February 10 2010
International Forecaster Weekly |
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Summary: The threat of an inflationary depression around the world, metals will survive, currencies will not, Banks holding most of US deposits are broke, Paul Volcker would be a better chairman of the Fed, we need Glass-Steagall back, your deposits bailed out the bankers, nothing anyone can do for Greece, numbers and analysis from the Household Survey.
The inflationary depression still dominates and probably will continue to do so. In time the stimulus will fail to work and the world will slip into total insolvency and deflationary depression. The old M3 is about 3%, but we still have $23.7 trillion floating around. Not only is the US bankrupt, but also so is the rest of the world. It is now only a question of when the dominos will fall. It looks like the first wave in the collapse of the bear market rally is underway. Bonds will follow with higher interest rates and eventually commodities will be hit. Only gold and silver will survive, as the bankers and Wall Street complete their destruction of the world economy.
Holding currencies is also a loser. Eventually the best will fall to gold and silver. There is no possibility that quantitative easing can be curtailed and that means debt will continue to grow exponentially. By way of example in 2007 public debt as a percentage of GDP was 62% and this year it will be 94%; in England 44% to 82%; in the G-20 62% to 85%; in Europe an average of 63% to 85%, excepting Italy at 104% to 120%, and in Japan 188% to 227%. Over the next two years some of these nations are going to default, never mind Ireland, Greece, Portugal, Spain and Eastern Baltic Europe, which are well on the way to being basket cases. Due to current economic conditions these nations cannot generate revenue sufficient to even pay the service on the debt. Revenues are off 11% in the US and they are headed lower. In the President’s budget $100 billion is earmarked for incentives for job creation and $25 billion for the states that are generally incapable of even paying unemployment compensation. Forty states are on the edge of bankruptcy. The President wants to double the aid to education in a totally failed system. Governmental debt is growing at a rate of more than 20%. Then we can pencil in the bailout programs and the bankruptcy of Fannie Mae, Freddie Mac, Ginnie Mae, FHA, AIG and GM. The 19 major banks are still insolvent. They are all keeping two sets of books and mark-to- model, not to market. That means their assets are worth what they say they are. The collapse of the credit crisis is still underway. All the kings’ horses and all the kings’ men cannot put America back together again.
As we have often said the turning point for the dollar and the American economy was on 8/15/71, when the US abandoned the gold standard. That was followed by de-industrialization, free trade, globalization, offshoring and outsourcing, which ripped the industrial heart of America, sending our companies and jobs to foreign lands, so that transnational conglomerates could be, enriched tax-free. The result since 1972, due to inflation, is that two incomes per family are needed to financially survive. A very sad commentary, and the direct result of the actions of government, Wall Street and banking. They ended sound money and gave us corporatist socialism, also known as fascism. The result is presently inflationary depression. The value of our homes have fallen 50% and many are buried in debt. If that wasn’t enough, Congress increased the short-term debt limit this week, adding an additional $45,000 to the debt of every American. We are told by government and Wall Street there is very little inflation when in fact it is double what government says it is.
Ten banks control 70% of US deposits and they are all broke. The FDIC has $93 billion. 2,055 banks are in serious trouble. If 1,000 go under the cost would be $500 billion. The banks have already paid the FDIC fees due over the next three years. The FDIC does have a $500 billion line of credit with the Treasury and we wonder if government dares use it. Of course the banking cartel – monopoly – the Federal Reserve can always print more money and inflate the debt away.
Sources in Washington tell us the administration expects Congress to pass another $150 billion stimulus plan to augment the new budget. That should carry the economy through the election. It is not the $500 billion the White House had in mind, but it is what they will have to work with. Incidentally, half of what government spends is borrowed.
We have warned you before to exit municipal bonds. You are looking at massive unfunded liabilities. These entities have no ability to repay debt under the circumstances.
Southern and Eastern European debt markets have sent currency, bond and stock markets reeling for the past month. The dollar rally was anticipated by insiders like Goldman Sachs, JP Morgan Chase and Citigroup in their massive long dollar positions. China overdid their stimulus plan of a net $2.2 trillion in the short space of ten months. They now have bubbles in stocks and real estate that will cause real domestic problems. The yen carry trade is close to over, but how big is the dollar carry trade? Have these traders created too much liquidity? We do not know, but we would guess the dollar carry trade is not nearly as large as some believe it is. Corporations are talking about higher profits due to a surging dollar. We doubt that, and we ask how much will US exports be hurt and as a result how much worse will our balance of payments become? It seems like professionals in the bond markets worldwide are mesmerized and are accepting dangerously lower yields just to play the game - that can become a very dangerous one. They think nothing bad could possibly happen, when the debt bomb is so obvious. Junk is junk no matter how you cut it. Even in the so-called better quality issues the 5-year US T-note is yielding 2.15% and the 10s are 3.58%. With inflation in the real world over 7% why would any informed sane investor reach for such losers – never mind the junk? We are in a dead zone and shortly inflation is going to surge again. Oil will move higher, as will commodities. Gold and silver are as well posed to test their old recent highs. The world’s financial problems are not going to go away anytime soon and that is why you have to be in gold and silver related assets.
This past week gasoline prices fell $0.06 to $2.66 a gallon.
There is much talk about how it would have been better to have Paul Volcker as Chairman of the Fed, but pundits forget they are cut from the same cloth and take orders from the same people. Such a change would have been a waste of time for Americans. Volcker was added to the socialist/Marxist entourage of our President to bolster his image and to show the world that Mr. Obama was going to bash Wall Street and the bankers. Do not hold your breath. They control our President. They put him in office with money stolen from you. He is bought and paid for and you paid the bill. Very little will be done in the matter of what goes on in Wall Street and in banking. They have the world by the throat and will continue to have it in their clutches, unless the system is purged, the Fed is done away with and returned to the Treasury and the revolving door between Wall Street and Washington is shut down.
Nothing will come of Volcker’s bank bashing. That was done to make the liberals and others happy. The elitists like running the country and they are going to keep it that way. The looting of America will continue with all of the leverage and outrageous risk, theft, conflicts of interest and the continuation of a criminal enterprise.
Yes, we need Glass-Steagall back. We can thank Phil Gramm and Larry Summers for that change. Look what it has brought us: the same conditions we had in the 1920s that led to our great depression. There are those in their ivory towers and those on Wall Street, that will tell you it prolonged the depression, which is untrue. The depression continued on because of FDR not purging the system or allowing it to purge itself. It would have meant the bankers and Wall Street would have faced bankruptcy, which should have been what should have taken place. Today we have the very same problem. We have to bailout the bankers again. In neither case did bankers and Wall Street follow the sound principles of risk management and leverage. They used leverage of 30 to 70 times deposits. Is it no wonder the system had a credit crisis. They knew what they were doing in a world where 8 to 10 times was risky and sufficient. They did this basically with your money – your deposits. In fact, in today’s two sets of books system and marking-to-model, they are still trapped into leverage of 40 times deposits. This is why the credit crisis is not over. If it was why would the Fed create money out of thin air, lend it to banks and then receive the funds back and pay the banks a higher interest rate than what they were lending at? That last interest payoff comes out of your profits that should have been given to the Treasury. Glass-Steagall would force banking to constrain leveraged lending and bring order to the system.
U.S. prime jumbo mortgages backing securities at least 60 days late rose to 9.6 percent in January from 9.2 percent in December, the 32nd straight increase for “serious delinquencies,” according to Fitch Ratings.
“The trend line for delinquencies indicates the 10 percent level could be reached as early as next month,” Vincent Barberio, a Fitch managing director in New York, said today in a statement. The rate of non-performing loans almost tripled in 2009.
Jumbo home-loans are larger than government-supported mortgage companies Fannie Mae or Freddie Mac can finance. Their limits now range from $417,000 in most places to as much as $729,750 in high-cost areas.
A state judge on Tuesday ordered the foreclosure sale of the storied Riverton Houses, a middle-class Harlem enclave that ran into trouble a year ago when its new owner failed to make good on optimistic revenue projections and defaulted on his mortgage.
Justice Richard F. Braun of State Supreme Court in Manhattan ordered the sale of the complex at public auction to satisfy the owner’s $240.6 million debt. The complex sits between 135th and 138th Streets, from Fifth Avenue to the Harlem River.
Riverton, like a number of complexes during the real estate boom, was bought for top dollar in 2005 by a company led by the developer Laurence Gluck, who had a plan to increase profits by replacing tenants in rent-stabilized apartments with market-rate tenants.
Emerging market equity funds lost $1.6 billion in weekly withdrawals, the biggest outflows in 24 weeks… EPFR Global said. Investors removed almost $1 billion from global emerging market stock funds in the week.
Treasury Secretary Timothy F. Geithner said the U.S. is in no danger of losing its Aaa debt rating even though the Obama administration has predicted a $1.6 trillion budget deficit in 2010.
“Absolutely not,” Geithner said, when asked in an ABC News interview broadcast yesterday whether a downgrade is a concern. “That will never happen to this country.”
Geithner said investors around the world turn to U.S. Treasury securities and dollar-denominated assets whenever they are worried about global stability. That reflects “basic confidence” in the U.S. and its ability to bounce back from the global recession, he said.
Moody’s Investors Service Inc. last week said the U.S. government’s bond rating will come under pressure in the future unless additional measures are taken to reduce budget deficits projected for the next decade.
There is little if anything for governments and central banks to do at this point regarding Greece and others. So solons are trying to euchre the markets with verbal intervention.
Bailing out PIGS is not the major issue. If the EU does a bailout, it will only be a temporary aid because socialism is collapsing on a global basis due to the enormous, unserviceable debt.
Countries accustomed to the undeserved goodies that socialism promised but delivered on borrowed money do not have the political will to cut the unaffordable spending. So in the near future, the market will force the requisite changes.
At some point the borrowed money train will halt and the goodies will disappear, just like in the USSR.
Over the past year we have recounted numerous times that there has been no restructuring of the US economy or Europe for that matter. All that has been done is that sovereigns have absorbed trillions of dollars in private sector debt and crappy paper and issued trillions of dollars of debt to support more stimuli and crappy paper absorption.
If we have entered a new crisis phase in which sovereign nations have to bailout out other sovereign by issuing more debt, the final crisis stage will occur when the market revolts against the debt of the nations that bailed out other sovereigns. This is checkmate.
The usual suspects trumpeted the better than expected House Survey in the January Employment Report. However, we found an anomaly in the survey that suggests a sloppy book-cooking gambit.
The Household Survey shows an increase of 541k jobs and a gain of 111k in the pool of available workers. This produced the decline to 9.7% in the politically sensitive unemployment rate…Part-time workers increased 252k, which is more than half of the 541k gain. http://www.bls.gov/news.release/empsit.t09.htm
Here’s what makes the Household Survey job gain very suspicious. The entire gain is attributed to one category, ‘Women, 20 years and over’, which increased 529k…’Men, 20+’ declined 1k!
‘Self-employed’ declined 128k; so women weren’t starting businesses. http://www.bls.gov/news.release/empsit.t08.htm
Teenage male jobs (16+) increased 18k. Teenage women jobs declined 5k…“White Women” accounted for 495k of the 529k gain. White men are +31k. http://www.bls.gov/news.release/empsit.t02.htm
The Household Survey increase in jobs is NOT supported by withheld taxes, which show a 7.2% decline for January. Tax data measure real money going into workers’ hands.
The Household Survey’s highly improbable increase in only female employment suggests faulty methodology (malfeasance), some unqualified adjustment or a clumsy attempt to craft a better employment report for political expediency (fraud). The reasonable conclusion is the Household Survey job gain in January is bogus.
Please note the in the Household Survey people are counted as employed even if they received no income or had sustained absences from work. You can imagine what ‘personal reasons’ does to the data.
One last concern about the Household Survey in January Employment Report, from the lips of the BLS: Also, household survey data for January 2010 reflect updated population estimates…The change in population reflected in the new estimates results primarily from adjustments for net international migration, updated vital statistics and other information, and some methodological changes in the estimation process.
The BLS claims that the ‘population control’ adjustment reduced the Household Survey by 243k. This means that without the new adjustment 784k jobs would’ve appeared. If 529k job growth is dubious by tax data, January job growth of 784k would be side-splitting.
The BLS admits that December 2009 Household jobs have to be lowered by 243k…Ya think the BLS is doing this to confuse or frustrate people?
The NFP benchmark revision was -930k for the year ended last March; 824k was expected.
December NFP was revised sharply lower, to -150k from -85k; and the past five months through December were revised 245k lower! Yet there are pundits calling the January Employment Report ‘good’. Some wrote that the report confirms the positive trend in employment!
Once again, we see the trend of revising past month economic data lower. This has been occurring for the past few years. You’d think more people would inveigh against the scheme.
The U6 unemployment rate, which incorporates part-time for economic reasons and discouraged workers declined sharply from 17.3% to 16.5%. Non-agriculture ‘Part-time for economic reasons’ declined 962k. Where’d they go? If you have not looked for a job in the past 12 months, you become a non- person to the BLS and disappear from the U6. http://www.bls.gov/news.release/empsit.t08.htm
Further stimulus or jobs programs are anathema for most politicians because recent polls show the number issue is no longer jobs; it’s the budget deficit/debt.
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