As many know, the cartoon depiction of a thin, bearded, older gentleman known as Uncle Sam began representing the United States Government in the early 1900’s. You may not be aware, however, that he made his début on the cover of the magazine Leslie's Weekly, on July 6, 1916, with the caption "What Are You Doing for Preparedness?"  A question asked as the United States prepared to enter World War I.

Fast forward nearly a century and, ironically, we need to ask Uncle Sam what is he doing to prepare for what is coming? Does he even know what’s coming? Not to be an alarmist, but we have a growing suspicion that our formerly prosperous, industrious, and resourceful uncle is now broke, and worst of all is in huge debt.

Are things really that bad?

Even though financial ETFs like the Financial Select Sector SPDRs (NYSEArca: XLF) and SPDR KBW Bank ETF (NYSEArca: KBE) have rallied more than 100%, was anyone really shocked to hear this week that the nation added its 106^th bank to a long list of foreclosures?

Frankly, it made me a little uneasy. Especially, after perusing the FDIC’s failed bank list, one can’t help noticing that 31 states in the union are represented. Not just the inflated housing sections of Florida and California, but places in our country where, well…. Uncle Sam might have lived.

With just over two months remaining in the year, we can be sure more doors will close for good on friendly hometown banks. They will reopen on Monday morning, as if nothing happened, while the FDIC searches for a buyer.  This would all be quite wonderful if there were enough funds to support all of these failed institutions.  I’m sorry to say, there is not.

According to the FDIC website, they post the following: The FDIC receives no Congressional appropriations – it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. With an insurance fund totaling more than $17.3 billion, the FDIC insures more than $4 trillion of deposits in U.S. banks and thrifts - deposits in virtually every bank and thrift in the country.

Admittedly, I am no CPA, but our insurance funds do not appear to adequately cover our deposits.

We’ll get by with a little help from our friends, right?

What does any good businessman do when his expenses begin to exceed his income? We could survey all small business owners across the country to find them reorganizing, budgeting, cutting back and laying off.  We will not find them borrowing to stay afloat, as credit is not an option for these little guys.

Fortunately, our dear Uncle Sam has been able to borrow a little money from a few good friends to hold him over; to the tune of over 11 trillion dollars!  Represented in figures we mortals can comprehend, based on the U.S. estimated population, that amounts to over $38,000.00 for every United States citizen. Topping the list of our major foreign holders of Treasuries Securities are China (NYSEArca: FXI) and Japan (NYSEArca: EWJ). 

Not exactly neighbors, but friends nonetheless, right? So, why does China want to hold such large foreign debt?

Considering the impact of a prolonged financial crisis and weakening U.S. dollar, China’s action of increasing its holding of American debt, gives rise to much controversy.  Some speculate their large holdings are a security for China’s exports.  But, friends don’t make such accusations.

In case you were wondering how Uncle Sam intends to repay this massive debt, you will find the following hidden under links of obscurity on the U.S. Treasury website:

How do you make a contribution to reduce the debt?

Make your check payable to the Bureau of the Public Debt, and in the memo section, notate that it is a Gift to reduce the Debt Held by the Public. Mail your check to:
Bureau of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188

The debt limit was most recently raised to $12.104 trillion by the American Recovery and Reinvestment Act of 2009 (H.R.1), which was signed into law on February 17, 2009 (surely, soon to be revised).

Make money the old fashioned way

As Americans, we are no strangers to rolling up our sleeves and making money the old fashioned way, by hard work.  Regrettably, hard work, as opposed to any kind of job, is hard to find these days. The ‘less bad news’ is heralded as good news every Friday, as the unemployed grow in numbers, albeit a little slower than the previous month. The phrase “jobless recovery” appears on the news daily designed to fool the final investors needed to jump on this dying rally.

Fortunately, those who have learned how to block out the noise of the media will not be among the misled. Contrarian sources, such as the ETF Profit Strategy Newsletter sent a Trend Change Alert on March 2^nd, with the recommendation to buy long and leveraged long ETFs, since a 30 to 40% rally is about to sweep investors off their feet.

As it turned out, that alert was only a few trading days early. Featured ETFs such as the Ultra S&P 500 ProShares (NYSEArca: SSO), S&P 500 SPRDs (NYSEArca: SPY), Dow Jones Diamonds (NYSEArca: DIA), Ultra Financial ProShares (NYSEArca: UYG), and many others have gained 50%, 70%, 100%, 200% and more.

This seven month rally has seen the three major U.S. indexes – S&P 500 (SNP: ^GSPC), Dow Jones (DJI: ^DJI), and Nasdaq (Nasdaq: ^IXIC) rally between 50% - 70%.  So, what’s next?  If you weren’t on board at the time to take advantage of this powerful rally, it’s not too late. One must learn to use the trend to their advantage, while not getting to comfortable with any position. The next major move will be kind, if not generous, only toward those who are prepared.

The reality

We shake our heads in disbelief that markets continue to rally, while we lose our homes, jobs, and savings accounts. The trickle down method of bailing out Wall Street to help Main Street has not been successful. It appears that help is not on the way, as our poor declining uncle has severe problems of his own. 

To survive, one needs to take a proactive, self help, approach. When Uncle Sam points his inquiring finger and asks, “What are you doing for preparedness”? We can confidently respond, “We are ready”, as we take control of our own financial destiny.  As for Sam, it’s debatable as to whether his future will be as bright.