Let’s Have A Candid Discussion

You think this makes sense do you? US markets are ramping to levels not seen since the last, great bull market. The debt of countries like Italy (where ex-president and child rapist Berlusconi is threatening to splinter the votes to ungovernable ends) and Spain (where a quarter of the youth are disaffected, unable to start their lives and about one tenth of the land mass is preparing for secession) are trading for yields that are really, reasonable. Oil is spiking towards the $100 mark – meanwhile Europe remains marred in recession and Germany just joined them. Oil stockpiles are increasing.

Precious metals are collapsing in price and the Fed is printing $80 billion a month.

In short, my dear reader, you are out of your minds.

But that is all right. You see, I foresaw your absurdity – your complete mental breakdown – months ago. I prepared for this. I realized, “this makes no sense”, and because it made no sense, I knew you would act this way. How else would the crazy behave in a crazy world?

So I did the opposite of what makes sense. And I did it first, before you.

Now, let’s chat about the euro. The $EURUSD is completely deranged. If it were a person, it would be a homeless man who found a tattered tuxedo, and is presently running around, hiding in steam vents in the middle of the street in Detroit. But, by some divine joke, this homeless man has been mistaken for a titan of industry, and is currently invited to all the high social class dinners.

“Aaaaahahghgh”, he gurgles in reply to requests for his opinion on gun control.

“EEEEAAAA”, he says when asked for advice on pre-tax 401K versus Roth.

And then he proceeds to eat his napkin with an olive fork.

Now let’s chat about oil. Oil is going way lower. The US economic numbers and forecasts are, again, way off, again. This is really not very funny anymore. How ten thousand economists can blow this year after year, never bothering to even pretend to learn from their mistakes the year prior…they should all be fired and stripped of their degrees. Pathetic…

Plus, Europe remains in a spiral. Germany, the heart of the EU, has finally entered recession this year. Question: knowing German culture, do you think that will make them more or less willing to work with their fellow member states?

Wait, don’t answer that. I’ll answer it for you. “It will make them less likely to work with their peers.”

Very good me, have a reward.

Why thank you.

German’s are going to increasingly view the rest of Europe as a useless bundle. If German wellbeing takes a hit, they’re culturally predisposed to blaming Italy or Spain or France for dragging them down with their wild schemes and self-centered demands. If Germany was reluctant to sit by and watch Draghi open the ECB doors to distressed banks before, wait until their worst prejudices are confirmed. Free money was supposed to help Europe, remember? Germany goes into recession and they’ll make sure the Bundesbank does everything within its power to hamper the rest of the EU at every turn.

Now let’s chat about housing. Housing prices are going higher, but that’s not going to help you sell that third, four bedroom house you’ve been desperately clinging to, praying for a buyer. Your retirement plans are shot, pal. Prices are going higher, but sales volumes are staying depressed. The housing recovery, like most luxuries, is reserved for the rich.

Now let’s chat about bonds. Safe haven bonds have got one major push left in them. I don’t expect the US 10 year to clear 2%. Meanwhile, bonds of Italy, Spain, Greece, etc are WAY too high. They are going to be taken out back to the woodshed before summer.

After that, I’m going to reinvestigate building a short position in American treasuries. We’re one major push in commodity prices from the Fed being strung up without any options for recourse. Because they’ve decided to load up on assets yielding 2%, they really don’t have much in the way of choices for controlling the money supply, unless they want to jack up the discount rate and watch the banks crash screaming back into bankruptcy. The economy is going to become increasingly wild, like a Stallion that got away from the Spanish.

For the moment, bet on the Fed and bet on higher prices. But always remember, in the back of your mind, that trouble cannot be vanished with the wave of a wand. Problems will always materialize in some way, and if not addressed, the consequences of those deviations can build to tremendous proportions.

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