Do You Feel Lucky? The Most Dangerous Risks are Those That we Perceive Not to Exist

Before we get into anything heavy, let me inform you that the August 1st letter was sent out on time. Should any of you have not received it, please let me know and we will get it out to you post haste. In my 50 years of studying economic history and training, I have never seen or even read about conditions even approaching those of today. The economic numbers cannot be trusted and every statement made is more fraught with political considerations than they are economic ones.

Let me give you a few examples that you are all probably aware of. We have not had an audit as to the amount of Gold that the US has in 75 years. Why should we be surprised? We have absolutely no idea how much money has been injected into the banking systems through the various loan and bailout packages. It is all being kept under wraps on a "need to know" basis. It must be all part of that change that we all voted for. The money supply numbers seem to be purely a figment of someone's imagination as any monies supposedly injected in the economy through TARP are purposely being withheld, so we do not know how much money was injected or in what form.

We know as a matter of fact that numerous countries, especially China, have curtailed their purchases of Treasuries during the auctions. We also know that two new Bond Agencies have been appointed recently (one German, the other Canadian). Yet in spite of worries over their solvency, the Treasuries are being purchased; the question is by whom? If it's not by the Chinese or the Japanese, how come the rates are going down? Economic projections are being discussed as if they were all being made in a vacuum.

In all macro economics, one of the single most important factors that must be taken into consideration is human nature. Is the overall level of confidence rising or falling? This is probably more important than any other numbers, manipulated or otherwise, that will determine the success of a projection. Let's take last week's unemployment numbers as an example. At first glance, they seemed highly positive. That is until the numbers were examined and they turned out to be highly negative. The same is true for the 2nd quarter earnings. In many cases, they were positive until we looked beneath the surface to see how they were arrived at. Slackening sales, major cost cutting and the biggest GDP drop in 75 years is not normally conducive to raising equity prices.

THE GREAT BANK ROBBERY

Let's examine the recent bank information that has been released to the public. We have absolutely no idea how much money was either given or loaned to the banks nor do we know how much of their worthless paper has been taken on to the Fed's balance sheet at face value. Timothy and company couldn't stop crowing about the $40 billion in profit that the Government made from Goldman Sachs repaying its TARP money. Oh, really? How come he wasn't specific about the $3 - $5 trillion in Fed funds loaned to Goldman Sachs who then promptly used the money to buy 4% Treasury Bonds? That's a 3 ¾% spread X $3 trillion which amounts to $111 billion per year. After 3 years, that's $333 billion - not a bad deal. Of course not one cent of that went into the hands of the public. Perhaps if it did, we wouldn't be talking about taking out a new Stimulus Package.

POLITICAL ACRIMONY

If you thought that the political atmosphere in Washington was bad before the election, it's was like playing "patty cakes" compared to what it is now. Between Cap and Trade and Healthcare Reform, the Senators and Congressmen are afraid to go back to their districts as more and more town hall meetings are being canceled. There doesn't seem to be any strong leadership from the Republican Party. Sarah Palin seems to be the best they have to offer, yet they are afraid to do so. The Democrats, on the other hand, are still in full campaign mode as they continue to blame even the smallest problems on the Republicans and get riled up on the least bit of criticism. All this is not good for the country as slowly but surely, the Media gets back to doing its proper role of being the "great questioner".

Last week's polls showed that the public support for the Government's Healthcare Plan is dropping below 35% from a high of 65%. If there ever was a time that this country and for that matter, the rest of the world, needs to pull together to get us out of the rat hole we have managed to dig ourselves into, this is it.

For me to attempt to go into any in depth economic analysis at this moment and time would be as fruitless as Bernanke's and Paulson's analysis as I do not have any numbers or data that is more reliable than theirs.

THE GOOD, THE BAD AND THE UGLY

Let's start with the ugly because we know all about that. The back stabbing, acrimoniousness and lack of cooperation in Washington is not worth talking about, however hopefully things can't get any worse which means they can only get better.

The bad is that there don't seem to be any economists worth their salt out there (from Nobel Laureate Grubman on down) who seem to be able to come up with anything but tax and spend solutions, which have been proven time and again not to work.

Now let's go to the good. As I mentioned in my last letter, if you believe in God, something will happen that will get us out of this morass without the world coming to an end. I think I see signs of that on the horizon. What signs might that be? There seems to have come about a halt to the massive Left Wing Marxist steamroller effect that was about to overrun Washington. Somehow the so-called most oft-ignored stupid tea parties made up of individuals from all political persuasions have begun to ask questions as to who is going to pay and how is it going to work. The public has made it abundantly clear that passing 1,000 page bills in the middle of the night that have not been read will not be tolerated and will be remembered at the polls in 2010. Like it or not, both parties will have to work together if they all don't want to be thrown out in the next election. Cracks are forming in the solid wall of tax and spend, anti-business, central planning consortium that initially looked like it was running rough shawed over the entire world as a few economists are beginning to find their voice. The power of the people is what created the Industrial Revolution and the rapid rise in the living standards throughout the world. And it will be only the realization by more and more of the Central Planners that the only solution is the return of power to the people.

"Things have to get worse before they get better" is probably a truer saying than we ever thought. We may have already reached that point, but that does not mean that we are out of the woods yet and it certainly does not mean that we have started a new Bull Market. For the next month or two, we will probably be witnessing the development of the biggest "Bull Trap" in market history.

This letter is a little early for two reasons: I seem to have encountered a few glitches in the email process and some of you may not have received the August 1st letter. The other reason is that on August 3rd, in my infinite wisdom and stupidity, I decided to go in for bilateral total knee replacement on both knees. This only proves that there is a fine line between genius and insanity! I haven't eaten or slept in 10 days and I would take water boarding over this any day, so if this letter is not as in depth and complete as you or I would like it to be, please forgive me. The insanity portion of my brain has completely taken over. Everyone tells me how brave I have been, but I think what they are really saying is, "How stupid can one guy be?" Nevertheless, what is done is done and I will take all the prayers of support you give me, I will need them.

Please accept my apologizes for the briefness of this current letter as I do not have the strength to write at this time. I reviewed the August 1st letter and it might as well have been written today as my projections have proved to be right on target. If for some reason you did not receive it or deleted it, please let me know and I will send it to you again. Hopefully my mind and body will be in good enough shape to take advantage of the opportunities in the next few weeks.

STRATEGY

For the next 2 weeks my maximum upside target still remains 9500 SELL into strength. Now is not the time to get greedy or look to get even. Sell your laggards NOW while the selling is easy.

GOLD

September is nearly always a good month for Gold but more important the consolidation phase that we have been in for the last 19 months or so satisfies the necessary consolidation phase of the first 84 month leg of our GOLDEN BULL MARKET. Look for a breakout starting sometime in September or October at the latest.

UNCOMMON COMMON SENSE
Aubie Baltin CFA, CTA, CFP, PhD.
2078 Bonisle Circle
Palm Beach Gardens FL. 33418
[email protected]
561-840-9767