"Cash in and Cash Out"

"Cash in and cash out", said the new trustee in charge of overseeing the largest Ponzi scheme. Remarkably there were not any securities purchased for the last 13 years! The other new trustee for the latest Ponzi scheme said it will take at least ten years to sort through all the paper trails as their clients have been informed their accounts are now frozen by the clearing firm.

If one thing stands out to us from the lessons learned from 2008.....that the IRS, SEC, NYSE, Treasury, FED and the esteemed Congress all were not doing their jobs..much less the accountants and rating agencies. All a complete failure. We have said numerous times the math has moved beyond any ones ability to comprehend it....now it has moved at an even greater rate to the courts and bankruptcy. This in the long run is a positive but the collateral damage may have now exceeded the ability to stabilize the remaining equity outstanding. Especially as this moves globally.

We know the Treasury Bond has peaked and now we think the USD has as well given it's chart patterns made last week. Noteworthy, as we have just experienced a third retest for the broad indexes, they held....depending on how you look at it. The S&P 500 fell for the sixth time in seven weeks but is still above its November 20, low of 752. Gold has risen four of the past five weeks.

Statistically we know supply destruction of almost everything is exceeding the media sensationalized demand destruction, led by our new young President. This too is a positive and not properly understood. In fact we are surprised by two observations: a) Those well read on what is happening have never been more afraid of their futures. b) Those people we interact with not well read arguably are more passive than normal.....maybe they are putting on a good game face. Certainly those who held onto securities thinking Obama would bring a rally have now been selling...especially last week. A capitulation? Time will tell, but if the dollar has peaked than the reflation trade will come to equity/ hard assets (houses) and out of fixed income instruments....the current favored trade.

Western Europe is now in worse shape than the USA, led by the growing problems in Eastern Europe. As we have talked about the creditor nations versus the debtor nations, not well appreciated was the fact China invested almost $100 billion last week in Russia, Venezuela, Brazil and Australia....all in energy or minerals. One of their largest oil companies has announced a MAJOR expansion of new oil drilling programs... the only company to do such on the planet...this year.

We also note as we lose an entire generation of investors in this stock market crash, the new generation is: a) Not working very much b) Not reading any newspapers c) Not watching any TV d) Not investing (why would they or could they) e) This is also a large percentage of people who voted in the current administration. Yet they have no idea what is going on....makes no sense.

Once again, we have a strong feeling what to own/ invest in.. and maybe more importantly what not to own as well as avoid.
1) We like Oil, Gold and Food related equities. We are buying the Canadian Dollar, Australian Dollar and the Norwegian Kroner. We also have unusually large levels of cash until the markets prove a new direction. We think we are at an inflection point if the dollar starts to reverse.
2) We have sold all bonds and we would avoid Russia, India, MENA and Europe. And own very few leveraged companies.

We want to own beneficiaries of a weakening US Dollar. The SPX/GOLD ratio is now .77 a new low. The last time this level happened was in 1973 and gold went on to triple in the following 18 months. Gold miners have been lagging...most of their production is hedged at much lower prices.

Final point. Now more than ever, investors have to think about how to get an after tax (rising taxes now) after inflation positive return on their capital. This was extremely difficult in the 1970's...an era we think we are replicating now.

Danny Boy seen here on the frozen ice is wondering when the thaw happens...ice houses have to be off the lakes by March 1st....a good sign spring is near.