International Forecaster Weekly

Fed Threats To The Dollar, Real Threats To Your Life

Fed devalues the dollar, retail remains uncertain, millions to forclosure, delinqencies rise, Fairfax police amok

Bob Chapman | November 21, 2009

October CPI rose 0.3%, up mom from up 0.2%, as inflation moves up again.

October housing starts were 529,000, building permits at 552,000. Starts fell 10.6% to the lowest level in six months.

Aetna will cut another 1,250 jobs.

Mortgage applications fell last week, with demand for home purchase loans dropping to a 12-year low even as interest rates fell to their lowest level in six months. Mortgage apps, for purchase and refi loans fell 2.5%.

The recently extended $8,000 first-time buyer includes those who didn’t own a home in the last three years and added $6,500 for homeowners buying a new residence. They increased income limits as well.

There is now no question that the Fed is in the process of massively devaluing the dollar, which is an insidious and subtle way for them to tax and confiscate your dollar-based wealth. This will lead to a much higher cost of living and diminish purchasing power as foreign imported goods rise in cost. That means higher inflation. That of course leaves the idiots like Gartman and Prechter wrong yet again. This ongoing deliberate dollar devaluation makes bonds, CDs and money market investments sure losers. That is why they have to be sold and switched into gold and silver related assets.

The new GCC unified currency may not be pegged to the dollar, but to a basket of currencies said Al-Watan quoting the finance and foreign ministers of Kuwait.

It turns out the Chinese are kind of curious about how President Barack Obama’s healthcare reform plans would impact America’s huge fiscal deficit. Government officials are using his Asian trip as an opportunity to ask the White House questions.

Detailed questions.

Boilerplate assurances that America won’t default on its debt or inflate the shortfall away are apparently not cutting it. Nor should they, when one owns nearly $2 trillion in assets denominated in the currency of a country about to double its national debt over the next decade.

Over the past several weeks, CDS on sovereign debt have rallied sharply. Investors increasingly fear that the massive amounts of sovereign debt will not be repaid. The following CDS chart on JGBs is alarming. While the surge in CDS on Japanese debt has retrenched over the past week, the CDS on US and UK debt have rallied…Our guess is the market fears another downturn will lead to more stimulus and more governments absorbing crappy paper and risk from the private sector…The last crisis flamed on fears of bank and major corporate solvency. The next crisis could be characterized by sovereign solvency fears.

Saks’ sales at stores open at least a year dropped 10 percent. The retailer reduced its forecast for those sales to a decline in the “high-single digits” in percentage terms for the second half, from a drop of “mid-to-high single digits.” Saks said in a statement it is “cautious about the environment” for next year.

“The current economic and retail environment remain uncertain,” Saks Chairman and Chief Executive Officer Stephen Sadove said on a conference call with investors and analysts. “It’s a fragile period for everyone in this industry.”

Mortgage loan delinquency (the ratio of borrowers 60 or more days past due) increased for the 11th straight quarter, hitting an all-time national average high of 6.25 percent for the third quarter of 2009. This statistic is traditionally seen as a precursor to foreclosure and increased 7.57 percent from the previous quarter's 5.81 percent average.

The Federal Reserve Bank of New York caved in to demands by American International Group Inc.'s trading partners that they be paid in full for complex securities they had insured with the company, saving some of the world's biggest banks from potentially large losses, according to a government audit.

The audit, which was conducted by the special inspector general for the Troubled Asset Relief Program, faulted the New York Fed for not using its leverage as the regulator of some of these banks to get them to accept lower prices for more than $60 billion in credit-market bets, which were tied to souring mortgage-linked securities that had fallen in value.

The banks that were paid off in full included Goldman Sachs Group Inc., Merrill Lynch and large French banks Société Générale and Calyon, the investment bank unit of Credit Agricole Group, which were represented by the French bank regulator in negotiations with the New York Fed last November, the report said.

Goldman Sachs on Tuesday apologized for its role in the financial crisis and pledged $500m – or about 2.3 per cent of its estimated bonus and salary pool for

2009 – over five years to help 10,000 small businesses across the US recover from the recession.

The moves come as Goldman tries to defuse a political and public backlash at its plans to share billions of dollars among top dealmakers…

Lloyd Blankfein, Goldman’s chief executive, told a corporate conference in New York that the bank regretted taking part in the cheap credit boom that fuelled the pre-crisis bubble. “We participated in things that were clearly wrong and have reason to regret,” Mr Blankfein said. “We apologize.”

What was Al Capone’s motivation for staging soup kitchens during The Great Depression?

Mint calculates that 5% of US taxpayers account for 60.6% of all tax revenue; and 46.9% will pay no federal taxes in 2009. We will eschew social and political commentary on the above tax story because we want to emphasize the point that the concentration of taxpayers means that any economic or financial woes that befall on the small percent of actual taxpayers will have profound budgetary ramifications for the US.

More than 1 million people will run out of unemployment benefits in January unless Congress quickly extends federal emergency aid, a nonprofit group said Wednesday.

Congress on Nov. 6 extended coverage for the fourth time since the recession began, granting 14 to 20 more weeks to try to keep about 1.3 million people who have been jobless for well over a year from running out of benefits before the end of 2009.

About 7 million properties are destined to go into foreclosure, according to a September study by Amherst Securities Group, compared with 1.27 million properties in early 2005.

A new study finds three-fourths of the young males in the United States are unfit to serve in the military.

Around 90 retired officers put a report together called "Ready, Willing and Unable to Serve." The report finds most young men in the country cannot serve because of obesity, poor health or education, or criminal records.

The CBO’s claim that Harry Reid’s (Senate Leader) healthcare bill will total $849B over ten years is already under attack because a cursory reading of the bill shows that though taxes are tallied for 10 years, the CBO only counts seven years of healthcare expenses. This is how the CBO truncated over $200B from the initial estimate. The CBO’s reputation should now recede to the level of the BLS.

The House Financial Services Committee has approved Rep. Ron Paul’s measure to drastically expand the government’s power to audit the Federal Reserve. 

The measure, based on a Paul proposal that has attracted more than 300 co-sponsors, passed, 43-26, as an amendment to a financial reform bill. Florida Democrat and fellow Fed critic Alan Grayson co-sponsored the amendment with Paul and played a leading role drumming up support for it among committee members. The adoption of this amendment is an extraordinary victory for Paul, whose libertarian, anti-Fed leanings have often been dismissed by the political establishment. 

The amendment would give the Government Accountability Office much greater to audit the Federal Reserve, which has a long history of independence from congressional audits. Paul and Grayson beat out a competing measure offered by Rep. Mel Watt (D-N.C.), who after weeks of negotiations with the pair felt their measure would threaten the Fed’s monetary policy. 

Grayson, however, told POLITICO in an interview that Watt’s amendment would add more restrictions on the GAO’s ability to audit the Fed, not less. “And there’s a crying need to expand it because the Federal Reserve has completely changed the way it’s done business since a year and a half ago.” 

The House Financial Services Committee will vote on approving the underlying bill after Thanksgiving recess.

The number of Americans filing claims for unemployment benefits held at a 10-month low last week, a sign firings are letting up as the economy recovers. Initial jobless claims were unchanged at 505,000 in the week ended Nov. 14, in line with the median forecast of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The number of people collecting unemployment insurance dropped in the prior week, while those getting extended payments jumped.

The loss of 7.3 million jobs since the recession began in December 2007, the biggest drop of any postwar economic slump, makes an acceleration in firings less likely as consumers begin to spend. A rebound in hiring may take longer to develop as companies have ample room to boost hours for current employees before taking on additional staff.

Job losses are moderating, Joel Naroff, chief economist at Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report. Even so, businesses have some room to expand without hiring lots of new employees.

Jobless claims were estimated to increase to 504,000 from 502,000 initially reported for the prior week, according to the median forecast of 42 economists in a Bloomberg News survey. Estimates ranged from 485,000 to 550,000.

Due to the U.S. Thanksgiving holiday on Nov. 26, the Labor Department said it will issue the next claims report on Nov. 25.

Bank of America Corp. plans to sell $460 million of securities backed by commercial real estate without relying on a US program to aid lending, three days after the first sale of the debt in more than a year.

Backed by mortgages on office and industrial properties in Florida, the bonds are split into four portions, the largest of which is $350 million of top-rated debt, according to people familiar with the matter. Fortress Investment Group LLC is the sponsor on the transaction.

The offering follows the sale from Developers Diversified Realty Corp. on Monday, the first issue of commercial-mortgage backed securities since June 2008, according to data compiled by Bloomberg. The Developers Diversified bonds were sold through the Federal Reserve’s Term Asset-Backed Securities Loan Facility. Most investors paid cash for the Ohio-based company’s debt rather than take loans from the Fed, according to data from the central bank.

In addition to mortgages, the Bank of America bond is backed by fiber optic cable leases and other assets, said the people, who declined to be identified because terms are private.

The government has made reviving the $700 billion commercial-mortgage bond market a priority as plunging property values and a pullback in lending threaten to derail an economic recovery. US commercial real estate prices are down 42.9 percent from the October 2007 peaks, Moody’s Investors Service said.

Investors can take out loans from the Fed’s TALF to purchase AAA bonds, enabling them to boost returns with borrowed cash. TALF was started in March to revive the market for bonds backed by consumer and small business loans, and expanded to newly issued commercial-mortgage bonds in June.

A spokeswoman for Bank of America, the biggest US lender, didn’t return a telephone call for comment.

The struggling Internet company AOL plans to shed up to 2,500 jobs - more than a third of its workforce - as it prepares to separate from Time Warner and sever their ill-fated marriage.

Major job cuts seemed certain after Time Warner said last week that AOL would take $200 million in charges for severance and other restructuring-related costs. But the magnitude was not known until yesterday.

AOL, which has already pared thousands of workers in recent years and now employs about 6,900, is asking for volunteers to accept buyouts.

UAL Corp., US Airways Group Inc., and eight other companies paid executives $350 million in the five years before the United States was forced to take over their underfunded employee pension plans, a government report said.

One airline company missed $979 million in required pension contributions while its top three executives took $55.5 million in compensation, and another paid four executives $120.4 million amid two bankruptcies, a Government Accountability Office report found yesterday. Data including dates of the pension terminations, stock awards, and pay levels show the unnamed companies were UAL, the parent of United Airlines, and US Airways.

Benefits to retirees were cut in some cases by as much as two-thirds, as executives got salary increases, stock awards, retention bonuses, and other pay, the GAO said in a report that studied pension takeovers from 2002 through 2005.

Representative George Miller of California is considering legislation that will freeze executive compensation if a company’s rank-and-file pension plan becomes significantly underfunded.

“It is fundamentally wrong that executives were able to line their pockets with millions of dollars from bonuses, stock options, and free joyrides on corporate jets, while watching their workers’ retirement security slip into peril,’’ Miller, a Democrat and chairman of the House Education and Labor Committee, said in an e-mail.

The GAO, the congressional watchdog agency, looked at the compensation for executives at 10 of the country’s largest companies that turned their pensions over to the government in the past decade.

The Federal Reserve's latest weekly money supply report Thursday shows seasonally adjusted M1 rose by $22.9 billion to $1.719 trillion, while M2 rose $1.6 billion to $8.389 trillion.

More than 14 percent of borrowers were in trouble on their mortgage during the third quarter, a new record, according to an industry survey released Thursday, which also suggests that the foreclosure rate is likely not to peak until next year as unemployment rates continue to rise.

About 9.6 percent of borrowers were delinquent on their mortgage during the third quarter, according to the survey, and another 4.5 percent more were somewhere in the foreclosure process. Overall, about 14 percent of mortgage loans or 7.4 million households were delinquent or in the foreclosure process during the quarter, according to the group.

That is the highest level recorded by the survey, which has been conducted since 1972, and is up from about 10 percent of borrowers who were in trouble during the same period last year.

The majority of the problem remains in the Sun Belt states, such as California and Florida, which accounted for about 43.4 percent of the foreclosures started during the third quarter. Delinquency rates also grew locally.

The number of borrowers delinquent or in foreclosure in the District, for example, rose to 10.3 percent during the third quarter, compared with 7.4 percent during the same period last year. In Virginia, 9.9 percent of borrowers were in trouble with their mortgage compared with 7 percent last year. Maryland has the highest proportion of borrowers in delinquency or foreclosure in the area, 13.9 percent during the third quarter. That is up from 9.2 percent last year.

The foreclosure problem is building despite a massive government program that pays lenders to lower borrowers' payments. The rising foreclosure rate is not surprising, said John Taylor, chief executive of the National Community Reinvestment Coalition, a nonprofit housing group. "It's still disappointing nonetheless. Everyone would like to see a slowdown in this," he said.

LAST FRIDAY, a Fairfax County police officer shot and killed an unarmed man who sat at the wheel of his sport-utility vehicle on Route 1 in heavy traffic just south of the Capital Beltway. It was lunchtime, and there was no shortage of witnesses. Now a week has elapsed, and police have not provided an explanation. What gives?

The man, David A. Masters, had apparently stolen some flowers from a planter outside a local business. Police say that when officers caught up with him, he refused their commands to pull over and stop. Mr. Masters, a 52-year-old cabinet-maker and former Green Beret who suffered from bipolar disorder, had had some previous scrapes with the law, including drunken driving and impersonating a law enforcement officer. But we know of no indication that he had a history of violence. Nor did he own or have a gun.

The police say that there will be no statement explaining why the officer opened fire until criminal and internal investigations are completed, which could take weeks. All three officers involved have been interviewed by investigators, although it seems odd that it took four days to talk to the one who opened fire. The county has not identified that officer.

We understand that police are duty-bound to conduct a thorough inquiry, including interviewing witnesses and examining forensic evidence. It is possible that Mr. Masters acted in a way that seemed threatening to officers -- possibly by opening his jacket, as his former wife said she was told by an officer. But it's difficult to imagine that police would remain all but mum for a week if an ordinary civilian shot someone in broad daylight on a crowded road -- let alone a scenario in which the civilian would be granted four days' leave before consenting to an interview with police. Whatever the case, the police department owes county residents an explanation -- sooner rather than later.