Servias Ministries Blog

My Panera Barometer is on the move.  Let me explain.  A colleague and I have periodic lunches at the same Panera Bread café located half way between our two offices.  We both order similar lunches each time and thus are accustomed to the total amount of the ticket.  Panera  has just increased their prices by 5% across the board and other local restaurants are doing the same.  This is occurring all over the product spectrum.  As a matter of fact, John Williams’ Shadowstats.com reports July’s Annual Inflation: 3.6% (CPI-U), 4.1% (CPI-W), 11.2% (SGS).  SGS’s (Shadowstats Government Statistics) 11.2% is based on the pre-1990 government method of calculating inflation.  They continue to report the raw numbers that allows John Williams to calculate an accurate comparison.

Because of the interconnectedness of the global financial network, money flows in microseconds around the world.  Lately, the Swiss Franc has gained favor among investors for safety reasons.  The problem is that the demand for their currency causes the currency price to go up making their exports more expensive and reduces demand.  This forces the Swiss central bank to print more Francs to lower the exchange rate.  Nobody wants their currency to be too expensive.  The result is a currency war.  Since there is no international gold standard, central banks can simply fight it out with money printing, flooding the market with more dollars, francs, yen, etc.  However, the commodity prices will reflect this inflationary spiral with gold being the primary barometer.  This is why there is such focus by governments to manipulate the price of gold, and to a lesser degree the price of silver.

If we took the amount of gold the U.S. Government claims to have and calculated the ratio of U.S. Dollars to gold reserves. gold would need to be at an official exchange rate exceeding $12,500.  This in turn would pull the silver price up with it.  Underlying precious metal stocks would appreciated in value as well.  On the way up, the average investor would finally enter into the precious metal investing space.  Result?  A parabolic rise in prices and return on investment for those who invested early.  What could keep this from happening?  A global depression.  Investors would sell anything (including gold and silver) to eat and survive.  When the market drops, leveraged investors have to raise cash by any means including selling their good investments such as gold and silver.

This decade is going to be a wild ride for investors and those with heart problems will be stress-tested.  Maalox stock should go up due to the high demand.  Investors may find “religion” soon.

On 11/11/10, I shorted the market with “bear”  leap call options.  Don’t worry about understanding the trade but understand if the market goes down, I generate a profit.  I closed out my position yesterday with a handsome return.  Unlike most investors, I slept like a baby last night.  Gold blasted through new highs and is up again as I write this blog.  Our investments have no debt attached and we have been simplifying our lives and eliminating our debt.  The U.S. on the other hand has been doing the opposite.  More debt, more complexity, and nobody to control the runaway train.  Two major drops in the market within days looks ominous for many of the baby boomers hoping to retire.  Where is that Walmart application?

Gold is coming to the forefront of the mainstream media… at last.  I tuned into CNBC to catch the market opening for the first time in years and the fireworks started early:  Market down, Gold up.  Silver is a laggard but will catch up as investors start looking for safety on a large scale.  Many junior gold & silver producers were down with the market yesterday thus I was a buyer with my profits from the option trade.  By the way, that trade was down 80% at one point so it is not for the feint of heart.  I simply held tight to my convictions that the economic illusion could not keep the market propped up forever.

Inflation is running at over 10% according to SGS-Alternate CPI (John William’s Shadowstats.com).  This number is based on the 1990 U.S. Government calculation method.  This means that if you had $10,000 of purchasing power one year ago, it will only purchase $9,000 of equivalent value today.  Uh-oh.  If the government used this number in calculating Social Security payment increases, the recipients would be smiling with bigger checks but the fund would go bankrupt sooner.  Interest rates would be at 7-10% and the National Debt would be growing faster due to higher interest payments.  Get the picture?

Investors are getting anxious about whether to ride out this market or cash out and take the losses.  There is no win-win scenario.  They can see the edge of the cliff and fear is gripping them.  What’s the answer?  Busting the illusion bubble and dealing with the reality of where we are at.  We must repent of our sins and seek Our Heavenly Father who has the solution to our national woes.  Love must be at the forefront and must be the motivating factor of our actions.  The lies and manipulations must cease.  The blindness of the masses must be replaced by  revelation and only then will the healing of the nations occur.

Is the current economic system starting to look like the above picture?  The debt super cycle no longer works and has ended for consumers.  It will soon come to an end for governments.  10  Years ago, the official U.S. Government debt was just below $6 Trillion, today it is at $14.6 Trillion.  This additional $8.6 Trillion failed to produce full employment and with unemployment at 9.1%, there is no good news in sight for those who are looking for jobs created by economic expansion.  Both personal and public debt have supported a national lifestyle that is no longer sustainable.

The current model is of consumers spending money at 70% of GDP and this model is broken.  They are no longer increasing debt, the stock market has reduced wealth, and job growth is not occurring.  These three factors are negatively impacting the current paradigm.  Americans are reducing the discretionary spending due to lower home equity value, greater energy costs, and state/local governments are cutting back services and increasing taxes when possible.

We are now in an era of austerity.  Consumption will be replaced with savings and investment, the standard of a half century ago.  A crisis of confidence is ahead for all politicians.  Their unemployment numbers may soar in November, 2012, elections.

Corporations are building cash on their balance sheets but the uncertainty is forcing them to hold their cash until some sort of stability is seen.  Corporations are being thrown under the bus to divert attention from the politicians.  When government creates uncertainty and instability, they eliminate the incentive for corporations to invest in long term capital programs thus jobs are not created.

Europe’s economic stability is in question.  Italy’s 10 year bond rate is above 6% which reflects the risk of default whereas Germany’s bond rate is hovering around 3-3 1/2%.  Greece’s rate is much higher.  European investors may head to the door soon and if they decide to cash out, the U.S. market will suffer another record drop in the Dow Jones Industrial Average.

The coming storm is setting up the next move for gold and silver.  Now that gold has surpassed the $1,600 level,  I suspect we could see a parabolic move upward.  Within 5 years we could see $10,000 gold and $250 silver.  However, this would be accompanied by gut-wrenching corrections that could trigger your adrenalin flight response.  Emotions play an important part in the market.  Fear trumps greed in one’s core survival instinct.  A 40% correction in stock prices would not be unexpected.  Economic instability will create a lot of noise as the thunder rolls though.  Now is the time to seek Our Heavenly Father’s voice to guide you through the coming storm.  Man’s opinion and $5 will buy a Cinnamon Dolce Latte right now, that is, until inflation brings forth another price increase

Each manufactured good we possess contains embedded energy: the energy consumed to design, manufacture, ship, market, and install.  This subtle cost is overlooked as opposed to the amount of energy we consume when we go to the grocery store.  Each tank of gasoline reminds us of energy consumption.  However, other goods consumed are less obvious and only the market price of such items give us an indication of the embedded energy.

Over the last 100 years, our economy has been based on cheap and unlimited energy.  Our decisions and frame of reference have followed this paradigm.  Unless you lived abroad, you have no idea of expensive, scarce energy.  We borrow money today based on  tomorrow’s expected income growth and sustainability.  As a country, we do the same but the ramifications are much greater.  The leaders assume expansion to be the norm.  Wood, coal, and oil provided sufficient energy for expansion on a historical basis.

Oil depletion is contained within the “energy flow rate”.  Generally, an oil well’s best flow rate occurs early in the life of the well.  There is a finite reserve of oil that the well can flow from.  Based on known flow rates, engineers can estimate the reserves of the well but that does not guarantee that the well will be able to sustain a flow to remove all of the calculated reserve.  Depletion is determined to be 2-3% per year on a global basis.  Newly discovered oil is not sufficiently offsetting depletion and global economic growth rates.

As the price of oil moves up, the cost of all manufactured goods will reflect this price increase.  This increase will reduce demand and economic contraction will occur.  We must move toward conservation efforts rather than just focus on expansion.  In my previous blogs, I have suggested simplification which in turn moves the individual to less energy consumption.  On a national basis, the transition would be painful but not as severe as a crisis that will occur if we choose to continue down the current paradigm.  America needs to go on an economic diet while it still can.

Spare capacity of oil is quite small versus the global demand.  I expect to see the price reflect this crunch within 12 months.  OPEC’s spare capacity is being impacted by Libya’s internal conflict.  The market will respond this coming winter unless the global economy falters.  Either way, the economics will not bode well for the U.S. and its deficit.  High oil prices will send money out of the U.S. whereas a faltering economy will reduce demand but also will reduce tax receipts thus keeping the deficit at record rates.

We must change the way we operate and factor in the cost of energy.  Each purchase must consider the energy cost of acquisition.  For instance, going to a restaurant 15 miles away costs $5 more in travel than the local restaurant.  Is it worth it?  Trip consolidation will become a way of life soon.  Modification of behavior will create a reduction of Gross Domestic Product of the U.S.  This will result in continued high unemployment and a weak economy.

Cheap oil is gone.  $25 oil ended in 2005.  The cost of exploration assures us of this and technology will not be the silver bullet everyone is hoping for.  Expect the price of oil to be between $100 and $150 soon.  Shale gas will help but the scale of the energy industry is so large that the depletion of existing production outstrips the increase in production in these areas.

Retirees will be hit hardest.  Fixed incomes in the midst of rising energy costs will cause an increase in belt tightening.  The government will continue to find ways to limit transfer payments such as social security.  They will rework inflation and interest rates to minimize cost of living increases to the recipients.  Expect family consolidations to occur.  Independent living will only be a dream for many.  In increasing numbers, grown children will resent the fact that they must provide for their parents.  It will take a big dose of “Love” to overcome the hardships coming to many who have been able to coast through life in relative terms.

Recently a friend of mine went to a wedding where he saw an old friend who works in a major bank.  The friend has been with the bank for over thirty years and handles investments for the more conservative customers of the bank.  These customers’ goals include capital preservation with a modest return on investment… simple and without risk.  This used to be a no-brainer job.  5% CD’s and high quality bonds with a few blue chip dividend paying stocks would be the standard answer.  Today the investing environment is different.  She stated that she hated to go to work.  She was tired of clients calling her up asking her advise in what to invest in.  She had no idea!  CD’s pay nothing, bonds pay nothing and have an inherent risk of loss if interest rates rise (and they will), and blue chip stocks are subject to a precipitous drop in the economy.  She claims that the problem is “The Economy is built on a lie”.

What I find interesting is that banks invest peoples’ money by committee.  This is to protect the bank from a rogue officer exposing the bank to unnecessary litigation by unhappy customers.  The bank choses the conservative approach thus when this bank officer makes a statement of this nature, you can be sure that this reflects the committee’s view.  The chief economist of the bank generally provides a monthly or quarterly direction of the economy to position the bank to either be in an expansion mode or a defensive posture to minimize risks.  Clearly, banks are in the defensive posture and this lady’s remark confirms it.

The private sector is shrinking and the government sector is taking up the slack but adds sovereign debt which in turn exacerbates the problem even further.  The economic fundamentals have changed and the multi-decade assumptions are no longer valid.  Retiree pensions are at risk and those people who worked 30 and 40 years with one entity are now faced with uncertainty of their future.  How  many greeters does Walmart need?  See: http://articles.cnn.com/2011-07-21/us/rhode.island.pensioners_1_retirees-pensions-social-security-benefits?_s=PM:US

The President and Congress are arguing about the debt ceiling as of this writing.  The same group of people who created the problem are now trying to come up with a solution.  When a lie is initiated, another lie must be created to cover the first lie, and so on.  Before long, the liar has lied so often that he begins believing his own lie and lives a life of illusion.  Often, the only solution is to crash and burn, become bankrupt, hit rock bottom.  We have seen several examples of politicians telling lies then later acting as though they never did.  Media archives are full of examples.  It is sad but true that the American public no longer requires the truth to be told.  Just give them 150 cable channels, a six-pack of beer and they are happy.  The truth has been diluted down to the point where lies are used to sway public opinion without any repercussion in the short run.  The government reflects the heart of the people.

The Day of Reconciliation appears to be around the corner.  Our Heavenly Father will “reconcile” the books and evoke righteous judgment on the land.  Men and women will cry out and ask “Why?”  They will be reminded of their past actions (or lack of) and they will suffer through the judgment necessary to cleanse the land of unrighteousness.  Truth will sweep away the refuge of lies!

The above Bloomberg.com graph shows a high correlation of gold to the U.S. debt.  I expect gold to overtake the U.S. debt once the public figures out that we are approaching a tipping point where we cannot pay back the debt without hyper-inflating the U.S. Dollar in order to pay back with cheaper dollars.  Our creditors will not like the devaluation.  We cannot tax our way out.  The free ride is just about over.  With the U.S. being 25% of the world’s economy, many countries have a vested interest in keeping the game afloat.  What a mess!  LORD help us.

Grief is the emotional suffering we feel after a loss of some kind.  This can be a loss of a loved one, a job, or even a belief system.  The Middle East young people were fed a belief that their current political system would work for them and allow them to be productive and experience opportunity.  That is not the case thus unrest has swept the region facilitated by the Internet and wireless communications.  In the past, isolation has been the best weapon for governments to keep the masses in line.  If you can’t confirm a problem, it remains a suspicion and you are less likely to act.  However, once a confirmation arrives, you are now energized to take action.  Tunisia was the confirmation for the Egyptian masses and thus we saw a “tipping point” occur.  If the people of a nation are being treated properly and allowed to pursue economic benefit, peace spreads.  Otherwise, change will ultimate occur.  Holding people in bondage, once realized, forces the people to respond in kind.

Five Stages Of Grief

Denial and Isolation.
At first, we tend to deny the loss has taken place, and may withdraw from our usual social contacts. This stage may last a few moments, or longer.
Anger.
The grieving person may then be furious at the person who inflicted the hurt (even if she’s dead), or at the world, for letting it happen. He may be angry with himself for letting the event take place, even if, realistically, nothing could have stopped it.
Bargaining.
Now the grieving person may make bargains with God, asking, "If I do this, will you take away the loss?"
Depression.
The person feels numb, although anger and sadness may remain underneath.
Acceptance.
This is when the anger, sadness and mourning have tapered off. The person simply accepts the reality of the loss

The above steps apply to economic loss.

Government has become a big spender over the last eleven years.  It takes $6 of debt to create $1 of Gross Domestic Product (GDP) in the U.S.  The government has increased in size whereas the private sector has shrunk and has in turn provided less tax revenue.  Tax revenue has dropped from 18% of GDP to 14.7%.  These lower tax revenues are causing politicians to focus on tax hikes.  They are missing the point, America needs jobs in the private sector.  History has shown that tax increases reduce jobs further. 

Although this website is apolitical, it is important that we show the illusions that mankind is living under.  Our Heavenly Father will judge nations based on righteousness and we must not continue living in denial of the fallacies that are causing us to drive over an economic cliff.  The following youtube presentation provides a view of the fallacy of taking all the money of the rich to solve our economic woes:

We do not endorse the Bill Whittle channel but his presentation brings home the point of the magnitude of America’s debt/spending crisis.  Soon, Americans will be getting angry as they move through the stages of grief due to the loss of the American Dream.  The assumptions of owning a house, two cars in the driveway, and perpetual prosperity are coming to an end for many.  The debt monster is looming and the day of reconciliation is coming.  It will not be pretty!

There has been much reporting about the debt ceiling debate, political positioning, and alternatives.  However, the official debt ceiling is not the issue.  The “unofficial” debt is the issue.  Medicare, Medicaid, and Social Security unfunded liabilities require an additional $20 Trillion over the next decade as they are currently defined.  Raising the borrowing capability of an addict to buy more drugs does not rehabilitate the addict.

When have politicians kept their word ten years out in the future?  Kicking the can down the road has been the standard operating procedure for decades, specifically since 1971 when the gold disconnect began.  The U.S. keeps the war machine in place for “national security” purposes.  Meanwhile, China acquires hard assets around the world to support future growth and economic strength.  Time is ticking away for the transfer of power to be complete.  China’s problem is they have too many people to manage, a diseconomy of scale.  Larger populations generate complexities that consume productive resources and can ultimately crash an economy.

A new wave of internet companies will create a bubble similar to the 1990’s tech bubble.  Unbelievable valuations are coming out of Silicon Valley once again.  Social networking companies are converting to public companies creating millionaires once again.  The insatiable appetite for information rather than revelation is fueling this surge.  “If I can just get more connected, life will be better” is the chant across the country.  If that were true, University professors would be running the world.  The mindset of economics continues to disconnect from reality.  Moving from tangible value to intangible value prevails.  Our service economy will implode sooner rather than later.  When things get tough, services are the first thing we cut.  Heck, I can mow my own lawn and fertilize it if need be.

Perilous times are ahead.  Revelation, not information, is needed.  We must seek Our Heavenly Father and open our ears of understanding if we are to minimize the pain coming our way.  We don’t need more debt, we need less “stuff”.