Commentary for the Week of March 8

“Go long oil, short stocks!” is what we advised subscribers to do on Friday, with Col. Qaddafy declaring a cease-fire and Japan laboring heroically to contain the menace of contamination from damaged spent-fuel rods. Sketchy news concerning a Libyan truce had caused crude-oil quotes to recede somewhat from their frenzied peaks, but we could think of no convincing reason why Kadhafy would actually stand down.  On the contrary, we assumed that he was stalling in order to consolidate gains on the ground before the “international coalition,” whoever they might be, enforced a no-fly zone.  This they did over the weekend -- with France, of all countries, spearheading the attack from the air. It’s hard to imagine what the “coalition” has in mind -- other, perhaps, than cutting the rebels a little slack. But a little slack is as much as they’re likely to get, since it seems doubtful the allies will commit the ground troops needed to shut down Qaddafy’s offensive. In admonishing subscribers to “Buy crude!” we asserted that the “international coalition” may have made the mistake of boxing in a ruthless and paranoid dictator.  Notice that we did not call him a ruthless, paranoid and unpredictable dictator.  For not even the U.S. State Department, never mind the military brass, could expect Col, Qaddafi to simply roll over, running up the white flag and effectively ceding control of Libya’s oil fields to such worthies as France, the U.S. and whoever else signed on to the weekend air sorties. Far more likely, in our estimation, is that Qaddafi would sabotage Libya’s oil capacity before he’d turn it over to the West. What’s to stop him?  We surely don’t envision French troops on the ground, hanging tough with the rebels. And that is why we asserted on Friday that anyone who

[With debt spinning wildly out of control and the States threatening to revolt against the tyranny of Washington, we asked some frequent contributors to the Rick’s Picks forum how they thought the economy would look five years from now.  In the essay below, Tom Waldenfels asserts that it wouldn’t take as much as a “black swan” event to tip an already destabilized economic system into chaos. In the meatime. he finds it baffling that so many people evidently cannot see this disaster coming. RA] A smoldering ruin. What’s that you say?  Well, Rick asked me to give my outlook for how the world might look in five years from an economic standpoint.   That’s easy.  A smoldering ruin.  I mean that figuratively … I think.  The whole world?  Maybe, but I’m thinking primarily of the U.S., Europe, and Japan. Look, the readers of these missives are very smart and well-informed, so I don’t feel the need to catalog all the problems we face. You know what they are.  The biggest are the ocean of debt we’re floating on that has gone bad or is going bad; the extreme amounts of leverage still in the system; the mountain of derivative contracts extant that can’t possible be honored when the SHTF (Think AIG); a corrupt and insane government that does precisely the wrong things; and the uberputzen at the Fed, who are hell bent on destroying the clownbuck.  The problem underlying all of this?  Phony money.  They’ve managed to maintain the fiat money scam for decades now, and what a party we’ve had.  But when the money goes bad, look out.  And it’s starting to go bad in a big way. My view, for what it’s worth, is that we’re looking at unimaginable systemic disorder once the patches being administered by the Fed,

(Because this essay drew so many interesting comments, I am running it for a second day. RA] With debt spinning wildly out of control and the States threatening to revolt against Washington, we asked some frequent contributors to the Rick’s Picks forum how they thought the economy would look five years from now. The essay below, by Brad Bolz, is quite different from the others because it is based on Biblical prophecy. For starters, he sees a nuclear war in 2018 and then the emergence of an Antichrist in 2021. If such stuff isn’t your cup of tea , please bear in mind that we try to present many points of view here. This one is surely miles from the beaten path -- although, when you consider how screwed up the world is these days, it doesn’t seem too farfetched – at least not to us -- to blame Satan. If you want to skip to the bottom line, Brad predicts near the end of the essay that today’s financial bulls will prove to have been right, although the bears’ predictions of a dramatically lowered standard of living will also be borne out.] Where will the economy be in five years? I’m going to try and use Biblical prophecy for my prediction.  Fools jump in where angels fear to tread, right?  Normal caveats apply. I’m not a prophet nor biblical scholar, but this may be the only a possible framework in which to structure investments.  Investing is changing. Rules and charts guide us, but I suspect we’re approaching a season in which the events that unfold will be observably linked to Biblical prophecy.  Our personal opinions about prophecy won’t matter because, I believe, there are people at the very top who are pushing us toward the End Times. The problem with predictive

[With debt spinning wildly out of control and the States threatening to revolt against the tyranny of Washington, we asked some frequent contributors to the Rick’s Picks forum how they thought the nation would look five years from now.  In the essay below, John Skerencac finds these times too volatile to predict, other than to say that some very dramatic changes are surely coming. On the positive side, he sees a nascent revival of America’s manufacturing sector and a trend toward fiscal austerity. But if we fail, he says, there’s always the “Mad Max” option. RA] Rick was nice enough to ask me to write a short essay stating my view of what the world will look like five years from now. Perhaps with enough of us engaging in an intelligent exchange of ideas, we might help each other make better decisions about where to allocate our resources. First, in my opinion, Congress will continue to ignore the ever growing budget deficit until outside forces compel them to take action. Scenarios for this include: Enough States stand up to D.C. and make it obvious that the votes are there to bring down the Federal government via Constitutional Convention or 10th Amendment nullification. The Federal Reserve's three-card monte game of buying Treasuries somehow comes undone, causing an interest rate spike that creates havoc in the economy. The world finally repudiates the Dollar as a reserve currency, leaving us no choice but to make draconian cuts. Feel free to add your own tipping point, but with the February budget deficit at $223 billion, I feel we are very close to a train wreck. I feel that when push comes to shove, and the D.C. gang feels threatened by the States revolting over the mess they have created for us, they will turn

Late Sunday night, Tokyo stocks were getting savaged even as Reuters reported there was little evidence of short-term “funding shortages” in Japan’s financial system. The Nikkei Average initially dropped nearly 500 points, to 9756, when trading began, but it remained to be seen how U.S. stock would react. As of around 11:30 p.m., S&P Index futures had been down as much as 14 points, equivalent to about 100 Dow points. However, such moderate selling is usually a sign that institutional buyers are bullish and merely trying to shake loose some bargains ahead of Monday’s opening. Whatever the case, Monday is not likely to be a yawner, even though Wall Street has managed to shrug off a few other epic disasters ever since this seemingly unstoppable Mother of All Bear Rallies began exactly two years ago. On Friday, a day before earthquake/tsunami news from Japan went “nuclear,” shares of American multinationals that could conceivably benefit from the rebuilding of Japan actually rose, callous as that might seem. But we should have grown accustomed by now to seeing things the way investors see them, with dollar signs coloring even the most horrific spectacles. Still, and most unfortunately, it’s possible this disaster will turn out to be worse than all others of recent memory combined. A “CollapseNet”(?)  e-mail bulletin we received from a Belgian  subscriber Saturday evening put things in the starkest possible terms, conjuring up a radioactive cloud that the Jet Stream would eventually disperse to all seven continents. The alert advised anyone living on the U.S. West Coast to secure potassium iodide pills as a precaution against moderate exposure to radioactivity. Although the warning seemed a bit extreme, we nonetheless inquired about the substance at the local Walgreen’s.  The product supposedly is available over-the-counter, but this store had none of it,

No one thought it would be easy for state and local governments to get their budgets under control. However, by eliminating collective bargaining for most public employees, it appears that Wisconsin Gov. Scott Walker may have paved the way for other states to succeed at it. One good thing to notice is that Wisconsin turned out not to be…France.  Try to imagine what would happen if a synateur were to propose raising the retirement age by a year or two, or shortening the French worker’s god-given two months of vacation by a week. You’d have a torch mob marching on Paris within hours, and the lawmaker’s effigy would be hanging from lampposts from Paris to Marseille. Windows would be smashed and cars set aflame.  Not in Wisconsin, though. Labor turned out tens of thousands of angry if peaceful demonstrators, but in the end that wasn’t enough to carry the day. There wasn’t a Democrat in the chamber when the final vote came yesterday, but the result was clear enough: only police and firefighters, who put their lives on the line every day, will retain collective bargaining rights.  Few workers in the private sector will feel much sympathy for Wisconsin’s public employees, since the latter have for years enjoyed an extravagant level of health care and pension benefits that the private sector can no longer afford. Neither can taxpayers, though, and that was the point all along.  The labor unions will turn out in force in every state everywhere Gov. Walker’s legislative tactic is tried, but they will be vastly outnumbered by those who would pay dearly to maintain the status quo. Moreover, so many states and municipalities are verging on either bankruptcy or truly drastic cutbacks that there will be no choice about public workers settling for less. Much less.

Don’t expect all hell to break loose in Saudi Arabia when demonstrators hit the streets today in a planned show of strength. Protests are likely to be subdued, according to a Rick’s Picks subscriber who lives there.  “You need to take what the news and Internet are saying with a grain of salt,” he wrote. “I am currently living in Saudi and have been talking to the locals the past few weeks. Everybody I have talked to does not believe anything will happen this weekend, nor do they want change. I am not saying nothing is going to happen, but that is the ground report. Everybody I have talked to, regardless of which Muslim religion they practice, loves the king and is grateful for what has occurred in thecountry over the past generation. You need to remember that these people were 98% nomads less than 30 years ago.”  The “experts” would indeed have us braced for the worst. “Although most political analysts predict any demonstrations to be swiftly – and perhaps bloodily – suppressed by the government,” the Financial Times reported, “any hint that the protests enjoy wider-than-expected support is likely to spook investors once again.” We suspect that even if Riyadh remains relatively peaceful, however, that crude oil prices will continue to head higher.  A short while back, we wrote here that the spike in crude caused by mounting troubles in Egypt and Libya would seem relatively tame in comparison to what we might see if Saudi oil production were to come under threat. While we still think that’s true, we now expect a quiet weekend in Saudi Arabia to ultimately have little impact on energy markets that seem likely to remain in the grip of speculators. They are quite obviously determined to keep squeezing until the fever breaks,

(My response to Mario Cavolo's "rosy" economic outlook kicked off such a spirited discussion in the forum that I am letting it run for a second day.  Let me mention, however, that Mario himself has spurned my "optimist" label and said that he sees no roses, only reality. He lays out his case in a post that, as of early Tuesday evening, could be found at the end of the discussion thread. RA )  No one doubts that optimists like you will be essential when it comes time to rebuild the economy.  Might I suggest that you save your energy for later, when it will do the most good, rather than risk squandering even a small amount of it arguing in a forum where you’re outnumbered twenty to one? Much creative destruction remains to occur before America can get back on track, and only a great deal of pain can bring about the epiphany that the illusion of our economic well-being has been sustained entirely by lies.  (Fortunately, that is not true of our economic future, since Yankee know-how can never be counted out. But merely financing Yankee know-how will require re-allocating capital from a still-vastly overvalued financial sector to one that efficiently turns out real goods and services that the rest of the world vitally needs.) For the present, however, The Great Recession has dealt America’s standard of living a mortal blow, steepening our decline in ways that are likely to continue for perhaps a generation.  The upper strata of earners has not gotten away unscathed, as you would have us infer, even if the fraudulent, Fed-engineered stock market rally launched exactly two years ago has eased the pain of their dot-com and real estate losses. The stock market must now crash too, since it is buoyed by an all-but-irresistible tide of funny money.  Ultimately, however, nearly

Senate minority leader Mitch McConnell said on Face the Nation over the weekend that President Obama wasn’t serious about the budget. Lest anyone mistake this for partisan sniping, here’s an interesting factoid that drives the charge home:  The $4 billion in spending cuts that Congress just approved to avoid a government shutdown amounts to about ten hours of government spending and less than a day of Treasury borrowing. This calculation comes from Bill Buckler, editor of the Australia-based Privateer. Mind you, the cuts were ginned up by a Congress that supposedly is in the grip of austerity-crazed Tea Partiers and Republicans. What it suggests is that the paltry sum hacked from federal outlays may be as good as it gets for anyone hoping The Government will somehow get its act together.  Meanwhile, if either a Democrat or a Republican claims to be in favor of reducing the deficit, keep in mind that the sums he or she will be talking about will be in the billions, whereas the deficit itself is mounting into the trillions.  As Buckler has noted, “This year, the official budget for the U.S. government is $3,700,000,000,000.  That means the government will spend $10.13 billion every day – weekends and holiday included. The latest official figure for the fiscal 2011 deficit is $1.65 trillion. The U.S. Treasury will borrow nearly 45 cents of every dollar it spends – a total of $4.52 billion every day – weekends and holidays included.” That’s the reality of it. But when our best and brightest on Capitol Hill attempt to reconcile these numbers with tax revenues, you can bet it will play out as slapstick. The looming Punch-and-Judy show between the big spenders on one side of the aisle and the even bigger spenders on the other side was framed by