Drive By Post: Time to Close Those Trades

 So here's what I see today as I scan the headlines and read my emails.

 1. Greece has broken through 1000% interest on 1 year bonds. I know loan sharks with better rates than that! I don't know how long the Central Banks can suspend reality, but I can't imagine it's going to last a lot longer. Full Disclosure, I expected a Greek default once they passed 150% so maybe 1500% isn't out of the question?

 2. Spain is missing big in it's mandatory financial targets so say's it's Prime Minister. They are asking for the EU and the ECB (and by extension the Fed) for a little slack. Thing is they missed really big so they arne't likely to get the slack they need. More austerity is going to be forced on them, which will likely lead them down the same road as Greece. Madrid in flames a future headline? I think it's likely. I also expect the Germans to play hard ball with Spain as they've learned a lot in their dealings with Greece.

 3. Portugal is in trouble. Their economy is sliding into the toilet and it's going to have a huge impact on Spain. I am honestly not read up enough on Portugal to be sure of their outlook, but I do know large declines in Portugal means Spain takes a hit as well.

 4. China is predicting a 6.6% decline on domestic growth from 8% to 7.5%. I expect the real number will be some what below 7%, though I'm not 100% sure China will admit to that. Not unlike everyone else, China fudges the numbers a bit to look good. With all the troubles in the EZ I expect China will see more declines in exports than they think. This spells a lot of trouble in China which is already having riots in it's far out regions. Rapidly slowing growth in China is going to be a bid deal for them.

 They are increasing military spending this year. I expect they know full well that they will have a lot of domestic issues to deal with and are looking to soften those troubles with more military employment, along with more troops to quell dissenters and such. Many are speculating it's for invasive purposes but I'm not so sure they will be able to maintain such a force outside of their borders for long.

 5. I've been waiting for years now for the UK shoe to drop. They are almost never in the headlines(Here in the states), and are often over looked for some reason. Fact is they are drowning in debt over there. They've upped the tax on those making over 150,000 pounds a year to some 50% (58% if you include the national health insurance)in an effort to pay down the debt. We all know what happened next right? No, you haven't heard? A lot of those high earners left for greener pastures. Switzerland and Ireland thank you UK for the contribution to their (much lower rate) tax coffers.

 So the UK raised taxes much too high, which punished the economy, which lowered tax revenue, which means they may have to raise taxes again? I'd suggest lowering the rate, cut out the tax loopholes (you guys have as complex a tax code as we do, both are ridiculous), and deregulate a little. Give the little guys some breathing room and they'll save the nation.

 6. The US. The situation in the US is much like the UK though we're slightly behind them in scale of debt (debt to GDP and/or per capita) and we have an edge with Dollar Hegemony. We've seen and heard some rumbling of tax increases on the wealthy here as well. I think it's less likely though. While the UK may not be in the headlines here I have to believe that those in the know are paying close attention to how things play out there.

 The most pressing issue in the US isn't the up coming elections, gas prices, unemployment, or any of those fudged economic numbers. It's Iran and Israel. That is such a complex barrel of shit I could write six articles on it and still not cover everything. Needless to say, I'm opposed to going into Iran except under the most dire circumstances. The cost of war in Iran is just too high economically, in lives lost, and in our standing in the world today.

 My advice? March is looking like a month to sit on cash and only take nibbles if you must play. Avoid buying debt at all costs unless the entity you are buying from has the cash and assets to pay off the debt. Lastly hold on to your socks, it's gonna be an interesting ride. That last one speak to the whole year I think.

Oil, an alternative theory on Iran

 I've been talking to a lot of friends about the up coming war with Iran and how to play it. Most folks seem to agree that oil is the way to win. Go long oil and wait for the bombs to drop, the straight to close, speculators to run amok, and the military machine to start gulping down fuel. This is a possible play and it seems to make good sense, but I hesitate to buy into anything EVERYONE is already sure of. Somehow running with the herd never works out for me. With that in mind I've been looking for an alternative scenario.

 First thing we need to ask ourselves is why would oil prices go up? Iran's oil isn't getting to the US or Europe right now, so we won't be affected by that. Why would we stop buying Iranian oil in advance of a war with Iran? Seems like it might have been to give our industries (mostly Europe's) time to ween themselves from it. Assuming Iranian oil isn't reaching western shores today but is still getting to someone we can also assume it would have limited impact on the price of oil. Unless we destroy the oil fields, which I doubt we would. I also doubt the Chinese would stand for it.

 Who would Iran export oil to if they were being bombed? Well China of course. But the Chinese are pretty slick and aren't going to pay full value if they don't have to. They certainly aren't going to send their tankers to a war zone right? Hell, they aren't even sending enough tankers to Iran today. The question is, why not?

 Iran bargains:
 I'd speculate they know the Iranians are in a tough spot and want to bargain themselves a little discount. I would think 20% should be enough to get those tankers out of other ports and into Iranian ports. Even if there isn't an attack on Iran, more likely really, the Chinese bargaining for a better deal with Iran would lower the price of oil globally. This would also accomplish another of China's goals, hitting the dollar in the balls.

 If the price of oil dropped over night most of the nations in the world would be a lot better off. The US and Canada however would not. If oil took a dive as such the dollar would also take a beating. The need for US dollars around the world would decline in tandem. This would have a major ripple effect of course, from increased food prices to giving us very little of those oil savings. Lower value dollar means less oil per dollar. The world gets a 5% fuel price reduction, the US gets maybe, MAYBE, a .5% reduction.

 The other effect would be the US government would no longer be able to issue TBills for a real negative return as we have been. That 1 trillion a year we borrow at almost no cost, POOF! Dried up.

 If the Iranians can manage to make such a deal with China it's very unlikely the Chinese would allow the US to bomb Iran. If we were getting a 20% discount over spot I'm pretty sure we'd protect that deal with gusto. If this happens it puts a real kink in US plans and hurts the dollar in a serious way. It would also wipe out a lot of the speculators.

 All it requires is China and Iran to agree to an oil discount. Easy to see the Chinese accepting it, but what about the Persians? I don't know if this kind of thing is in the works or if I'm the only person to have thought of it so far. But it does present some interesting possibilities.

 Follow Up posted here.

Holiday Drive By

 Well, with the holiday weekend I found myself twice as busy as a normal weekend. Funny how that works isn't it? I also found myself feeling guilty for not having posted here. It felt like I was letting my few readers down, sorry. That is why I was hesitant to start a blog though, I didn't want another obligation. I have to tell myself that this is just entertainment for you and I, and it's ok to skip it once in awhile if I have nothing to say or no time to say it.

 It's ok to miss a post, no one will die. It's ok to miss a post, no one will die. It's ok to miss a post, no one will die.

 So the DOW broke 13,000 today. It did so while I was sleeping in and recovering form my long weekend. My response once I noticed was, well, meh. A quick check shows it floated past 13k with vapor think volume meaning to me, it didn't really break 13k so much as drift passed it. As I type this it's at 12,991.16 with a fair chance of crossing 13k again. 

 So many of the talking heads are trumpeting the great success, the wonderful moment. I smell a trap, but I've been out of the market for the most part since November-ish so I'm not too concerned. I do wish I could give more insight though. Being as I've been sitting on the sidelines for so long I'm just not up to date on the overall market. For my part I'm paying much closer attention to a very few things to see how 2012 is going to go.


 1. Of course I'm following the Iran/US standoff with great interest. This is above all else the most important thing going right now. A war with Iran will chew up a lot of US treasure, cost more young people their lives, and run the price of oil up to insane levels... again. Most of you know I believe this standoff has nothing to do with nukes and everything to do with the dollar. We're out to defend dollar hegemony and Iran is the latest to try and dethrone us. If we screw this up... It's just not good is all. I could write a huge post about this issue as well and still not cover everything.


 2. The Weather. The last few years have been rough for parts of the Mid West. This has affected everything from corn and wheat to cattle. If the weather starts to turn around I believe we'll see an increase in the price of beef as ranchers start to rebuild herds. Beef prices have been held back as these guys sold off even some of their best cows because they couldn't feed them. 


 Corn, Wheat, and Hay have all been climbing in price. If the weather stays sour it will only make things worse. This will of course drive up the price of food for everyone putting a further crimp in the overall economy. People are strained to breaking already, add higher food costs and it's going to hurt all sectors as folks make cuts to afford to eat.


 This all depends on Iran as well of course. Even if the weather is perfect everywhere in the country but oil spikes, well, you can see how that's a problem. The bigger concern for me is if the Iran situation boils over AND the weather is bad. That leaves us all kinda gimpy.


 3. Timberland. I've been watching the price of timberland for awhile now and it's been very interesting to me. While we saw some timberland trading hands through the worst of the depression (yeah, I do believe it was/is a depression. Call me crazy) prices haven't declined too badly. One of the reasons for this is because much of that land is held, free and clear, by some very large companies like Weyerhaeuser and PCL.

 PCL holds pure timberland. The company doesn't MAKE anything instead focusing on tree farming. This to me is a pretty good play, holding timberland. It's a lot like farming except you can decide not to harvest a crop in a bad market. Can't do that with corn or beef really. The catch is taxes and the mortgage. No matter what you still have to pay your property tax and the note on the land. If, like PCL, you own the vast majority of your land outright you have a serious cushion in bad times.

 Which brings us to why I'm paying so much attention to it. If a company like Plum Creek gets to the point that they need to start selling land to cover costs I'm going to get real nervous. When I start to notice the price of timberland overall declining it's bad.

 4. Gold and Silver. The relation of gold to the dollar is a little looser than it used to be but it still gives us a little idea of how the big guys view the economy. It also gives us a gauge on how bad the little guy is getting shafted.

 5. The DOW. While the DOW isn't a good gauge of the overall US economy to me, it is a good gauge of dollar strength. When the DOW is going up the dollar is likely going down. If the DOW fires it's way up, I suspect I'm going to see the dollar drop 2 or 3 times as much percentage wise. If the dollar moves first...well I think you get the idea.

 So there you have it. My watch list and a quick post to satisfy my need to perform. Now I'm off to feed some cows, work some soil, and get some seeds started.