A new year is upon us. What should we expect from the investment environment in 2012. Over the past several years, the stock markets have been transformed from markets to casinos, from investing to gambling, and from skill to fortune. Central bank intervention and manipulation has morphed into domination and control. We have witnessed, and continue to witness, a profound change in the way our economies function. We must adapt or we shall perish. If there is one fundamental difference that distinguishes today from decades passed, it is this. Going forward, I believe the key theme will be that the ticks now outnumber the dogs. Let me explain.
Ticks are parasitic blood sucking arachnids. Their existence is dependent upon latching on to another animal with a blood circulation. We humans can be targets but our dog friends are especially vulnerable to attack. Ticks find a victim, burrow into the epidermis, suck until they are engorged, drop off, digest, and repeat. This is now the story of our existence as it pertains to our governments. We are the dog. They are the tick. There are more of them than us. Their goal is to bleed us dry. There is now an adversarial relationship between the governed and the governors.
That may sound harsh but consider this. Personally, I’m not the least bit afraid of the Taliban. I’m not the least bit afraid of Al-Qaeda. I’m not afraid of any Iranian citizen or Afghan citizen or any other citizen of the world. I’m not afraid to fly on an airplane anywhere absent all security measures. However, I am afraid of the US government. Check that, I am terrified of agents of the current regime. I am terrified of the SEC and the IRS. Since members of Congress are passing new legislation to give the military the right to imprison me without due process, legal representation, or charge, I am becoming terrified of the US military. As Thomas Jefferson once said, ‘When the government is fearful of the people, you have liberty. When the people are fearful of the government, you have tyranny.’ Government does not produce anything. The people do. The people produce goods and commerce and thereby supply the circulation of blood through the economy. The government serves itself to extract that blood at will. But first, they must be given the power to do so. Using threats of terror, default, foreclosure, and credit contraction, the governors have extracted a surrender from the governed. There are more of them than us. How do we then deal with regime tyranny?
Before readers assess my level of paranoia, please remember that as a small business owner in the US neither the Taliban nor Al-Qaeda can bankrupt me, put me out of business, or imprison me. However, any number of US government regulators can. Where am I going with all this? When the ticks outnumber the dogs, the dogs don’t have a chance to prosper! For those of us with a pulse, it is hard to be optimistic about 2012 and beyond.
The truth is the investment environment is falling victim to more and more government regulation. Excessive regulation sucks the blood out of commerce and therefore constricts prosperity. Real wealth continues to be redistributed from the masses to the elite. The elite protect themselves with regulation. Investors and advisors must realize that we are now in an environment in which capital growth prospects are very limited while risk of capital losses are very elevated.
As an example of a tick draining the blood of a dog, let’s turn to perhaps one of the most deleterious members of Congress the US has had the misfortune to endure - Barney Frank. He and his buddies unleashed the so-named ‘Dodd-Frank Act‘ on the public under the guise of ‘financial reform’. Of its 5,230 pages of rules, not a single word addresses the ring leader of the real estate scam - Fannie Mae/ Freddie Mac. That’s because these two institutions are part of the gooberment. Ticks don’t suck blood from each other. A more accurate assessment of the Frank Act is that it is more like a parasitic plague that devours commerce. Only a fourth of the plague has been implemented and it has already cost American businesses 20 million hours of paperwork and the financial industry alone has spent some $12 billion in compliance costs. With the average worker making less than $30,000 per year, that extra $12 billion in compliance expense equates to maybe a quarter of a million jobs that must be cut. Why does Barney hate us so much? Why is he trying to destroy us? He is only getting started. Just in the first year of implementation, the GAO estimates that the federal government will need to hire 2,850 more ticks at a taxpayer expense of $1.3 billion. More ticks than dogs does not bode well for the dogs. What will be the goal of these extra ticks? To suck more blood from us working dogs. It will only get worse.
In part, the people that citizens elect to office are simply too stupid to fathom. For instance, the Governor in my home state is nicknamed ‘Tax‘ because she is always talking about taxing any dog that dares to breathe. Just recently a good sized company announced it was moving to our state and do you know why they moved here? Take a wild one. Go ahead. Yep, the state offered tax incentives to reduce the company’s tax bill. Low taxes foster business and jobs. Jobs produce tax revenue. How hard is this? Obviously our elected leaders are not on our side. They govern with enormous inconsistency. Their goal is not to govern but to rule.
Congress just passed the National Defense Authorization Bill by a 93 - 7 vote. Bush III (or the guy that sleeps in the White House) will no doubt sign it because his main goal apparently is to anull the US Constitution. The Constitution used to be the law of our land in the US and it had a little clause known as the Fifth Amendment. Basically this part of the document gave us all the right to legal representation if accused of an offense. That right has now been erased by the new law that says the military can be used to arrest us, hold us, imprison us, move us to any location in the world, keep us forever, and deny us any legal representation. The traitors in Congress just voted to render us subjects to the rule of the elite. As always, the honorable Mr. Ron Paul was one of the few elected representatives that actually tried to represent us with his courageous ‘Nay’ vote. The rest of them just put a knife in our back. The ticks have penetrated the epidermis. The blood is now flowing from us to them.
On a global stage, we all know the train wreck that is debt-choked Europe. Yet, just last year, ECB president, Trichet, was raising interest rates. Feel free to go down to Walmart and buy a clue, fellow! US regime leader Obama was over in Australia addressing their parliament in November 2011 and told them, and the world, that ‘the US was getting its fiscal house in order and cutting spending’. Oddly, the US debt grew past the $15 trillion mark while Obama was speaking. To make things more mendacious, the Congressional Supper Committee (some people called them the ‘super’ committee but I think we all know that all they did was eat supper on the tax payer dime) could not agree to even a single dollar of spending cuts. But, Obama’s statement did make my list of biggest Biblically Proportioned Lies ever told. (Cain is number one in lying to God’s face about killing his brother Abel. Bernanke is number two from his 2007 speech in which he said it wasn’t the central bank’s responsibility or intent to bail anybody out for bad decisions. And now, Mr. Obama gets the number three spot!)
So, world leaders are completely incompetent, completely ignorant, and completely incapable of espousing the truth about anything. Their only solution to anything is grow the government and grow the government’s power. Unfortunately, the government relies on fresh blood from the working dogs for its existence. When the ticks outnumber the dogs, the sticks don’t get fetched, the sheep don’t get herded, the blind don’t get led, and the poor old dog just gets drained of blood. So how does this affect investing prospects for the coming year, 2012?
Here are a few themes to consider.
Debt is now with us until the end of time and it is constricting the flow of blood to our heart. Our heart is commerce because commerce generates wealth opportunity. The current regime would like us to think that gooberment creates wealth but we know that to be yet another lie. Profitable commerce produces wealth but profits are constrained when the debt service becomes destructive. The US government will have to rollover nearly a trillion in maturing debt in 2012 (I may be rounding up by a few hundred billion) and it will also have to finance an additional trillion to satisfy the addiction to deficit spending. European Union members will need to roll over trillions in 2012 and big banks in both economies will be rolling trillions in debt as well. (Again, I may be rounded by hundreds of billions as the world’s amassed debt has rendered a hundred billion to be a rather insignificant number.) This debt will not be paid down. It will not be retired. Why? Because the debt has not enhanced wealth nor has it been productive in any way to the masses who borrowed it. Somebody has to absorb all this new debt issuance. This will be capital that is fed to sovereign nations and big banks to maintain the illusion of wealth rather than capital that is fed into commerce to drive profits, jobs, and real wealth creation. The money of the world gets absorbed by unproductive gooberments before it ever gets into the hands of commerce. The end result will be a stagnant world economy dominated by the privileged pilfering the poor. If anything, debt will expand because it serves to enslave the populous.
Ticks need dogs. Dogs don’t need ticks. The ticks need to convince the dogs to allow the tick population to expand. The ticks need to convince the dogs to keep walking down the same trails so the ticks can have easy access to their prey. The threat of universally scorned boogeymen, natural catastrophes, and threats of financial collapse are all central to the argument of increasing the tick population. After all, the ticks don’t add anything to the world of the dogs. The ticks have to live off the dogs. Therefore, the ticks must convince the dogs that regulating the fields in which the dogs play is best for the dogs. The goal of the central banks is to concentrate control into a very limited number of hands. Increasing the tick population increases regulations and regulators and serves to control the population. ECB President Mr. Draghi repeatedly said in public that the ECB’s only role was to contain inflation through a stable currency. The ECB did not have the authority to bailout banks and legally could not lend money to sovereign nations. Of course, just this past week the ECB launched a $640 billion dollar bailout loan to the banks of the EU offered at 1% interest for 3 years. The ECB implied that the borrowing banks could then buy the debt of broke sovereign nations. In the end, the ECB will have more control and the sovereign nations will be formerly so, broke, and home to insolvent banks. How about that? The US populace is always being told to be more like Europe. Now Europe wants to be just like us!
I don’t claim to speak latin. But, we are all familiar with the latin that is printed on the Federal Reserve’s money, ‘E pluribus unum’. The translation is ‘Out of many, one’. We can debate the real meaning and significance of this phrase but we must all prepare for the new order that is unfolding in front of us. Central banks are busy trying to convince the populous to surrender and let the banks solve all the problems. In return for debt extensions, they may soon ask us all to convert currencies to just one - theirs. It may have the phrase, ‘Ex multis unum’ printed next to Bernanke’s face. The translation is ‘From many, now one’. This will reflect the end game where the central banks have played and cheated their way through the game of Monopoly and they now own all the properties and securities. Everything will then pass from the hands of the populous to the hands of the central bankers. From many, now one.
Here are a few sad statistics concerning America. First, more than half of Americans are now considered to be either impoverished or members of the lower income class. People like Barney Frank have been working for decades to destroy America. His efforts may finally be paying off. Second, the third quarter of 2011 brought forth a $2.3 trillion drop in net worth to Americans. The entire decline was due to stock prices eroding. Stock prices therefore are now central to the American wealth illusion. The majority of Americans don’t own any stocks. Hence, most Americans are in the ‘lower class’. As fewer Americans own fewer stocks and fewer houses, they find themselves more and more trapped in economic enslavement. They work just to pay their debts. While slaves appear to produce product at near non-existent wages, on the surface it would seem that the owners enjoy the prosperity. However, this is not real prosperity. Prisoners of war forced into slave labor camps were not only less productive but they sought ways to hamper progress. Since they didn’t share in any productive rewards, they did not work as hard on their tasks. Less ownership will mean less productivity going forward. If too many ticks weigh down the dog, he might not even get up off the porch.
Stock prices are now set by central bankers and their trading desks. Stock valuations are driven by the hard work of the dogs. More ticks than dogs drain the blood and hard work from the dogs. As governments and their regulator arms grow, the dogs simply lose their productivity. It follows that stock values would then suffer. Innovation and creativity are critical to economic growth. If the ticks keep the dogs walking down the same trails everyday, the dogs will not be free to explore different ideas. People like Barney Frank will continue to make the leash with which the ticks control the dog. The Fed will continue to keep the path clear for stock investors so the ticks will know where to congregate. Stock prices will move higher to keep the dogs moving. But, this is only a trick perpetrated by the central bankers so they can collect more blood.
Dogs fetch and play. Ticks just suck.
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.