there was a brighter future that began even before Ronald Reagan's inauguration. The wave of deregulation and sound money actually began at the end of the Carter administration.

I doubt seriously that Obama will undertake a turn to rationality like Carter did but it's very likely that the next post-Obama administration will.

I am ever the optimist. 

Good News, Bad News

Cullen Roche always seems to have interesting things to say but it takes some background in monetary theory to stay with his arguments. He has an interesting piece today regarding what he calls a Balance Sheet Recession (BSR) and how this is the economic malaise we're currently experiencing.

"The truth is, we’re in a balance sheet recession and as the government slowly peels away the spending that has propped up the U.S. economy, the consumer will prove weak once again.  So, the bad news is we’re still in for a muddle through period.  The good news is the deficit will remain large enough to avoid substantial economic contraction."

I don't agree with him regarding a need for government spending and he's not a Keynesian but he is quite right about a few things. 

Before the Great Recession started, in late 2007, I was chatting with a stock broker friend about the recession we both knew would be fast upon us.  I predicted then that the pending malaise would last until 2017 and I still hold to that. It will take the households that long to bring their debt down to historic levels. 

Check out Roche's article and, in particular, his graph on the historic trends of household debt.

And, yes, this may sound dry-as-dust but it's still worth a few minutes of your time.

Higher Education Bubble - Part Cuarenta

If you or a loved one is considering taking out student loans, I encourage you to think again.


From: The Best Colleges

The Markets Always Win

The hubris of our political class has astounded me for years. They have long believed that their perversion of Keynesian economics is the correct way to manage a modern economy. (Keynes was brilliant and, although I disagree with his conclusions, he was right in his own way.)

Margaret Thatcher had a great quip that the problem with Socialism is that "sooner or later you run out of other peoples money". For the United States, that time may have finally arrived.

My hope is that our political class finally takes this kick in the head as an opportunity to finally address a situation that has been building my entire life (and I'm no spring chicken). 


One lesson they need to learn is that the markets always have the last judgment on government finances. The markets always win; always.

Sheik Yerbouti

Sorry, but the title is an album by Frank Zappa in 1978 but it is relevant to my point. So, you think the United States imports most of its oil from hostile, Arab nations? Think again; it's our friendly neighbors to the north and south: Canada and Mexico.

They Are Prisoners of Our Currency

Major trading blocs like China and Europe wish (wish) they could trade in something other than dollars. They can't, and here's why:

In recent noise about the financial world, much has been made of the relative weakness of the U.S. dollar. A lot of seemingly knowledgeable commentators like to predict that international investors either are already or will soon start to run away from the dollar into some other (not yet existing) international monetary unit.

This graph shows one reason why a move away from the dollar is almost impossible unless we're talking in decades instead of years.

Here's the original link at the Atlantic if you want more detail. One quick takeaway is that the metropolitan New York area has an economy larger than that of Canada. The Los Angeles area economy is almost as large as that of the Netherlands.

When American cities have economies as large as major nations this means that the dollar cannot be replaced as an international monetary exchange in the near term. The entire world simply cannot replace the dollar with Swiss Francs when Chicago, all by itself, is bigger than Switzerland. It's a question of liquidity.