Domino

Don't wannna discuss it
Think it's time for a change
You may get disgusted
Start thinkin' that I'm strange

In that case I'll go underground
Get some heavy rest
Never have to worry
About what is worst or what is best
(Get it)

Oh oh Domino (it's all right)
Roll me over, Romeo, there you go
Lord, have mercy
I said oh-oh, Domino

"Domino" by Van Morrison

I'm usually not this prolific, but there's just so much going on that I can't help myself. The biggest story of the day was not the reconfirmation of Ben Bernanke as head of the Federal Reserve, it was not the President's State of the Union Address, it was not the bipartisan public torturing of Treasury Secretary Tim Geithner, it wasn't the President's embarrassing attack of the Supreme Court Justices, and it wasn't even Steve Jobs introduction of the next great thing -- the iPad. No the biggest story was the sound of dominos falling. Greece, Portugal, Spain, Ireland, and even the United Kingdom, all lined up like dominos. This news isn't making the front pages of the papers yet, but it is the most important thing happening in the markets today. We all remember how painful 2008 was, and how our global central banks decided to fix the situation we were in. That's right, print money to bail out the banks. Well when you print money your debt tends to go up. Greece now has debt levels at 120% of GDP well above the Euro target. Their 10-year sovereign bonds were yielding 6% last week and are now over 7%. It will be interesting to see if their stronger Euro partners allow them to default or bail them out, especially with Portugal, and Spain right behind them. Also, today Standard & Poors said that the UK banking system (mostly owned by the government) is no longer among stable low-risk banking systems worldwide. These are all canaries in the coal mine (rather large canaries, like that bird in "Up"), and the investing world is watching intently. We may not be able to connect-the-dots on exactly how this will impact U.S. markets, but I can distinctly remember 13 years ago how the Thai devaluation ignited the Asian contagion. I also lived and invested through the Mexican debt defaults of 1994 - 95, and the Latin American crisis of the 1980's. The scary thing about this potential crisis is that our markets and economies are much more intertwined today than any other time in history. "Lord have mercy, I said oh-oh Domino".

Investment Considerations 

Obviously we should all have itchy trigger fingers on our bond holdings, especially sovereign bonds of countries with Debt-to-GDP ratios at or over 100%. The U.S. is currently around 84%.

OK, my two-cents worth on the other notable topics:

The President totally lost me when he said his goal was to double exports in five years! Wow, the last time we doubled exports it took twelve years, and that was before we exported all of our manufacturing capacity. The only way we'll come close to this is if the President counts government bonds and financial service jobs as exports!

The embarrassing public smack-down of the Supreme Court Justices was sooo un-presidential.

The proposed budget freeze was an ever so small step in the right direction.

The following is a pictorial view of 2009's Federal Budget.

The budget for 2010 is projected to be $3.5 trillion. President Obama is proposing to freeze $450 billion of this (the small slivers of the pie).

He is not proposing to reduce the spending, just not to grow it. If this happens the projected deficit of $1.35 trillion will be about $15 billion smaller,

or about 1% smaller. I guess it's a start!

I can't agree more with the following quote. The only reason I would have voted to reappoint Bernanke would be because I'm fearful of who Obama might appoint to replace him.

“You don’t give an arsonist a medal for putting out the fire,” said a commentator today about the battle over the renomination of Ben Bernanke. 

The iPad will be huge, much quicker than anyone believes. The real genius is opening up the architecture to all those crazy app creators. You will want one.

This is looking like a good weekend to spend with some Van Morrison and a good bottle of wine.

Be careful out there,

Chris Wiles

www.rockhavencapital.com

This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management.  The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.