How’s That Free Postal Service?

You know, I remember not even a couple months ago when we as a country were viciously debating a certain debt ceiling that needed raising. Mind you, this is back when the debate first kicked off, towards the first of the year.

At such point, some very irate groups of “concerned citizens” were jumping up and about, getting all piss-y with suggestions that certain parts of government need not be counted toward the debt debate because they were, quote, “self-sufficient.”

In particular, I remember suggestions that the post office be scaled back to a more controllable level being met with outright hostility by certain “pro-post office” types who had only to say that the post offices budget never costs taxpayers money and therefore should be excluded from the debate.

After all, the money that established the post office was a one-time expenditure, and sales of stamps and postage made the government body totally self-sustainable.

A real example of a business venture success at the hands of the political know-how!

So let me ask you little vermin; is it still not costing me anything?

While we have a moment, I feel as though I really must offer up a concern I have, with regards to a fairly outrageous development in the markets.

To be sure, it has been most hilarious, watching S&P get painted orange by the bond market while Bill Gross cries himself to sleep at night. But I am completely on their side with regards to their initial sentiments about the security of the United States government as a credible borrower.

Here there are two key worries that I feel need to be brought up.

The first is this: The U.S. government’s most rosy projections had a full and massive recovery taking place to cover much of the shortfall of their budget deficits. Even should the economy hold activity perfectly constant, that will create a most massive deficit, which of course will very quickly return us to the newly agreed upon debt ceiling.

The argument that raged from March to August will be back soon enough.

The second is this: The U.S. government’s repayment schedule is highly asymmetrical. A disproportionate amount of money that they owe comes due within the next five years. I read of this the other day, and it frightened me greatly.

So foremost, the heated debate of whether or not the government can even borrow money to repay existing lenders is very much not off the table. And aft we need to question whether, if the U.S. government will even permit itself to lend more money, there will be sufficient interest to allow the government to restructure its debt to a more uniform repayment schedule.

Remember that even invoking cooperation from the lender of last resort, if the Fed takes on extensive 30+ year obligations that will still leave us with the problem of many billions or perhaps even trillions of dollars in debt coming due and reentering the economy, and no controlled method of withdrawing them from circulation.

While for the moment I feel the dollar can get much stronger, that sentiment does rely on my initial belief that we are not going to re-enter recession. It also is somewhat an act of priorities, as businesses will likely be desperate for cash to keep their doors open.

However, in modern day governance, willful default is not to be expected. And this issue could turn into extreme inflation in quite a hurry.

Thus, for the time being, holding precious metals is still a good move, even though they may get hammered. Holding cash is an equally good move, as before devaluation occurs, people will clamor for it.

In both cases, those two assets act as extreme-case insurance policies.

If the government defaults, there will be no limit to what you can buy with your cash. If they try to print their debts away, your PM’s will be irreplaceable.

But the one thing I would not be doing in any instance is loaning money directly to these clowns.

Somewhere between the Recovery Summer and the actual recovery, this market got horrifically lost. Apparently as lost as my memories of 2nd grade and knowledge of state abbreviations (Po Pimp knows what I’m talking about). Let that be a lesson to politicians like Joe Biden; keep your fucking traps shut when you don’t know what you’re talking about. This call will haunt Dirty Joe’s legacy for all his days along with all the other dumb shit he’s said. I mean, even if you do think the Tea Party are a terrorist cell, you have to question why the second most powerful man in America is a complete idiot.

So what now that employment levels took a wrong fork at the road and are perpetually holding 10% of our population in limbo?

Well, to answer that question, I can only say this: looking back to my own classmates, I can tell you that I hated at least 1 in 10 of them. Probably more like 2 in 10.

And even my hating 3 in 10 of them is not out of the question.

So I suppose I take solace in knowing that unemployment is not so terrible after all. It could be even worse than it is and I still wouldn’t likely care about the unemployed.

And as an added bonus to the misery of people who used to annoy me, crude oil is getting eviscerated this morning.

I cannot see how we don’t sell off on these numbers. Unless people were expecting the economy to contract last quarter, this really is as bad as it gets. Without growth, America and Europe have a budget crisis they cannot escape. That means a default is unavoidable.

The costs of borrowing for the worst of breed in Europe have been creeping upward once more. And the Europeans do not have the spine to deal with the issue. They are divided heavily and looking to blame each other, even before the fallout has been witnessed.

Never underestimate the ability of heterogeneous bodies to be heterogeneous, gentlemen.

I must insist you all hold cash, for it is about to become much more valuable.

Fed Governor Elizabeth Duke gave a speech today which I insist you read. It has to do with attempting to correct the housing market.

This speech is pertinent to me for two reasons which stem from her primary suggestion on how to approach stabilizing the housing market.

That primary suggestion is fairly simple; she wants government institutions like Fannie or Freddie to start renting their foreclosed properties, as opposed to selling them.

The affect such a policy could potentially have is startling. First, remember that much of the debilitating action of home prices has come from fire sales of assets in otherwise well to do neighborhoods. By simply restricting those fire sales, the property value of specific neighborhoods could potentially rise dramatically.

The sudden removal of fire sale assets would force much of the population interested in buying to compete over a smaller number of homes.

However it is the second primary affect that concerns me more. By suddenly having two massive competitors in the rental market, rental rates and occupancies on other operations could be forced noticeably lower.

Sure people may not be interested in owning a home. But imagine if someone about to lose there’s could just start renting it. You were living in a 3500 s.f. brick palace? Stay there. And your new rent will be $800 a month.

After all, we’re the government.

Imagine what that could potentially do to me, when I’m banking on the well to do moving into comfortable Class A apartment complexes for $1500 a month?

As I have a large amount of my holdings tied up in two rental operations, such an act would be akin to a declaration of war by the federal government.

Thankfully such a policy could not be implemented quickly or in a controlled manner. But still, I must keep an eye on this.

All up, all the time!

Come on people, I mean I’m not chained to modern portfolio theory; the idea that bonds and equities almost always have to trade in an inverse tandem is silly nonsense.

But over the past week, equities, bonds and the dollar have been consistently higher together.

Is it possible? Absolutely.

Is it likely such an event can coincide with the Eurozone crisis? No.

Something needs to give here. If the dollar continues to strengthen appropriately, money will have to find a cheaper Europe. Unless everyone already has all the money they need, that must mean more selling of U.S. dollar denominated assets.

At a minimum, should the dollar burst higher then interest in U.S. markets should diminish. That leaves us trading sideways, not up.

And by the way; how much demand for crude and products do you think will be present if countries like Portugal keep slamming austerity on their citizens?

Despite checking my enthusiasm, I do hold out hope that oil collapses further. It would be like an early Christmas for me. It would also put us on the path to avoiding another recession. Think of it as cheap resources for those who are left to take part in the fun. A sort of “to-the-victor-goes-the-spoils” outcome.

I await a pullback but with caution. I don’t think the Fed will offer more juice here, but then again I didn’t think they would last year either. The Fed is good that way about punching me when I’m not looking.

On any pullback, barring a shift in my mood (always possible), I will probably cover these oil and energy shorts, locking in profits.

Also, today I sold the AEC I purchased on August 8 ($16 a share cost) for $17.75; securing a nice 11% profit on a small part of my holdings. The additional cash will help calm my nerves, bringing me back above 10%, before potential losses on shorts being considered.

This weekend was absolutely calming, and so I’m sorry if I am slow to get back into the fray this week. My lady and I travelled to visit some friends close to the border, where we spent a very tranquil weekend enjoying some drinks and meals.

It was from there that we watched the hurricane come to shore.

I hope you are all alright; our own Cronkite has been missing in action. You notice his missing presence easily; the man was a wrecking ball in the news section, knocking out stories one by one.

Hopefully he’ll find his way back soon.

As to the market, yesterday of course I engaged another short in ERX. It was a small half sized position. My shorts are once again ERX and UCO.

I will be very cautious here. If the newest hurricane forming in the Atlantic Ocean goes awry, I could see those shorts getting hammered despite whatever other advantageous reasoning I can come up with.

It was my desire to cover all of my shorts this weekend and go full long with whatever cash position I have left. I am hesitant to commit to action here, as I definitely want to see things develop a little. However, this still seems to be a good strategy, in my mind.

AEC and CLP have all but fully recovered from the selloff. Incidentally, I have a larger stake in them than I did. The same goes for AWK.

BG and CCJ must now return to their pre-selloff glory. There is no reason for those companies to be holding so low. I’ve added to BG, but will refrain from buying more CCJ, as I already have similar pricing in my portfolio.

If those two positions recover, all else being equal I will be back in black for the year.

Now let’s get one last fall, at least. I’ll use it to cover out of my oil short with delight.