2011 Prediction: The De/Re-Leveraging Depression Continues…

Dear Contra_Folk,

Another very Happy New Year to all, and another six months of “post-recession” stock market QE recovery euphoria in the hollow halls of the stock jockey clubs.   Marking global markets at highs of the year is all fine and good for insiders selling share options, but with now QE 89.5 Lite presently flowing fast and furious, some say it is all seemingly too desperate, likened to a last-ditch attempt to get “broad-based private markets buy in” before stall speed hits at the present level of steep incline.    Manipulated markets do tend to simply top out, and must roll over sometime just to stay the course, all this, while Gmen and not Banksters, are left trying to control & hold the entire leaky bag together.

Somehow they managed to change the unavoidable overspending path of yester-years, with gasp, today’s newest fiscal solution being nothing more than, well, more non-funded liabilities for really just the upper middle class thankfully to pay for, in yet another round of emergency tax spree-spending along with another corresponding round of dollar printing for bond issuance/purchases that not even the Chinese, or any other wealthy sovereign, wants to support and buy (at these 0% real yields) to fund this new debt limit increase.

Laws for Governing Corporations are Not the Same Governing Laws for Individuals

If you did what they are doing, changing the rules and gaming the system, you would be brought up on charges.  Today, yesterday, and the day before we heard corporate legal admissions of blatant cases of taxpayer fraud, fraudulent misrepresentations, contract forgery and the list goes on and on.  Anybody charged… nope.  If in doubt, always plead “administrative error” and you too can be held not to account  and thereby as a corporation, now be above the law.

The carrying cost of low bond rates is very low today and in corporate finance models, that is a big plus today, but again only if  you don’t eat, drink, drive, buy, or spend to live on – or just need to get by on life’s necessities with the pittance of what real average wages can buy today after taxes and commodity inflation.  Funny problem develops on the way home from the supermarket, and what we now collectively have to face going forward; specifically, is with consumers cashflow and GDP spending.

For with what little you first can earn as a competitive member of the 75% fully employed workers in North America, then take what they keep after increased healthcare & payroll taxes, to buy anything else (plus more retail sales taxes), and then with what is leftover (???), attempt to save 15%-25% of it, and compound it out at thirty or forty years at sub 5% pre-tax, to get to a respectful place for a lifetime of dignity in old age is simply a fable today, and will be tomorrow.

No real carrying costs, or pain to floating that debt ceiling right up the creek as long as it is presented with a “balanced plan” for forced future tradeoffs in austerity you say? Really, I beg to differ. 

Fighting Fire with More Fire Just Makes More Smoke

A lame attempt, really you must admit, by empirical design, to not change anything economically other than just pump taxpayer money into the lonely “bankster capital markets” and hopefully be able to one day, over decades, dump the entire mess, unwittingly, to someone else (perhaps with weekly buy orders from dumb domestic or even foreign lemming pension funds and other institutional long-only buyers perhaps).

Can-Kicking Administrations

Granted it’s still nice to see all these poor-to-great and always improving numbers, if they were real, but we suspect yet another month after month of continuing faux statistical reports and continued gaming of the entire propaganda process to show an awakened, albeit slow, jobs recovery.  With manufacturing growth picking up magically “everywhere” leading us to next week’s Budget plan, well hummm, that will continue to further hijack a couple of trillion more of brand new taxpayer “responsibility” for “future funding” of the soon to pass increased federal spending budget limit.

Dow’s National Defense Contractors Unite & Rejoice – More Middle Class Military Weapon Orders!

Most importantly to you the informed reader, this is a Gmen plan to allow for the increase of at least another $1.7 trillion, or more, into the “drained lines” of the Bankster’s/Gmen’s maxed out credit card vis-a-vis higher and higher spending/borrowing/taxing limit increases – all without immediate consequences.

The card that keeps on giving, until the one day when it all of a sudden is declined and that hits the T-Bill/10-yr spread which is used to keep everything, and everybody, in-line, all the time, and that Folks, is all that is needed to keep the refi int. expense boom in place for another earnings quarter, and just enough to keep EPS in triple digits with hidden S.P.V. losses, booming P/E’s with authorized and unauthorized corporate cash funded leveraged corporate share buy-backs along side single digit revenue and unit sales volumes declines…. but, just for the time being.

So in the meantime, let’s watch the private market get going with some real gusto and real fat-tailed volume, and then we’ll all jump in too, head over tea kettle to run and not walk to go long.

Wonder when the artificial earnings surge will drop back down you ask? What impact does paying market rates have for corporations paying higher interest expenses going forward and other higher cost of borrowing?  Look no further than the amount of outstanding corporate debt subject to rolling over in the next 12-24 months.   Not Much.

You only get to cut your Interest Expense & SG&A Costs Once

The big job and inventory cuts, along with Refi’s to lower material costs on rollover coverage has a large earnings effect for all the SA&P, Jones and Russel companies.  It just hurts everyone else, with savings rates of return below 3% pretax, and definitely not in real inflation-adjusted terms.

Young People Unite & Sing: “Get Debt Down On It, Get Debt Down On It”

A proverbial showdown between two competing sell side Facebooker banksters, drunk after a long night of big client smoozing, and brawling in the end over who gets to give (expense) the huge tip to the sexy waitress.

So with many mentions in the halls of future promises that lay just ahead to cut funding (ie: we must “pay as you go” –  but only tomorrow we promise, or the year after that if employment doesn’t pick up… giggles & lol’s) so it seems fitting to assume the 13.3 trillion dollar debt limit will be increased yet again at the taxtion expense of the upper middle class, while the Ritchie Rich’s and corporate Dow oligopolies have brand new special “GM type tax-free holidays”.

Services will continue – which the Ritchie Rich’s gratefully declined to participate last month in paying for, but future promises for austerity and government budgets and controls over the taxpayer spending are assured, we are assured.  So in the end, we are sure to simply hit that wall sometime, but not now as debt limits will be raised to likely higher than $15T, as both parties demand a future of hard times at Ridgemont Middle High.

Buy the Tips, Hold the Rips,


About ContraManFund

Fictional (maybe not if you are an accredited investor) trading of a long/short contrarian-driven investment model portfolio based upon current economic environments and counter-intuitive trends. Legal Disclaimer The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES. The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility. Please consult your own investment advisor before making any investments anywhere, and always do your own due diligence before undertaking any individual investment.
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