“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.” – Alan Greenspan

Tyler Vernon is a Principal and Portfolio Manager at Princeton, NJ based Biltmore Capital Advisors.

We had the opportunity to ask Tyler how he's allocating among different asset classes in this environment, and what his overall strategy is for outperformance in 2010.

It was September 15th, 2008 when Lehman announced they would file Chapter 11.

Lehman had already lost half their value in one day on September 9th as the government failed to step in and assist them. Whether they were solvent or not became a non-issue as investors lost confidence and put a run on Lehman, making the short attacks on them a self-fulfilling prophecy. Jean Claude Trichet yesterday was speaking up for the EU in the same way that Dick Fuld attempted to speak up for Lehman as the end was near. Fuld could not believe that people were questioning the solvency of LEH, and Trichet can’t believe that people are now questioning even the continued existence of the Euro.

We are getting a sell-off every morning as Europe goes through the daily ritual of waking up and seeing the cost of default protection rise and rise. This morning Greece is with STUPID (Spain, Turkey, UK, Portugal, Italy and Dubai) as five-year sovereign credit default swap spreads were recently at 4.23 percentage points, compared with Wednesday’s closing level of 3.97 percentage points. That means the annual cost of insuring €10 million of Greek government debt against default for five years had risen €26,000 to €423,000. In a nutshell, that’s 4.23% annually to insure Greek bonds from default, so Greece needs to offer 4.23% more interest on their bonds than an Aaa nation to attract investors.

Of course, my new "I’m with STUPID" T-shirt franchise is going like gangbusters as we are getting orders from all over the US, especially California, as our own triple-A credit rating may not last the year. Japan is a strong customer (mostly in small and extra-small) and sales are strong in France and, of course, Mexico and all of South America.

After looking at yesterday's 21 day Treasury auction, you have to wonder:


My Take:

As you can see above, despite a strong BTC, the number of indirect bidders in yesterday's auction was ZERO! Indirect bidders are mainly composed of the central banks of the world, while the primary dealers are made up of the banksters like Goldman Sachs (GS) and Morgan Stanley (MS).

So close but yet so far.

We set our bounce levels way back on Jan. 25th and just yesterday I posted up the weak bounce levels we need to see before taking our bullish betting to the next level but we have only skimmed along our lines, finishing yesterday at Dow 10,296 (down by 2), S&P 500 1,103 (down by 2), Nasdaq 2,190 (down by 10), NYSE 7,001 (up by 1) and RUT 614 (down by 6). This may be seem like some pretty amazing targeting 10 days in advance but, actually, we could have predicted this move last year as it’s nothing more than the same 5% Rule levels we’ve been using since the middle of last year.

Did anyone else notice that in the President’s State of the Union address, he criticized the denizens of Washington DC for all manner of sin, mostly for not working hard enough to help the great unwashed out here in the hinterlands to understand his various programs, domestic and foreign -- but then he continued to pound home his deeply-held conviction that Washington is the answer to every ill in America?

Maybe that’s why government, especially the federal government, is the biggest growth industry in America. And while he railed against Wall Street and the big banks, remember when it comes to politicians, watch what they do, not what they say.

"Not inflation", the gold critics will shout, in one of their go-to arguments. This is what we hear from CNBC's Mark Haines at every possible chance. Since 1980, gold has not kept up with the CPI and so shouldn't be used as an inflation hedge. The problem with this argument is that if you pick basically any other start date but the one corresponding to gold's 1980 peak, you see something different, even giving CPI a long head start over floating gold:

Inflation and gold do diverge

The Senate confirmed Ben Bernanke’s reappointment, albeit with a record high 30 “nay” votes. So, is he now free to act independently? Or does the far-from-unanimous approval vote, combined with the on-going congressional efforts to trim the Federal Reserve’s powers, limit his actions? And what about that negative vote at the Federal Reserve Open Market Committee (FOMC) meeting?

These questions are difficult to answer other than to say that the outcome is uncertain. Bernanke certainly exhibited knowledge, independence and perseverance in the difficult days of 2008 and 2009. Now, however, it’s unclear when he will raise rates because doing so will likely provoke congressional ire.

Another week another 100 points lower.

Yep, that’s all it was, we lost all of 100 points more than last week, when we fell from 10,725 to 10,172 (553 points) and this week we dropped from Friday’s Dow close of 10,172 all the way down to 10,067. Yet you would think the world had come to an end to hear the media and the traders freaking out. I’m not going to try to explain it, I can’t. Maybe it’s because going into last week we were very bearish but, starting on the 22nd, we let ourselves finally get a little more bullish AND THE MARKET BETRAYED US!

Another week another 100 points lower.

Yep, that’s all it was, we lost all of 100 points more than last week, when we fell from 10,725 to 10,172 (553 points) and this week we dropped from Friday’s Dow close of 10,172 all the way down to 10,067. Yet you would think the world had come to an end to hear the media and the traders freaking out. I’m not going to try to explain it, I can’t. Maybe it’s because going into last week we were very bearish but, starting on the 22nd, we let ourselves finally get a little more bullish AND THE MARKET BETRAYED US!