Fantasy Or Reality...Which Is It?

I must apologize for leaving so many e-mails and comments unanswered last week. My wife Kathryn and I travelled to northern Michigan and the upper-peninsula for the week and saw some wonderful fall foliage. Cell phone and WIFI coverage was somewhat spotty. While there we celebrated her birthday and our 10 year wedding anniversary. The week away did allow me to step back from the global economic and financial fray to a vantage point of the very big picture and headlines rather than minutia.

Last week was a true dichotomy of fantasy and reality. We witnessed a massive short squeeze and the best week for U.S. equities in over a year. While the markets were oversold and due a bounce, the "bounce" came with a backdrop of very dire news! Day after day brought forth new and consistently worse news.

In no particular order of importance; Deutsche Bank reported a $6.5 billion loss (10% of their net equity), UBS joined the derivatives implosion party and required a capital raise, Glencore 'fessed up to $100 billion in debt versus the previous $19 billion (with three or four other major commodity firms in the same boat), the Bank of England required their banks to disclose how much of this debt they were exposed to, China's yuan surpassed the yen in the settlement of global trade, China also went live with their alternative settlement of trade in yuan (non-dollars), Saudi Arabia and Norway disclosed they are now in deficit and thus no longer "buyers" of dollars (are they now sellers?) ...and the U.S. was effectively kicked out of the Middle East! I might add that several recent economic reports even though fudged, massaged and outright falsehoods were unable to hide the reality of global AND U.S. recession and decline in the real economic sectors.

To top all of this off, the U.S. Fed has now attracted naysayers including our (their) own bought and paid for media. They have effectively lost credibility. Since the last Fed meeting, the world has collectively come to the conclusion they have no options left and credible monetary policy is not a possibility. In fact, Mr. Trichet of Europe's central bank has admitted that global central banks can no longer save the day or even buy time. On the other side of the financial coin, John Boehner resigned a couple of weeks back and his proposed replacement Congressman Kevin McCarthy withdrew his name from consideration. Please understand what this really means, the U.S. House of Representatives has now been hijacked by a minority which controls the majority. Normally this might be a good thing as a divided Congress cannot spend money (it does not have). Currently I believe this is a very bad event because it proves the further loss of credibility in U.S. leadership is valid.

If you look at what happened last week from a distance and with neutral eyes, it may have been the worst week for the U.S. in any living person's lifetime. We were effectively kicked out of the Middle East (by Russia) in less than 10 days! This, while China warned Washington not to interfere in the South China Sea. It is clear the U.S. no longer carries a big stick and has no more "bluffs" left as Mr. Putin and China clearly have called it! This has horrific ramifications for the dollar as it has been hanging on for years out of pure "confidence" which has now been broken easily by a patient China/Russia.

Do not think to yourself the timing was any coincidence, China announcing their alternative to SWIFT settlement was simply offering an alternative clearing system AFTER Russia raised the stakes and exposed U.S. weakness. Every step forward for China is a step backwards toward obscurity for the U.S.. They fully understand we are broke. They know we have depleted our gold reserves and leveraged our finances beyond anything in history. The banks, the brokers, the derivatives, state and federal governments ...are all over leveraged and reversal will wipe out any remaining equity VERY FAST!

Does it even matter the stock market squeezed higher last week? The answer of course is NO with the only caveat being "the public has been kept to sleep". I ask you these questions, your own answers to yourself will suffice in clearing your mind of the fantasy versus reality question. Are the dollar and the U.S. military might the very last bastions of U.S. "exceptionalism"? Has THE major peg supporting the U.S. dollar been a world fearful (Washington would call it "respectful") of the U.S. military? If you add in a collapsed oil price which by definition means a collapse of demand for "petro dollars" from the likes of Saudi Arabia and now Norway amongst others, does this augur well for the dollar?

There are many ways to connect all of the dots (none of the connections are US friendly), I have chosen these three because they are in my mind the most important. The (petro) dollar and military are all the U.S. had left ...until this past week. We used to have the lead globally in so many areas. We were the manufacturer of the world. We were the beacon of truth, fairness and hope. We now have no more respect in any area and in fact are probably one of if not the most mistrusted government in the world. We reneged, lied, cheated, stolen, bullied, spied and needlessly stirred up chaos wherever we went publicly or in the shadows. The only difference is that now, what was previously barely whispered is now spoken openly. Does the word "mutiny" come to mind?

I will leave you with just one question and what it means to you personally and to your family. Were you to wake up one day where the world tells the U.S. "get out and take your 'dollar' when you leave", what would this mean to you personally? Would your entire life and lifestyle not change forever? THIS by the way is at the very core of what is meant when you hear the "world will be RESET"!!!

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Holter-Sinclair collaboration
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