Servias Ministries Blog

Many Investors are optimistic about the stock market for 2011.  Many think the market will grow by 20% this year and very few believe the market will go sideways.  For whatever reason, all of the problems of 2009-2010 seem to no longer matter.  The states have a funding problem.  Housing prices are not expected to improve in the foreseeable future.  Quantitative easing which causes inflation seems to be acceptable now.  The government deficit and liabilities are astronomical and nobody has a solution to a resolution that will not decimate our children and grandchildren.  How quickly do we forget and deny these structural flaws in our system.

Denial and blindness are taking hold once again.  Logical conclusions do not apply when the masses are addicted to leverage and spending.  In the early ‘90’s I was working for a company where I earned a healthy salary.  I knew I would be leaving in early 1993 and start my own business again.  We had become accustomed to the standard of living supported by my salary.  It was extremely difficult to curb our spending prior to my departure.  There was such an emotional tie to spending money and there were many “corrective” discussions concerning our monthly spending habits.  Once I departed, we suffered an emotional “hit” adjusting to a new lower level of spending that comes with starting a new business venture.

Currently, the U.S. Dollar is the least ugly of the ugly sisters.  The Euro crisis caused the relative strength of the Dollar but the ultimate test was to compare the Dollar to hard assets.  Short term volatility masks the underlying problem of Dollar depreciation.  A sovereign debt crisis could move all currencies in a downward spiral.  The FDIC closed 157 banks last year and 2 were closed yesterday.  Most of these banks were smaller but since the Fed provided funding for the “too big to fail” group, the closures misrepresent the health of the financial system.  The amount of toxic debt on the banks’ balance sheets is still a mystery to most of us.

Oil prices are firming around the $90/bbl level.  Oil consumption is on the increase and will place upward pressure on the price.  $100 oil is an easy target.  If the price advances too quickly, the current economic recovery could quickly stall out.  China’s actions to slow their economy will impact the price of oil by restricting consumption.  The global connectivity of commodity prices make it impossible to project short term directions of prices.

The U.S. Dollar has achieved a purpose of extracting true wealth from around the globe.  By being the world’s reserve currency, it has been used to trade for the productive capacity of other countries and direct those resources to those who hold the Dollar.  For example, when I was in Romania in 1993, I could buy a 12 course meal for about $5.  An ice cream cone was five cents.  My Dollars were well received in that country.  With the consistent policy of inflation of Dollars, we buy goods and services then pay for them with a lower value.  The problem is that in Kingdom economics this is a sin of unequal weights and measures.  At some point the Dollar will be judged and found lacking.  The timing will be according to Our Heavenly Father’s perfect plan, will, and purpose.  I trust that HE will prepare HIS sons and daughters for this event.  As each of us dwells in HIS Word and Presence, we will be led to make preparations for such an event in whatever form it takes.

People are addicted to drugs, things, making money, achieving stardom, and any other thing that would strengthen and support pride, ego, and the flesh.  This causes them to be blinded from the truth, wisdom, and understanding.  What is so obvious to those who are not blind has been withheld from those who are.  Our prayers should be for Our Heavenly Father to lift the veil from those who are blind (including our own partial blindness).  We cannot know just how HE would do that but throughout history HE has removed any distractions such as their temporary wealth, houses, and other trappings.  It would not surprise me to see HIM perform another “cleansing” as HE has done so many times for the Kingdom economy will not be run in the same fashion as the current system.  As always, HE will raise up a people to lead others toward HIS Kingdom.  May the readers of this blog be in that company.

It is not “Business as usual”.  We are in the midst of epic government intervention with Quantitative Easing by the Federal Reserve at the forefront.  Mal-investments are not allowed to fail and cleanse the system.  Instead, the government claims that they are too big to fail and prop them up with our money.  On the other hand, you and I are in the “too small to care about” category.  This is why unemployment is officially 9.8% with the true rate much higher.

Why aren’t we seeing the same results as the 1930’s?  It is because our infrastructure is more advanced and people who are still working have sufficient assets to help those without.  This reality does not change the fact that we are at risk.  Complexity evokes a more severe contraction once it fails.

Alternative energy is not working.  The concentration of energy contained in oil and gas are much greater than most of the alternatives.  More agencies are admitting peak oil occurred between 2005 and 2006.  The cost of energy will continue to rise and unless there is a global depression, expect gasoline prices  to remain strong.  Rail base transports will do well.  Government subsidies of ethanol are simply throwing away money that could be used for better purposes.  We all love the farmers but subsidizing ethanol will only delay the inevitable.

Ben Bernanke will continue to depreciate the Dollar and he will defend an inflationary path.  This means that he must keep rates low to encourage consumer spending.  Absent that, the government must spend which is occurring at an epic pace.

Christmas spending was up but I believe it was do to pent up demand by families holding off until the Christmas season.  Now we are back to removing debt from our balance sheets.  Everyone needed a breather over the Christmas holidays and many of the restaurants were full again.  After New Year’s Eve, the restaurant lines had vanished, once again.

Oil will be the hot topic among the press.  A former Shell exec is making the rounds on the TV circuit laying the groundwork for expected higher oil prices.  We have been warning about  this for some time now.  Prepare yourself for $3-$4 gas at the pump.  See: http://www.washingtontimes.com/news/2011/jan/2/dramatic-spike-in-gas-prices-forecasted/

Nobody knows how to manage this global economy except Our Heavenly Father.  It is simply too complex.  In the meantime, expect volatility of commodity prices.  The gold bull market is still intact and will try to shake off all timid investors.

Good money must have a number of unique characteristics.

(1) It must be durable, which is why we don’t use wheat or corn.
(2) It must be divisible, which is why we don’t use a Picasso painting or jade statues.
(3) It must be convenient, which is why we don’t use lead or copper or real estate.
(4) It must have value in itself, which is why we don’t use paper.
(5) It must be transportable, which means that large values must be contained in a small area (a gold coin weighing only one ounce can be worth far more than fifteen hundred dollars).
(6) It must have a long history of being accepted as a store of value. Gold was considered valuable as long as 5,000 years ago in the age of the Egyptians.
(7) It cannot "disappear" or be used up in manufacturing as is copper and even silver. Thus, the gold coin that you have in your hand may have been part of Cleopatra’s earrings centuries ago. Almost all the gold that has ever been discovered is still available in one form or another.
(8) It must not be the liability of any sovereign nation, nor should it require governmental law to make it money. For instance Gold requires capital, talent, risk, sweat and courage to recover or to accumulate.

Hmmm! That’s why gold just won’t go away.

John Williams’ website www.shadowstats.com provides an “apples to apples” comparison for historic government statistics.  Over the years, politicians have redefined inflation, the deficit, and any other statistic the market follows.  Why?  To improve the perception of the people that all is well.  I guess they think we are too stupid to comprehend the facts and respond prudently.  This website is all about serving mankind, not manipulating man for self serving motives.  Wouldn’t it be nice if politicians had this epiphany?  In the mean time, it would be prudent to stock up on non-perishable food items as you are led.  Buying a can of beans for 50 cents now versus 75 cents in twelve months is equivalent to a 50% return on investment.  Banks are not offering that kind of return!  Let the truth and facts speak for themselves.

In the pharmaceutical business, death is an “unintended outcome”.  What a polite expression!  Sanitizing events is done with positive and negative words.  In the political world it is called putting “spin” on the situation, spin the facts around to make a negative look like a positive.  This methodology is intended to sway the psychology of the masses into following the desired path of those in power.  It has generally worked in the past.  It is well known that the national media “sanitizes” the news to fit an agenda of the owners.  The term “politically correct” comes to mind.  Wikileaks upsets the status quo and paints a different picture of those in power.  When secrets are revealed, we now see the “character” of those involved.  It is interesting that attempts to hide the truth of any matter ultimately fails.  Ben Bernanke used his interview on "60 Minutes” to further the agenda of Quantitative Easing, or printing more money out of thin air.

What are the ramifications of quantitative easing?

Higher inflation, especially the essentials such as food and energy

Devaluation of you life savings, your dollars will buy less

Lowering interest rates, your life savings will not earn enough to support your retirement years

Allow big banks to continue their huge bonuses by giving them 0% loans to invest in 3% Treasury securities.  (Why can’t I get in on that lovin’?)

Risk of Hyper-inflation, Bernanke is in uncharted territory and there is no positive example that can guide him through this money printing efforts.

A meltdown in the Bond Market, if nobody buys U.S. debt, interest rates will rise rapidly and create serious losses.

Currency failure, history is sprinkled with similar attempts that have resulted in this outcome.  Are we smarter than all the historical figures of the past?

Gold & silver, energy, and food related investments provide the best “insurance” against loss of value if these rounds of quantitative easing continue to pump up the money supply.  Do not leverage yourself in these times.  Be safe.  Reduce your liabilities and monthly cash flow requirements.  Be nimble.