Sikhote Alin Meterorite (Russia 1947)

I picked up a piece of meteorite, a specimen from the Sikhote Alin meteorite crash (Russia 1947), the other day. I bought it from this cool shop that sells cool things. The above picture isn't mine but looks similar. You think about different things when you hold a piece of meteorite, like where did come from? How old is it? Puts everything into perspective.

It represents how insignificant and significant we all are in the scheme of things.

The Keynesian zero bound rate and deficit effect - inflation overdrive

I am not an economist. Although I work in the finance/legal industry. Have been trading in the markets for quite some time.

Everything is a learning curve drawn from analysis, theory and action. You make a call by gathering as much information as you can. Listing to the streets, the fundamentals, reality. Look at the charts and then make your assessments.

It's disturbing how some economists particularly in the Keynesian camp (which is current monetary and fiscal policy) seem to completely play down inflation risks. They unfortunately do not want to accept that inflation and inflationary pressures have changed since the 1930's. It's not complex math to see that America's GDP has slumped yet we have higher fuel/amenities costs and a weakening US Dollar.

The US is zero bound with interest rates, yet if the Federal Reserve could, they would run under 0% right into negative territory and beyond. This as they believe would increase money flow, free up liquidity from lenders and reinvigorate economic activity. Of course this would pertain two problems 1. lenders would continue to horde dollars (a natural human reaction to survival when low to negligible value occurs) since money would have a negative return, also known in Keynesian speak as 'liquidity traps'. 2. inflation, which as some economist have said could hyper accelerate in the medium term. Hyperinflation could occur due to many different inflationary reasons, one of them being if taxes are to increase to offset huge government deficits, prices on everything could in increase rapidly. But as we have discussed oil inflation which is already here (note current oil price in weak economic conditions), could be pre-curser to inflation. As an inflated oil price effects everything, as oil is in 'everything'.

So with massive deficits occurring in the US, plus a 0% interest rate is a perfect combination to inflation and hyperinflation. Although the Keynesian theory is that running beneath 0% rates with fiscal deficits will allow demand and increase output thus holding off deflation. Again the fatal assumption is that inflation is close to 0% therefore government stimulus, money printing and generally throwing money at economies will work. It is a frighting disposition, when we know and I mean we as people, consumers, individuals and participants in our global economy that inflation has not abated and it certainly doesn't feel like inflation is sitting roughly at 0%. So the Federal Reserve and US government policy economists are living in 'la la land'.

But regardless the Fed will have to leave their interest rate at zero indefinitely, due to a conundrum in which they have purchased and are now holding huge quantities of goverment bonds (debt). The problem is trying to sell debt that the Fed holds back into the market at a good price. As we all know even if the US economy starts to recover and the Fed will be required to tighten liquidity (increase interest rates), they will still have to hold interest rates at very low rate. Otherwise when the Fed does try and sell it's 'bonds', they will take a hit and a big one as upward increases on interest rates effect bond holders, refer to graph:



So the Federal reserve that has been paranoid of deflation, could actually mark down it's own bond purchases at some point if they do indeed increase interest rates. But since the Fed has shown little respect to the US consumer. They may just sit on the zero bound and try and sell it's toxic junk (huge unrealized losses) that the Fed also holds. So the Federal Reserve could actually cause deflationary pressures as in runs into losses. It's main hope of course is government trying to rein in liquidity and narrow the deficit, as discussed this can only be done with increasing taxes. Either way, with growing government deficits and a zero interest policy and inflation lead from oil and food; a hyperinflation situation looks to be more of a certainly than a long term deflation period.

Oil on a 25mth cyclical bull run? Update 4 - oil sits in static range.

Risk aversion is subtly moving into global markets. This can be seen with the static gold and oil prices, even with stock market rallies both oil and gold have maintained within their trading ranges. As discussed in Gold price breakout on 'mini' crisis, gold could breakout into the higher ranges depending on an 'event'. In the meantime the erosion of US dollar purchasing power is underpinning commodities which of course are good hedge on inflation/or global recovery.

From the two commodities gold may hold it's ground better than the oil price. If we see US dollar strength on a short term while markets enter a correction phase, the commodity correction could also include the oil price - if China's economy falters in the near term. So at this point the interesting aspect on a looming market correction is the indication that it is starting in Asia, notably China and Japan (indexes).

So if a commodity and stock correction does hit oil there are two supports that should be noted: 65 and 58 (on a 42 month graph). Please refer to graph:



Of course depending on a possible inter-continental conflict other markets will correct with gold and oil moving further up - substantially. This should be factored in (war) when looking at possible market conditions into 2010.

Rodrigo Y Gabriela - Mettalica cover 'Orion'

Not a huge fan of Metallica, but just listening to that riffing via two Mexican acoustic guitarists...Fantástico!

Federal Reserve Chief gets reappointed

Ben Bernanke has been reappointed as head of the US Federal Reserve by the Barack Obama.

Who in his period of being Federal Reserve chief has:

• managing to destroy the core wealth of Americans, this is seen in the erosion of US dollar value.

• his direct intervention to inhabit general wealth and prosperity of Americas (holding cash) by having insanely low interest rates, which has lead to continued speculation as people try and find wealth elsewhere namely stocks.

• bailed out institutional speculators who should have crashed and burned but instead where given welfare via the American taxpayer. The Federal Reserve and Treasury bailout have again ensured that the speculators are now overly speculating again to return to profit, hence the stock market rallies.

• seems to take pleasure in believing that re-inflation of the American ecomomy is vital, despite inflation already occurring in many aspects of the US and global economy, ranging from food, fuel, insurance, council rates, housing/tax registration. With US dollar decaying, further inflation will ensure. Which should just about wipe out any wealth left of the American consumer.

• secretly via bail out money has not revealed how taxpayer money was used to prop up maintain and save bad businesses of Wall Street (although US courts have ordered the Federal Reserve to disclose it's 2 Trillion loan program and it's losses).

• His direct contribution to US Debt to GDP is a nightmare. For any economist, commentator, politician to say that the US debt is 'manageable' is insane. This kind of debt is unmanageable especially when debt is piled up on top of debt, refer at recent attempt at the ecomomy to de-leverage (can you say global recession?). All this means is that a huge wave of de-leveraging will take place as goverment debt becomes a massive bubble.

His behavior is tantamount to criminal behavior, which is his direct attempt at destroying the general wealth of the American population.

China down again baby...

*side note re Obama's administration economic policy:
Biggest economic Stimulus was China's. It's faultering. Good forward bet that the US will launch a second fiscal stimulus if China's flops and the US follows suit (1st stimulus is washed out). End year could reveal global recession redux.

Too much optimism in the markets, a pending China meltdown beginning.

What a divergence. US stocks up via 'optimism' and excess liquidity, Chinese stocks down on 'fear' and tightening liquidity.

Tale tell signs were there especially the Rio Tinto fiasco refer to China's beatdown of Australia - it's all about business and the aggression (polictical) towards Australia refer to China sticks to it's beatdown.... Also refer to New bubbles forming in all markets, Chinese commodity buying could have peaked. Watch global bond markets, may weaken on deficits and corp defaults

China is in trouble. A total export market collapse, over capacity and stimulus running and holding up a whole economy - which has caused an overly speculated stock market and property market. China corrected first (as far as a rebound in global stocks 2009) within their stock market which was shy of falling into a bear market, has now since rebounded back, I suspect was initiated by government officials paranoid of a total stock market meltdown. Despite a rebound the one year graph reveals the trend and it's going one way, which is down.



The US/European markets are reveling in far too much optimism, which is worry in it's self, with China potentially going into an economic meltdown. This may be that 'major' shock to the US/European markets.