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August 05, 2011

Cassandra Speaks - Outlook for August-October

As predicted in my previous Cassandra speaks, stocks have tanked and precious metals have appreciated.  While we may see some short-term rallies, don't doubt the long term trend is quite poor.  Top ten reasons for continued meltdown to the end of the year include:

1)  Predatory bond vigilantes are not being prevented from shorting sovereign debt offerings.  Whining public officials insist that the fundamentals of countries like Italy and Spain are sound and then go on vacation, during which time the bond vigilantes come roaring in.  Make no mistake, higher capital costs in Italy and Spain will more than offset lack of trash pickup, etc. and a strong Euro combined with social unrest is putting a huge dent in European tourist revenue.  Solution is simple:  MAKE IT ILLEGAL TO SHORT SOVEREIGN CREDIT

2)  High unemployment, defense spending and high energy costs are preventing the US from climbing out of recession.  Solution is simple:  Institute a national energy policy bringing home soldiers and training them for full employment in a strong multi-pronged energy program.  We need wind, solar, natural gas.  We need to get energy self-sufficient.  We need to stop paying for both sides of the wars in the Middle East.  DUH

3)  We need to bring jobs home from overseas.  Right now we ship jobs overseas and use government programs to pay 100% of the cost of the unemployed.  Food stamp recipients are at their highest level EVER at over 45 million Americans.  Trust me, people want to talk to someone who speaks English when they place a call to a service provider.  Rather than extend unemployment benefits to 99 weeks (or beyond!) we need to have the government initiate credits equal to the DIFFERENCE between what it costs companies to employ Americans and what it costs to employ people overseas.  This way the government burden is reduced by at lease HALF and we get a virtuous US employment cycle.  What we don't need is to ship wages overseas and have the money cycle through foreign economies rather than out own.

4)  Companies are not repatriating cash from overseas because the dollar is weak, not because companies need a tax incentive to repatriate funds.  Multi-national companies want to spread their currency risks and returns around the globe and that's not going to change just cuz you offer them a tax break.  

5)  The political infighting is beyond anything this country has ever seen.  There is no reason for anyone to invest in a country with this much dysfunction.  I am so sick of both democrats and republicans pointing fingers and accusing each other on TV every day.  How do they have time to do their work?  PLACE LIMITS ON THE AMOUNT OF TIME ANY GIVEN POLITICIAN CAN SHOW HIS FACE ON TV.

6)  Unwillingness to get the pain over with.  The mature economies of the world need a global debt restructuring that includes debt haircuts and forward cost restructuring.  Anyone who has ever been through bankruptcy knows that things are always better on the other side.  Russia is better off now than it was when it was debt burdened.  Japan has been suffering for YEARS rather than taking the pain.  Do any of us really think that we can get through our problems without higher taxes and changes to future social transfer payments?  Ask any millionaire/billionaire and they will tell you they wouldn't mind paying higher taxes if it created stability because they can MAKE IT UP on investments.  Ask anyone in the country who gets government money, they will tell you they believe it is only a matter of time before the gravy train stops.  Think about it.  If you could show a pioneer who hacked his living out of the wilderness with his own two hands and no help from anyone the lack of self-sufficiency that exists today, he would be SHOCKED.  I tell you SHOCKED.  We think we are entitled to everything from food, shelter and clothing to the right to blame others for our lack of life's little extras.  As of today, 30,000 children under the age of 5 have died from the drought in Somalia.  Think the rest of the world cares about the problems of the average American?  The rest of the world thinks we are SPOILED  and wouldn't spit on us if we were on fire.  All this kicking the can down the road is going to result in a complete collapse of all mature economies everywhere.  Conflict unaddressed ALWAYS results in CRISIS.