A barrel of oil is traded approximately 45 times in the virtual financial markets (Derivatives) before it is actually used by humans. 

Think about that.

Probably a good explanation for the volatility in energy prices?

Think so?

Ya.

Can you say, "Over traded"?

Beer Will change the world?

I don't know how but it will.  There are lots of crazy things going on with our economy.

Is it good?  Is it bad?

You have two choices.

1)  Old School economics:  You look at GDP, sales growth, new home sales and starts, The Beige book, employment, etc.  But you do not look at the banking system (The amount of money, credit and debt in the economy.

2)  New School economics:  You take Old School Economics and add the banking system.

If we take the Old School perspective we are fine.  We are more than fine.  We are doing pretty darn well. 

If we take the New School perspective we are not fine.  We are at our global debt capacity.

No matter what your perspective, the one thing that the BZI Team can tell you with almost 100% certainty is that people will still consume, beer.

Beer.

Beer is the third most consumed beverage on the planet.  Only water and tea beat beer. 

Our suggestion is to drink a few beers.  Not too many!  Just a few.  And then decide if  you are and Old School Economics person or a New School economics person. 

Ok, maybe this isn't great investment insight.  But, you should feel better if you toss back a few BEERS.

Cheers!

What do you see?  Duck or rabbit?  Most people see the duck first, and then the rabbit.  The point we want to make is that it is both.

Same can be said for statistics about our economy. 

We point this out because of the all time high in conflicting economic data.   

Perspective.

This drawing reminds us of one of our favorite quotes, "The car goes where the eyes look". 

Duck or rabbit, good news or bad news, focus on what makes you happy.

The way our government is spending money is analogous to an individual borrowing on their credit cards to invest in the stock market.

Nothing good can come from this.

Look at this international airline boarding pass.  Notice what is underlined in red. 

Notice they did not say, "Dollars, Euro's, Peso's etc...

If the IMF has their way, the SDR's will be hear before you know it.

Deflation in the things I own, and inflation in the things that I need.

Crap.

Sadly, the Elephant in the room that Mr. Bernanke keeps talking about has a first name: Deflation, last name Inflation. 

This makes for a strange looking elephant.

There is a scene in the Monty Python movie, (The Meaning of Life) in which a hugely fat, grotesque man eats an enormous amount of food.  He repeatedly vomits, and then explodes after he eats one last tiny dinner mint. 

It seems as though the economic dinner mint is just around the corner.  We are not sure what this little triggering event will be, but Lord knows we have a plethora of dinner mint situations that could cause a massive financial avalanche of debt vomit.

The entire financial system has gorged itself in, "Debt vomit" for the last 40 years. (Getting off the gold standard, abusing the Black Scholes Option Pricing model, excessive dependency on spreadsheets, and becoming enamored with really powerful computers has created a series of predictable accidents that got us into this horrific economic mess.)

To put this in perspective, there is 715 trillion dollars of notational derivatives and debt sitting on top of our planet that is only worth 60 trillion.

We have 10 times more notational risk and debt than we do wealth for the entire planet.

This is like making $10,000 a year and trying to support $100,000 of credit card debt.

We have a problem.  We simply cannot pay the interest on the debt.

No economy can grow with all of this debt hanging over it.

The only viable options is:  Debt forgiveness on a governmental, corporate, and personal basis. 

Failure has to be allowed to rip through the system.

Bankruptcy is not an evil word.

Look at it this way:

In order to have Christianity you must have a hell, and in order to have capitalism you must have failure.

Incentives, and punishment need to get back to equilibrium. 

Once we get the incentives and punishments back to equilibrium we'll be fine.

People will begin to realize that they aren't really mad at other wealthy people.  Hell, in America we love winners.  We love wealth.  What we can't stand is CHEATING.  We hate cheaters. 

A lot of very wealthy people and entities will have to lose an enormous amount of money.

This ends badly for those who are not prepared.

But, this is not the end of the world.

The U.S. will be OK.

We survived the civil war did we not?

After the failure is allowed to rip through the system, our bet is that a reboot will come faster than you could ever imagine.

Right now, everyone is sitting on pins and needles. 

The mirrors have been pulled out by the Tea Party and Occupy Wall Street.  And no one likes what they see.



The people are finally beginning to wake up to this atrocity.

Grotesque!

We will not perish.

But, we really do need to get on a diet.

No more debt vomit.

Debt forgiveness is our only corner of freedom.

Earthquakes are interesting.

They show up with no warning.

With all of the knowledge and data that we have about our beloved earth, we have no idea how to predict when an earthquake will hit.

At best we can only know the reasons why they occur.

The same is true for financial earthquakes.

We have a Godzilla amount of data about our financial markets.

We know that they sometimes crash.

We have no way to predict when, where, or why.

We only know that they happen.

The 5.6 magnitude earthquake that rocked Oklahoma last night is a good reminder to everyone.

Average markets, average weather conditions, and average earth movements don't cause ruin.

It is the statistically improbable event that creates ruin for people.

We live in interesting times.

Blankets For The Indians & 401k's For The Retail Investors.

Both are silent killers.

These days, the white man is paying for his sins.

Casino on every corner.

But we've been wondering when is the 401k/mutual fund industry going to pay for their sins.

When is the average retail investor going to get his/her payback for the failed experiment called:

401k.

Let's face it.  The average retail investor has paid the average 401k plan 1.5 or 2% for the last 5, 10, 15, and in some cases 20 years for the luxury of earning 0% (basically nothing).

Sure, there are a few funds with 5 starts that, "Outperformed". 

Go Morningstar!

But how can performance this bad get paid so well for so long?

Sadly, the fees really aren't the real problem.

The real problem is how 401k's are designed.

There is no exit strategy.

None.

You will never hear your 401k vendor say:  Get out.

Even worse, the mutual funds that sit inside of your 401k are all based on some type of MVO (Mean Variance Optimization) algorithm.  Everything is based on the Bell Curve.

Consequently, all 401k's are based on, "Average Design, for Average Acting Markets".

The problem is that markets aren't average anymore.

The combination of Wall Street's high frequency algorithmic trading super computers and extreme leverage techniques have made 4, 5 and 6 standard deviation movements the norm. 

And if not the actual norm, these movements are starting to show up more frequently than ever before.

Average markets do not cause financial ruin.  It is the statistically improbable event that causes financial ruin.  Yes, eventually markets do revert back to the mean.  However, it is the freakish event that kills 401k investors. 

These MVO algorithms (and the people who pay homage to them) treat these freakish events as if they were financial fairies.

When you need these models to protect you the most, they fail. 

When markets heat up and get crazy, everything correlates to 1.  Everything moves in the same direction simultaneously. 

The God's of the 401k universe will sheepishly acknowledge this, but then do nothing about it.  They point out that their strategy works most of the time.  And to be fair, this is a true statement.

So let's be honest:

401k's are expensive, have no exit strategy and are poorly designed.

401k investors have been given financial blankets dipped in financial MVO bell curve disease.

As always, we remain optimistically paranoid, with a twist of, "Really pissed off".

In conclusion, we see it like this:  If the auto industry can survive from the Pinto, Gremlin and Pacer debacle, then surely our government and our beloved financial services industry can come up with a better way to save for retirement.

We know what Occupy Wall Street is really mad about.

Cheating.

We know what the Tea Party is really mad about.

Cheating.

Neither group is really mad about a few people winning (getting rich).

They are mad about cheating.

Wall Street cheated and got away with it.

It's similar to the Lance Armstrong story.

There is no legal proof that Lance Armstrong ever took performance enhancing drugs. 

There are however, several eye witnesses who will tell you that they saw him take dope.

For the average European cycling fan, this is why they hate Lance Armstrong. 

From their perspective, Lance won because Lance cheated. 

The Wall Street Bankers were ingenious in how they got around the system.

When a Wall Street banker or bond trader made a bad bet, they didn't get foreclosed on like the home owner who took out a loan that he/she could never repay.

There was no punishment for the banker. Actually, the bankers got the exact opposite of a punishment:  Rewards!

The banker got free money from the tax payer to take care of his stupid bets. 

There was a punishment for the home owner:  FORECLOSURE.

There was an incentive given to the banker.  He/she could be wrong, and cheat and they would get a governmental bailout. 

It's not fair!

They cheated.  They got away with it.  They keep getting away with it.  And when they get caught cheating, our rule makers do nothing about it.

OWS, and the Tea Party are mad for the same reason.  They just haven't figured this out yet.

OWS is more focused on the banks.

The Tea Party is more focused on the politicians.

In the not too distant future, we think that the these two seemingly different groups will merge into one group that is committed to one thing:

Stop the cheating.