The baby boomers soon to be called Busted?

TWO themes today:
I) The WAR of WORDS: POLICY in action
II)POLICY FOR A TOMORROW



I) The WAR of WORDS: POLICY in action
(How to profit from it)

EUROPE and USA
- Interesting discussions over the pond...
Trichet freaking out on inflation, discussions about an ECB rate raise this summer as imports prices rose 6.1% in Europe.
- ANYBODY holding 2yr-10yr BONDS NOW is a complete fool!
- Boomers holding bonds give them the right name " boomers!"...
- If in March, keeping the US banking system alive by humongous rate cuts was the order of the day, by June Trichet and Bernanke were changing their tunes to Super Hero Captains of inflation fighters. That MAY have come about as they realized that for one BSC saved, there are dozens ready to drop dead and that neither the ECB or the FED can really win the fight against the global credit crunch in the Western Economies. China and other emerging economies have started to restrain credit to limit their fight against imported inflation. Metal prices charts are screaming this! While the Fed has won reprieves by attracting sovereign funds on a per case basis, dozen of banks/brokers if not hundred will need to merge or fail or part of the cleansing process. After the boom alas come the bust!


ASIA
CREDIT CONTRACTION IN CHINA
- If China decides it is not going to import inflation, well it won't either keep exporting deflation.
- Metal price have already shown this! The credit machine in Asia which brought us all the boom of the last 15 years is also generating all the bust!


FOOD FOR THOUGHT
As credit contracts, Metals are crashing fast and the last refuge of the speculators looking for suckers is in food based commodities. They may really implode any time if we have good harvests. It reminds me of those late night parties when most of the guests have left, there are always those staying around the buffet. In reality, the rich with leverage will decide soon enough what the price of A September Chicago delivered bushel of wheat is going to be worth but I doubt brokers,economists , anthropologists or African famines will have much influence on the outcome. I don't want to be on either side of that bet, same goes for soybean, rice etc. I think that it is immoral and I would rather invest in a campaign that destroys farm subsidies to millionaire farmers!

So where do YOU put your money?

Cash? A depreciating asset

Real Estate in NA? Still at risk

Bonds? As Don Coxe said in his MAY edition of Basic Points "My advice for investors back then was (in the 70s stagflation era)“The proper period for holding a long-term bond in this inflationary period is the amount of time you hold a hand grenade after pulling the pin.”)
Still applies today...

Now let's look ahead to the next year!!! Imagine we are in JUNE 2009!!!!!


II) POLICY FOR A TOMORROW

BERNANKE's JOB (HINT: Maintaining purchasing power is good for the US stock market)
Cheap Chinese imports fueled low inflation for more than 15 years in the USA. That allowed Greenspan to print dollars galore and fuel America's addiction to cheap credit. Ben, his successor, now is the cleaner upper after the party and will be incapable of changing consumptions patterns with his localized FED rate policy on a global scale. The US was the home of 45% of world equity markets. That number is going to be 20% in the next ten years. US monetary policy will not affect the decisions of an Indian buying a Tata or the Chinese buying an Internet Sub-zero looking Fridge. So Mr. Bernanke MUST fight US inflation and let the world fight its own demons. That in turn will make the US dollar a stable currency and the US bond market, an investment vehicle, rather than a depreciating asset. The federal Reserve cannot do it without the next administration and a responsible Congress (Oxymoron intended).

THE NEXT ADMINISTRATION AND CONGRESS: THE FED'S NEW BEST FRIENDS OR FRESH FOES?

Assuming Mr. Bernanke REALLY becomes an inflation fighter a la Volcker, meaning he lets the banks fix themselves rather than trying to push on a rope, sink or swim style, the US stock market is going to continue to rally IF and only IF the next administration is committed to improving the economics behind the dollar. As the Bush administration can attest to: You can't fight THREE wars ( two physical and on on the middle class) and hope to win your party's next election. BUSH has all but lost major voters in the middle class. With approval ratings below 28%, I sure would like to listen to his remaining supporters explain to me what he has done besides watching 9-11s disasters crop up in Europe rather than in the good old USA. No more rights and freedom, that has been Bush's price for security...

ON to YOU LEADER OF THE FREE WORLD!
OBAMA PLATFORM: You have NO platform in the USA unless you get everybody on board. Words, as Mrs. Clinton once said, can ring as hollow as Bosnian deeds, if they are not put into the fire of the action! Is this going to be another lame presidency? just Lots of applause at the State of the Union Address with lots of clapping but NO real change except announcing that we now have a working russian made $16MM dollar space station toilet?
Can OBAMA really get Congress to vote the will of the people? Can OBAMA really mend the trigger happy appropriation ways? Can the Pentagon go back in its Genie box and lick its wounds? Can OBAMA propose a trade-off to the health care for all lobby ( first we balance the budget and THEN we cover you)?

With the Word Change used by McCain and OBAMA on average 30 times a speech, I am not sure if Washington CAN change... PROVE ME WRONG!

THE WORLD BELONGS TO OPTIMISTS ( WHY? Because the pessimists give up at the onset!)
POSSIBLY the dollar could come back in the next twelve months. Why? because the Chinese hold US reserves of $1.3 trillion and the petro-dollars WANT to come home and grow. Sitting in a foreign bank, eaten up by inflation is not doing ANYBODY good! IF instead of weapons appropriation bills and military budgets, the world see a US balanced budget over the next 3 years,and US taxes are spent on infrastructure, retooling and new energy policy geared towards efficient manufacturing plants where LABOR is BUT a fraction of the cost of goods. BUILD it and THEY will COME! The recent rise of oil made thousand of plants worldwide as useless as bomb destroying plants in Japan and Germany in WWII. Call ENERGY DRIVEN OBSOLESCENCE! Maybe millions of jobs are going to be lost in the retooling effort, but I believe the US economy will continue to transform itself and it will bring about a new era of prosperity. Nobody has easier access to capital than the Americans so they should be the first to see the benefits of retooling to energy efficient manufacturing. Continued major advancements in transportation are going to be key and America will have to give up the love of its cars. THAT might be too much to ask for but we can all dream now, can we? ... Now how do I get from Montreal to NYC without a car or a plane... Bombardier got any ideas?

In the meantime:

- Continue to short The Loonie over the USD ( until 90 cents)
- Cover your shorts on XEG, keep your XGD...
- WHEN SKF drops $4 in a DAY buy another couple of lots... Global Credit contraction cannot help over leveraged US banks and brokers until next year.
- Short GS over LEH.`
- Buy GE... Energy efficiency is key !!!

Until then!

Cheers!