Riding Herd on the Financial Range - #5
If California gets bailed out, there goes the nation
6.8.2009
Hi Folks,
I took the weekend off to think about the past week and the troubles we face. There is a lot of conflicting information and movement out there.
On the surface, things are looking up; markets appear to be recovering. We took the GM bankruptcy in stride and the dollar strengthened pretty heavily on Friday, which sent commodities (gold, agriculture, metals, etc) with the exception of oil down.
However, what is troublesome is running below the surface. This “bottoming out" we are seeing may turn out to be a mirage or at worse, quicksand. Beneath the surface there are, in fact, many hairy problems that are actually worsening that could send us into the abyss. I didn't mean to scare anyone last week, but to me it looks like we are reaching a tipping point; prudence and history tell us we must now be extremely vigilant.
The banks remain weak and cannot weather any further problems beyond the ones they have; their capital positions are so weak they are still not lending. I don't care if they think they can pay back the TARP money, or not, as they are likely to be back at the bailout well. Commercial Real Estate is a problem and will get worse; count on that.
The stimulus spending is not working and the government is still spending. The monetization of the Debt (the Fed buying Treasuries from the Treasury) is absolutely unsustainable and has set us up for hyperinflation. This also completes the debasement of the dollar, such that we will see soaring interest rates and prices in the not too distant future.
We now have the issue of the bond market where it is looks likely California will get their State and Municipal debt guaranteed by, yet again, you and me. If this happens, look for the line to form and then look for the downgrading of the U.S. Debt. If that happens, it will be a real threat to our American way of life. It may very well also be the tipping point to a real tax revolt. Of all the things that could go wrong, this is the one to watch.
Internationally, the World Apology Tour and the foreign policy being espoused are leaving us vulnerable. With Iran's nuclear program picking up steam, and with continued uncertainty surrounding the whack job in North Korea, the political issues on the horizon are clear for the world to see.
In terms of economic news this week, there’s not too much on the calendar so maybe we can all sit back and take some time to tell our Congressional leaders what we think.
Folks, you can make a difference. Please, you do not have the luxury of doing nothing while expecting our nation’s problems to get worked out. It won't work without you. You have to get involved and contribute, even if in a small way, to the solution. And if things don't get worked out, at least you will know you tried.
Your humble editor, Russ
About Russ Magarity
Jackson, Wyoming Distressed Patriot Russell Magarity and Chris Janelli, Chief Distressed Patriot, have been business associates and close friends since working together at Chase Manhattan Asia in Hong Kong. Russ grew up in Cuba and Panama and graduated from High School in Peru. He received a BA in International Relations from the University of Oklahoma (Norman), an M.B.A. from the Universidad Autonoma de Guadalajara (Mexico), and a Masters in International Management (with Distinction) from the American Graduate School of International Management (Thunderbird).
Russ spent his career with Chase running countries and managing corporate finance businesses in Brazil, Mexico, Hong Kong and throughout SE Asia. Prior to joining Chase, he served in the US Navy for 9 years first as a Midshipman and Naval Aviator. As a carrier pilot, he served 3 tours in Vietnam and flew over 250 missions.
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