The Money Must Go Somewhere

Posted on January 17, 2012 by MN Gordon

In Friday’s issue of the Economic Prism we suggested that, despite all the financial uncertainty going on, the U.S. economy is strengthening.  By the response we received, this optimism astonished many of our readers.  Naturally, we thought that would be the case…and promised there’d be more to follow.  So allow us to explain…

To begin, we still believe things are going to hell in a hand bucket.  Government debt, which recently exceeded 100 percent of gross domestic product, is a ball and chain to economic growth and dynamite to monetary stability.  The debt problem isn’t going away.  It will ultimately restrain the economy and bring about government default or mass inflation as the Fed prints money to lighten the debt burden.

But neither economic progress nor ruin follow a straight line.  Countertrends and cyclical rallies play out making fools of believers and nonbelievers alike.  At the moment we think the economy’s taking a temporary detour from its eventual destination.

Remember, the financial and economic problems we face today didn’t begin in 2008; they began nearly a century ago with the creation of the Federal Reserve.  Moreover, they began in earnest in 1971 when Nixon severed the dollar’s last tie to gold Continue reading →

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Seeing the First Glimpse of Dawn

Posted on January 13, 2012 by MN Gordon

Here we are, just two weeks into the New Year, and things are looking up.  So far on the year, the S&P 500’s up 2.9 percent, the Nasdaq’s up 2.5 percent, and gold’s up 3.1 percent.  Even silver, if you can believe it, is up about 4.5 percent.

Good times are coming, you can almost touch it.  Moreover, there’s an excitement in the air that hasn’t been felt since before the housing market deflated.  It’s about time things picked up…right?

Particularly after the way things have gone the last several years… What’s not to love about rising asset prices?

They make a man feel wiser, richer, and better looking all at once.  Suddenly his bald spot’s no longer getting bigger…it’s getting smaller, along with his waste line.  Conversely, his 401k statement’s no longer getting smaller…it’s getting bigger.  Joyfully, upon opening his monthly statement, he’s greeted with the pleasing satisfaction of ballooning wealth.  He fancies his shrewd investing abilities to be equal to Warren Buffett – maybe even superior Continue reading →

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Kodak Moment for Uncle Sam

Posted on January 10, 2012 by MN Gordon

Dinosaurs must die.  It’s a fact of life.  Just ask Kodak. Last week, after 123-years in business, it was reported the dinosaur company is preparing to file for bankruptcy protection.  By market close on Friday, the former blue chip’s stock traded at $0.37 a share.

No doubt, Kodak’s demise resulted from many failings.  The most obvious being its failure to adapt to digital photography.  From what we gather, Kodak’s near monopoly on film, and exceptional profit margins, blinded the company to its pending death as digital photography came to dominate the market.

By the time Kodak realized their strategic error the world had changed.  Although they made hefty investments in digital camera products, it was much too late.  They could not catch their competitors.  Kodak was stuck in analog…their business model and products were obsolete.  The world had become digital.

In short, when film fell out of favor Kodak’s revenue stream disappeared.  Yet their legacy costs and benefit liabilities continued to increase until, ultimately, they could no longer turn a profit.  Over the last 10 years, Kodak has lost money nearly every year.  Their bankruptcy was just a matter of time Continue reading →

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War Imminent in Straits of Hormuz? $200 a Barrel Oil?

Posted on January 6, 2012 by MN Gordon

War Imminent in Straits of Hormuz? $200 a Barrel Oil?

[Editor’s note: Today we bring you a guest essay by John Daly detailing the burgeoning potential for conflict in the Persian Gulf and how this could impact oil prices.  Reprinted with permission from OILPRICE.com.]

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The World’s Most Important Oil Chokepoint

The pieces and policies for potential conflict in the Persian Gulf are seemingly drawing inexorably together.

Since 24 December the Iranian Navy has been holding its ten-day Velayat 90 naval exercises, covering an area in the Arabian Sea stretching from east of the Strait of Hormuz entrance to the Persian Gulf to the Gulf of Aden.  The day the maneuvers opened Iranian Navy Commander Rear Admiral Habibollah Sayyari told a press conference that the exercises were intended to show “Iran’s military prowess and defense capabilities in international waters, convey a message of peace and friendship to regional countries, and test the newest military equipment.”  The exercise is Iran’s first naval training drill since May 2010, when the country held its Velayat 89 naval maneuvers in the same area.  Velayat 90 is the largest naval exercise the country has ever held Continue reading →

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