THE BARRICADE

Developing…

AO:

I have a prediction on what administration will do next as the recovery slowly crumbles on the climbing jobless rates in the coming few quarters.   I’m thinking if the next big US market leg down is tied to unemployment buzz (rather the root issues in the US economy *causing* unemployment), we’ll see an all-out government-sponsored public jobs/works blitzkrieg.  It’ll be fast and furious, FDR style, and it’ll be the perfect formula the Obama administration to build popularity by reestablishing positive ties to the working/lower class.  Such a plan would also feed the construction/contracting lobby and hopefully send the stock market up a nice leg (remember, most Americans equate the health of the economy with what their 401k says, not what the national debt to GDP ratio is).

If this is right, some good plays could be construction firms, civil engineering firms, steel, concrete processing/manufacturing, and asphalt manufacturing.  Ian, any good names come to mind?  Of course, the danger here is catching one hell of a falling knife, so I’m thinking to not even think about buying unless or until a second stimulus appears eminent.

IW:

Agreed. So, Terex, Jacobs Engineering, Shaw Group, Foster Wheeler, Quanta Services, Matrix services all fall within that investment thesis as well as panamex largest mexican cement company.

PW:

I somewhat agree.  I suspect that those public works are more likely to be in the area of green or renewable energy, maybe mass transporation in areas where property rights are easy (financially and politically) to acquire. Also, dunno if you guys have seen this:

“Federal Reserve needs to cut US Dollar in half over next 14 years”

IW:

They are cutting it in half already: DXY has fallen 17% since March. Annualize that trend. Quanta Services is the best green service company.

TG:

Wasn’t this the original plan for the first stimulus?  I’m not so sure this will fly — maybe if the first stimulus hadn’t gone down the way it did and the healthcare debate hadn’t stimulated so much right-wing lunacy.  But the administration’s political capital is stretched thin, even with Obama’s base.  Even if he tries it, what’s the chance that it will actually make it out of Congress with anything resembling real money for the industries in question?  And where’s this money coming from, anyways?  Someone has to be willing to buy that debt.

For me personally, this would be great, because I’m working in the industry potentially benefited.  But I’m not holding my breath.

The fed will buy debt who else is purchasing bonds with low yields while dollar has fallen 17% since march. Imagine real returns of negative x on a risk free asset like us treasury bonds. No private foreign money manager makes that trade, except foreign and US central banks, where returns are measured in political stability and losses will accrue to taxpayers without the slightest protest. We have figured out the perpetual motion machine of finance. Endless money printing without consequences. DaVinci would have been proud.

Maybe the question should have been “where’s this money coming from, if they don’t want to tank the dollar?”

What they have figured out is that they can be the buyer of all bonds and agencies and lower interest rates while weakening the Dollar. Japan has had years of low interest rates but their currency of the last 20 years has gone from 280 yen to 89. A strengthening currency with lower yields. The USA may be first country to ever have a weak currency and low interest rates and have every hedge fund in the world blow up who have never seen this manufactured anomaly. Who would buy a debt instrument yielding 4% or less when you have lost 17% in purchasing power during that time? ”Look boss, I made -13% risk free.” They dont teach this in corporate finance class.

Well, these are exceptional times.  Everyone learns to hedge currency exposure but I don’t think most people seriously considered that the government that prints the reserve currency of world might inflate away half of it.  And even if they did, they would probably assume that there would be a flight to other currencies, again failing to consider that the one obvious choice - the currency of the world’s biggest saver and producer economy - has been shortsightedly pegged to the failing reserve currency for decades. The solution?  Create a credit institution even bigger than the Fed…perhaps that’s what folks are gearing the IMF up to do.  Sovereign and super-rich accounts can find safe harbor there, the Chinese will slowly convert their dollar reserves into SDRs or NewYuan or whatever we call them, and the fates of the clued-in rich will be separated from the fates of the hoi polloi that are still holding dollars.  You can I can’t buy them - they are denominated in units of $100mil and only large institutions (and, of course, hedge funds) will be able to play that game.

Exactly, what people fail to realize in order to get rid of thirty year imbalances that should never have occurred if asian countries had not pegged their currencies to ours and taken on a mercantilist export dominated economy. You learn in economics - countries that have massive debts and import everything have worthless currencies - which helps them export their way to prosperity. Countries with savings and who produce more than they consume should have strong currencies which eventually should lead to more consumption and less exporting. Unfortunately, China and Japan broke the rules of economics - pegging their currencies and now we have the biggest imbalances in the world in terms of capital, currencies and labor.  No way out but pain for all involved.
Some people argue we have already suffered our devaluation with DXY falling from 124 to 77.  That is a big hit in our purchasing power thank goodness that cheap debt helped us buy stuff because we certainly couldnt affored it with our currency. Heck, Yen was 130 several years ago now 89
Canadian Collar was 60-70 cents now close to par
Euro was 90 cents now $1.45.  The sad thing is, Japan will have a hard time as will Europe exporting their way to growth with strong currencies.  They better learn how to shop like Americans. If SDRs do become the new currency, go long auto rifles with night scope technology.

One thing they can exploit (especially the chinese): Asian governments are much heavier handed than the US, or at least have the ability to manipulate the economy without a bunch of free market fundamentalists getting all up in arms.  So, they can exploit a different kind of regulatory imbalance.

One of the biggest, costliest aspects of pharma and medical development in the US is the IP side of things.  In the US, you can’t do a medical or biotech startup the way you can do a software one, because there are so many regulatory and IP hurdles.  There are lots of huge players that have regulatory capture.  There is a government agency that can completely shut you down.  (Imagine if we had that in software - a Federal Software Commission that could tell Google or Amazon, “Nope, you can’t do that”.)

Anyways, the Chinese have no regard for IP, and their regulatory capture is a much purer free market.  (If you have the capital, you can bribe any official you want!)  They also have zero regulations on animal and human testing, and there is no massive religious wingnut base to protest stem cell/embryonic research.  The government can easily create laws and define jurisprudence that draw lines in ethical areas that are murky and gray in the West.

Put 2+2 together, and what you have is China as the future source of biotech and medical innovation, the same way that American has been the center of electronics and software.  If I had 50 mil, I would actively be looking to build a gigantic Chinese biotech incubator.  Think of all the Chinese PhDs we deny H1Bs to every year!  Harvest that contact info, put all those brains in a posh research campus, develop biotech cures to solve all of China’s pollution-related illnesses and ingratiate yourself to the populace and the government… and license the tech to the West (or sell medical tourism packages).  It’s pure gold.

if SDRs do become the new currency, go long auto rifles with night scope technology.

That has been my conclusion as well.  I don’t see any way out for the US except to inflate our way out of it, and strong-arm the Chinese into compliance.  Meanwhile more middle class here recedes into lower class, and general law & order takes a hit.  I already have a Mossberg 590 but I need a scope for it, and I’m saving up for my .357 mag.

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