Financial Sense Blog

Fundamental analysis of "buy and hold" companies is a quaint, Warren Buffetish notion that probably works in the long term. But as Keynes said, in the long term we're all dead.

Overheated US housing prices started dropping in 2006. Homeowners were going underwater (they owed more than the house was worth) and many had questionable credit – “fog the mirror loans” were common, if you breathed you got a loan.

One of the secrets to successful fishing is to fish in a lake with fish in it. Fishing in a lake void of fish is not likely to be a worthwhile venture, though it still beats a day of work. That simple reality is something much of the investment community has never really understood.

While the failure of fiscal policy is widely recognized, monetary policy still enjoys credibility. Yet monetary policy is like shooting in a dark room. Monetary policy suffers from a profound pretense of knowledge.

One of the key points I’ve been emphasizing on the radio show (besides Europe) is the non-confirmation of the Dow Jones Industrial Average by the Dow Jones Transportation Index. I also mentioned last week that this was one of the factors in the process of forming a market top. While this is a warning sign, it is not a signal to become bearish on stocks.

Stocks finished higher for the fourth straight day today. The S&P 500 climbed 0.72% with the Dow and NASDAQ up 0.60% and 0.45% respectively. The pain trade seems higher. While there are issues that bears can point to—fiscal cliff, slowing global growth and potentially muted corporate earnings—the market takes all things into consideration and continues to move higher.

Approximately 40% of US land is arable while only 11% of China can be farmed with relatively small weather changes affecting a greater proportion of Chinese crop productivity. Also, China’s farmland is in its densely settled eastern provinces while the majority of US farmland is in the relatively under-populated central regions.

Gold edged up $3.40 or 0.19% in New York yesterday which saw gold close at $1,778.50. Silver initially climbed to $34.848 then it fell off in afternoon trading and finished with a loss of 0.06%.

The oil embargo against Iran has worked, assuming one defines "work" as a destruction of the Iranian riall which has fallen 33% in a week, 57% in three months and 75% in a year vs. the US dollar.

The US national debt is now over $16 trillion — and growing at the rate of more than $1.2 trillion a year. This is clearly unsustainable. But how to cut the debt? One way is to cut entitlements, which are growing exponentially. Will they cut Medicare? Cut food stamps? Cut any entitlements at all? No politician would dare make extensive cuts in entitlements.