Tuesday's FUD - 3/19/2013

Good Morning from very Sunny Eastern British Colombia. I'm ready to go fishing, but the trout season has not started yet in Canada or the USA :(

Folks, things are not pretty in the EU at the moment.  As you know Cyprus is a very small part of the EU GDP, and their cash deposits are also very small in the context of things.

Cyprus is causing angst on a level heretofore unobserved when a small country has financial issues.  And the whole reason surrounds their decision to "tax" people's savings in order to put up collateral for a loan from the ECB (European Central Bank).

Maybe I will cover this topic later, but keep your eye now on Italy and Spain.  Also keep your eye on Turkey as Turkey claims Cyprus Natural Gas fields belong to them.  Why is that important?  Because if Cyprus does not tap into the savings, the only other potential asset to put up is -- their (or Turkey's) natural gas, and Turkey has a military - Cyprus (nor Greece) have a military.  Watch out... this could get rough.

I have so many things to think about this morning.  I think I will do a mind dump, and provide some graphs that are interesting...  I will send out a newsletter soon on long term investments.  Be sure to watch your mail box.

US

• Home starts (and most news in real estate) were positive in today's news.  The stockmarket was up on that news, but the EU situation is very volatile.  The result is that as of 9:18 PDT, the stock market is taking a large drop.  
• Treasuries have soared which in turn usually indicates a large drop in the stock market.  In today's vernacular - this means risk-off trading which has everything to do with FUD and zero to do with fundamentals.
• The Euro currency is losing big time against the US $$
• Portugal, Spain and Italy bond spreads are widening which will make their stock markets tank.  
• AMERICAN BANKING ASSOCIATION:  Don't worry, Cyprus cannot happen here...  In the statement, they showed that the FDIC has $25,000,000,000 (25B) dollars to cover depositors.  The FDIC has an interesting chart, however.  It was published on Finviz. 

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq312.pdf

• Now look at that chart -- $25B is to cover $9,283,000,000,000 (9.3T) in total deposits. 
• In the banks, deposits are unsecured liabilities, and according to the OCC, over the counter derivatives represent the vast majority of off the books assets.
• The total Derivative holdings are $297,514,000,000,000 (300Trillion) 
• Does anyone now feel comfortable that your money is safe in the banks? 
• Have you thought what happens when asset values drop when one is leveraged 11,900-1?

OH, I feel real secure...  My grandfather (and his mother) use to hide their money in the house as they did not trust the banks after the depression.  By the way that no longer works very well.  For example, suppose you would like to hide $100,000 in your home.  How much storage would that take?  In what denominations?  And how would you spend it without Homeland Security coming to visit you?  And have you thought that a middle-class (few left I know) person earns about $1,000,000 every 10 years? And if you worked for 30 years and saved 10% each year, that would be $300,000 you would have to store?  I just don't get how that would work. 

Go to the ABA and comment.  Tell them how you feel so comfortable about the safety of the US banks.  http://www.aba.com/About/pages/contactus.aspx Have them explain to you why we should feel comfortable with what our own Government is publishing.  sigh...

Greece:

• Watch out below... Greek bonds have been held up by a plethora of promises by the ECB, but Cyprus problems are falling over on Greece.
• Greece's government bonds (GGB) have dropped almost 7%.  If you were a bond investor in GGB you would probably be at loss for this year.  
• This is the largest price drop since the bailout in 2012.

GOLD:

• In my opinion, GOLD will rise as long as the EU situation is a flux.   Is this temporary or long term? 
• Look in my blog posts below, and you will find how to monitor the gold market.  Money flows to gold during times of FUD. 
• Gold is up over 1618 at 10:05, and so in the short term, a lot will depend on the EU's approach to Cypress and Greece.  The FUD will also affect Italy and Spain, as more money may be pulled out of their banks. 
• And gentle reader, if you are going to invest in gold for investment's sake, then silver is likely a better investment from the perspective ROI. 

Found This from Raymond James:

http://www.raymondjames.com/personal_investing/  (The following is from a blog, and attributed to Raymond James; a Mr. John S. Wilson CFA

In light of some recent comments from politicians that we don't have a spending problem, we have a revenue problem; it might be worth sharing some stats with you that I haven't brought up for a while.

• - The US has added $5.5 trillion to our deficit in the last four years.
• - Some politicians postulate and bloviate that all we need to do is raise taxes on the wealthy to fix our problems.
• - Just for grins, let's define 'wealthy' as everyone with a household income over $100,000, the top 13% of our earners.
• - Let's not raise their taxes to 50% or 60%, let's raise them to 100% and confiscate everything they make.
• - We would raise an additional $700 billion in tax revenue. (remember, we've added $5.5 trillion to our deficit in just the last four years, which equals $1.4 trillion/year.
• - So, if we confiscate through taxes all income of those making $100,000 or more, we will still be adding roughly $700 billion annually to our deficit at the rate we have been going.  And, we only get to do this once before everyone affected decides to move to Chile. 

Now tell me we don't have a spending problem.  End of arithmetic lesson.  Notice I didn't say algebra, I'll be satisfied if Congress can just master arithmetic.

To me, these numbers do not appear to be exactly correct (although it is sort-of-hard to prove).  The IRS web site reports that in 2011 top 10% of all individual taxpayers had an aggregate income of 3.856 Trillion.  If the government taxed 100% of this without any deductions, that would cover the deficit (more or less).  At the current tax rates, the IRS reports this top 10% DID pay $721 Billion.

Well, consider the point made Mr. Wilson, and the point was pretty dramatic. Possibly though you could have said if we raised the tax rates 100% over the current rates, we would still be $700Billion dollars short, that would have been very close to correct, and very possibly that is what you meant.

Ah gentle reader, possibly if I had the original report (and not the blog of the report of the email) Mr. Wilson's message would be found to be correct..  Let me know if you find a clarification by Mr. Wilson. No matter what, the information was worth considering.