Servias Ministries Blog

3 out of 8 people on earth live in China or India.  Both countries are growing whereas the countries of the “West” are having severe economic difficulty.  With the arrogance of ignorance displayed by leaders, economic stimulus tactics are not working.  But wait,  Stimulus Package 2 is in the works.  At the same time, a massive tax increase will kick in next year- the kiss of economic death.  Politicians can’t seem to figure out that a tax increase hurts job creation.  Ronald Reagan figured that out and cut taxes.  The result was substantial job creation.

The Federal Reserve will continue printing money a/k/a quantitative easing.  The President’s Budget Director resigned in June.  The new budget will be withheld until after the November election.  Look for a budget with huge deficit in the $1.4-2.0 Trillion category.  If made public before the election, incumbents would lose more seats than currently projected.

The Economic Desperation Index is increasing.  On a recent trip to Padre Island, the local economy was at risk of loss from Hurricane Alex.  The mayor decided against a mandatory evacuation even though the brunt of the storm would hit the island.  I am sure his decision was economic based, not safety based.  Beaches were closed, businesses were closed, the one and only bridge to access the island was closed, but no mandatory evacuation was mandated.  Money vs. life… focus on life, lost.

Worldwide conventional oil production declined 2 million barrels declined last year.  Expect the same this year.  Natural gas inventories are down from last year and the storage levels no longer appear to be at a surplus level.  This bodes well for natural gas prices in the coming months.  The export market from OPEC is shrinking due to more internal consumption and countries like China are tying up the export oil through contracts.  At some point, the spot price for oil will be pressured in an upward direction.  Higher energy costs dampen any attempt of recovery in the West.  Those in power will attempt to suppress energy prices in the short run which will ultimately hurt us in the long run.

We’re on borrowed time.  Gold has increased in value nine years in a row.  The financial storm clouds continue to build in the sovereign debt crisis.  History shows us that when countries accumulate substantial debt, hyper-inflation follows.  The problem is that nobody pays attention to financial history.  We were close to hyper-inflation in the 1980’s but Paul Volcker, the former head of the Fed, was able to raise interest rates and arrest the inflationary pressures.  Asset inflation is occurring in the commodities.  It precedes price inflation.  China is using U.S. Dollars to buy commodities around the world and is reducing its supply of Dollars through this conversion to hard assets.

On top of all of this is the “Cardinal Climax” occurring August 1st, 2010:

Arch Crawford, financial technician states: “On August 1, give or take a week, we’ll have the most five-planet alignments in perhaps thousands of years. Known as the “Cardinal Climax,” this is the meanest, nastiest, most challenging and most transformational of any planetary phenomena in all of written history!”  If planetary alignments do indeed affect the emotional energy state, this could signal a catastrophic fall in global markets.  Will this happen?  Only Our Heavenly Father knows!  If this does happen, food will be the most valuable commodity.

Crawford:

How bad is bad?

“Well, when something is worse than the Revolutionary War, World War I, the Great Depression, and World War II, that’s bad – it’s the worst I’ve seen the charts in over 200-years.

As he explains it, there’s Mars conjunction Saturn which will be in opposition to Jupiter conjuncting Uranus all squaring Pluto.

Do I believe this?  I don’t have an answer but I am led to share those views that show past success.  Crawford’s investment newsletter rank #1 between 2007 and 2009.  He has 50 years of investing experience.  It’s better to be prepared and wrong than unprepared.

The Federal Government is now confirming what I reported in earlier blogs- the States are in trouble.  Do you think $50 Billion is going to be it?  Nada!

Dropping real estate prices hence shrinking real estate tax income is something states never plan on.  Their spending is always one way: up.  As state and local governments enjoyed the rise in revenue over the last 20 years, they generally failed to plan for the eventual downturn.  Arizona is selling and leasing back its government buildings.  California is issuing IOU’s.  Illinois just doesn’t pay its bill under the stated terms of the purchases.  Isn’t that a fundamental breach of contract?  New York is looking at funding its pension funds by borrowing from them?  Huh?  Illinois’ credit rating has been reduced which will make it more costly for them to borrow their way out of their revenue shortfall.

The “W” is not for Bush

In previous blogs, the real question was whether we are going to experience a “V”, “U”, or “W” shaped recession.  The stimulus package has just about made it run and now the big question is if we will enter the second leg of the “W” shaped recession.  I believe we will.  Bernanke calls the problem “headwinds” whereas many Americans call it sustained unemployment with no expectation of getting a job soon.

The average American is slowly moving away from reckless consumption and returning to a defensive posture.  Those with jobs know others without and are adjusting their purchases accordingly.  There is plenty of wealth for some but they will postpone purchases until they see true signs of recovery.  By now most everyone has been burned by at least one investment.

Fixing the Housing Market by tearing down houses

Officials are coming up with new ideas to fix the housing market’s excess supply- tear down houses.  Well, I guess that’s one way to eliminate the demand/supply imbalance.  See: http://www.washingtonpost.com/wp-dyn/content/article/2010/06/10/AR2010061006075.html?wprss=rss_business

When you couple this situation with Europe’s “States”, the outlook is not rosy.  The global contraction of the West and the expansion of China and India are hastening the move of the balance of power to the East.  Have you learned Mandarin yet?

Let’s assume that the world does not end on 12/21/12.  The global population will continue to need energy and the cleaner, the better.  Solar and wind power are not reliable enough to take up the slack.  Nuclear and natural gas generators are scalable.  In addition, geothermal will account for a slice of the pie.  It will benefit from carbon credits as the globe taxes the polluters. 

I listened to an interview with Ross Beatty, the CEO of Magma Energy Corp.  Recent performance was reported: http://www.magmaenergycorp.com/s/NewsReleases.asp?ReportID=400105&_Type=News-Releases&_Title=Magma-Energy-Corp-Announces-Third-Quarter-Results  Beatty’s past performance is impressive and if he performs, this stock has notable upside potential in the long term.  I like to buy stocks on the “dip” and this stock can’t get much cheaper.  MGMXF is the symbol for U.S. based purchases.

This junior energy stock is only for those who can risk a loss of their entire investment.  Oil is a depleting resource but geothermal isn’t.  Developing geothermal resources around the world as a credible player should provide a stable “annuity” of cash flow and revenue growth.  Based on the financials and the management interview, I’ve decided to buy some shares of this “green” energy company.

Disclaimer: The material on this website has no regard to the specific investment objectives, financial situation, or particular needs of any visitor. This site is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments.

One of the greater challenges in the financial and economic arena is to sift through the illusion and see the realities of the day.  Those in power want to create perceptions that perpetuate their agenda even though the facts and/or history support the opposite.  This is the basis of fraud.  However, if you have power over the law, you can circumvent the law by using its weaknesses, caveats, and loopholes unfamiliar to the listener.

“10 Million Barrels short by 2015”

The U.S. Military High Command reported this reality.  However, the Media fails to report this expected shortfall of oil supply.  The EIA reported in 2009 that there would be a 43 million barrel a day gap in supply versus demand by 2035.  Why do you think BP drilled in 5,000 ft. water?  There have been several reports by credible sources reporting this problem but governments are operating under the illusion that “all is well”.

With the BP oil spill, the President has effectively reduced the production in the Gulf by 500,000 barrels per day.  This means we will import this amount from other countries and increase our balance-of-payment deficit. 15 to 17 supertankers will be added to transport this new demand.

China is building 20 nuclear power plants (with 54 in the planning stages), the U.S. is building 1.  Green renewal power is not going to fill the gap.  The illusion of unlimited power has the American public asleep and in denial.  What are we going to do with the waste?

The U.S. needs to spend $100 billion per year on rail.  The U.S. trucking industry will not be able to pay the increased fuel costs coming soon.  China’s increased demand for oil will offset any U.S. reduction thus causing a price floor to some degree.  The days of cheap oil are over unless a global depression wipes out demand.

The G20 countries have been meeting to sort out the global debt contagion.  The solution is simple: spend less, save more, reduce entitlements.  This will not happen on a voluntary basis.  After spending like a drunken sailor (my apology to the sailor), moving towards austerity is extremely difficult.  Six week vacations by Europeans and long lunch hours for Spaniards is so ingrained in the culture of entitlement, there may be only one solution- depression with extreme prejudice.

Illusion serves only to provide temporary emotional comfort and delay of pain.  Delay of pain only insures more intense pain.

7 miles east of the rig blowout is a massive plume of oil escaping and creating a layer of oil nearly 400 ft thick and the footprint is now bigger than Maryland and Delaware.  They believe this plume is spilling 120,000 barrels per day.  See: http://news.yahoo.com/s/ap/20100531/ap_on_re_us/oil_spill_mysteries_of_the_deep    This is in addition to the 1,000 barrel per day in the live feed below.  If they cannot stop this leak, it would take 11 years to deplete this reservoir.  This is taking oxygen out of the Gulf of Mexico and if it continues to shorelines, it will ruin the fishing industry and recreation destination for millions of Americans.  Couple this with an active hurricane season, the Navy may be called upon to detonate a bomb to close up the well bore.  The water temperature are up in the Gulf which is fuel for hurricane activity.

The BP oil spill continues to decimate the economy of the Gulf States.  Add a potentially active hurricane season and you have a recipe for disaster.  NOAA projects an 85% probability of an above normal hurricane season.  See: http://www.cpc.noaa.gov/products/outlooks/figure1.gif  If we have one major hurricane entering the Gulf of Mexico while the oil spill is still in play, then we will have an epic catastrophe, not that the current outlook is less than “epic”.

The vacation areas in the Gulf are down 40% due to the oil spill even though they are currently unaffected.  The news media has affected the psyche of the vacationers.  The gulf states’ economies will continue to suffer.

People unfamiliar with the oil industry assume that technology is an answer to peak oil.  This environmental disaster is a clear indication of the difficulty of finding oil and developing fields.  The easily extracted oil has already been found.  The hard-to-find oil has high costs and high risks associated with it.  This is why you should not expect to see cheap oil unless the global economy takes a nose dive.  In that case, oil still will not be cheap on a relative basis.

Once economies of major countries become interconnected, they are all subject to the contagion that can wreak havoc in one country and spread to the others.  Greece was enticed by Wall Street to participate in Wall Street’s financially engineered products.  Along with their socialist mentality of entitlement, they are now in for austere measures which will produce more social conflict.  California is trying to get a one time “wealth” tax on the ballot.  If you owned expensive property, you would pay a tax on it.  This would send a new wave of bankruptcies across the state.  Fitch rating service downgraded Spain’s debt which is effectively downgrading the Euro.  You can expect more downgrades this summer. 

In the U.S., state, county, and local governments continue to see a contraction in tax receipts thus causing layoffs and potential bankruptcy.  See: http://news.yahoo.com/s/nm/20100527/us_nm/us_economy_california_munibankruptcy

Once again, the FDIC is back to closing about 5 banks per week.  See: http://finance.yahoo.com/news/3-Fla-banks-1-each-in-Nev-apf-392122267.html?x=0&sec=topStories&pos=2&asset=&ccode=

I have been suggesting the gold will continue its bull market run to significantly higher price levels.  The media is now jumping on this bandwagon:

I also believe $3,000 is too conservative.  $3,000 gold will pull the silver price with it.  Gold and silver stocks would grow at an even faster rate.  Commodity bull markets normally run at a 19 year cycle and we are 9 years into that cycle.  You can expect notable volatility so do not leverage your investments of any type.

Our current economic model is faulty and will lead us into the “Stagflation Trap”

Stage 1:  Negative real interest rates.  When the interest rate is adjusted for inflation, the resulting rate is negative.  For instance, the bank pays you 1% and the inflation rate is 3% then the real interest rate is –2%.  Your principal is losing 2% per year in purchasing power.  This is hurting all of our elderly who are relying on their CD interest to make ends meet.

Stage 2:  Disenchanted with negative real interest rates, people search out a store of value such as commodities.  They attempt to protect themselves from this loss of principal they were experiencing in stage 1.  Commodities are a volatile market and can create fear in the investor who is unsure about the direction of prices.

Stage 3:  Rising inflationary pressures for consumers and businesses.  Three years ago, the local burger joint sold a combo for $5.50.  Today, it is $7.37 and with tax it totals $8.00.  As prices increase, consumer awareness is sensitized and they respond.

Stage 4:  Businesses and consumers are under pressure to reduce spending due to the inflationary squeeze.

Stage 5:  Debt deflation due to banks tightening their lending policies due to loan losses and consumers deleverage their investments due to uncertainty.

Stage 6:  Economy goes into a recession and unemployment rises.

Stage 7:  Politicians and Central Banks intervene with bailouts, stimulus packages, and quantitative easing.

Stage 8:  Inflationary pressures re-emerge but Central Banks are unable to raise interest rates to arrest higher inflation.  Paul Volcker was able to fight inflation in the early 80’s by forcing real interest rates substantially above inflation rates.

Stage 9:  Deflation of non-consuming assets such as housing occurs.  Inflation of consumables such as food, water, energy, and clothing kicks in while personal income becomes stagnant (Stagflation).

Stage 10:  In desperation, citizens give up liberties and freedoms in an attempt to recover their previous lifestyle.  The fundamental of government change and power is transferred to the wealthy or anarchy rises up and chaos ensues. 

The U.S. debt and unfunded liabilities are currently at $108 Trillion.  Where is the financial point of no return?  Soon!

The Euro is in deep “doo doo”.  The U.S. unfunded liabilities and deficits cannot be paid, the math just doesn’t add up.  Peak oil is here but traders look at immediate demand to determine price.  You cannot get the truth from Economic Officials because they want to manage “perception” for the greater good, thus they lie to us.  Denial is rampant.  Voters are pain adverse and keep postponing the pain for greater adversity in the future.  The pathetic interest rate on CD’s is pulling us into this economic minefield.  Financial fraud is everywhere and honest people are punished.  What are we to do?

We must shrink our living expenses by using a zero based mentality.  Look at your monthly expenses and scrutinize each expense and with minimal emotion, determine whether you need that expense.  Is there an alternative?  Credit cards are time bombs if you can’t pay them off monthly.

Investing is a tremendous challenge now.  Protecting your principal must be the number one prerequisite but this is nearly impossible in today’s environment.  Hidden inflation is the insidious thief that is robbing your principal while your receiving less than 1% in interest.  Increase in taxes and healthcare are chipping away at our wealth.

I continue to believe in physical asset investing for the following reasons:

1.  The global population continues to expand and people have to eat, stay warm, and travel.

2.  The current infrastructure paradigm is a high energy consumption-based reality.  We can talk theory and point to large energy deposits.

3.  The Quants (financial engineers) are taking over the market gambling casino called Wall Street.

The following video will bore most readers but if you can last through it, you will gain a perspective of the complexities that are taking over the global banking industry which will ultimately cause its collapse:

I consider this blog category of Biblical Economics as the fringe versus the “Establishment”.  The Establishment wants to be in control and maintain that status of control over its citizenry.  At the center of this control is self-interest.  On the other hand, “fringe” thinking results from Love being at the center of thought.  It is well known around the globe that the U.S. has an arrogant view of entitlement.  In my travels, I have first hand experience of this world view of the U.S.  I tread lightly during these travels.

The establishment would have us believe that hyperinflation is due to a change in money supply.  That is only partially true for the true cause of inflation includes the velocity of money (the number of times it is transferred or spent in a specific period of time).  When the public loses confidence in their currency, they attempt to convert their currency to other assets that retain value, whether it be bread or gold.  They quit hoarding the currency because they lose confidence in its purchasing power and opt for other assets they believe will hold value in the future.  Thus, hyperinflation is caused by a loss of public confidence.

How do you manipulate public confidence?  You use the media and manipulate tangible asset prices by keeping them “low” versus your currency.  Gold is known for its intrinsic monetary value and to a lesser degree, silver.  This is why there have been notable attempts to keep the price of gold and silver at bay.  Once gold and silver breakout into the public’s view and become a sought after investment, hyperinflation is on the horizon.  A breakout in the price of gold has a direct impact on the confidence of the public that their currency is becoming worthless.  When this happens, the velocity of currency dramatically increases since people do not want to hold that currency but immediately convert it to another asset that will retain its purchasing power.  This is why I have been preaching the view of holding some of your wealth in tangible assets as an insurance policy against hyperinflation  Sure we need currency to conduct normal business activities but we are close to the edge of global hyperinflation.  The latest $1 Trillion bailout of the Euro with the help of the U.S. (you and me) only confirms the seriousness of the global crisis of public confidence.

When people fear the future and trust money, they hoard money.  When they fear the devaluation of money, they get rid of it by converting it to a tangible alternative.  If you are highly leveraged, this becomes a problem.  You don’t have the flexibility to move out of the currency since it is required to pay your obligations.  You need liquidity.  This is why I’ve been urging the readers to simplify and get out of debt as quickly as possible.

The media will report on the hyperinflationary crisis only after it is in full swing.  Congressman will do nothing to prevent the crisis since they only deal with crises after the fact.  With that in mind, expect the crisis to occur.  Prepare for it.  Only Our Heavenly Father knows the day it will escalate. 

There is a tremendous amount of paper money swirling around the globe.  The various central governments created the very monster that will attempt to consume them… all for a buck or two.  With interest rates being held at a sustained low, money is looking for a return.  Shorting currencies is one such method of creating a return on investment.  If you put enough money in play, you can start a death spiral against a currency and the wolfpack has its sights set on the Euro.  They are “selling” the Euro in hopes that it will go down then buy back their position at a lower price thus pocketing the difference.  This last weekend was the tipping point of another global crisis.  The sovereign debt bubble will pop.  The only question is “when”.  As it happens, I expect gold and silver to skyrocket since they are the only currencies without an inherent liability attached to them.

Greece, Italy, Ireland, Portugal, and Spain all need to cut spending and they don’t want to pay the piper.  The socialist view of government is failing.  Initiating an austerity program shortly after they were just told “all is well” is causing riots in the streets.  That is the risk on a global basis.