Please Baby, One More Chance

By Phil of Phil's Stock World 

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 shcemes."  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.

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.

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 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...

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!