Broken

America is Broken and the World Economy will suffer. The Federal Reserve in their infinite wisdom (these guys are almost as smart as the monoline insurance* companies) dropped the cash rate 75bps on Black Tuesday (22nd Jan) and that didn't even stop the rot. Now that they have telegraphed another 50bps cut, we're going to see what happens when the cash rate is less than inflation. There's no incentive to save money because money in the bank is devaluing quicker than any yield you're getting on it. So the Fed is betting that once again America will be able to spend their way out of trouble. This sounds good, but when people are pessimistic from years of war (I can't even remember a time before Bush War Snr and Bush War Jnr) and falling asset prices (Houses, Shares and Money) then they're not going to be in a spending mood. This is going to sting for a while. The fed should have done what we all did on Tuesday, sucked it up. You can't keep shielding people from being hurt or they'll never learn Bernanke you Goose.

*these guys are insurance only in the sense that they're happy to receive your premium payments while the sun is shining but as soon as the storm clouds gather they are downgraded and aren't good for their AAA rating.

How Brave are you? Paladin Minis

I am still bullish Uranium, there are a lot of reactors being built and not a lot of extra Uranium being dug up. PDN.AX has been getting hammered as has the rest of the Aussie Market. There's potentially a blockbuster trade out there for the brave investor. PDNKZC (listed mini) has a $5.22 stop loss and a $4.96 strike. PDN is trading around 5.35 at the moment, if you get long here and don't get stopped out, you'll be laughing when PDN bounces back above $7. At $7, this mini is about $2, so you'll make 5 times your money with only about 10% if you get stopped out....how brave are you?

House of Brown, Now Sit Down

With CitiGroup writing down anything they can get their hands on, the long predicted fallout of the 'Sub Prime' Meltdown is starting to be felt. Is this the end of the world? No, but it does mean that the Dow is much more likely to see sub 12,000 levels than back at 14,000 any time soon. It seems to me that Bernanke will be quick on the draw should the American economy start turning further south and this should give us a little bit of short term relief from the sky falling in. I wouldn't want to be long the market with the current irrational selling. There is however a good opportunity for long term Aussie investors to get long at these levels. Quality companies like NAB, at $35 is a bargain, Zinifex at $10 is cheap as chips and I also like Iron Ore in the short term with price negotiations currently taking place. MMX looks really good at less than $3.

2008 - Simple Predictions

• Sub Prime Loses will be much worse than everyone expected.
• The Chinese won't care because Americans are still buying their junk with more borrowed money thanks to Ben 'the put' Bernanke.
  
• Australia will keep selling rocks to China to turn into junk for Americans to buy with money they don't have.
  
• Twiggy Forrest will get to $10bn in quick time and won't look back.
• Australian interest rates will rise.
• Everyone will get sick of Kevin 'the Turnip' Rudd's smuggness and lack of substance.
• Inflation will rise.

The World isn't going to end.

I don't think it's particularly rosy for the next few months. Inflation is back on the agenda in the US, with higher than expected CPI numbers. This has to be a concern in an environment where Bernanke is dropping interest rates at the first sign of trouble. I'll be buying a few out of the money index puts as a little protection over the next few months. The Fed is in a difficult place because at every sign of trouble in the US economy, people are expecting them to drop rates, which is counter productive when you're trying to fight inflation. This seems to all be part of modern man's inability to be accountable for their actions. 'I'll borrow a stack of money and if I can't pay it back, then the government will freeze my interest rates at artificially low levels or drop interest rates to help me out'. All seems a little quick fix, a little phoney and bound to fail.
A lot of people think the world is going to end on their shift, it's not, but the US economy might head into recession.

igrin - Peer to Peer lending in Australia

Well, it didn't take long for peer to peer lending to appear in Australia. www.igin.com.au offers the same service in Australia as www.prosper.com does in America. It will be really interesting to see how it goes. It seems to me that it will take a long time to get the sort of volume of lenders required to really make it work, but who knows.

Ethanol is stupid

Soft Commodity Prices will keep going up if people keep using their food as fuel for their cars and not themselves. One tank of ethanol for a standard sized car requires about the same amount of maize as to feed a standard sized human for a year. The increasing use of ethanol fuels, particularly in America means that they are forced to import more and more food as ridiculous ethanol subsidies encourage farmers to grow corn for oil (I'm blaming you Al Gore).
Another string to the bow in the Bull market of food is that fact that China is eating more and more meat. China was consuming 20kg of meat per person in 1985, by 2007 that is expected to be 50kg. It takes 8kg of grain to produce one kilo of meat. It's not hard to see where this is going.
Maybe we'll see America embark on a new global security program, this time securing an alternate source of energy, food. Anyway, the upside of it is, there's plenty of compelling reasons to be exposed to soft commodities prices.