I sit here and sip my newly distributed Pappy Van Winkle 15-year (rocks, a couple), and reflect on the consequences of today’s market shaking Presidential press conference. Despite the obsequiousness of the White House Press Corps, some important truths were uncovered, many of them centering around basic math and fundamental civics.
For one thing, the President is either being extremely forgetful, or dishonest about the makeup of our current deficits. As some of you may recall, Mr. Obama is quite fond of blaming our current fiscal deficit situation on either the “two wars” of Afghanistan and Iraq that he “inherited,” or “the Bush tax cuts” of 2003. Let’s leave aside the fact that federal revenues have risen considerably—as a result of tax cut driven growth– since the days prior to the Bush tax cuts. Let us also confirm (by Mr. Obama’s own declaration) that the war in Iraq is “over,” at least for now. That means that the “causes” Mr.Obama loves to blame for spiraling deficits are, save for a war in Afghanistan that he has escalated according to his own plan (see below), are not really material to the gargantuan deficits we are facing right now. So what is, then?
Well, some of you may recall the “emergency stimulus” that was signed into law in 2009. A great bill totaling $831 billion in hand-outs via allocated spending (most of which was distributed to states to keep their own governments running) and “targeted tax cuts” which usually took the form of some sort of credit for jumping through some gov’t preferred hoop.
Any “stimulus” spending is arguably a problem because it’s top-down gov’t allocated spending, considered mostly “one size fits all” for the citizenry, and by that standard alone grossly inefficient. The even greater problem with regard to such programs is that they raise the baseline spending in these categories permanently, unless specific cuts are made in those areas where spending was increased that first time. This is what is causing our budget deficits to balloon far past what we had seen in the allegedly horrible “Bush Years.”
As you can see, the problem clearly is not revenue, and it’s not even overseas spending (although Mr. Obama has seen fit to increase that spending too). The problem is domestic levels of spending that show few signs of abatement any time soon.
Today, the President suggested that an additional $1.6 trillion dollars in tax increases – levied wholly on the heads of the investing and producing citizens of the economy (otherwise known as “the evil rich”) – will help solve this crisis. But even allowing the Bush tax cuts to lapse will only produce another $75 billion a year. How is that going to help attack the deficit? Answer, it won’t at all, and what ’s more will likely become counterproductive as capital hides in inefficient and economically non-beneficial havens.
Fly’s tax attorney and others like him will be grinning wolfishly if this benighted “plan” comes to fruition, but only those spinners’ children will eat better, while the rest of us will have to contend with cold salt pork and beans as we continue to endure The Obama Winter.
The only answer is restructuring my friends, and that will entail some significant spending reductions and – yes! – entitlement reform. Barack Obama still has an opportunity here to salvage his legacy. If he can play “Nixon Goes To China” and pull off the hard work of entitlement reform, he will be forever after revered as a Sainted President. If he’d rather continue down the path to perdition and Obamacare folly, well….
At least Mr. Cain Thaler will be grinning.
Many Bollinger Band Crash Trades were triggered in the PM segments this afternoon, and I believe I may partake in some rebound shooters (perhaps in GDX and GDXJ) to reap the reflexive bounce back due those names. I think SLW and SIL are also prime candidates and if I see a “wash and bounce” tomorrow, I may even grab some NUGT and or AGQ. We should be very close to done with this pain, however, so hang on at least, even if you don’t feel like trading.
Best to you all
44 Responses to Demigods and Demagogues
Your posts are always highly informative and your prose is clear and entertaining. Thanks for the material!
You’re welcome, thanks for the compliment.
good post JG
and based on a WSJ report yesterday, it appears the FHA will need a little taxpayer help as soon as February due to rising mortgage delinquencies….Really? They didn’t know that info prior to the election?
I don’t know how any of the “agencies” remain solvent here going forward. A 50 basis point move in interest rates puts them all under water. It’s a shit show.
Bernanko will keep that from happening.
all real good idea’s, pertaining to reforms,always falls on deaf ears. way too many chefs,”who know jack shit”, spoil the soup.
is exk sick from something unknown? last time at 8.12 was a great trade. Repeat?
Yes… huge overreaction.
Don’t be a hero, though, wait for it to rebound before taking a stab.
Obama is really smart and a good man. He can spend that $ better than anyone. Stop being critical! I hate that! Come on over to the winning team in the spirit of compromise.
Jake, any thoughts on SAND. It’s a gold streamer started by ex-SLW execs. It has been absolutely hammered. The blame is on the following Cramer quote:
“No, these guys lend money to other miners, but if gold goes down then no one will be mining.”
Thinking this is the play.
The problem w. SAND is it’s not got the quality of properties that RGLD has.
I have gotten too old for the agita of the “speculative.” Gold mining is speculative enough w. out speculating on the royalty streams of second tier properties…
THAT SAID, if it gets cheap enough, it’s probably worth a stab.
RGLD is incredibly tasty here, though. Gap at $79.50
Thanks Jake. I appreciate it. I’ve been in SAND since $0.66 (small original position that I still have), although there was a 5 for 1 reverse split before its US listing.
Any idea RGLD broke down this morning without news?? Thanks Jake. I’m holding tight.
Just a delayed reaction to yesterday’s moves. I think it’s an opportunity, especially if it fills this gap at 79.50-ish.
Why you didn’t wait to see fill the gap or not? I stopped out from today’s trading position. Core hang in tight. Thanks Jake.
In at 79.50. Thanks Jake !!
You got it a nickel better than me!
By the way, this one is for the trade or keeper ? Thanks. Have a great time on Thanks giving, Jake.
What about education reform?
Current expenses $800B+. The next highest country has an expense of less than $150B we actually pay about 5 times more than the next highest country and have bad test results anyways. politically education reform would be more acceptable anyways as long as you did something very unique and different. The modern education format is becoming obsolete.
In the early 1800s it was designed after the Prussians for it’s strong centralized government as it produced obedient soldiers and bureaucrats.
In the 1900s John D Rockefeller put his personal touch on the education system as he envisioned kids being prepared to be obedient factory workers.
In the next century, technology and eventually even robots will replace the need for a huge degree of specialized labor and there will be a shortage of demand for workers.
We need an education program that can mass produce businessmen and businesswomen and innovators and inventors and highly specialized technological students. And we just so happen to have something called the internet that can allow the best lectures across America to be broadcast to everyone, and an Ipad can organize lots of series of tasks into a single application from which to upload, download, view and rate videos, ask and answer questions and rate answers of the questions and suggested automatic answer for your question, rate individual lectures and individual teachers so that the cream filters to the top, download and view educational books and even take an online timed test. And you can eliminate the need for gasoline to get to school, school-buses and eventually mostly make any need for new teachers obsolete as they will have recorded all of their lectures and work already. You can give all current teacher’s very large severance packages to stick around for a year, record all their lectures and produce a minimum amount of online material for a large one time cost that is still only a fraction of current educational expenses. Then ship every kid an ipad, or if you want to be cheap a kindle fire instead and internet access and the app that tracks their progression and maybe quarterly testing and you are set. The cost will be 90% less. Put some pork in there and you are still looking at much lower expenses and saving hundreds of billions per year. And then you can even sell the real estate that schools have currently and buy smaller quarterly test centers and heck, even add optional state funded daycare centers and you still are going to save hundreds of billions most likely. forget the expensive costs of physical books, you can upload them all to digital copies to provide everyone with simultaneous access to them.
using sds to hedge my agq and exk.still waitin for agq to pop it’s wnr..damn it!!!
I REALLY like AGQ here….
In fact I just got some….
The answers to all your rants are right here, Jake.
Lol, I should write a retaliation book:
“Pretending Your Finances Are A Kitchen Sink – And Why It’s A Bad Idea”
I’d read it.
You do know this guy predicted the Euro crisis 2 years before the Euro was even fully implemented, right?
Correction, Godly did that. Wray did it in 2000.
Mosler also came to the same conclusions around the same time.
That is some excellent bourbon.
Great to read your posts again. I must say though that I’m feeling the pain now with a full plate of GDX, GDXJ, and SIL. Ugh!
Hang in there… I think you’ll be ok very soon…
I agree with your statistics for ANNUAL deficit change from tax cut expiration: (“But even allowing the Bush tax cuts to lapse will only produce another $75 billion a year”).
From the nonpartisan tax policy center who has studied the tax cut expiration impacts for high income bracket Americans:
“Table 2. The President’s Tax Policies, 2013 – 2022
Individual Income Tax Increases:
…Allow the 2003-03 Tax Cuts to Expire for High Income Taxpayers………$849 Billion”
…”Relative to current law, the entire package of proposals would reduce taxes in 2013 for nearly three-quarters of all households and raise taxes for about 6 percent (see table). People at both ends of the income distribution would be least likely to see their taxes go down: only about 30 percent of both those in the bottom quintile (20 percent of tax units) and those in the top 1 percent would see their taxes go down. At the same time, 71 percent of those in the top 1 percent would face a tax increase, compared with just 1 percent of those in the next-to-top quintile (60th through 80th percentiles). On average, taxes would drop an average of more than 1,300 in 2013. Among income groups, only the top 1 percent would see an average tax increase—more than $18,000.”
Dividing the $849 Billion by 10 years you get $84.9 Billion (excluding effects of interest)
Yes, entitlements are an elephant that’s growing too fast — but so are annual military budgets and annual medical spending (per capita). All need to be restructured. I am among the minority who think taxe receipts from the 99%, not just the 1%, should be raised – albeit phased in gradually.
Both taxe receipts and spending levels need to revert back closer to their historical proportions relative to GDP.
Spending in Afghanistan has increased YoY since 06. Why are we still there? Need to get the ground troops out.
$EXK looked good today
$UCO trying to find a bottom
Caught a Knife today $XRA
Thanks Jake for your insights into the PM markets. They are always helpful to those of us who don’t make a full time study of them.
Perhaps the greatest value though is pictured above. Here in Ohio Pappy is scarcer than hen’s teeth. If you have access to an extra bottle or two I would be happy to reimburse any /all expenses plus time and trouble in pretty much any amount. Please let me know by e-mail or DM thru 12631. Thanks in advance!
Kenobi — It’s scarce down here, too!
The other day, my local place was getting their “allocation” so they actually had a lottery to see who would get them.
They got 20 bottles… and there were 200 of us!
Jake- So after sending you this missive I was moved to try to dig some up around here and low and behold, I am now the proud owner of 1 bottle of Pappy 15 year old. I had to buy 4 other bottles of high grade bourbon to get it. But I got it! So it looks like a bourbon ball Thanksgiving for me. Have a great holiday!
Why did gold decline for 19 years when money was still fiat?
You mean after Volker raised rates and Reagan cut them?
ANV joined my SLW in the long term account today. Feeling good about the deal I got in the 32s.
However, I’m also looking for something more speculative to buy tomorrow for a 2 week hold. Xmas funds. MCP caught my eye. How do you like rare earths these days Senator?
wtf is happening to baa , jake .. any insight ?