I hope I’m wrong about that, but so far it appears that spewing fiat money isn’t solving our problems.

My position is that this economic crisis was created predominantly by easy money, excess spending and debt.  This situation led to a bubble in housing.  Trying to re-inflate the bubble with more easy money and excess spending is only going to make our problems worse, leading to a collapse of this house of cards economy and another depression (assuming we’re not already in one).

So what is Obama’s plan?  Do more of the same.  This seems like a regular pattern with governments: When something doesn’t work, do more of it.

That being said, we may see an Obama bump in the economy, but I don’t think it will last.  He does have some tax cuts on the agenda which may actually help a little.  But basically, his main plan is to follow Bush’s lead and keep those fake money machines rolling.

My new downside target for the Dow is 5,500 or lower. Does anyone care to make a bet?  (Be forewarned; if you’re an optimist, my portfolio has probably done better than yours, going back to about August of ‘07.)

I saw a funny cartoon the other day.  It showed our major financial institutions on fire while Ben Bernanke and Henry Paulson tried to put out the fire with fire hoses.  The only trouble was, a massive stream of cash was coming out instead of water, feeding the fire.  I believe this is an excellent illustration of what is happening.

To avoid making things worse, Obama should be listening to people who saw this crisis coming years ago.

Peter Schiff, former economic adviser to Dr. Ron Paul, was one of those people.

I’ve written in this blog before about Peter Schiff.  He wasn’t the only person to see the credit crisis coming, but he was perhaps the most outspoken and well-known.  Some supposedly very intelligent people ridiculed Schiff for his views, but he pushed back hard. (Here’s an example, from my previous blog.)

My main purpose in writing this blog is to highlight the fact that, according to Schiff, no one in our government has contacted Schiff for his input on how to get out of this mess!  I think that’s nuts, since he was one of the few experts to see this recession coming the way it did!

In the video below, Schiff gives a great summary of why no one listened to him, why we’re in trouble, how to get out of it, and what will happen if we don’t.  He also gives some advice on what to do with your money.

The only thing I disagree with him on is the inflation issue.   I think we’re in for massive deflation for the foreseeable future.

I don’t think we’ll see really nasty inflation and a collapse of the dollar for many months or even years, but I do agree that it will come.  (If I’m wrong about that, I’ll pay for it in my portfolio.)

See you all next time and I hope everyone’s new year is off to a good start!

Money Talks Trader’s Group Update: Tuke and I will be meeting at the Firehouse Brewing Company in Rapid at 3 pm on Saturday, January 17, 2009. Check my last blog to see what I look like.  Everyone interested in investing, trading, or the crazy developments in this world is welcome!  See you there!

Tuke is an excellent technical trader and has taught me a lot already about trading and reading the charts.

Portfolio Update: My ProShares UltraShort Real Estate ETF (SRS) did very well Wednesday.  Then it started up huge early Thursday before dropping like a rock.

I got stopped out Thursday at $65 for a profit of $5.01 per share plus a dividend of .86 and capital gains of $164.40.  This comes out to about 15.6% in 26 days.  (Profit in my second batch of SRS-which I sold first- was much lower.)

I put in a limit order tonight for another dose of SRS at $56.50.  I doubt I’ll get it Friday, but things are really volatile right now so who knows?

Quotes of the Week:

“Reality is a mass hallucination.  We gauge what’s real according to what others say.  And others, like us, rein in their words, caving in to timidity.  Thanks to conformity enforcement and to cowardice, a little power goes a long, long way.”

~Howard Bloom in Global Brain: The Evolution of Mass Mind from the Big Bang to the 21st Century.

“The Federal Reserve is no more federal than Federal Express.”

~Rep. Dennis Kucinich

See him in action on Youtube!

Note: Mr. Kucinich’s comments on the Fed start at 3:44, while his “Federal Express” comment is at 3:57.

I caught a glimpse of CNBC’s Fast Money the other day when Karen Finerman said she liked the ProShares UltraShort Real Estate ETF (SRS) under $60.

I checked the chart and thought it looked too cheap to make any sense when compared to the recent price action of the Dow Jones U.S. Real Estate Index (DJUSRE).

I scaled in with one purchase at $59.99 and another at $56.90. (It closed on Friday, 01-02-08, at $53.23.)

The Scottrade chart for SRS showed that this ETF is near 52 week lows.

The Scottrade chart for the DJUSRE shows that the index is recovering from 52 week lows.

Since SRS attempts to track the inverse performance of the DJUSRE index and is leveraged times two, I was perplexed to see these charts. If SRS is near 52 week lows, shouldn’t we see the DJUSRE index close to 52 week highs instead of lows?

Check this Yahoo Finance chart comparing SRS vs. DJUSRE, and you’ll see that SRS has dropped to it lowest point in two years while the DJUSRE is mildly recovering from its lowest point in two years.

You’ll also notice that the 52 week high of SRS in November of ‘08 is wildly out of proportion to two times the inverse performance of the DJUSRE index, then drops outrageously and out of proportion in late November and December.

What’s going on here?

My best guess is that we live in a historic time of economic upheaval and that volatility is what we should expect at this point.  I would like to hear what our readers have to say.

As most of you are aware, the crash in home prices precipitated the crash in financials and led to our current economic meltdown. I don’t think the pain is over in real estate, so that’s why I got into SRS. The only trouble is, we could see a significant rally before a further decline in real estate and the financials. With the wild gesticulations of SRS, I could really get burned before I get some good profits!

I guess part of the reason I wrote this blog is because I feel like my rear is hanging out in the breeze a bit. When I don’t understand price action, I question whether or not I should be in that stock.

Do any of our readers have input on this issue?

Quote of the Week: “The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos.”~H.L. Mencken

Buried News of the Week

DTCC Eliminates Stock Certificates with SEC Approval!

I just about fell out of my chair today when I opened my Scottrade account, clicked on the link that said, “Attention Customers who Request Stock Certificates” and read the following!

“Attention Customers who Request Stock Certificates

Effective Jan. 2, Scottrade is no longer offering physical stock certificates. This change has been made in response to an initiative by DTCC (The Depository Trust & Clearing Company) to eliminate physical certificates.

DTCC will discontinue the issuance of physical certificates for most securities on Jan. 9, and the remaining stocks will only be available in certificate form until July 2009. This is an SEC-approved, industry-wide change that will affect all investors regardless of the brokerage firm issuing the certificates.

After July 2009, the availability of physical stock certificates will be dependant upon the discretion of the issuing company, which may make them available exclusively through their Transfer Agent. For more information, you will need to contact the Transfer Agent directly.

What this means for you: Scottrade will continue to accept physical certificates for the deposit or sale of stock, but you will not be able to receive a physical certificate. If you primarily trade online and do not normally request the issuance of a physical stock certificate, you will not be affected by this change.

If you have any questions, please contact your local branch office.”

Do our readers have any thoughts on the wisdom of eliminating physical stock certificates?

This seems to me like just another step toward a cashless, highly controlled and closed society.

See you next time!

Happy New Year everyone!

Here’s a picture my fiancee cooked up for this blog.

Photo Illustration by Molly Albrecht