The big story in the world right now is the riotous nature of citizens in a succession of countries. The latest riots are in Egypt and its citizens are calling for the government to step down. The simple truth is the lie has gotten old and citizens are rebelling. Citizens are tired of government oppression and they are tired of the erosion of their living standards. They may not know the root cause but citizens are getting fed up with governments that don’t work for, nor represent, the people. Amen, brothers and sisters. Allow me to inject some clarification and reflect on how stock investors should view the riotous turmoil.
Modern governments have come under the spell of banker elites. Governments have turned their backs on their citizens to exclusively support their banker puppet masters. The riots should not be unexpected. Actually, we should all wonder what took people so long to get mad. Facing hunger and limited prospects of remedy, the people are finally on the march. The anger is born not because there is a food shortage. Indeed not. The anger is born from rapidly rising food prices and that is the effect of inflation. The inflation is the result of the central banks of the world riding to the rescue of broke bankers who bankrupted themselves with derivatives. Governments everywhere have a misguided notion that a relative few banks faced with a sudden realization of negative capital could imperil the government regimes. They reacted by stealing money from the citizens to give it to the banks. They did so through printing, taxation, and legislation. None of these actions serve the citizens nor represent the wishes or best interest of the citizens. Naturally inflation rises from the saving of the big banks and the first real wave has hit food prices. I suspect most people rioting are not aware of the root problem. They are hungry and don’t see their governments as a source of remedy. Worse, they understand that their governments are in fact part of the problem. Specifically, their governments can no longer tell the truth about anything. Governments have been so audacious and arrogant to try and lie their way to economic recovery. Brothers and sisters in revolution, please allow me to inject the truth.
The point of government is to enrich the banks by any means necessary. The two biggest economies in the world, the US and the European Union, kicked things off by plunging into debt at the urging of the banks since the banks were perfectly hedged with derivatives. Turns out that when the debts couldn’t be repaid, the derivatives were worthless. Down went the big banks and in came the government. The banks were restored with the treasures of the citizens. The best way to steal money is through inflation and the best way to instigate inflation is through the proliferation of money. The money of course was given to the banks. The debt to produce that money was given to the citizenry. The result is crushing inflation.
Now we know the lone goal of the government - to support the banks. Sure, inflation is driving up the price of food and energy. But rest assured my friends. The CEOs of BofA and JP Morgan have received their multi-million dollar bonuses. Yes, other lending institutions throughout the world have rewarded their CEOs who ran their companies into the ground with millions in bonuses. The Wall Street crowd has enjoyed one of their best years ever in 2010. They had to be restored. We couldn’t possibly let Goldman Sachs go broke, could we? AIG? BofA? Citigroup? And on and on we go. So, brothers and sisters, revolt as you wish. But until you know the source of your economic destruction, you are blindly wielding a protest. Sure, the government leaders are loyal only to bankers and care nothing of its citizens. Yes, they probably need to be changed. But remember this - democracy is an illusion. The US claims to be a democracy (in actuality it is a republic) but the majority of citizens didn’t want a health care tax increase. But they got one anyway. The majority of its citizens object to airport molestation. But they get it anyway. The elected leaders do not represent their electors. The arrogance of government is that it can act as it likes and answer to only the banks. Government tries to placate the populous with lies about everything. For instance, the US just released the unemployment number and it fell to 9%. No one with a functioning brain cell believes that but the idea is the economy is in recovery. It better be. Food prices and gas prices are rising by the day. And yes, the US claims to have hardly any inflation.
Government oppression is necessary to redistribute wealth from the citizens to the government. Lies are necessary to facilitate the transfer. The riots in Egypt can be traced to what is happening in the US. For instance, one of the wealthiest communities in the US is now concentrated around the capital in Washington, DC. Loudoun County is expected to experience the fastest income gains this year of any county in the US. Not surprisingly, home values are holding up and actually gaining there. Government workers make much more than equivalent private workers and have far superior benefits. And to think, government produces nothing. Even in order to employ someone, government has to get the money for payroll from producing citizens of the country. And somehow, government feels it has to live better than the individuals from which it confiscates money. In so doing, government becomes arrogant enough to interfere with capitalism and play favorites by enriching banks. The resulting inflation is enough to make a person pick up a rock and..., well - we can live vicariously through the Egyptians who are now rising up in protest of the status quo.
To investors, we must know one thing. Ignorance is the primary weapon of mass destruction that the central banks use. Ben Bernanke was asked last week if the Fed felt responsible for driving up food costs in Egypt. He responded to the negative and went on to say that food in Egypt was priced in Egyptian pounds. I guess his inference that he was destroying the US dollar and not the Egyptian pound was supposed to satisfy the idiots we laughing now refer to as the ‘media’. The truth is commodities throughout the world are priced in US dollars and what all central banks do is inflate. But we are not supposed to know this.
In the meantime, the Egyptian central bank announced that they would stand behind all Egyptian bank deposits. With what - a printing press? Yeah, all central banks are alike. Central to investors, we must be concerned with the Holy Grail of finance - the credit default swaps on the sovereign debt. Egypt has about $40 billion in debt primarily to French and UK banks. God knows how much in default swaps are tied to this debt. Egad - bankers again stand to lose tens of billions! If the protestors do anything to put a premium on the Egyptian swaps, thus imperiling the banker profits, I suppose the bankers would have the army come in and mow the protestors down by the thousands. What? You wanted the truth, right? Anyway, I suspect the situation in Egypt will be resolved soon and the market will take it as a reason to rally. Sure, people might still starve and they might have no future but the central bank will ensure that bank profits are secure. Hallelujah! Aren’t we all happy? There will be more profits for Wall Streeters and us!
The chart for this week is a chart that goes back to the beginning of September, 2010. This is the beginning of QE2 and for investment purposes, the beginning of the most recent stock rally. The silver line is silver, the gold line is the Dow, the blue line is the BKX banking ETF, and the red line is the 10-year US Treasury price. I thought it would be interesting to see our central bank policy in action. The Fed is buying Treasuries and they have lost some 5% since the beginning of our time frame. Some people would argue that the Fed might go broke if Treasuries keep selling off but I must ask, ‘with what are they buying Treasuries with?’ The answer is nothing. In actuality, the Fed is buying Treasuries with promises to print more money if pressed for a full accounting but that would be inflationary! That’s why they use ‘credits’ and that’s why the Fed can’t go bust. You and I, the taxpayers, are actually paying for QE2! You and I will pay for any losses. Anyway, silver is up about 50% since the Fed started this madness and that reflects investor trepidation about currency devaluation. But, the real object of the Fed’s action is the Dow Jones Industrial Average. We can see the punch that QE2 gave the Dow. Even more importantly, we can see that the banking ETF has actually outperformed the Dow in this time frame. So you see? Sure there is stomach crushing inflation rampant in the world. Sure the nation of Egypt and some of her neighbors are in the street of protest. Sure our collective futures have been stolen and mortgaged. But the important thing is the banks have been rewarded and enriched for their bumbling incompetence and governments have become even more emboldened with their power through the weapon of mendacity. Look at the chart to see the ultimate strategy of the central bank. Look at the chart and understand that the stock rally has a long way to go and no one is going to stop the central banks. Like the US, Egypt does not have Andrew Jackson among its living. Enjoy the rally. It comes at the expense of countries like Egypt. Take a bow, Mr. Bernanke!
Since September, 2010 - DJIA in gold, BKX in blue, Silver in silver, USB in red
Chart courtesy StockCharts.com
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. Advisory services offered through BMF Investments, Inc.