Danger on the Horizon

Posted: Jun 15, 2012 12:01 AM

Election year politics can create a lot of confusion for the electorate.  When the election year encompasses distant shores such as Greece, France, and Egypt, the bewilderment can be multiplied many times over. 

Are things getting better or worse?  Do we practice austerity or do we spend our way out of trouble?  Is the new normal something that we can live with?  Do we just throw the bums out and start all over again? 

As we try to determine the effectiveness of the central bankers’ programs of quantitative easing, operation twists, value-added taxes, and half-a-dozen other programs, we are constantly bombarded by all sorts of data.

Unemployment seems to be improving, yet that’s because so many have dropped out of the workforce.  Housing appears to be basing, however, Case-Shiller looks for 20% more downside. 

The data is extremely confusing. 

Those people not in political office say things are bad, while our current political leaders say give it more time since things are improving.  Nevertheless, in making our voting decision, perhaps the simplest of fact is the most overlooked.

To me, the truth is in the interest rate.  As Italy, Spain, and Greece see their interest rates approach all-time highs, I’m led to believe money is flowing someplace else.  Not commodities, not stocks, not real estate, but rather, to a warehouse. 

Most people are not aware of warehouse investing, a concept that for years I’ve referred to as “an empty can of Chock full o’Nuts in the backyard.” 

When things get bad, you protect your money and trust no one but yourself.  Thus, the coffee can in the backyard.  However, for big money, institutional money, and even sovereign money, that would be way too many coffee cans. 

So instead, its German bunds, Swiss bank accounts, and even U.S. Treasuries.  The U.S. paper pays something, albeit a very low amount. 

The bunds and Swiss accounts, however, charge a fee.  Why pay?  Because the major players want the assurance that their money will be returned and most heavy hitters are willing to pay for that assurance. 

Warehousing is a clear indication that significant problems are only just beginning and even greater trouble lies ahead. 

The political candidate that embraces the danger on the horizon and understands there will be an imminent contraction is the candidate that gets my vote. 

And he or she should be the one that you vote for, also.