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jesusfreakinco (29.61)

Fiscal Wake Up Tour / The Fed / RVA's post / and the Chinese wildcard

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15

October 23, 2009 – Comments (15) | RELATED TICKERS: FED , CRO.DL , OKS

It is all starting to come together for me...

I am in the middle of reading Taleb's Black Swan book which in summary says our human flaw says that we make assumption about the future based on what we can see and based on history.  This leads us to false projections about what is to come in the future.  We miss the fact that all swans are not white, but that black swans do exist.

I went to the Fiscal Wake Up tour in Denver last night (for anyone there I was the dude that asked the question of the panel as to if any of the panelists knew of William's Shadow Government Statistics work - which they didn't...).  David Walker has been the whistleblower on the US' financial depravity at the Federal level (things are just as bad or in some cases more dire at the state and local level IMO).  PGPF and Mr. Walker have nailed the macro picture, but are missing (or are unwilling to talk publicly) about the possibility of a black swan event that is happening before our eyes - the demise of the USD based on us losing the world's reserve currency status, among other things...

What many of us that are skeptical about this recovery (green shoots or weeds?) and the MSM are trying to piece together from multiple data sources is the picture of what this unseen black swan will look like when we finally see it.  Unfortunately, when the discovery is made (i.e. either through a crash/loss of confidence or the frog in the boiling pot of water / gradual descent of the USD to levels like .52), it will be too late to position our portfolios to protect our families.

Enter in Jim Sinclair's missives...   Jim hasn't come out and definitively said 'x' will happen, but he has been counting down to D-day for the USD - the point of no return.  Most of us Sinclair groupies (as some on the Yahoo boards like to think of us as mindless and cultish) have been wondering what this event that is coming in 16 days or so might be...

Enter in David Walker - Mr. Walker admitted last night that he has been summons'd by the Premier of China twice in the past.  Interesting...  

My understanding of the Chinese (which is admittedly very little) is that they first speak through others long before they speak directly to someone.  They have 'spoken' to Benny, Timmy, and Obama through various ways including thorugh Mr. Walker and... Jim Sinclair (yes I know I am cultist...).  This summer the sent a massive delegation to the white house to deliver what I believe was a 'final' message that started this countdown that Sinclair talks about that will end in about 16 days.

So, today, RVA's blog points me to this article from Calculated Risk.

It seems the Fed has a choice to make... Print more money to continue to surpress treasury prices or do they let bond rates rise to their 'natural' levels which IMO is much, much higher and cause the recovery to fail, throwing weed killer on the green shoots.  Sinclair and many others believe once you've let the QE cat out of the bag it is very hard to get it back in.   The fed reverse repo test was a complete failure.  So, that leaves them with only one choice... Keep on printing.

According to RVA's in his blog, he thinks the Fed will back off on their purchases.  I am not so sure I agree.  Either way I think we are on the verge of another Black Swan event.  I guess the question is how many of my fellow Fools 'see it' and are prepared for it.

Feedback would be appreciated.  I, like most of the Fools, am just an average self-employed father of three trying to figure out how to prepare for this tsunami and would appreciate any comments / tips and feedback on my logic.

JFC

15 Comments – Post Your Own

#1) On October 23, 2009 at 2:59 PM, miteycasey (91.01) wrote:

Most people say get into commodities, but most of my money is tied up in my 401k where I can't choose individual stocks.

I'm looking for options here.

Should I get 50% into bonds?

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#2) On October 23, 2009 at 3:14 PM, Rebkong1 (< 20) wrote:

STAY AS FAR AWAY FROM BONDS AS YOU POSSIBLY CAN

 

interest rates will surely rise to crazy levels when the dollar collapses and as you know as bond yields rise, prices fall..you will see a precipitous fall in botht the stock and bond markets in the coming weeks months

 

well i should regress..i-bonds or tips would be the ONLY bond i would look at purchasing now and actually you stand to make out like a bandit with either of these choices

 

 

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#3) On October 23, 2009 at 3:14 PM, Rebkong1 (< 20) wrote:

i'd look to cash it out or put it in a money market acct and pray they don't take that from you

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#4) On October 23, 2009 at 3:16 PM, jesusfreakinco (29.61) wrote:

Mitey,

Someone asked me the same question the other night.  You really need to understand the guts of each fund that you can invest in to make the proper allocation.

Bonds will get slaughtered if the USD falls furhter.  Read the calculated risk blog.  If you don't undertand why bonds are a bad investment after reading that article, then I'd suggest a good financial planner that understands the frailty of the USD.

One suggestion I might make is borrow against your 401k to the max and put that money in a foreign currency fund (I use Everbank for this) or some gold/silver related shares.

JFC

 

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#5) On October 23, 2009 at 3:20 PM, jesusfreakinco (29.61) wrote:

Rebkong

well i should regress..i-bonds or tips would be the ONLY bond i would look at purchasing now and actually you stand to make out like a bandit with either of these choices

When tips are tied to an inflation number that is managed to not really reflect true inflation, I wouldn't suggest tips either.  They underperform.

As long as it is liquid, move to foreign currency accounts...  Why have anything invested in USD?

JFC

 

 

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#6) On October 23, 2009 at 3:23 PM, davejh23 (< 20) wrote:

I think it will definitely take some "black swan event" to pull the market down significantly.  While it seems that there's been more volatility lately (last 3 days have been a pretty big zig-zag), negative news doesn't seem to be affecting the market all that much.  I don't know what that news might be...what could China possibly announce?  I'd think that they won't be dumping treasuries or cease all purchases until they're holding only shorter term treasuries.  Will they let their currency rise against the dollar?  I think this would hurt the US, but it might hurt China even more. 

"According to RVA's in his blog, he thinks the Fed will back off on their purchases.  I am not so sure I agree."

If the Fed is the only remaining buyer of Treasuries, would they really continue buying?  At that point, is there really any point?  I'd say the USD is surely doomed at that point.  I'm confident that the US will lose the ability to fund their deficit spending through borrowing at some point...then they just print, and spend, and the USD is devalued, so they print, and spend some more, but the USD is devalued more, so they print, and print, and print.... 

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#7) On October 23, 2009 at 3:25 PM, RVAspeculator (43.66) wrote:

Thanks for posting, rec #5 from me….

Like I was saying in my blog I do believe the Fed backs away for a bit and we get slightly higher rates and lower stock prices.
Falling stock prices will keep the bonds from getting totally out of control.

More of what we are seeing today…
The S&P is off 1% but the 10-year yield ALSO rose 6 basis points from 3.42% to 3.48%

I think this is the trend you will see.   The fed is not going to get worried about bond rates until the 10-year yield gets above the HEAVY multi-year resistance around 4.25%.   SERIOUS problems don’t arise until we hit 5.15% which is the highest we have been since the year 2000. 

If stocks are falling or even grinding lower then the Fed should be able to stay away for a while as this should contain bonds.  Right now the Fed has to worry about the dollar index below 75 and oil hitting $83 bucks.  

When those situations abate they might pull the trigger again but I hope not.  Of course there is always a potential for a bond collapse as the bond market is surely a bubble (it REALLY was at 2.00%), but I do not see that in the short run.

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#8) On October 23, 2009 at 3:29 PM, davejh23 (< 20) wrote:

"When tips are tied to an inflation number that is managed to not really reflect true inflation, I wouldn't suggest tips either.  They underperform."

I agree.  If the US loses the ability to borrow, and we have true hyperinflation, TIPS will be toast...not just underperform, default...

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#9) On October 23, 2009 at 3:31 PM, Rebkong1 (< 20) wrote:

true JF..but it they would protect you better than anything else...i bonds are good investment right now..tips i agree not so much but still would be better than just about any other option he probably has in his 401k..im doubting he can put anything in foreign currencies..but i could be wrong..just haven't seen many that are that "flexible"

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#10) On October 23, 2009 at 3:39 PM, jesusfreakinco (29.61) wrote:

Reb - which is why I'd suggest his pulling out as much as a loan as possible.  The loans are often at a fixed rate and be paid back with inflated dollars.

Dave - good point on the default .

RVA - I'd be curious if you've seen any analysis on what rates would be right now if the Fed wasn't buying.  I know that type of analysis would be difficult and problematic, but interesting if someone with expertise in that area could project it.  BTW - you are looking at traditional support levels which, IMO, should be thrown out the window because the market is being heavily manipulated by the Fed's purchases.  If they hadn't made those purchases over the past 9 months or so what would those levels look like?  And... even more so... if their strategy is changed, wouldn't that blow out the model as well?

JFC

 

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#11) On October 23, 2009 at 3:39 PM, BravoBevo (99.97) wrote:

miteycasey:  Under jeasusfreakinco's scenario, do NOT get into bonds.  Rebkong1's comment that you could go to "cash" is a reasonable suggestion.

I'm assuming that you are in the 401(k) BECAUSE you are receiving some kind of "match" benefit from your employer.  For example, perhaps your employer will put in $1 for every $2 that you contribute to your 401(k).  Or maybe your employer will put in up to x% (varies between 1% and 5%) of your annual salary regardless of whether or not you contribute.  AS LONG AS your employer is making a contribution to your 401(k), it makes sense to keep it open. 

If your employer does not make any contributions (my last employer didn't), then I don't know of a good reason to keep the 401(k) open. If this is your situation, I suggest that you have your HR department "roll" or transfer your savings into a "self-directed ROLLOVER ACCOUNT" at your preferred brokerage account.   The key is to always used the word "rollover" and make sure that you do not take possession of a physical check for your funds.  Have the employer transfer the funds DIRECTLY to the brokerage firm without you touching it.

Best wishes to you! 

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#12) On October 23, 2009 at 3:51 PM, jesusfreakinco (29.61) wrote:

Bravo -

Question - I thought most plans didn't allow a 401K to allow rollover unless you were terminated from the company, at least is how plans use to be written.  Do you know otherwise?

JFC

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#13) On October 23, 2009 at 4:19 PM, GeneralDemon (21.97) wrote:

JFC,

Everbank? I have been a HUGE fan of Chuck Butler for years. You're on the right page with that guy IMO.

Great post, I've got to read that book, it sounds like it's becoming a classic.

So tell me more about the Sinclair 16 days - haven't heard about it yet.

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#14) On October 23, 2009 at 4:47 PM, jesusfreakinco (29.61) wrote:

Demon

Well... I'd suggest reading jsmineset.com as another source of data...

JS has had this countdown since about mid-summer.  If I had to guess it started from some comments he knows were made by the Chinese to the Obama boys mid-summer (the meeting that really never got a lot of press).  JS has been to China a few times and I'm guessing is a little like Mr. Walker - he either has been fed information or has sources to know what is happening at high levels.

He has been illusive about specifics so we've all had to be reading into things a bit.  My comments in my blog above summarize what I know.  I'd also suggest one of Sinchy blogs.

We shall see... I hope JS is wrong because he is calling for a currency crisis and hyperinflation ala Weimar Germany.

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#15) On October 23, 2009 at 5:19 PM, BravoBevo (99.97) wrote:

JFC:  You may be right (I might be crazy, but it just might be a lunatic you're looking for) ... sorry, but some lyrics got stuck between my synapses.

As I was trying to say ... you may be right about having to be "terminated" to rollover from a 401(k) to a rollover account.  I'm not sure anymore, but it could be worth looking into, just in case it is allowed.  I do know that a person cannot contribute into both a rollover account (at a brokerage) and an employer's 401(k) during the same tax year. 

My main point is that:  Unless there is an quantifiable economic benefit derived from an employer's contributions, there is no advantage to making individual contributions into any employer-related plan that has such limited investment options (when compared to the self-directed plans available at most brokerage houses).

Now that jfc has raised the question, I'm not sure that a 401(k) can be rolled-over while the employee is still employed by the same employer.  In any event, the employee does have the right to reduce or eliminate any additional individual contributions.  And it may be in the empolyee's interest to not make further contributions, but to make separate contributions to a savings plan at a brokerage firm.

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