Record Declines And Reckless Speculation

largest declines since WWII, Lowest quarterly reading since it has been measured,elitist formula ineffective, no end to the reckless speculation, fortunes made in bubbles for the rich, watch for Ron Pauls bank transparency bill, Railroad worker fund now derailed, real estate glut, 

April 18 2009

American’s ruling class, which controls Wall Street, banking and government, continues to suppress the less fortunate. Over the years we have seen these elitists rescue themselves at the expense of the American public. Any professional observer knows the core of this power structure lies within the Federal Reserve, which has created booms and busts for almost 100 years.

Our current President says a new foundation must be found for future economic growth. Under this form of economy and government speculation will continue to flourish as long as the Fed is in place. We find it not surprising that over the last 22 months of crisis the mainline media has never accused the Fed of creating this depression. It is they who created and funded the illusion of prosperity that has led us into this irreversible quagmire. Government has played its role as well. The CFTC stood and stands idly by as the “Working Group on Financial Markets” manipulates commodity and precious metals markets, as the SEC does the same in other markets.

Thus, our President says he will bring an end to reckless speculation, excessive use of credit and over-leveraged lenders. He might consider privatizing the CFTC and the SEC or at the least have those agencies run by professionals who are not members of the Wall Street – Washington cabal.

Mr. Obama, and, of course, his CFR henchmen, again discontinued mark-to-market to continue the theory of no need to know. They terrorized the FASB and they relented allowing American business to mark-to-model, better known as mark-to-myth. This allows corporate America to cook the books. This gives them time to say their assets are sound, while slowly selling off their toxic waste. First Bush and now Obama are covering for Wall Street and the bankers. The garbage will be sold to hedge funds and private-equity firms at high prices. These buyers will be guaranteed against loss by US taxpayers via the Fed and the treasury. The buyers will probably make handsome profits. Thrown in for good measure was the death of a bill that would have taxed 90% of the bonuses of bailed-out companies under public assistance. Again, beholden to Wall Street, the President told the irate public to take a flying leap.

The new modus operandi is for the Illuminists to create bubbles in which they make fortunes. The bubble is pierced; they cut interest rates, increase money and credit and flood the system with liquidity. This is called quantitative easing, which causes monetization and eventually hyperinflation. The bog losers are savers and those sucked into the market.

MBA mortgage purchase applications index fell 11.3% versus plus 11.1% and plus 4.7% in prior weeks. The refi index was off 10.9% versus up 3.2% the prior week. The 30-year fixed rate mortgage rose 3 bps to 4.78%; the 15’s rose 3 bps to 4.46%.

The net long term February TIC flows were $22 billion. January fell $146.8 billion.

Net capital outflows from the US totaled $97 billion in February versus a net outflow of $146.8 billion in January. Excluding swaps, long-term net capital flows showed an inflow of $22 billion versus outflows of $36.8 billion in January.

The NAHB housing index rose to 14 from 9 in March.

Capital One reports that credit card defaults rose to an annualized 9.33% in March.

In the face of lower mortgage rates, applications fell a large 11%. Most of the $955 billion of credit card debt has been securitized and put into SIVs, CBOs, VIEs, etc. these toxic assets are probably worth less than $0.10 on the dollar. That presents a potential total dollar liability of $10 trillion.

Total consumer debt, including auto loans, mobile home loans and student loans, etc. is close to $2 trillion.

JP Morgan Chase, Wells Fargo, Fannie Mae and Freddie Mac say they have increased foreclosure activity in recent weeks after lifting moratoriums that temporarily halted foreclosures. This will put further pressure on bank earnings as loans are written off and on house prices.

Banks are benefiting incalculably from no-strings-attached indirect debt subsidy of FDIC-guarantee AAA ratings. Adopted last fall, the program has allowed banks to issue more than $300 billion in debt cheaply with FDIC backing so far. The program runs to mid-2012. This is an infinite subsidy. The players are Goldman Sachs $28 billion, Morgan Stanley $23 billion and over $40 billion for BofA and JP Morgan Chase.

As you know the administration had decided that keeping stress test results secret could lead to flight by investors, who were outraged that the results would be hidden. The Obamaites are following the pattern of the Bushes. There is no need to know.

First quarter drug prices rose 10% to 15% and Credit Suisse said they rose 20%.

State and local sales taxes fell sharply in the fourth quarter of 2008, the most in 50 years.

In the Bloomberg Professional Global Confidence Index participants were bearish on the dollar and bullish on the Mexican peso and Brazil’s real.

The banks and Wall Street own the Obama administration just as they owned the Bush crowd.

What has to be recognized in our current dilemma is someone has to lose, everyone cannot be made whole at the expense of the taxpayer. Commercial and residential builders are still building in an environment that is overwhelmed with inventory. The auto industry has been a failure for years, but they are still overbuilding. Without tariffs they are doomed. All mature economies are in the same position.

We predicted what you now see in 1964. This didn’t just happen overnight. Credit contraction is upon us and if the banks do not start lending inflation will be reversed and deflation will take over. Worse yet, this is a worldwide problem and if lending is not soon increased deflation will rear its ugly head. Anyone with assets had best have them in gold or they’ll lose them.

Ron Paul has introduced HR1207, the Federal Reserve Transparency Act. The Senate version is, S604; the Federal Reserve Sunshine Act. The House Bill has more than 50 sponsors and the Bill can pass if enough people contact all congressional representatives demanding support. It amends the US code so that the GAO would be required to audit the Fed by the end of 2010. It would include discount window operations, funding facilities, open market operations and agreements with foreign banks. Let’s wake up the American people as to what is being done to them.

The CFO and CEO at Goldman Sachs are upset that officers of the company should not be paid for failure and as a consequence want to pay back TARP funds. Goldman wants to pay out 50% of revenues against payments it plans to make to employees. That is the same amount they paid out during the boom years. They want to take taxpayer funds and pay the likes of Jon Winkelried, one of the wealthiest and most senior executives after he lost billions in his own hedge fund. Goldman is in business because taxpayer funds bailed them out. This is a firm with $850 billion in liabilities. It wants to separate itself from the pack and use its $164 billion of resources to buy distressed debts with additional taxpayer funds. It now wants to be treated as a broker dealer, not as a bank, which it just became, so it could get TARP funds. Such a move gives Goldman a get-out-of jail free card and have it both ways. Glass-Steagall where are you now that we need you?

The Obama administration, as an award for failure, on Wednesday named the first six companies participating in a $75 billion program designed to help millions of struggling homeowners avoid foreclosure.

The administration said the companies - including some of the mortgage industry's biggest players - will receive a maximum of $9.9 billion in incentive payments, which are designed to encourage mortgage companies to lower borrowers' monthly bills. The government expects to finish arrangements with other companies in the coming months.

Chase Home Finance, part of JPMorgan Chase & Co., will receive up to $3.6 billion, the largest amount among the six companies.

The other recipients are: Wells Fargo & Co., GMAC Mortgage Inc., Citigroup Inc.'s CitiMortgage unit, Select Portfolio Servicing and Saxon Mortgage Services Inc.

The program, unveiled on March 4, will offer struggling homeowners the chance to obtained modified loans with lower monthly payments. It's being funded by $50 billion out of the government's $700 billion financial rescue program. The remaining $25 billion will come from other government sources.

General Growth Properties Inc. (as we predicted) filed the biggest real estate bankruptcy in U.S. history after amassing $27 billion in debt as it became the second-largest U.S. shopping mall owner.

The mall owner will continue operating its more than 200 properties, including South Street Seaport in Manhattan and Boston’s Faneuil Hall, after it sought Chapter 11 protection in U.S. Bankruptcy Court in New York. The company listed $29.5 billion in total assets and debts of about $27.3 billion.

“While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11,” Chief Executive Officer Adam Metz said in a statement today.

The filing lists Eurohypo AG, a unit of Commerzbank AG, as General Growth’s largest unsecured creditor with claims totaling $2.59 billion under two loans. Noteholders are owed about $4 billion in total. Much of the company’s debt can be traced to its $11.3 billion purchase of commercial-property developer Rouse Co. in 2004.

A special pension fund for railroad workers that was given permission during the Bush administration to invest its assets in the stock market lost more than a third of its value during a recent 18-month period, a loss that could influence an ongoing debate about how to keep government-affiliated retirement programs solvent.

After the National Railroad Retirement Investment Trust initially made healthy gains by investing in the stock market, it was hailed by some lawmakers as a model for how to save Social Security - either by investing part of the Social Security trust fund in stocks or by creating private accounts and giving individuals a chance to do the same.

Senator Chuck Grassley of Iowa, at that time the Republican chairman of the Senate Finance Committee, was quoted in 2005 as saying that Congress should consider putting part of the Social Security trust fund into stocks "based upon the success of the railroad retirement fund." Many other members of Congress made similar comments, and then-President Bush launched an un successful campaign to give people the power to invest portions of their own Social Security funds in the stock market.

But since the end of 2007, the railroad fund's returns have crashed. The fund, which had previously been restricted by the government to investing in Treasury securities, put its assets into everything from foreign stocks to real estate to "opportunistic" investments. As a result of the losses, taxes may be raised on the railroad companies and their workers, as provided for in the law under which the trust was established.

Housing starts fell 10.8 percent to an annual rate of 510,000, the Commerce Department said today in Washington. Building permits, a sign of future construction, fell 9 percent to 513,000.

A glut of unsold properties is pulling home prices down across the U.S., prompting builders to scale back projects. President Barack Obama’s administration has pledged measures to reduce foreclosures and the Federal Reserve is buying mortgage securities to drive down home-loan rates and spur demand.

Manufacturing in the Philadelphia region contracted in April at a slower pace than forecast as orders improved. The Federal Reserve Bank of Philadelphia’s general economic index increased to minus 24.4 this month from minus 35 in March, the bank said today. Negative numbers signal contraction.

Initial jobless claims decreased by 53,000 to 610,000 in the week ended April 11, the fewest since January, the Labor Department said today in Washington. Still, the total number of people collecting benefits jumped to a record 6.02 million a week earlier.

Fewer than half the seniors knew that the line “We hold these truths to be self-evident, that all men are created equal” can be found in the Declaration of Independence. Only 60 percent managed to place the Civil War in the right time period. Fifty-three percent didn’t understand the concept of federalism; 40 percent couldn’t define the law of supply and demand; 78 percent didn’t know what a “public good” is. Forty-seven percent couldn’t explain how wealth is generated in a free market system. When questioned about basic American history, such as when the first colony was established at Jamestown, about half the students got it wrong.

US industrial production for March declined 1.5% m/m and 12.8% y/y. This is the biggest y/y decline since the end of WWII. Q1industrial production collapsed 20% annualized. Since the recession ‘officially’ commenced in December 2007, industrial production is down 13.3% and factory production has declined 15.7%, which is also the largest decline since the end of WWII.

Q4 industrial production declined at a 12.7% annualized rate. So the past two quarters are showing a depression-like contraction in industrial production. Capacity Utilization fell to 69.3% in March. This is the lowest reading in the history of the series, which began in 1967.


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