View Full Version : Economy - Be Prepared for the Worst
Ron Paul's take on the state of the economy.
The large-scale government intervention in the economy is going to end badly.
And so it goes...;)
Richard
Be Prepared for the Worst
Ron Paul, Forbes, 16 Oct 2009
Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.
A false recovery is under way. I am reminded of the outlook in 1930, when the experts were certain that the worst of the Depression was over and that recovery was just around the corner. The economy and stock market seemed to be recovering, and there was optimism that the recession, like many of those before it, would be over in a year or less. Instead, the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954. I fear that our stimulus and bailout programs have already done too much to prevent the economy from recovering in a natural manner and will result in yet another asset bubble.
Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate. We have seen the results of Alan Greenspan's excessively low interest rates: the housing bubble, the explosion of subprime loans and the subsequent collapse of the bubble, which took down numerous financial institutions. Rather than allow the market to correct itself and clear away the worst excesses of the boom period, the Federal Reserve and the U.S. Treasury colluded to put taxpayers on the hook for trillions of dollars. Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers.
This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble's collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been. Even with the massive interventions, unemployment is near 10% and likely to increase, foreigners are cutting back on purchases of Treasury debt and the Federal Reserve's balance sheet remains bloated at an unprecedented $2 trillion. Can anyone realistically argue that a few small upticks in a handful of economic indicators are a sign that the recession is over?
What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.
Government intervention cannot lead to economic growth. Where does the money come from for Tarp (Treasury's program to buy bad bank paper), the stimulus handouts and the cash for clunkers? It can come only from taxpayers, from sales of Treasury debt or through the printing of new money. Paying for these programs out of tax revenues is pure redistribution; it takes money out of one person's pocket and gives it to someone else without creating any new wealth. Besides, tax revenues have fallen drastically as unemployment has risen, yet government spending continues to increase. As for Treasury debt, the Chinese and other foreign investors are more and more reluctant to buy it, denominated as it is in depreciating dollars.
The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar's purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year.
http://www.forbes.com/forbes/2009/1116/opinions-great-depression-economy-on-my-mind.html?feed=rss_popstories
fredscout
10-30-2009, 08:04
Another ounce of proof:
Lawsuit challenges Pawlenty's budget cuts
Associated Press
Updated: 10/29/2009 07:09:09 PM CDT
Six Minnesota residents are suing Gov. Tim Pawlenty over budget cuts he made this year without legislative approval.
The lawsuit filed today in Ramsey County District Court alleges that Pawlenty's use of executive powers to cut spending violated state laws and the Minnesota constitution.
The Republican governor used his executive authority to slice $2.7 billion from state spending.
Reductions included money for a special diet program for low-income residents and property tax refunds for renters.
The six plaintiffs all have low incomes and receive benefits from one or both programs. They are seeking class-action status so their lawsuit can include everyone who will lose money from the two programs.
Three of Pawlenty's cabinet members are also named in the lawsuit.
...Reductions included money for a special diet program for low-income residents and property tax refunds for renters.
......
The end is near, we've gone over the edge.
In the spirit of reducing a rich, complex issue to a single number :D
(Joke from another thread)
The VIX is an index that tracks the price of options on the S&P 500, so it's really a measure of expected volatility. The volatility could be up or down. Practically speaking, markets tend to go down faster than they go up, so there is some support for the notion that a high VIX goes along with concern of a big move down.
Notice the sharp move up in the VIX HERE (http://stockcharts.com/h-sc/ui?s=$VIX&p=D&b=5&g=0&id=p27468301558&a=177001162).
Purely MOO, YMMV, but I suspect that people are getting in position for a hard move down. I think they're wise to do so.
Here is another measure of market confidence to go along with the Confidence Index described by nmap in the thread below:
http://www.professionalsoldiers.com/forums/showthread.php?t=21895&highlight=297+points&page=5
The opinion expressed below is still bullish in the near term it certainly is not overwhelmingly optimistic.
http://blogs.stockcharts.com/
October 18, 2009 - StockCharts Blogs - ChartWatchers
SAFETY FIRST
It's very easy to get caught up in the euphoria of this market run. I'd be careful to do that. Invested Central turned from aggressively optimistic to cautiously bullish in early May and we've maintained that more cautious stance since. Call us conservative if you'd like. We view it as a compliment. After all, if we don't protect our capital, who will? Does anyone believe the folks on Wall Street have our personal best interests in mind?
As I've mentioned in recent articles, price/volume trends are bullish near-term. That can be all you need to forge to higher levels. But we cannot ignore some of the risks associated with the market. I like to follow the equity only put call ratio ("EOPCR") as an indication of market sentiment. Currently, the 60 day moving average of the EOPCR is at .59. Since the CBOE began providing the data, this ratio's lowest 60 day level has been .56. Low levels mark investor optimism and overconfidence and generally sends red flags flying high. Take a look at the 6 year weekly chart of the S&P 500 (coming off of the 2000-2002 bear market). I've plotted the two .56 readings that have occurred: It's important to note that extreme levels of investor optimism doesn't have to send the market plummetting. It USUALLY suggests that we've simply come too far too soon and that the market could use a pause, or breather if you will. Those last two readings of .56 that were plotted above didn't have any long-term implications. Rather, the market rested for awhile after complacency set in. Once complacency was no longer an issue, the uptrend resumed. We're still relatively optimistic and bullish the intermediate- to longer-term, though we have lines in the sand should the market begin to fall again. Everyone should have their battle lines drawn.
We're not to that .56 level just yet, but getting closer. For only the second time since the CBOE has been providing the equity only data, the DAILY equity only put call ratio has been at that .56 level for 10 consecutive days. I do want to point out that it may take a few weeks of continued optimism for the equity only moving average to hit .56. So we have to trade what we see. That means continue thinking long for now with price/volume trends bullish. If you're nervous about the market at current levels, taking a breather and sitting in cash is not a bad option. The major point here and in my most recent articles is that while the market remains on a buy signal, we need to view the clouds on the horizon with caution. There may be a storm brewing in the distance.
What's the worst thing that can happen to an economy that is awash in debt?
Deflation.
That's why Bernanke is fighting it. That's why the administration is fighting it.
Can they win? Maybe not.
The latest Dow Theory newsletter is attached. It makes for interesting reading, if only from the perspective of the trend of the U.S. dollar.
GratefulCitizen
11-09-2009, 20:38
From the article:
In the meantime, corporate earnings in many cases (particularly in large companies) are higher. But upon examination, we find that the higher earnings are not a result of rising sales, they're a result of what economists call rising productivity. The higher productivity has come through firing employees and making do with fewer workers.
This has been happening for some time at UPS, all over the nation.
The company used a loophole during 2007 to bully our top seniority driver off of his route. He quit in June, 2007.
They then tried to condense his route with mine, and move them in a manner inconsistent with contractual requirements.
(Contract was good for them, but not us :rolleyes: )
I called them on it and kept the work with a driver in our center.
They bullied him until he gave it up.
After that, I claimed the work and found a way to do both routes (55-60 hrs/week).
They thought they would wear me out.
Kept doing the work from August, 2007 until May, 2008.
In May (2008), the company moved my route by fiat, inconsistent with contractual requirements.
They figured they could bully me like they had everyone else.
I was prepared for their nonsense and exercised my "nuclear option" by following my work.
It was a matter of honor.
What they did to my coworker, friend, and neighbor was just wrong.
If I didn't stop them, they'd keep pushing. Our contract would be worthless.
Commuting 266 miles/day with gasoline being $4/gallon wasn't fun or easy on the pocketbook, but I was prepared for this contingency.
The company wasn't prepared.
They thought (hoped) I would wear out.
They had to send up drivers 133 miles the other direction to do the work which I would have gladly done if they had abided by their legally binding agreement.
By September, 2008, they were sick of paying $5/gallon diesel, driver overtime, and $200/night hotel rooms.
The company came to the table.
All I wanted was for one contractual requirement to be met: reduce the changes in operation to writing (they never keep verbal promises).
Since then, things have been quite good up here.
It was tough not having consistent work for a few months, but it stabilized.
Eventually the overtime made up for the inconsistency of work.
Should make more this year than in years previous, while working fewer total days.
On layoff this week.
For all intent and purpose, it's just extra vacation.
The company doesn't press many issues up here anymore.
Heard many horror stories from other UPS centers in Arizona and around the nation.
I was prepared for contingencies, knew my contract, and did whatever it took.
Excuses walk.
The latest Russell newsletter...
The first page, and its discussion of the various debts and commitments of the U.S. is interesting - if you haven't much time, it is, perhaps, the most important part. The implications of the U.S. living within its means are significant - and no program is likely to escape deep and painful cuts.
He's a strong advocate of gold. There's nothing wrong with having some gold, but I find it best to maintain a degree of moderation - I would not go overboard into a single, rather speculative area. Perhaps I'm reminding myself of that more than I am the person reading this. ;)
The large-scale government intervention in the economy is going to end badly.
Don't worry, there's always the credit card to fall back on. I don't get why I have to pay for the deadbeats out there who ran up too much debt? Oh wait...that's what Congress is doing. Nevermind. Is that the NEW American Way: I can't pay my bill so others will have to?
Saw this on Frontline last night "The Credit Card Game (http://www.pbs.org/wgbh/pages/frontline/creditcards/view/?utm_campaign=homepage&utm_medium=proglist&utm_source=proglist)".
(COMMENT: program is 55 mins and BW intensive but, IMO, worth it.)
Educate your family members.
1. Credit is an entitlement and not a right.
2. If you can't afford it...don't buy it. <---I my card is still working so I MUST have money in my account.
3. Debit cards are INTENDED to allow the user to overdraw their account.
4. Electronic "debts" against your bank accnt are paid highest-to-lowest.
Surf n Turf
11-25-2009, 17:50
He's a strong advocate of gold. There's nothing wrong with having some gold, but I find it best to maintain a degree of moderation - I would not go overboard into a single, rather speculative area. Perhaps I'm reminding myself of that more than I am the person reading this. ;)
nmap,
I have read Russell for some time.
I do not view his advocating more Gold as a bad thing. It is, after all, up considerably over the recent past.
As the dollar's very status comes into question, wise and seasoned investors move to protect their wealth. They move to the time-honored "safe haven": the one unit of wealth that cannot be destroyed in that it is not a liability of any government. And, of course, I'm talking about the one unit of wealth that is never questioned -- gold.
So it's the gold bull market that I trust and believe in. I think and I ponder -- what can halt the gold bull market?
The only thing that can halt the gold bull market is a complete reversal by the politicians and the Fed, and that would allow the US to sink into a state of deflation and depression.
Unthinkable.
I can see a rise in Gold / Silver over the next 2 years, and am very bullish on physical ownership.
The Five (5) “G”’s – Gold, Ground, Grub, Guns & God
SnT
Interesting piece I came across...
The key issue is the necessary refinancing. $3.5 trillion in one year is a non-trivial amount. We are conducting a very big experiment. If it fails, life may become exciting - but not in a pleasant way.
LINK (http://www.marketoracle.co.uk/Article15449.html)
Run on the U.S. Dollar ....Soon
Currencies / US Dollar
Nov 30, 2009 - 04:33 PM
By: DailyWealth
Porter Stansberry writes: It's one of those numbers that's so unbelievable you have to actually think about it for a while...
Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion.
Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from?
How did we end up with so much short-term debt? Like most entities that have far too much debt – whether subprime borrowers, GM, Fannie, or GE – the U.S. Treasury has tried to minimize its interest burden by borrowing for short durations and then "rolling over" the loans when they come due. As they say on Wall Street, "a rolling debt collects no moss."
What they mean is, as long as you can extend the debt, you have no problem. Unfortunately, that leads folks to take on ever greater amounts of debt... at ever shorter durations... at ever lower interest rates. Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that's when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.
When governments go bankrupt, it's called a "default." Currency speculators figured out how to accurately predict when a country would default. Two well-known economists – Alan Greenspan and Pablo Guidotti – published the secret formula in a 1999 academic paper. The formula is called the Greenspan-Guidotti rule.
The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world's largest money-management firm, PIMCO, explains the rule this way: "The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support."
The principle behind the rule is simple. If you can't pay off all of your foreign debts in the next 12 months, you're a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.
So how does America rank on the Greenspan-Guidotti scale? It's a guaranteed default.
The U.S. holds gold, oil, and foreign currency in reserve. It has 8,133.5 metric tonnes of gold (it is the world's largest holder). At current dollar values, it's worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that's roughly $58 billion worth of oil. And according to the IMF, the U.S. has $136 billion in foreign currency reserves. So altogether... that's around $500 billion of reserves. Our short-term foreign debts are far bigger.
According to the U.S. Treasury, $2 trillion worth of debt will mature in the next 12 months. So looking only at short-term debt, we know the Treasury will have to finance at least $2 trillion worth of maturing debt in the next 12 months. That might not cause a crisis if we were still funding our national debt internally. But since 1985, we've been a net debtor to the world. Today, foreigners own 44% of all our debts, which means we owe foreign creditors at least $880 billion in the next 12 months – an amount far larger than our reserves.
Keep in mind, this only covers our existing debts. The Office of Management and Budget is predicting a $1.5 trillion budget deficit over the next year. That puts our total funding requirements on the order of $3.5 trillion over the next 12 months.
So... where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we're still going to come up nearly $3 trillion short. That's an annual funding requirement equal to roughly 40% of GDP.
Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or Russian central banks, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.
So where will the money come from? The printing press. The Federal Reserve has already monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value of the dollar and devalues our existing Treasury bonds. Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.
One thing they're not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None owns even 1% of its total reserves in gold.
All of this is going to lead to a severe devaluation of the U.S. dollar... Which I expect to happen within 18 months. I examined these issues in much greater detail in the most recent issue of my newsletter, Porter Stansberry's Investment Advisory, which was published last week. Coincidentally, America's paper of record – the New York Times – repeated our warnings (nearly word for word) last weekend. Word is getting out.
If you haven't taken steps to protect yourself from the coming devaluation – like owning gold and silver bullion, foreign real estate, and farmland – make sure you do it soon. The dollar rout is coming.
Good investing,
Porter Stansberry
Last holiday season many retailers were down 60% in sales. Today I heard a GLOWING report from CNN......that this seasons sales were up a whopping 20% over the 2008 season.
20% over 2008, 60 minus 20 equals 40......nothing to cheer about IMHO. Sounds more like the bandage has slowed the bleeding, but the victim will be lucky to make it another hundred yards.
A brief video (4:49) from Mauldin discussing the increasing levels of U.S. debt...
LINK (http://www.businessinsider.com/business-news/dec-07-mauldin2-2009-12)
Summary: We cannot borrow nearly as much as we would like to.
Info from New Jersey. Disturbing.
Written from a pro-Democrat perspective - however, it suggests a budget crisis in New Jersey. Such events could create further pressure on an already strapped federal budget, and might precipitate declines in the stock market and consumer confidence.
LINK (http://blog.nj.com/njv_paul_mulshine/2009/12/njs_financial_crisis_crunch_ti.html)
Excerpt (most recent entry):
Have you been keeping an eye on New Jersey’s credit rating?
Perhaps not. But Wall Street has. And it’s not a pretty sight. A recent Bloomberg report revealed New Jersey had the biggest jump of any state in the cost of its credit-default swaps.
A credit-default swap is a form of insurance that the state will make the payments on its bonds. Untill recently, the cost of this insurance was nominal. That has changed; we are now second to only California. The reason for our poor performance is simple:
"There exists the real possibility that a future Legislature will not make an appropriation for the payment of principal or interest on one or more of the contract bonds. In such a scenario, the bondholders would be without recourse against the state or its assets."
The above quotation aptly summarizes our current crisis. But it comes from long ago: the Whitman administration, to be precise. It was part of the administration’s defense against a lawsuit challenging the issuance of so-called "contract debt" — debt that has not gone before the voters and is therefore not backed by the full faith and credit of the state.
Back in 2001, this was all theoretical. But now there’s a real chance the state could fail to appropriate funds to pay off those bonds. That’s why Wall Street wants insurance.
And that’s also why Chris Christie has a crisis on his hands the minute he takes the oath as governor next month.
"Things are probably worse than most people believe," state Sen. Mike Doherty told me the other day. "It’s questionable if we’ll even be able to meet payroll in a few weeks."
Doherty gave me that assessment after he and other Republican members of the Senate Budget Committee got a briefing Thursday from the man Christie has appointed as his new chief of staff, Rich Bagger.
Bagger is a former assemblyman who served during the Whitman years and who is noted for his financial acumen. Unfortunately, he’s also noted for having helped spearhead the effort to borrow more than $10 billion without voter approval, a primary factor in getting us into our current mess. A lot of conservative Republicans have been pointing that out, including former Bogota Mayor Steve Lonegan, who filed that unsuccessful suit to stop the bonding.
Lonegan, of course, lost the GOP primary to Christie earlier this year. But Christie may have to end up governing like Lonegan anyway. The recent budget news has been so bad that the new governor may have no choice but to adopt spending cuts as extreme as anything Lonegan ever suggested.
That’s what Doherty hopes, anyway. He was the only prominent Republican elected official to back Lonegan. And he told me Christie will have little choice but to make Lonegan-like cuts in the budget immediately.
"The picture’s so bleak that all the major things that people said can’t be done will have to be done," Doherty said.
And they’ll have to be done right away. Until last month, it was presumed that crunch time for Christie wouldn’t come until June 30, the deadline for passing next year’s budget. But recently released revenue figures show the state may need another billion bucks just to get to June. Drastic cuts are needed and Doherty has some suggestions.
"How can you continue to give $20,000 to $25,000 per-pupil in state aid to the Asbury Parks of the world?" he asks. "And what about the idea that public employees can retire with pensions of $60,000 and $70,000?"
Until just the other day, those might have sounded like crazy questions. But Christie may have to come up with answers. And he’s got another guy on his transition team who’s done some innovative work in that regard.
That’s John McCormac, the current Woodbridge mayor who was treasurer in the McGreevey administration. In the spring of 2003, McGreevey was facing a cash crunch similar to the one Christie will soon be facing. McCormac had a brilliant idea. The state parcels out aid to school districts in 20 payments over the course of the fiscal year, which ends June 30. He would simply push the final payment back a week, into July and therefore into the next fiscal year. Bingo! All of a sudden McGreevey had $296 million more cash on hand.
It was a nice trick. And McGreevey got away with it. Even though it amounted to a 5 percent cut in school aid, the Democrats in the Legislature didn’t object.
They’re not likely to be so accommodating if Christie tries some similar stunt. Most state aid goes to towns and school districts that are heavily Democratic, such as the aforementioned Asbury Park. Big cuts would force a constitutional crisis.
Doherty, Lonegan and other conservatives would like nothing more. As for Christie, he would like nothing less, if his comments during the campaign were any indication.
But the sole alternative may be to go belly-up on those bonds. And Wall Street is watching.
L-o-n-g piece on Dubai and why it is a very big problem.
Bottom line - massive overbuilding, all on credit. The debts cannot and will not be repaid.
LINK (http://www.rickackerman.com/wp-content/uploads/2009/12/Dubai-Wipeout.htm)
Brief excerpt - much more, including photos, at the link.
------------------------------------------
In my travels around the world, I've noticed something that seems to universally hold true. You may have noticed it too.
When their is row after row of construction cranes reaching into the sky, as far as the eye can see, you know its a bubble and is doomed. It must be some kind of pagan symbol, that angers the gods and brings on a great curse. Ultimately those places wipe out.
I saw it in New York in the 1960s. Houston in the 70s. Japan and Los Angeles in the 80s, and Russia in the 90s. More recently in most of the U.S., England, Ireland and Spain.
Now -- just when most people thought the economic crisis was over and we are in a “green shoots recovery” -- it's happening all over again. This time, on a scale never seen before.
Dubai, home of the world's most expensive real estate...tallest building...$1.5 billion Formula 1 race track...the would-be jewel and symbol of opulent wastefulness of the Middle East...is dead broke and not paying on its aw-sum debts. This time like other bubbles bursting it's taking the world financial system with it.
GratefulCitizen
12-08-2009, 18:22
L-o-n-g piece on Dubai and why it is a very big problem.
Bottom line - massive overbuilding, all on credit. The debts cannot and will not be repaid.
What happens if there is a simultaneous collapse in the price of oil?
:munchin
What happens if there is a simultaneous collapse in the price of oil?
:munchin
So, would you perhaps be suggesting that we are on the verge of a deflationary collapse? ;)
On the one hand, the collapse should give a boost to the U.S. and other oil importing countries.
But on the other hand, lots of ME countries wouldn't be able to support their existing population. Mexico and Venezuela should have problems with their budgets too. You may recall that PEMEX supplies 36% of the Mexican national budget.
What will those desperate people and governments do? Good question. I keep hoping someone will tell me. (And that's 100% serious and sincere!)
Not to worry, though - ultimately, peak oil will still assert itself, thus permitting me to say (in the fullness of time) "told ya so!" :D
L-o-n-g piece on Dubai and why it is a very big problem.
Bottom line - massive overbuilding, all on credit. The debts cannot and will not be repaid. The extent of the overbuilding extends to parking.
Generally, developers seek to find the lowest number of parking spaces they'll need for a land use. This number is frequently derived from computer modeling that factors in specific regional, seasonal, demographic, and parking demand issues connected to the land use.:cool:
I have it on good authority that at least one development in Dubai went the opposite way and built parking for the busiest month, day, and hour based upon conditions in the U.S., not the M.E. or even Europe.:confused:
So not only is Dubai going to have big empty buildings, it is also going to have big parking facilities that will be mostly empty most of the time.:rolleyes:
I can see a rise in Gold / Silver over the next 2 years, and am very bullish on physical ownership.
The Five (5) “G”’s – Gold, Ground, Grub, Guns & God
SnT
I predict that before many of us leave this life, bullets will be worth the same as gold, pound for pound.
WD
I predict that before many of us leave this life, bullets will be worth the same as gold, pound for pound.
WD
I agree completely.
Peregrino
12-08-2009, 20:06
I predict that before many of us leave this life, bullets will be worth the same as gold, pound for pound.
WD
Actually - bullets will probably be worth more. Consider a corollary to the golden rule: he who has the lead will have all the gold he wants. :munchin
Here's the latest from Russell - the high-lited portions point to the possibility of another leg down, similar to what we saw during the 1929 depression. There is also a brief discussion of a recent congressional trip, and the costs involved.
GratefulCitizen
12-22-2009, 21:08
What's your take, Nmap?
http://www.americanthinker.com/2009/12/the_defaltion_threat.html
Contrary to what you are hearing in the media, the worst economic news may still lie ahead: A deflationary depression is descending upon us. Could it help the conservative movement?
Breakneck federal printing of debt and dollars, gold and stocks rising, the dollar falling -- surely these trends presage inflation, or even hyperinflation. So goes the narrative across the media. But a contrarian and increasingly likely view is that deflation, not inflation, awaits.* What is deflation? How will it develop? How will it affect us? And what does it mean for the Democrats' future?
Most of us have known only inflation, in which prices rise over time. In deflation, prices fall. The last time this happened in the U.S. was during the Great Depression. Japan has been living it these last fifteen years.
A falling price trend is at first a benefit to consumers. But then it leads to a spiral of economic decline: a depression. Deflation occurs when money for whatever reason becomes scarce, and therefore more valuable. Lower prices are the effect. Producers starve for profits, which leads to layoffs, loan defaults, and bankruptcies. Borrowers find they have to repay with more expensive dollars, so they pay off their debts. Low debt throttles growth and slows purchases. Expensive dollars make exports less competitive. Unsold inventories waste away on the shelf, crumble in value, and must be sold at deep discounts. Prices fall further, and so on, in a vicious circle.
Normal downturns are triggered by cyclic imbalances in which supply temporarily exceeds demand. Growth pauses while inventory excesses are liquidated. This time, however, things are different. The triggering event was an asset valuation bubble -- high stock and real estate prices -- boosted excessively in a buying mania fueled by cheap credit during the last fifteen years. Lots of borrowing creates financial leverage, which pumps up profits during good times and wipes them out during bad. Consumer credit swelled with the aid of cheap mortgages and home equity lines. Businesses borrowed cheap short-term money and invested long-term, expecting to roll the loans over as profits expanded. Most significantly, bankers ran high ratios of what they lent out versus what they took in. All of this borrowing was encouraged by the Federal Reserve Board and Congress to foster social goals like full employment and high levels of homeownership.
But the system eventually became unstable. The real estate that served as collateral for trillions of dollars of debt on the banks' (and the bank-like Fannie and Freddie) balance sheets became priced too high, and for the first time in seventy years, prices began a serious decline. Many highly leveraged borrowers had their equity wiped out, so they threatened to default. An increased sense of risk rippled through these debt pools, erasing much of their value and rendering them unsalable, or "toxic." Soon, a "run," or loss of general confidence, pervaded the U.S. and European economies. Though it has come to be called the housing bubble recession, a better name is the great credit bubble depression.
Deflation stems from a shortage of money. Isn't the Fed creating trillions of new dollars that they lend to banks and to the Treasury for disbursement in "stimulus" programs? Yes, but even as the Fed has recently created $2 trillion in new assets, many times, more money has been and will continue to be taken out of the world's economy through the process of de-leveraging -- that is, the paying off or writing off of a portion of the hundreds of trillions in credit floated around the world. Despite talk of TARP success and nascent recovery, those toxic assets are still on the books, some with the banks and some with the Fed itself. Eventually, much of this money will become worthless. As fast as the Fed is printing new money, money is being destroyed as debt is taken off the table. In the end, the Fed will lose as the quicksand of depression sucks more and more money into its muck.
Ironically, the 60% stock market rally of 2009, which in itself is anti-deflationary, is no source of comfort. Though it's hard to prove why stocks move, the recent rally is most likely due to a "carry trade," in which banks borrow cheaply from the Fed and invest in high-return risk markets like stock, gold, or even foreign currencies. The Fed is encouraging this with low rates precisely because this asset re-inflation makes the dollar less valuable. They are fighting the inevitable deflation.
But they are also creating a new asset bubble just like the one that imploded last year. They have lowered short-term interest to zero. As prices correct downward and the dollar rises as deleveraging continues, the Fed can take rates no lower. The last remedy available is for the Fed to buy government and corporate debt in the open market, literally printing money at will -- adrenaline for a burst, perhaps, but not sustainable. Other government measures like deficit spending and expansion of primarily public sector jobs in the "Stimulus" program are simply wasteful, destroying more dollars in the present and creating public debt to burden the future. These effects are deflationary. Obama's plans for new taxes and regulations, which extinguish dollars, are also deflationary.
What about the oft-cited signs of recovery like upticks in GDP, consumer sentiment, and retail sales? Well, even in a trending economy -- and ours is trending down -- it is normal to see short blips, zigs, and zags against the trend. The numbers are also somewhat cooked for political effect. You'll know that the grip of deflation is tightening if you continue to see more of the following: discounts, price reductions, joblessness, real estate vacancies, bank failures, business failures, public finance failures, pension defaults, loan defaults, shrinking debt and credit, higher savings ratios, and frugal spending.
When Obama took office, conservatives grumbled that he would get an unearned lift in 2012 because the natural tendency of recessions to reverse themselves after two years would put the country on a positive trajectory just in time to lift him to a second term. The thing about deflationary depressions is their persistence. If Japan is a guide, we'll be seeing this one for a decade or more. Its ill effects should intensify within the 2010 election cycle. It will be far from over, even by 2012.
The depression will be terrible, but it could have a cleansing effect. We are already seeing the rejection of carbon taxation, for example, because of the hard times. The entire costly Democratic program to expand government against the deflationary backdrop will catch the public's anger and lead them to "throw the bums out."
Obama's economists, Larry Summers and Ben Bernanke, are smart enough to understand and see the lurking deflation, even if they publicly brag that the worst is over. They might even quietly suspect that their current policy mix will not stop deflation. So what have they told the boss? If they are speaking honestly, then Obama must already know how much pain is coming our way. Or are these generals cowering before their stern commander, who will shoot a messenger bringing unwelcome news? The mood must be pretty tense.
During the Iraq war, the Dems seemed to be rooting for military defeat as a tactic to win political victory. Their interests were contrary to the country's. This time, in contrast, conservatives want recovery -- a development in alignment with the public interest, but which could also boost Democrat prospects. What Republicans wish for matters not. If depression develops, it will not come from conservative's wishing, but at least they will have the cold dish of revenge at the polls to relish.
*While the forecast is deflation for the next few years, inflation is still a long-term threat. Economic trends swing to and fro. A mild deflation could be followed by a mild inflation. Unfortunately, we may see a very deep deflation change into a hyperinflation as panicky anti-deflationary policies overshoot their mark.
incarcerated
12-25-2009, 21:09
http://online.wsj.com/article/SB126168307200704747.html?mod=rss_Today's_Most_Pop ular
U.S. Move to Cover Fannie, Freddie Losses Stirs Controversy
DECEMBER 26, 2009
By JAMES R. HAGERTY and JESSICA HOLZER
The Obama administration's decision to cover an unlimited amount of losses at the mortgage-finance giants Fannie Mae and Freddie Mac over the next three years stirred controversy over the holiday.
The Treasury announced Thursday it was removing the caps that limited the amount of available capital to the companies to $200 billion each.
Unlimited access to bailout funds through 2012 was "necessary for preserving the continued strength and stability of the mortgage market," the Treasury said. Fannie and Freddie purchase or guarantee most U.S. home mortgages and have run up huge losses stemming from the worst wave of defaults since the 1930s.
"The timing of this executive order giving Fannie and Freddie a blank check is no coincidence," said Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee. He said the Christmas Eve announcement was designed "to prevent the general public from taking note."
Treasury officials couldn't be reached for comment Friday.
So far, Treasury has provided $60 billion of capital to Fannie and $51 billion to Freddie. Mahesh Swaminathan, a senior mortgage analyst at Credit Suisse in New York, said he didn't believe Fannie and Freddie would need more than $200 billion apiece from the Treasury. But he and other analysts have said the market would find a larger commitment from the Treasury reassuring.
In exchange for the funding, the Treasury has received preferred stock in the companies paying 10% dividends. The Treasury also has warrants to acquire nearly 80% of the common shares in each firm.
The Treasury removed the cap on the size of available bailout funds by amending agreements it reached with the companies in September 2008, when the government seized control of the agencies under a legal process called conservatorship. The agreement allowed the Treasury to make amendments through the end of the year, without the consent of Congress. Changes made after Dec. 31 would likely involve a struggle with lawmakers over the terms.
Some Republicans are angry the administration is expanding the potential size of the bailout without having a plan for eventually ending the federal government's role in the companies.
The Treasury reiterated administration plans for a "preliminary report" on the government's future role in the mortgage market around the time the federal budget proposal is released in February.
The companies on Thursday disclosed new packages that will pay Fannie Chief Executive Officer Michael Williams and Freddie CEO Charles Haldeman Jr. as much as $6 million a year, including bonuses. The packages were approved by the Treasury and the Federal Housing Finance Agency, or FHFA, which regulates the companies.
The FHFA said compensation for executive officers of the companies in 2009, on average, is down 40% from the pay levels before the conservatorship.
Under the conservatorship, top officers of Fannie and Freddie take their cues from the Treasury and regulators on all major decisions, current and former executives say. The government has made foreclosure-prevention efforts its top priority.
The pay packages for top officers are entirely in cash; company shares have been trading on the New York Stock Exchange at less than $2 apiece, and it isn't clear when the companies will to profitability or whether common shares will have any value in the long term.
For the CEOs, annual compensation consists of a base salary of $900,000, deferred base salary of $3.1 million and incentive pay of as much as $2 million.
When Mr. Haldeman was hired by Freddie in July, the company set his base pay at $900,000 and said his additional "incentive" pay would depend on a decision by the regulator.
At Fannie, Mr. Williams was chief operating officer until he was promoted in April to CEO. As COO, his base salary was $676,000. He also had annual deferred pay of $2.3 million and a long-term incentive award of as much as $1.5 million.
Under the new packages, Fannie will pay as much as about $3.6 million annually to David M. Johnson, chief financial officer; $2.4 million to Kenneth Bacon, who heads a unit that finances apartment buildings; $2.8 million to David Benson, capital markets chief; $2.2 million to David Hisey, deputy chief financial officer; $3 million to Timothy Mayopoulos, general counsel; and $2.8 million to Kenneth Phelan, chief risk officer.
At Freddie, annual compensation will total as much as $4.5 million for Bruce Witherell, chief operating officer; $3.5 million for Ross Kari, chief financial officer; $2.8 million for Robert Bostrom, general counsel; and $2.7 million for Paul George, head of human resources.
The pay deals also drew fire. With unemployment near 10%, "to be handing out $6 million bonuses to essentially federal employees is unconscionable," said Rep. Jeb Hensarling, a Texas Republican who is a frequent critic of Fannie and Freddie.
He also criticized the administration for approving the compensation without settling on a plan to remove taxpayer supports: "To be doing that with no plan in place is just unconscionable."
The FHFA said that Fannie and Freddie "must attract and retain the talent needed" for their vital role in the mortgage market.
Write to James R. Hagerty at bob.hagerty@wsj.com and Jessica Holzer at jessica.holzer@dowjones.com
The economic state of the country right now is exactly what the democrats have been trying to orchestrate since the first great depression, it just took them longer to achieve their goals than they thought it would.
Think about it. Instead of reverting back to an industrial/manufacturing based economy, the FDR administration foisted Keynesian economics on our country under the auspices of getting us out of the depression. Because a Keynesian economy is based on self-inflationary, consumer spending eventually we all have to spend more than we make, thus we accumulate debt.
A person who is in debt is beholden to their debtor, in most instances the banks. The government then lowers interest rates to encourage the banks to go into debt. They then "bail out" the banks. The government now owns the banks because they own the banks debt, the banks own us because they own our debt. The government now owns us and has a free and clear path on the march to neo-marxism.
The democrats tried this during the Great Depression. The reason it didn't work was because we still had the protestant work ethic in this country and the social climate was not right for the facilitation of this kind of change over a short period of time. We have since become socialized to be a nation of debtors and are so far down the Keynesian path we have no viable economic alternatives to get the country off it. That is a big part of why the democrats plan to turn America into a socialist nation is working now and it didn't work then.
Just my $.02 though, I will climb off the soapbox now.
There are some interesting charts and analysis at the following two links:
LINK 1 (http://market-ticker.org/archives/1813-Carnage-Continues-PHK-Who-Smells-Smoke.html)
LINK 2 (http://market-ticker.org/archives/1815-Uhhhhh...-Ok,-Keep-Buying-Fools.html)
Click on the charts to see a larger, and more easily read version.
This suggests that PIMCO and some other large players are selling debt securities, which may imply that they expect a move upward in interest rates. This would tend to suppress housing prices as well as overall economic activity.
I knew I should have hinted for an entrenching tool and a "Foxholes for Dummies" book for Christmas! :D
Listening to a report on India yesterday - 40% of its population make less than $1.25 per day. Why would anyone want to leave such a paradise?
Richard
The answer to who is buying our debt is not from the list of usual suspects like Saudi, Japan, China... it is our own US Treasury.
The link below is an excellent article (in German) that discusses the US debt. Here is quick translation of the first paragraphs. If there is enough interest, I can translate the whole article. NMAP, you probably do not need the article below to guide you through the US Treasury. I did.
Mystery around US national debt, Rainer Summer 30.12.2009
Who actually bought the 1.885 trillion US Dollar/ US government stocks, which were emitted in the financial year 2009?
In view of the expanding US deficit one puzzles at the bond markets already stretched, how it is possible that US government loans can still be set off so problem-free? Thus the Canadian Investment company "Sprott Asset Management" determined that the US Treasury will have to set three times as many government loans in 2009 as in the previous year and so they asked themselves, "which of the usual groups of buyers would be probably ready to take these quantities?"
Since out of the traditional buyers nobody seemed to have the capacity to take up these papers, Sprott already expected heavy paragraph problems, which did not occur however for the second half of the year.
Failed auctions, no downgrading, no significant rise of the long period interest (mirror-image behavior to the loan courses), we do not have to ask ourselves, why it went so smoothly. It was obvious that enough “normal” purchasing power was missing, in order to accommodate the auctions.
After the current report of the Treasury, that Treasury bulletin (link below), in the financial year 2009, 1.885 trillion dollars of national debt were emitted, about which “foreign and international buyers” had taken over 697.5 billion, in relation to the previous year an increase of 23 per cent. The Federal Reserve had a billion with officially 286 even around nearly 60 per cent more removed, while public bodies diminished local net and those stagnated in pension and other funds. According to the Treasury bulletin was it then the category “other investors”, those after 90,1 billion in the previous year in the first 3 quarter 2009, bought up a full 510.1 billion dollars, reflecting the whole year projected.
The bottom line? The Fed approximately tripled its balance sheet for the total fiscal year 2009 by buying loans against dollars they produced. This has been in the works for a while, so whatever one's politics, this topic crosses both major parties.
http://www.heise.de/bin/tp/issue/r4/dl-artikel2.cgi?artikelnr=31798&mode=html&zeilenlaenge=72
Its reference points are in English.
http://www.sprott.com/Docs/MarketsataGlance/12_2009_MAAG.pdf
http://www.fms.treas.gov/bulletin/overview.html
http://www.federalreserve.gov/releases/z1/
http://www.shanghaidaily.com/sp/article/2009/200912/20091218/article_423054.htm
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/IO+Gross+Jan+09+Andrew+Mellon+vs+Bailout+Nation.ht m
Here's an interview which I found to be of great interest and value on the subject.
Richard's $.02 :munchin
A blockbuster interview with Richard Maybury
Pat Gorman of Resource Consultants, Jan 2010
We have been interviewing Richard Maybury regularly ever since we began Resource Consultant’s newsletter. We know from experience that if you ask his subscribers what they think of Mr. Maybury’s work, they will say no one’s forecasts have been as shocking, and no one has been as right. We can’t promise you will exactly enjoy this interview, but we can say you won’t read anything as bold, except in Mr. Maybury’s own newsletter, Early Warning Report. As he says often, fasten your seatbelts, this will be a wild ride.
PAT: Mr. Maybury, welcome back. Since we last talked, events have certainly gone in directions you forecasted. Some investors say you are clairvoyant.
RICHARD MAYBURY: (Laughing) Well, they’re wrong, I’m not, I’m just lucky. But I do research, too, and try to have a long-term perspective.
PAT: To you, long term means 2,500 years. Perhaps that’s why Ron Paul says he looks forward to reading every issue of your Early Warning Report. We have a lot to cover, so let’s get right to it. You are one of the few investment analysts in the world who ties geopolitics, history and military affairs into economics and investing. The most recent feather in your cap was the October 19th article in Newsweek about your Chaostan model.
RICHARD MAYBURY: Yes. We’ve heard rumors for years that my newsletter is copied and circulated under the table in the Pentagon, CIA, NSA, FBI and so forth. Apparently, according to Newsweek, the rumors are true, at least for the Pentagon and CIA.
PAT: What happened?
RICHARD MAYBURY: In 1992, I coined the term Chaostan for the area from the Arctic Ocean to the Indian Ocean, and Poland to the Pacific, plus North Africa. That’s the most important area that never developed political or legal systems based on the two laws that make civilization possible.
PAT: These laws are…
RICHARD MAYBURY: Do all you have agreed to do, which is the basis of contract law, and, do not encroach on other persons or their property, which is the basis of tort law and some criminal law. These are the principles on which the Declaration of Independence and Constitution are based, especially the Bill of Rights. After the American Revolution, these ideas began to reach around the world, but their spread was cut short by the rise of socialism in the mid-1800s. Chaostan — the land of the Great Chaos — is the area that never received those principles.
http://www.chaostan.com/bulletin-010410.html
What's your take, Nmap?
Yes, I think we're likely to see a deflationary depression. Let's look at the problem. We have global over-capacity, for one thing. China wants to be the world's workshop, and they're accomplishing the goal. But as long as that over-capacity persists, and nations pursue a beggar-thy-neighbor policy of competitive devaluation, prices must continue downward.
There is another factor, and that's the American consumer. To consume, one needs either earnings, or savings, or available credit. Without at least one of those, consumption becomes problematic. Our savings rate in the U.S. has been low, and the value of our assets (housing, stock portfolios) have declined. Available credit is declining. (Note: to see a chart of available credit, take a look at the attachment. I've also hi-lited some other items of interest).
And this brings us to earnings. We have a condition called "global labor arbitrage", where companies seek out the cheapest labor costs. Richard notes that folks in India make less than $1.25 per day. Companies can bring those workers into the U.S. on H1B visas and save money. Or, they can transfer work to India and get the full benefit of lower wages. This suggests that earnings for U.S. workers will remain under pressure until there is some balance between U.S. wages and wages elsewhere. Let us reflect for a moment on what this means for housing, for consumption, for the very way we live. Bottom line, this is not a brief campaign - it is likely to represent a wrenching change that lasts for a decade or more. Just as it has in Japan.
98G mentions our efforts at quantitative easing - which is, after all, a sort of rolling default that cheats our creditors. While I suppose it does have its amusing aspects, one must suppose that eventually they will smarten up and decide to restrict new lending. This means (just as the article mentions) that the Fed must continue to print new money. Does this mean inflation? Partly. But keep in mind that the U.S. consumer, engine of global economic activity, is tapped out and will likely remain so. This in turn means that the nominal price of the "stuff" we buy can't go up much - consumers simply can't afford it. But the overcapacity issue means that producers must continue to sell things or go under. Does any of this bring the auto industry to mind?
A further point - debasing the currency won't help us in terms of exports. China has tied the value of its currency to the dollar. When the dollar goes down, so does the Yuan.
Now Grateful's article offers the premise that this may lead to a more conservative mindset. Perhaps - but not quickly, and not gently. Right now, we have lots of people who feel entitled to lots of things. We have an expectation of wages that will support a large fraction of the population in relative comfort. We are not, by and large, inclined to sacrifice and hard work.
What happens when that changes? What happens when the basic assumptions of today fail? Examples might include college for everyone, a nice house, a good car, abundant food, new clothing, a cell phone in every pocket, and 300 channels on cable? Will people shrug, behave stoically, and soldier on? Or will they demand "social justice", more bail-outs, more subsidies, more government jobs programs?
I think there is a real possibility that there will be lots of disappointed and angry people. Over time, this may lead to greater fiscal conservatism. In the short term, I think we may see a more volatile political and social environment.
The answer to who is buying our debt is not from the list of usual suspects like Saudi, Japan, China... it is our own US Treasury.
The link below is an excellent article (in German) that discusses the US debt.
The bottom line? The Fed approximately tripled its balance sheet for the total fiscal year 2009 by buying loans against dollars they produced.
Das ist ein "Ponzi Scheme", ja? :confused:
Madoff gets a trip to the big house and Bernanke gets Person of the Year (Time Magazine)?
GratefulCitizen
01-09-2010, 15:09
Yes, I think we're likely to see a deflationary depression. Let's look at the problem. We have global over-capacity, for one thing. China wants to be the world's workshop, and they're accomplishing the goal. But as long as that over-capacity persists, and nations pursue a beggar-thy-neighbor policy of competitive devaluation, prices must continue downward.
Scroll down and check out the 5-year warehouse stocks levels.
Copper: http://www.kitcometals.com/charts/copper_historical_large.html
Aluminum: http://www.kitcometals.com/charts/aluminum_historical.html
Lead: http://www.kitcometals.com/charts/lead_historical.html
Nickel: http://www.kitcometals.com/charts/nickel_historical.html
Zinc: http://www.kitcometals.com/charts/zinc_historical.html
The party's over.
Without demand, prices will be unsustainable.
Deflation is coming, followed by overreaction and inflation.
GratefulCitizen
01-11-2010, 18:20
Darn supply and demand...
http://www.businessweek.com/news/2010-01-10/copper-hitting-goldman-s-target-one-year-early-means-20-drop.html
Your take, Nmap?
Darn supply and demand...
http://www.businessweek.com/news/2010-01-10/copper-hitting-goldman-s-target-one-year-early-means-20-drop.html
Your take, Nmap?
At this juncture, a shrug. We have, for the short-term, lots of fluctuations - of the dollar, of the global economy, and, yes, of both supply and demand for copper. In addition, aluminum can be substituted for copper in a variety of applications - which complicates the matter even more.
Keep an eye on the economy through the second quarter. I don't think we're out of the woods, and so copper may come under pressure.
Latest Russell...
Please take a look at page 6 - the last one.
It includes the unemployment rate as it used to be calculated. The value is 22%.
Rhetorical question 1: How does housing recover in the face of massive unemployment?
Rhetorical question 2: How do we get a real recovery without a housing recovery?
Rhetorical question 3: What do the cattle do when they realize they've been sent to the slaughter house?
GratefulCitizen
01-12-2010, 17:03
Rhetorical question 3: What do the cattle do when they realize they've been sent to the slaughter house?
Those currently holding the reins of political power overestimate their ability to redirect/misdirect anger.
Washington's institutional narcissism is unbelievable.
They expect to be thanked for causing/perpetuating problems.
Judgement day: November 2, 2010.
http://judgementday2010.com/
GratefulCitizen
01-15-2010, 22:11
Hey, Nmap!
Does this look like some running for the exits?
http://moneymorning.com/2010/01/13/oil-storage-trade/
A 26-mile-long line of idled oil tankers, enough to blockade the English Channel, are firing up their engines and jockeying for position in a race to cash in on the bone-chilling deep-freeze plaguing the North America, Europe, and Asia.
The supertankers, each of which can hold over 2 million barrels of oil, are steaming "all ahead full" to deliver their stores of crude, heating oil and other distillates to the United States.
Their clients - which include several huge Wall Street investment firms - are eager to unwind what's become known as the oil storage trade.
EIA net imports (scroll to the bottom, notice the uptick in the past month)
http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTNTUS2&f=W
Latest Russell...
Please take a look at page 6 - the last one.
It includes the unemployment rate as it used to be calculated. The value is 22%.
Rhetorical question 1: How does housing recover in the face of massive unemployment?
Rhetorical question 2: How do we get a real recovery without a housing recovery?
Rhetorical question 3: What do the cattle do when they realize they've been sent to the slaughter house?
1. Give housing subsidies to migrants and immigrants, or sell them to foreigners.
2. Stimulate small business
3. Riot, Commit suicide and feast upon each other.
Hey, Nmap!
Does this look like some running for the exits?
Not really. Click on the chart link in my sig line and look at what you've got.
We were overbought about a week ago - now we're pulling back. I would suppose we have another week or two of pullbacks - then we should stabilize. Look at the bottom of the chart at MACD and the Stoch. chart.
Now - here's the interesting part. The tankers are something that is widely known. Isn't it interesting that the price is holding up in the face of such news? When you have strength in the face of bearish news, you generally don't see a subsequent sharp decline.
Interesting little action on junk bonds.
LINK (http://stockcharts.com/h-sc/ui?s=JNK&p=D&b=5&g=0&id=p26772522105&a=180001517)
One day's action does not a trend make. But isn't it interesting that low-rated bonds are down sharply? I suspect that the market is noting that the economy is not as favorable as advertised, and thus begins to question whether lower-rated debt will get paid back. This could imply a general decline.
Hopefully, the present action is just a mild correction. However, there are reasons to think it is, instead, a resumption of the bear market - with the positive moves we've enjoyed just a temporary respite. If the bear market resumes, hang on to your hats. The ride is likely to be bumpy.
Hmmm...:confused:
Dan Froomkin explores the likelihood of an anemic recovery, a double dip recession, another stock market crash, more financial-sector follies, deficit hawks stifling growth, the death of the middle class as we know it, and/or other dire possibilities reporters should be writing about furiously.
Richard
Seven things about the economy that everyone should be more worried about than they are
Dan Froomkin, Nieman Watchdog, 22 Jan 2010
Part 1 of 2
An extraordinary series of articles recently appeared on the Nieman Watchdog Web site, anchored by John Hanrahan and mostly based on interviews with some of the nation's most perceptive, prescient and prophetic economists. The series laid out a broad landscape of economic issues that have been largely overlooked during the reporting of the nation’s economic collapse -- to our great peril.
Hanrahan’s articles explore key elements of the story that reporters should have been -- and should still be -- writing about. Among them: The endemic fraud at the heart of the collapse, the resultant need for a comprehensive dissection of some key financial institutions, how the wars in Iraq and Afghanistan have weakened the economy, the dramatic effects of the crash on domestic poverty and world poverty, and underlying it all, the critically important role of government spending in a recovery, be it through a second stimulus or expanded entitlements or jobs programs, all of which requires that deficits be seen, for the short run at least, as the solution, not the problem.
As a coda to Hanrahan’s series, here is a list of seven things all of us should be more alarmed by than we currently are, going forward.
A common theme underlying them all is that while our leaders -- and the voices of conventional wisdom -- treat our current recession as cyclical in nature, and are essentially mostly just waiting around for growth to pick up again, there is plenty of reason to believe that this crisis was instead an expression of structural problems. And if that is so, and we don’t take the proper action, then the wait could be a long one.
No. 1: The middle class may never be the same again
The full effects of the crash of 2007-2008 on the lives of regular Americans has yet to be fully appreciated. For most members of the middle class, their sense of financial well-being was largely based on the size of their 401(k)s and their equity as homeowners. After the collapse of stock prices and with the steep drop in home prices, many may never feel the same way again, or spend their money as confidently.
While 401(k)s have somewhat bounced back, about one in four homeowners now actually have negative equity -- are "underwater". A recent study by Barry P. Bosworth and Rosanna Smart for Brookings finds that American households lost $13 trillion in wealth between mid-2007 and March 2009, or about 15 percent in all. That decline badly hit baby boomers just as they’re headed into retirement. And middle-income families whose head is age 50 or younger actually have smaller net incomes today than in 1983.
Meanwhile, many American families spent much of the last decade (or two) living beyond their means, piling up debt on their credit cards, or "bubble borrowing." Two University of Chicago researchers have found that the housing bubble hugely increased household consumption as homeowners borrowed on average $0.25 to $0.30 for every $1 increase on their home equity. Now that housing prices have crashed and credit is tight, the inevitable result, Atif Mian and Amir Sufi write somewhat euphemistically, is a "painful process of household de-leveraging."
Harvard Professor Elizabeth Warren, an emerging hero among progressives in her role as chair of the congressional bailout oversight panel, sees the latest series of blows as the unfortunate culmination of a crisis that started taking form a generation ago. For long stretches of time, the growth in the nation's GDP has gone almost entirely to the top 1% or less of the population. That has resulted in a dramatic shift in wealth away from the middle class, made the economy more vulnerable to disaster and made the toll of such a disaster more catastrophic to all but the wealthiest Americans. Warren writes:
America today has plenty of rich and super-rich. But it has far more families who did all the right things, but who still have no real security. Going to college and finding a good job no longer guarantee economic safety. Paying for a child's education and setting aside enough for a decent retirement have become distant dreams. Tens of millions of once-secure middle class families now live paycheck to paycheck, watching as their debts pile up and worrying about whether a pink slip or a bad diagnosis will send them hurtling over an economic cliff.
She concludes: "America without a strong middle class? Unthinkable, but the once-solid foundation is shaking."
No. 2: The recovery could take a really long time
Even assuming that we are at the beginning of an enduring recovery, there are many signs that it will be a slow one, and that it could be as long as a decade until most American families return to the standard of living they enjoyed before the crash.
Most notably, unemployment is widely expected to be astronomically high for at least another year or two -- remaining around 10 percent through 2010.
And the recovery, such as it is, has been largely fueled by government money -- not just the stimulus, but also the bailouts, targeted programs such as the homebuyers tax credit and "cash for clunkers," and emergency spending on such things as extended unemployment insurance. What happens, however, when those stop? And none are designed to go on forever.
Washington Post financial columnist Steven Pearlstein recently put it this way:
My best guess is that the current upswings in economic output, confidence and financial asset prices are largely a reflection of the extraordinary fiscal and monetary juice provided by Treasury and the Federal Reserve, along with the natural rebound that occurs after a collapse in consumer and business spending like that which occurred in the first half of 2009. The surprising strength of the bounce-back testifies to the wisdom of the underlying strengths of the U.S. economy and the success of the policies, but is likely to peter out as the stimulus begins to wear off and the inventory correction is completed.
No. 3: The recovery could only be temporary
In an interview with Fox News back in November, Obama himself raised the possibility that the economy could once again head into a tailspin:
I think it is important though to recognize that if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the US economy in a way that could actually lead to a double-dip recession.
This is the classic Wall-Street influenced worst-case scenario -- with government spending as the villain and interest rate increases as the ultimate horror, leading to doom.
But Obama may be worrying about the wrong side of the Wall Street/Main Street axis. The more likely reason the economy could tank again is because of insufficient demand.
For the past decade or so, the growth of the U.S. economy was primarily fueled by the credit and housing bubbles -- which now turn out to have been illusory. So what will spur growth this time? Especially with so many Americans out of work? Where’s the demand going to come from?
Citing, among other things, the likelihood that the U.S. savings rate could go markedly higher in the coming years, Nobel laureate economist Joseph Stiglitz warns that "we are not seeing a recovery of sustained consumption,"and says there is a "significant chance" of a double-dip recesssion for that reason.
One plausible growth model involves extensive government investment in infrastructure, public works and public goods; expansion of social programs; and a return to pre-Reagan era-style growth based on rising middle-class incomes, where wages grow with productivity.
Obama, however, captured as he is by the Wall Streeters and deficit hawks on his economics team, doesn’t seem inclined in that direction -- nor, of course, does our utterly dysfunctional Congress. Obama and his advisers don't seem to feel the need for a new approach to growth, or to explain where they think it will come from. Their posture is simply to hang tough until it returns.
But the current economic situation is more fragile that some would have it. One particular danger is that because of bogus accounting rules, banks aren't properly recognizing their losses -- and are in fact largely insolvent.
Clinton-era Labor Secretary Robert Reich recently speculated about what lies ahead for the economy. He wrote he see only a 10 percent chance of a double dip recession (vs. a 30 percent chance of a strong or solid recovery; a 40 percent chance of a jobless recovery; and a 20 percent chance of a stalled recovery). But his description of that particular scenario was particularly vivid:
The commercial real estate market craters, carrying with it hundreds of regional banks and exposing how much junk is still on the books of major Wall Street banks. This triggers a long-awaited "correction" in the Dow and pushes the nation into another recession. Job losses rise.
(cont'd)
Seven things about the economy that everyone should be more worried about than they are
Dan Froomkin, Nieman Watchdog, 22 Jan 2010
Part 2 of 2
No. 4: Then what? This time, we don’t have the tools to get out of a recession
The recognized way of dealing with a recession is to lower interest rates in order to stimulate the economy. But the Federal Reserve can’t lower the rate to below zero, so that’s out.
The government can pour vast amounts of money into the economy, either through a stimulus or a massive bailout -- or, as the case may be, both.
But next time around, that money might not be there. Not only could the political will be lacking, but there is an upper limit to just how much money the country can borrow and spend at one time without it doing more harm than good.
No. 5: The ‘very serious’ people in Washington are still obsessed about the deficit
In Washington salons and newsrooms, you are not considered a serious person unless you are very, very worried about the deficit. The principle that reducing the deficit is of the greatest urgency (and must come at the cost of entitlements) is for some reason firmly lodged in the halls of power in Washington. An example of just how uncontroversial deficit hawkery is among Washington’s elite was provided by The Washington Post earlier this month when it apparently didn’t think twice about turning over its news columns to an organization funded by Peter G. Peterson, the billionaire investment banker on a crusade to reduce the deficit by looting Social Security.
But deficit hawkery right now is not just ludicrous, it’s dangerous. As New York Times columnist Paul Krugman noted recently, "the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder." He adds:
But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths.
No. 6: Whatever is making the stock market go up could go away
The giddiness over the recovering stock market makes it easy to overlook some key questions about its rise. But what exactly has sent the Dow up almost 70 percent since March? Could it be another bubble? And could it burst?
Was it a function of the extraordinary liquidity pumped into the system, first through the bailouts and now through nearly zero-interest loans to the banks? Was it foreign investors attracted by weak dollar and low interest rates? Where’s all the money coming from?
No one seems to know. (Does anyone really care?) But whatever it was could presumably come to an end, devestating the market and the economy.
No. 7: The hugely irresponsible financial sector remains unchastened
Back in March, Obama described modern Wall Street as a "house of cards" and a "Ponzi scheme" in which "a relatively few do spectacularly well while the middle class loses ground."
In his major speech on the economy in April, the president proclaimed that "we cannot go back to the bubble-and-bust economy that led us to this point." He continued:
It is simply not sustainable to have a 21st-century financial system that is governed by 20th-century rules and regulations that allowed the recklessness of a few to threaten the entire economy. It is not sustainable to have an economy where in one year, 40 percent of our corporate profits came from a financial sector that was based on inflated home prices, maxed-out credit cards, over-leveraged banks and overvalued assets. It's not sustainable to have an economy where the incomes of the top 1 percent has skyrocketed while the typical working household has seen their incomes decline by nearly $2,000. That's just not a sustainable model for long-term prosperity.
He was right.
He even used powerful biblical imagery from Jesus's Sermon on the Mount to liken the boom-and-bust economy he inherited to a house built on sand and the future U.S. economy he is working toward to one built on a rock, that could weather a storm.
But the big banks, with their enormous political clout, appear to be managing to duck the re-regulation that seemed inevitable a year ago -- and they are now in fact more powerful than ever. The ultimate litmus test is that the banks that are "too big to fail," rather than being broken up, are now making huge profits -- and paying astronomical bonuses -- based on the implicit guarantee that the government will pay their debts if they ever face bankruptcy. Indeed, that government backstop gives them every reason to place riskier bets than ever. Even Obama's latest, much more assertive and populist proposal to limit bank activities does not break up those banks -- and faces an uncertain future in our nearly paralyzed legislative branch.
Economist Simon Johnson (the subject of one of Hanrahan’s articles) recently said on CNBC:
The conventional wisdom is you can't have back-to-back major financial crises. I think we're going to push that, we're going to have a look and see whether that's true. And the next 12 months could really be exciting. People could be very positive, but we are setting ourselves up for an enormous catastrophe.
Indeed. By Obama’s biblical analogy, our economy is still very much built on sand --and the next big storm might not be very far away at all.
http://niemanwatchdog.org/index.cfm?fuseaction=background.view&backgroundid=00427
I think the time has come to adopt a cautious and defensive posture with regard to the markets. So far, the markets have been strong when compared to the period through March of 2009. I believe there is a significant risk that will change, and that 2010 will be remarkably painful.
Keep in mind - it wasn't the crash of 1929 that destroyed people. There was a subsequent rally which brought in lots of investors, followed by a further decline that finished the job. The present market action has remarkable similarities.
I have attached two items, along with a link to a discussion of the recent improvement in GDP.
I respectfully urge others to read and consider them.
LINK (http://market-ticker.org/archives/1915-GDP-Theres-Your-Inventory-Bounce.html)
incarcerated
01-31-2010, 21:49
Yes, I know that this was posted here:
http://www.professionalsoldiers.com/forums/showthread.php?t=27419
but it is worth repeating on this thread.
http://online.wsj.com/article/SB10001424052748704722304575037470289762694.html?m od=WSJ_hpp_MIDDLENexttoWhatsNewsSecond
Deficit to Hit All-Time High
Obama's $3.8 Trillion Budget Forecasts a $1.6 Trillion Shortfall for 2010 Before It Drops
FEBRUARY 1, 2010
By JONATHAN WEISMAN
WASHINGTON—President Barack Obama will propose on Monday a $3.8 trillion budget for fiscal 2011 that projects the deficit will shoot up to a record $1.6 trillion this year, but would push the red ink down to about $700 billion, or 4% of the gross domestic product, by 2013, according to congressional aides.
The deficit for the current fiscal year, which ends on Sept. 30, would eclipse last year's $1.4 trillion deficit, in part due to new spending on a proposed jobs package. The president also wants $25 billion for cash-strapped state governments, mainly to offset their funding of the Medicaid health program for the poor….
:::::::::::::::::::::::::::::::::::::::::::::::::: :::::::::::::::::::::::::::::::::::::::::::::::::: ::::::::::::::::::::::::::::::::::::::::
http://www.reuters.com/article/idUSTRE60U1PZ20100201
White House to paint grim fiscal picture
Andy Sullivan and Caren Bohan
WASHINGTON
Sun Jan 31, 2010 9:25pm EST
WASHINGTON (Reuters) - The White House will predict a $1.6 trillion U.S. budget deficit in the 2010 fiscal year, a fresh record and the biggest since World War Two as a share of the economy, a congressional source told Reuters on Sunday….
Obama's budget proposal, which will be released at 10 a.m. EST on Monday, will predict a narrowing of the deficits to $700 billion by fiscal 2013 before they gradually rise back to $1 trillion by the end of the decade, the Capitol Hill source said.
He will submit his spending blueprint for the 2011 fiscal year that begins October 1 and runs through September 30 next year….
He is to deliver remarks on the U.S. fiscal situation at 10:45 a.m. EST.
Criticized by Republicans as a big spender, Obama used his State of the Union address last week to tell Americans he would dig the country out of a "massive fiscal hole."
That hole is even deeper than previously believed, according to the estimate by the White House's Office of Management and Budget.
The estimate for the current 2010 fiscal year that ends September 30 is significantly higher than the $1.35 trillion figure forecast by the nonpartisan Congressional Budget Office last week.
Despite the difference, both estimates indicate that the deficit will continue to hover near 10 percent of gross domestic product, a level not seen since World War Two, when measured as a percentage of the economy.
Last year, the government posted a $1.4 trillion deficit, equivalent to 9.9 percent of GDP.
THREE-YEAR FREEZE WON'T BE ENOUGH
In his budget, Obama will propose a three-year freeze on some domestic programs to save $20 billion next year and $250 billion over the coming decade.
But that will not be enough to get deficits down permanently to the 3 percent of GDP that most economists consider sustainable.
Deficits are projected to fall as the economy recovers, but they will still average roughly 4.5 percent of GDP over the coming decade, according to the estimate.
Deficits are expected to rise again toward the end of the decade due to the increasing cost of retirement and healthcare programs as the "baby boom" generation retires….
Obama and his fellow Democrats face a growing voter backlash for the aggressive spending measures they have taken to stimulate the economy.
But Democrats point out that most of the fiscal mess has been inherited from the previous administration of Republican George W. Bush, who cut taxes and created an expensive prescription drug-benefit while pursuing wars in Iraq and Afghanistan….
There is a much needed intervention for this issue.
Richard
(1VB)compforce
01-20-2016, 11:32
(i did a search to try to find the best place to put this. If this is the wrong place or there is a current thread that I didn't find, feel free to move it)
BLUF - Get ready for the market correction of a lifetime.
No. 6: Whatever is making the stock market go up could go away
The giddiness over the recovering stock market makes it easy to overlook some key questions about its rise. But what exactly has sent the Dow up almost 70 percent since March? Could it be another bubble? And could it burst?
Was it a function of the extraordinary liquidity pumped into the system, first through the bailouts and now through nearly zero-interest loans to the banks? Was it foreign investors attracted by weak dollar and low interest rates? Where’s all the money coming from?
No one seems to know. (Does anyone really care?) But whatever it was could presumably come to an end, devestating the market and the economy.
If you haven't been paying attention, the end of QE and now the raise in interest rates (to .25%-- LIBOR .366/.425/.624 yesterday) added to the very weak oil industry, have resulted in a decline of almost 10% to the Dow (1800 points since 1 JAN 2016).
Additionally the raising of sanctions on Iran is prepared to drop a glut of oil on the markets further shoving the price down, is going to increase the downward pressure on the market.. The challenge this time is that the Fed has nowhere to go. They can drop the rate back to 0 again, but that won't stabilize this much of a market drop with all of the other external pressures.
To elaborate a bit:
QE falsely propped up the market for years. Now that it's over the aggregated downward pressure is hitting all at once.
Interest rates were lowered to near zero in an attempt to give banks incentive to loan more money to mainstreet borrowers. The banks didn't do so, they instead built their reserves, loaned money to each other (sometimes going so far as to borrow money that they initially loaned to begin with). They also invested heavily in the bear market created by QE.
The tech sector went through an investment bubble based on the way the market was growing, which growth was created by QE and bank investment in stocks and bonds. Unfortunately this bubble was based on an advertising based revenue model which is slowing down significantly. Just like in 2000/2001 people are finding out that profits actually matter a hell of a lot more than number of users. The current trend is free services to generate large numbers of users, which then drives advertising sales for monetization. It's a giant fallacy that the companies and investors were all colluding on. They all got in hoping to be bought out by the next round of financing until IPO and the big payoff. Even if the company never generated a profit, all the individuals throughout get a good (or fantastic) return. The suckers are the ones that bought shares during the IPO and held them.
Oil dropping to less than $30/bbl is yanking the rug out from under the main industry that propped up the economy throughout.
The Fed performed QE by purchasing bonds. They now have a balance sheet that is too heavy and they can't dump it back on the market without creating an amount of inflation that will cripple the economy. They don't have a plan on how to divest themselves of these holdings yet.
The market literally doubled, nearly tripled since 2008. From a low in the 6000's to cross 18000 and remain there until less than 3 months ago. Now there is no more QE to prop it up and the rates were increased to .25%. Algorithmic trading making the market move faster than was previously possible with people actually doing the buying and selling is just going to exacerbate the issue. It wouldn't surprise me to see the Dow slide to somewhere between 10000 and 12000 by summer.
When that happens look for major layoffs and store closings to accellerate, further driving down the economy and creating more civic unrest as the lower income jobs are the ones that can reasonably be expected to be destroyed.