May 8, 2011

Where can you go to find packed restaurants and hotels with flashing NO VACANCY signs? Where is there a place where home prices are rising by 3.6% a year instead of falling by that much? Where in the US is unemployment only 5.9%, about half the national average? Where is the best healthcare and best health insurance available in the world, and where is it dirt cheap? And where are wages and benefits skyrocketing? Washington D.C. of course. 
 

That's where the money is—the American tax payer’s money.  If you are a bureaucrat, or connected in any way with politics, you saw employment in your profession soar by twenty thousand new jobs during a recession where all other areas saw catastrophic job losses.  Your salary increased until it was 40 to 100% higher than those doing the same job in the private sector.  And while others saw their pensions wiped out, your pension is healthier than ever. While many lost their healthcare coverage, your healthcare plan only got better.

 

Source: http://www.economist.com/node/18561085?story_id=18561085

 

USA Today just reported that the number of government employees who make $180,000 has gone from 800 in 2005 to 18,000 today, and that the average government salary today is $70,000 vs. $41,000 made in the private sector.

 

There are neighborhoods in Washington D.C. where unemployment is above 25%. But the total rate is only 5.9%. That is because when you take into account the zero unemployment for those who live close to the White House or Capitol Hill, it averages down. It’s almost impossible to rent an apartment, let alone buy a home in downtown Washington D.C. 

 

Apparently little has changed since days gone by in foreign lands where those who lived around the King prospered, while the farther away you lived, the poorer you were.  Feudal wealth was not earned—it was granted.  You could be the best in the world at your trade, but if you didn’t gain favor with the King or one of his men, you were doomed to a life of poverty.  Washington D.C. is such a place today.

 

In today's America, those that are working and yet barely able to make ends meet are taxed so that all the "King's men" can thrive. Why do you think the average man’s heroes are once again people like Robin Hood, or John Galt? It is the same reason why there is a Tea Party again today, just as there was when we rebelled against King George at the birth of our country. The task today is no less than to "dethrone the King" and all his men.  To take back what has been taken from the average non-politically-connected person.

 

Then, instead of replacing our "leaders" with lifelong professional politicians, we need to replace the elite of Washington with hard working men and women who understand the ideals of "old America.”  As government power declines—and it will—so will government spending. As bureaucrats are let go and lobbyist leave the city in search of profitable jobs as political favors disappear, the population of Washington D.C. will shrink. Instead of being the center of POWER, Washington will eventually become an historic old city of grace and stability as it once was. When Washington goes from boom-town to quaint, perhaps then we will get justice once again.

 

 

Market Update

 

On Friday, April 29th, I cashed out 55% of my portfolio. On Monday, and since then, silver, gold and many other commodities have plummeted. Even having dodged a bullet I find it painful to see the other 45% of my portfolio fall dramatically. I hate profit taking, especially when the profits are mine!

 

However, a correction and consolidation was needed. The fall in silver was so fast and so violent that I tried a couple of unsuccessful trades, but I was stopped out immediately. I have my eye on CDE at 25 or so, it’s 200 day MA, which may provide another opportunity to pick it up, if it gets there.

 

As I review my portfolio I am hard pressed to find any more shares I would want to sell. I feel confident that while these stocks are vulnerable to near term downside, they are all good long term holds, unless the fundamentals change -- and they haven’t.

 

I think, and have thought all along, that the economy will slow and inflationary fears are overblown. I think Bernanke will be proven right that inflation is “transitory”. I think we have just had our “bounce”, and that the global economy will level off at low levels for some time to come. We have had our inflation scare and we have had our economic exuberance.   But at the end of the day we have had only a 1.8% increase in GDP in the first quarter, and inflation has probably just peaked.

 

From here on, I think we revert to, what I called “a year of L”, as I said in my “Looking Forward” article January 1, especially if the austerity imposed by Congress is going to be a bit more than most expect. It was on this basis that I thought gold and silver were getting ahead of themselves. That’s why I sold into the rally. I ended up getting near high prices for all of the stocks I sold.

 

Long term, the fundamentals of the gold and silver market are still firm. We are seeing more people buying gold and silver for long term protection and more central banks doing the same. Mexico and Russia are the two latest to make huge new purchases. China is on a buying program. This will not stop anytime soon.

 

However in the near term things have turned markedly negative. Home prices have fallen and we have entered a double dip recession in housing. Interest rates are falling toward 3% as global and domestic growth weakens and overseas fears increase. Cotton is down 30%, and oil has begun to collapse. The dollar is rising and I think the article I wrote a few weeks ago, Toward A New Dollar Policy, may have been a forerunner of a move in that direction this week. Both Gietner and Bernanke, PLUS Trichet of Europe commented on the need for a strong dollar. This may be a signal of things to come.

 

Inflationary expectations may give way to deflationary/recessionary fears once again. This makes the stock market suspect and with it we may see the consumer pull back. And the European crisis still looms. These are the downside risks that face us short term. It is very possible that we have just seen the high’s in most commodities for some time to come.

 

For this reason, I have gone short gold, via the DZZ inverse double short ETF. I picked it up at 7.02 have a stop at 6.74. This is a protective position, which is a hedge of the remaining 45% exposure in resource stocks. Hopefully I will be stopped out and we will see a rebound of resource stocks next week. We will see.

 

 

Portfolio by weight:


Cash   55%

 

Rubicon

 

Verde Potash (Formally Amazon Mining)


US Silver

 

DZZ (ETF short gold)


Copper Fox

 

CDE