THE POLITICS OF DECEPTION

I've been thinking about the following topic for about three weeks now and the discovery of the following video from FOX NEWS spurred me to actually put my thoughts down here.  Before you roll your eyes and click over to some other blog because I'm going to go deep into my political rants, stop, wait, and hear me out.  I'm going to briefly highlight this because it is important and is going to help us today and in the future.

Watch a few minutes of Fox here where they put together two years worth of video and created the illusion that Ron Paul is booed vehemently as he is announced the winner in 2011.  The only problem with the video is that he wasn't booed in 2011, the boos were provided in 2010!  Fast forward to 4:45 in the video to see the actual reaction to the announcement at the 2011 convention.



The  CPAC attack on Ron Paul by Fox News is just an example of how we live in a world where "what they show us" becomes reality.  This is why state run media in Russia, China,  Iran, and North Korea is so effective at framing a picture of reality for their people.  After viewing the video you walk away with the idea that Ron Paul may have won, but he sure is a poor candidate because he has a lot of people that are not supporters.

Readers of the Goatmug Blog know that as a history buff I relish the views of thinkers like J.R. Nyquist who writes on the geopolitical landscape with an emphasis on Russia, the plague of Communism, and the tactics used by them to obtain power and achieve their goals.  Mr. Nyquist's latest offering provides details about the possibility that the Egyptian revolution may have been hijacked or at least sponsored by people that didn't have a genuine quest for liberty.

http://www.financialsense.com/contributors/jr-nyquist/egypt-and-the-muslim-brotherhood

In his post, Nyquist reveals that bloggers from the Ukraine couldn't find a majority of people that supported the uprising and in fact could find many Coptic Christians that felt a transition could be a bad thing.

I've found the original blog post he referenced from the Ukranian bloggers and have translated the text with the help of a translator (it's still a bit rough).

"Domestic and international media broadcast the one-sided interpretation of the U.S. government concerning the events in Cairo. Most reporters in the hotel for security reasons, and looks at what is happening through the eyes of CNN and the BBC.
We visited Egypt and study in detail the situation on the ground. Having talked with hundreds of residents of Cairo and other Egyptian cities came to a single conclusion: a nationwide uprising against President Mubarak does not exist.

Most of the population, even if it does not support the current government, a negative attitude toward anti-presidential parties shares. In particular, the Copts, are the largest Christian community in the Middle East believe that, if successful coup significantly worsen the situation of Egyptian Christians. And why the Copts are not allowed the protesters to their quarters.

In fact, the Egyptian rebellion is limited to one area of Cairo. Statements made in Tahrir Square can not be considered massive - they account for up to twenty thousand members, but for the millions of Cairo is extremely small.

The Egyptian army is not against the protesters, not because Mubarak has lost his grip on power but because the position of Mubarak - not to irritate the Americans. Participants in the uprising - nice people, but their protest, they rely solely on the support of the U.S. government."

What if this was true, that the revolt was led by a small group of minorities that had more sinister reasons yet were championed by naive reporters in the media?  We need to keep in mind that the reporters want and need juicy stories that play well for the camera.  The need for a good story line is why you kept hearing that these were "youths" rallying for freedom.  Where was the coverage of the Muslim Brotherhood that cried for an Islamic state for Egypt that could unite all Muslims under one rule?  That is what we heard from the Muslim Brotherhood leader Monday.  Interesting that we didn't hear that before the fall of Egypt's leader.  We wouldn't want the global media machine to let facts get in the way of an inspiring story would we?

What were the angles we received in the reporting?  We consumed lots of the following;
Egyptians were casting off the yoke of economic hardship
The youth were breaking the chains of those that are heartless leaders

While there is truth to this, think deeply, these portraits seem to have been constructed for our eyes, ears, and hearts to compel us to support this version instinctively.
Given the fact that we see a rumored "conservative" media outlet splicing video and creating their own version of an event we must question what that means for us as investors and participants in this "democratic" country. 

As Amerikans are pushed to the brink in the near term and the future don't be deluded to believe that all of them are violent terrorists.  Many folks like you and me will be forced to stand up against financial tyranny and the lack of representative government in the office of the President, the Senate, and Congress.  The disconnect between our "leadership" and the desires of the people is growing, not shrinking.  When Amerikans simply cannot stand it any longer you can expect to see edited videos and disinformation about their actions and their message.  Amerikans won't riot because they see an erosion of their personal liberties and a decay in their ability to protect and express themselves, no, we are fat sheep.  Amerikans will watch idly by as the poor waste away, but citizens will finally rise up when the middle class cannot afford food and gas or something terribly essential like cable or cell phones.  When Amerikans do come to their senses and stand up, you can be sure to find the media reporting that these people are trouble makers, quacks, and opposition forces rather than freedom fighters demanding that their government listen.  Sounds like how the Tea Party has been characterized doesn't it?

Second, our own government will use the media to continue to lie to us.  Ben Bernanke lied right in our face with his testimony that attempted to claim responsibility for the "asset price increases" in stock markets, but dispel any notion that he has the power to lift commodity prices and food prices around the world.  How is the Fed all powerful in the one situation but entirely powerless in the other?  Doublespeak at its finest!  I haven't read 1984 by George Orwell since high school, but I will read it again because these are the days we are living in. 



Here are a list of the lies I could find just in this testimony and a quick listening while I was typing.
1:10 in the video -  We are not monetizing our debt because it is temporary (there is no way they can reverse this)
3:30 in the video -  The US is not responsible for inflation worldwide. 
5:25 in the video -  We have 1% inflation in the US

In conclusion, I want you to know that I am not a conspiracy theory junky who sees attacks coming from everywhere and evil plots lurking around each corner.  I do believe that Amerikans believe what we are presented and we cannot continue to consume the political and economic gruel that is being served.  The Fox News story absolutely worries me as Ron Paul is someone who is an enemy of the Fed (at least in the way he speaks, let's see some action), and it is clear that editors at Fox News purposefully framed this to hurt his political support and momentum.  I would expect those actions from MSNBC and even Dan Rather with CBS, but it simply puts me on alert to question everything.  We already question every statistic released from China, why don't we do the same for statistics from the US?

If everything we see from the media is true, it is a certainty that US citizens will act like these peaceful Iranians starting at :50 in the final video clip where clerics demand the death of imprisoned leaders that called for uprisings in Iran.



Be careful!

GOATMUG

KYLE BASS - JAPANESE EMPERORS WITHOUT CLOTHES (PART 1)

Kyle provides some highlights in a CNBC Strategy Session interview with David Faber this morning.  The obvious catalyst for his appearance was his client note which we posted in COUNTDOWN TO EXTINCTION yesterday.  I will post each segment of the interview here from top to bottom so you can watch the clips as you have time.  No matter what, you must watch part 1 which is contained in this post.  You can fast forward to about 1:30 in the video where Gary gives us his perspective of a Japanese stock market index and the impact of QE (Quantitative Easing) to propel markets higher.  Gary's point is that as soon as QE is removed, gravity takes over and markets fall.

While Kyle gets a lot of attention here and it must seem like I have a man-crush on him, I don't, I just agree with the basic fundamental principles of math that Kyle champions.  It is clear from part 2 in the interview that he believes that he is one of the few that actually looks under the hood and kicks the tires to challenge preconceived notions about finance in this world.  And you know what?  It's true!  Kyle is one of the few that examines what many take for gospel, he researches it, and then he is willing to state emphatically that "The Emperor Has No Clothes".  In addition and to his credit, he is willing to bet all takers that the emperor is not wearing anything!

You must recall that Kyle went to every Wall Street firm and presented to them that the housing market and the securitizations were going to blow sky high and each firm rebuffed him and told him he was insane.




TRADING UPDATE
As usual the market is running off today. I've been looking for some sort of correction to get more involved in equities, but we have simply seen a consolidation. You must read these comments that I am still targeting an exit or at least putting on hedges in late April and early May, so as much as I actually feel like we may move higher it is tempered somewhat because I believe we've only got another few months left in the tank and we adhere to the "Sell in May and go away" philosophy.

GOATMUG

PART II - KYLE BASS - THE EUROPEAN EXPERIMENT

Part II of the interview includes Kyle's perspective on the European economies and why the entire experiment is going to fall apart.  There are some funny stories about Greece and the fraud there.







Enjoy

GOATMUG

PART III - KYLE BASS ON CNBC - MUNI BLOW UP?

In part 3 of the strategy session, CNBC interviewers ask Kyle about his views on municipal bonds and the comments made by Meridith Whitney about the impending collapse of many municipalities.




I hope you took the time to watch parts 1 and 2 at least.  Kyle is very patient and willing to let math work on his side.  Hopefully you'll take his lead and invest accordingly.

GOATMUG

COUNTDOWN TO EXTINCTION / KYLE BASS WRITES THE SYMPHONY OF DESTRUCTION

Goatmug often writes solely about economic and trading things in an attempt to warn readers of the disparity between feelings and reality.  In fact for the last eighteen months (since August 2009), the disconnect between feelings and reality have led us to actually invest heavily in commodities and emerging markets despite our longer term fears although we've maintained a careful eye on the "fundamental picture" of reality.  We've essentially had to hold our nose and deploy dollars, despite the fact that we know how it will actually all end sometime in the future and attempt to target areas that would provide enhanced returns.

As I look back, I recall feeling this way in 1999 as an investing novice witnessing worthless companies become overnight sensations.  I felt deep concern in October, November, and December of 2007 when I asked many of my friends to abandon the markets because I sensed that carnage would soon follow.  Now, I still have real hesitation about the state of reality and want all of us to be on alert for a change in the posture and perceived health of the market.  Over the last couple of weeks the stock markets have slowed a bit and have not pushed significantly higher.  Perhaps this is just the buyers taking a breather?  As I have laid out in the 2011 Outlook, I did anticipated a drawdown of 3%-5% early in the year that would allow the markets to reach higher levels inimid April or May.  Guess what?  We haven't really seen that pullback as of this writing.  Timing is everything so we simply need to watch for new cracks and signs of weakness.

I was sharing with a friend today that we must also be on the look out for the end of QEII.  My thoughts for a significant pullback in late April to May has been predicated on the idea that large institutional investors will anticipate the end of QEII in June of 2011 and therefore attempt to get out in front of a draining of the liquidity swamp.  At that time we may see all assets fall and the USD and treasuries actually gain.  I do not believe that these institutions will wait till June to make their moves to see if QE II will be extended or QEIII spawned.

On a longer term time frame (before 2015) there are other pot holes to be aware of.  In the past I have mentioned one of my favorite investors, Kyle Bass of Hayman Capital Management, L.P as one of the smartest guys in the room that was sounding the alarm to the impending MBS and real estate collapse years before it came to fruition.  Kyle made more than $1 Billion betting against the entire industry in 2007 and 2008.  Kyle was featured in CNBC's documentary House of Cards.  Please find my previous posts here - Kyle Bass Part I- Why the Fed is Trapped and also House of Cards .  Kyle is sounding his alarms again and going deeper into his thesis that Japan's massive debt will be one of the first sovereign collapses that well see.  In his article to clients called "The Cognitive Dissonance Of It All", Kyle lays out his firm's view that Japan will not be able to sustain their high debt levels and low interest rates.  So far the country has managed to survive because they have had a nation of savers, but because most of their population is now nearing retirement, they face the mathematical impossibility of keeping their pozni scheme going. 

http://www.zerohedge.com/sites/default/files/Kyle%20Bass%20Feb%2014.pdf

You must read this article!  One of the awesome quotes from his letter is captured below -

"One last point about Japan that is more psychological than quantitative: there is an interesting psychological
parallel between JGBs and US housing. In the last 20 years, Japanese stocks have dropped 75%, Japanese real
estate has declined 70% (with high‐end real estate dropping 50% in the last two years), and nominal GDP is
exactly where it was 20 years ago. What one asset has never hurt the buyer? What one asset has earned a 20‐
year pro‐cyclical, ‘Pavlovian’ response associated with safety and even more safety? The buyers and owners of
JGBs have never lost money in the purchase of these instruments as their interest rates have done nothing but
fall for the better part of the last 2 decades. It is fascinating to see an instrument/asset be viewed as one of the
safest in the world (10‐yr JGB cash rates are currently 1.21%) at a period of time in which the credit
fundamentals have never been riskier. "

What Kyle is focusing on is exactly the type of thought that ripped the financial worlds to shreds during 2003-2007.  Kyle is pointing out that the Japanese Yen and the Japanese Bond is essentially priced to as a risk free asset, or said another way, always to be considered safe money.  Remember real estate?  Remember how all of the securitized deals and tranches of MBS were modeled on the assumption that housing values always would increase?  Remember how pervasive the notion that real estate was easy and riskless became?  Do you remember shows like Flip This House?  Remember your neighbor telling you he was going to start buying houses and telling you there was no way to lose money?  Essentially this is the mentality of investors in JGBs (Japanese government bonds - many of which have been Japanese nationals).  What happens when those Japanese nationals begin selling JGBs to fund their retirement?  What happens when those holders start to lose money on their bond holdings? 

What is beautiful about Kyle's strategy is that he doesn't need a total collapse of Japan to make huge sums of money for his fund or his firm.  Kyle simply needs the world to wake up and realize that there is a real risk that Japanese bond interest rates could go significantly higher, creating big losses for holders of Japanese debt.  I hate to say it, but it goes back to the theme I always talk about, this is about mis-pricing of the cost of credit.  Do you really think buying Japanese bonds at 1% or 1.5% for 10 years is a good deal?  Who is the world would do that?  This is the bet that Kyle is making.  Now a lot of things will go wrong when Kyle's investment bets (gains) are realized, as this will really lead to a systematic collapse of many other institutions and ponzi schemes. 

In closing, many of you may not know this, but Goatmug grew up a rabid heavy metal fan.  The Goat played a mean guitar and often dreamed of being on stage in front of thousands while shredding some hard core riffs on his 6-string axe.  Kyle's note reminded me of one of my favorite Megadeth tunes on the album Countdown to Extinction, the song's name was Symphony of Destruction.  Kyle has composed the symphony, the orchestra is assembling, it won't be long till the destruction is played out in real life on the financial stage.

 

Megadeth - Symphony of Destruction (1993)

 

Enjoy one of my favorites.

GOATMUG