2011 Boom Time for Businesses that Profit From the Suffering of Others
Stock-Markets / Financial Markets 2010 Oct 28, 2010 - 12:59 PM GMTBy: PhilStockWorld
Please Baby, One More Chance - That is how Jon Stewart summed up the Democrats' strategy for the President last night. It was a great interview and I won't rehash it here but it's well worth watching. At this point, it's very likely the Democrats keep the Senate and the President made several mentions of the Senate rules that have allowed the Republicans to filibuster over 90% of legislation brought before the Senate in the past two years, which has ground the Government to a virtual halt and prevented the Democrats from advancing their agenda. I'm sure if you are a Conservative you think that's a great thing, but it's not Democracy - it makes a mockery of the process. If things work out, the Dems plan to change the rules of the Senate when the Senate disbands for the elections after which point it will only take a simple majority vote to pass the laws.
So, to say a lot is riding on this election is an understatement. If you are a GOP supporter, you face, once again, a crushing defeat snatched out of the jaws of victory as Conservatives have already been celebrating their "new mandate" all month. For the Democrats - two years and out would be a disheartening blow and America is likely to head down the austerity path of Europe, only with a lot more military spending and less taxes for the rich. Will EU-style rioting in the streets be far behind? All very exciting things to look out for in the weeks ahead.
Meanwhile, as important as the elections is the Fed meeting next Tuesday and Wednesday with the 2pm release of what most investors expect to be a statement that indicates the Fed's commitment to $100Bn PER MONTH of Quantitative Easing (ie. money printing) that will be handed out to banks in exchange for their toxic assets and handed out to the Treasury in exchange for their toxic notes - notes that Bill Gross calls "the mother of all ponzi schemes." According to Gross:
With growth in doubt, it seems that the Fed has taken Charles Ponzi one step further. Instead of simply paying for maturing debt with receipts from financial sector creditors – banks, insurance companies, surplus reserve nations and investment managers, to name the most significant – the Fed has joined the party itself. Rather than orchestrating the game from on high, it has jumped into the pond with the other swimmers. One and one-half trillion in checks were written in 2009, and trillions more lie ahead. The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort. There is no need – as with Charles Ponzi – to find an increasing amount of future gullibles, they will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not. This one is so unique that it requires a new name. I call it a Sammy scheme, in honor of Uncle Sam and the politicians (as well as its citizens) who have brought us to this critical moment in time. It is not a Bernanke scheme, because this is his only alternative and he shares no responsibility for its origin. It is a Sammy scheme – you and I, and the politicians that we elect every two years – deserve all the blame.
Pimpco has slashed their holding of US Government bonds from 63% of the fund in June to 33% in September and now, finally, Mr. Gross is telling all the suckers he dumped his paper onto over the past 3 months that the party is over in the bond market. Why would he do this? Well, aside from being an evil, manipulative, amoral bastard - it makes good business sense. Pimco has to hedge - they are not going to be more than 2:1 invested in foreign funds so, now that they have their 2:1 ratio, they WANT the US bonds to die and so, Mr. Gross makes statements like "the 30-year bond rally in the US is over" because he's already got all the foreign bonds he wants and now he wants to chase you into them as well.
Sadly, when a group like Pimpco controls over $1,000,000,000,000 in assets, they can do pretty much whatever they want. People will now follow them into foreign markets and that will trash the prices of US Bonds but that's OK for Gross, whose 2 Foreign Bonds double in value to 4 while his one US Bond Ratio drops from 1 to 1/2 and that leaves Bill and Mohammed with net 4.5, a 50% gain from the 3 (2:1) they started with and, just when there's a frenzy to buy foreign bonds to chase Pimco's 50% gains - Bill will begin selling foreign bonds and buying American ones until, about 3 months later when he's at 2:1 US Bonds - he will finally get on TV and say the rally in foreign bonds is over and the US looks like a good deal.
What's the moral of this story? Give Bill Gross your money to manage! It's evil, it's immoral but it's not illegal to do what he does and he is only doing the same thing with bonds that Lloyd Blankfein and others do with stocks - they use their tremendous wealth and positions of power to manipulate the markets and to buy the politicians who write the laws that contain the loopholes that allow them to do what any 5 year-old child can clearly see is cheating. You can't beat them - so you may as well join them because we all gave up the moral high ground decades ago when we voted this generation of crooks into office.
Meanwhile, the Ponzi scheme Bill Gross points to is very real and very ongoing as was demonstrated yesterday and will be again this morning as statements made by Gross and others were timed perfectly to knock the dollar off it's first rally in a week as it tested the 78.50 line mid-day. A guy with a Trillion Dollar bond fund who HAS $400Bn in US Bonds calling the paper a Ponzi scheme does tend to shake investor confidence and that sent the dollar back to the 78 line this morning (a 0.6% drop that tremendously boosted the value of Bill Gross's $800Bn of foreign notes into the close of the month), which acts like yet another 0.6% tax ON EVERYTHING YOU OWN in order to boost the apparent value of the markets by 1.2% (see our Weekly Newsletter, it's a relationship we've been tracking).
Speaking of things we are tracking - Copper is back over our $3.80 line and we'll see if oil can make $82.50 to confirm the commodity rally despite a 5Mb build in inventory yesterday. Hey, it doesn't matter if no one actually wants the stuff as long as da boyz at the NYMEX can continue their own little shell game right under the noses of the regulators while our politicians keep accepting 50% of their total contributions from the same energy and financial interests that run this little scheme.
We are having a great time in cash, taking simple hit and run plays in both directions while the sheeple participate in this joke of a game. Good luck to all you "stock pickers" out there - the market is now a currency game and nothing more. We shorted NFLX with $175 puts yesterday on the morning pop and had a double by lunch - is that how things are supposed to work? While we are proud of ourselves as small investors to get these great daily wins - there are massive hedge funds catering to the top 1% as well as sovereign wealth funds who are making the same kinds of gains but with leverage that lets them make billions, not thousands!
We are just trying to make our 2.5% per month to stay even with real inflation but hyperinflation will make that useless too and, while we already have our lists to keep ourselves ahead of that game - what will happen to the bottom 99% of this country - the people who can't afford to buy options or commodity contracts or take 5:1 margin at the broker? "Better to rule in Hell than to serve in Heaven" was not stamped on the back of our currency by the founding fathers but it is the path that the top 1% of this country has taken...
Speaking of those who rule in Hell - XOM's profits surged 55% this Q to $7.35Bn on a 16% increase in revenues. That's right, it's all gravy once oil gets over $75 a barrel and XOM bought another $3.3Bn worth of their stock (more than 1%) this quarter to keep those earnings "in the family." I was going to make a point about all the politicians that own stock in XOM, BP and others but the link has been redacted and can only partially be viewed in Google's cache (which I am sure will be redacted now that I've pointed it out). This is the problem with doing research into a lot of these things, they bury it as fast as you can dig it up...
Let's forget XOM though, and talk about Chrysler. We couldn't wait to get rid of our auto industry despite the 3M Americans they still employ - down from 15M Americans when it was first decided that it would be Socialist to defend what was, just 30 years ago, America's largest industry. Now Daimler AG is reporting a $2.2Bn net profit making those same cars we gave up on with $250M of those profits coming from health care and benefit reductions in North America (none in Germany). Sales were $35Bn, for the quarter, on track to hit $170Bn for the year or about 1.7M $100,000 jobs - thank goodness we didn't do something stupid like saving the US Auto Industry, right?
Asia was flat this morning despite our "amazing" recovery yesterday afternoon but Europe is up a whole point with their thriving auto industry with yet another trucker, MAN, reporting great earnings and Royal Dutch Shell also reporting an earnings beat thanks to higher prices being charged to global consumers.
Invest in businesses that profit from the suffering of others - it's going to be a booming market in 2011!
By Phil
Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to eHarmony.com. Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (www.philstockworld.com)
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