Winter (Economic and Market) Watch

In the whodathunk department, Reuters is reporting that Chinese buyers are defaulting on deliveries of  iron ore and coal shipments. As I have been reporting for months, ships have been mothballed,  triggering another round of under-reportedbanking losses.  Also reported from China is a 15% drop YoY in property sales, and more importantly it saw a 19% drop in land sales. Land sales are how China’s local governments finance themselves (see China Bubble Bursts Symposium).

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American masters of the universe and their toadies give self serving lip service to covering some events in Europe. They are forced to really. But when it comes to the last Ponzi standing,  the US, we see little of the kind.  For example recent estimates of California’s budget deficit soared to $16 billion, compared to $9.2 billion estimated in January. Tax revenues are falling far short.  Now the state proposes more tax increases and spending cuts. Even though California is a non-recourse state, bankruptcies are running hot.  The other state to pay close attention to is Illinois, a political quagmire of the highest order.   My prediction: both California and Illinois are political hot potatoes and Democratic states. Therefore any attempts at Federal bailouts of states will be gamed unmercifully.  Look for this to develop pre-election.

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This post is an example of the actionables available on my subscription site. It is distinct from the Daily Rant pieces seen on Winter Watch.

I was an active and successful mining shares investor in the early days of the precious metals bull market. I learned a lot about mining during that period.   I also learned that mining is very tough business subjected to extra risks and cost pressures.  To win in this sector output has to be increasing faster than costs (energy, labor, etc).  Additionally mining stocks have been ETFed to death, and trade too much as baskets not individual stocks. Accordingly I have only rarely used this sector in recent history. However, certain mining stocks now seem to present unusual levels of opportunity, even without any further moves higher in PM prices.  Further, I think we are at an inflection point where the value of the product produced will outrun the input costs.  I have given my view on silver here and here.

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Over the course of my thirty five year investing life I have noticed that markets often trade on hooks. A hook is when most participants develop a preconceived notion about “how things work”.  Then trading follows a pattern, drawing more in.  In the past, hooks were relatively harmless and when they came undone, they had little lasting overall economic impact. However, in today’s brave new world,  undone hooks will severely and I think critically damage the system.   At present the hook is a doozy. It is that central banks have given speculators a put that will somehow not only save both the system and their bets,  but make them profitable, even in the face of too big to save insolvencies. I hold that this hook is at peak absurdity.

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The chorus against the Fed Bubble continues apace as David Einhorn rips Fed’s jelly donuts policies.  Rick Santelli and Fed apologist Steve Leisman discuss the Einhorn’s statement. These exchanges have gone on for a few years,  except now Leisman really seems to be on the defensive in a crackpot blathering rancid stale bread kind of way.  Next up is Ron Paul  with a classic  essay, calling central bankers, “intellectually bankrupt”.  James Grant takes the opportunity to take another shot with strong langauge, ”The Federal Reserve is the giant squid of squids, it is the vampire squid of vampire squids.”  This is no mercy stuff, and I think is marking the point when at last the curtain is being pulled back.

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Feldstein smiles at one of his star pupils

One of the “elite,” conomist Martin Feldstein was once considered one of the finalists for Greenspan’s spot, before a true sycophant, the Bernank, was appointed.  The rest is history but seems Feldstein is having an Atlas Shrugged, John Galt moment about what has transpired.

“The stock market is, I think, responding to the Fed. I think the real danger is that this is a bubble in the stock market created by low long-term interest rates that the Fed has engineered….The danger is, like all bubbles, they burst at some point”

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