Whether We Want To Or Not, Let’s Face Reality: America Is In Trouble

When I started blogging over five years ago, I noted my concern that in America, everything is for sale and everybody a salesman. The problem, of course, is that a salesman believes his own stories because he has to believe. Facts are perverted, history changed, and truth misrepresented. In five years, America has gotten worse in this regard.

The nation has actually become a parody of itself where the most accurate news now comes from sources like Saturday Night Live, Jay Leno, David Letterman and Jon Stewart. Today, however, most Americans know the truth, yet there is nothing, apparently, they can do about it. Like an alcoholic at an open bar, they stand in line for their next “free” drink. Only, in the case of America, the problem is not alcohol, but spending, and the debts they incur to consume.

Not only are the people afflicted, the government is worse. Spending in June soared +37%, while revenue plunged -17%. Rather than help government solve this growing debt problem, the central bank has encouraged it by making money free to banks and the US Treasury based on a near zero percent monetary policy that has resulted in a market rate for Treasury bills of just over one-tenth of one percent.

With no incentive to save for future investment, the people are now using their income to pay down debt, and the government and the bankers do not want them to. Everything possible, it seems, is being done to encourage people to spend. With financial help from government, the auto manufacturers are saying, give us your clunker and we will give you $4500. US Treasury owned Fannie (FNM) and Freddie (FRE) are saying they will lend up to $250,000 on a house valued at just $200,000.

As the federal and state government deficits increase they now consume 43% of the nation’s GDP.

The American people are really hurting. Unemployment in Washington and New York City is 10%. It’s greater than that in Georgia, and it’s almost 11% in Florida, and over 12% in California and over 15% in Michigan. These numbers are based on phony data; the reality is worse. Moreover, in two years, the prices of homes gave fallen -32% and the equity market plunged -40%. And, hard earned pensions are collapsing. In California, for instance, the government workers have just suffered a loss of $57 billion in the past year, which happens to be ¼ of their total pension wealth. Most others are in the same boat.

What is really scary is that one-third of the houses in America are mortgage free and the equity in all the other houses is just over 10%. If prices continue to fall, most everybody with a house mortgage will be underwater financially. You’ll note that I refer to houses, which is a different concept than a home. People in most homes are desperate.

No job and no house equity mean no collateral, which in turn means that banks across the nation, without the government aid, are declaring bankruptcy. Even Humungous Bank & Broker (HB&B) are closing the doors to their physical offices and turning to the Internet and ATM units for service. Commercial real estate prices are collapsing.

Wall Street would rather talk about “green shoots” and of equity indexes that are soaring based on improved corporate earnings. But, are those earnings real? The earnings of banks are the direct result of never before seen levels of government aid, which is clearly unsustainable. The earnings of real corporations, like oil companies, industrial and consumer goods manufacturers, retailers, healthcare services and technology companies are down in the aggregate by -35% for the 2Q2009 over the prior year. Only due to the games of HB&B do the people believe these earnings are on the mend. The people want to believe that life is beautiful.

Life in America, however, is best reflected by the US Dollar index ($USD), which in three months has fallen -9.5% from a high of 86.87 to today’s 78.64.

So, whether we want to or not, let’s face reality: America is in trouble and the nation’s banker, China, has come to Washington this week to read the riot act. Teflon Timmy Geithner and his boss, the man who would talk us to death, Pres. Obama, will state for public consumption that everything in Washington and New York is under control. But for the truth, we’ll have to turn to the late night television comedians.

It’s really sad what America has become, virtually bankrupt. But what concerns me most is that the storytelling in America seems to be never-ending.

How does this impact me as a trader? I refuse to get caught up in the nonsense. I have most of my clients’ assets in cash, for now, and I just have to rely on an incredibly good track record of wins versus losses, and on the extent of the gains versus the extent of the losses. In other words, we have proven our ability to trade prices and we have also shown a discipline that has as the bottom line the need to preserve capital.

In the situation that governments, central banks, Goldman Sachs (GS) and JP Morgan (JPM) have put us, I cannot do better than that as a trader.

And as a blogger, and someone who is apolitical and not an activist, I cannot do better than use my writing to work toward the lofty goal of social equity. Thank you for joining the effort. For the others, please, don’t shoot the messenger.

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