International Forecaster Weekly

Relief Rallies Are Never Made To Last

In the relief rally much like the great depression long before, Big spike in NY state bankruptcies, healthcare reform will improve our quality of life, Government cannot create recovery and wealth, bureaucrats of the economy are working against the public, dollar rallies will be hailed as recovery, retail sales declining 21 percent at one place we know of, Madoff victims still battle for compensation,

Bob Chapman | August 26, 2009

Since March we have watched a stock market rally borne by low volume and short covering. The gains are reminiscent of the rallies of 1930 and 1932. What you are witnessing is a rally engineered by our government. If you watch the tape and you can read it you can see exactly what they are doing, and how they are doing it. Yes, it is legal under an Executive Order singed by President Ronald Reagan in the aftermath of the October 19th, 1997 collapse of the stock market. It was named the “Working Group on Financial Markets” and was to be used for such emergencies. Unfortunately, like many things in government, the mission of the “Plunge Protection Team” has been distorted. For over the last more than ten years it has been used to manipulate markets 24/7. Thus, what you are witnessing is a sucker rally, which has little hope of lasting.

What do you do with a market that has a trailing P/E of 24 times earnings? You stay as far away from it as possible.

Now that the stimulus has exhausted itself consumption is falling more rapidly, bills are being paid off and many have taken to saving again. If consumption cannot hold its own or increase during a large stimulus, when can it then? In other words how bad would the drop in GDP been if there had been no stimulus?

America is in a depression not a severe recession. If it were not, why would the Fed and our Treasury Department commit us for $23.7 trillion, and why would our entire financial industry have to be bailed out? Along with this fiat solution comes the political goals of corporatist fascism. Taken away have been the natural solution of growth within the private sector and the purging of excesses within the system. Those arguments are only heard on the Internet and talk radio. The people who our President wants to put on terrorist lists, or better yet has probably already put on terrorist lists, as you and me who speak up and demand our rights.

Our government for the past 20 years has been the most corrupt in American history. This is in your face corruption in banking, Wall Street, corporate America, in our congress and Senate and among our bureaucrats. Our legislation is written in secret by special interests and passed with very few even having read the legislation.

Then we have the change our President and his masters have planned for us. A health reform plan that rations healthcare, Health benefits and procedures will be made by bureaucrats. Everyone will carry a National Health Card ID that will contain your health records as well as federal access to very financial holdings. You will also get to subsidize union health plans and community organizer health plans, such as those of ACORN. Our new  Government will be free of judicial review and price fixing. The government will set wages in the healthcare industry including those for doctors.

Insurance is mandatory and your employer will pay for it if he stays in business. Medicaid will be reduced as will services for the old and chronically ill. All doctors would be paid the same no matter what their specialty, training and experience. Hospital doctors will be penalized for what the government deems preventable re-admission. Government will prepare your taxes prior to death as they provide an approved list of end of life resources, to help guide you to your demise. If you do not take your own life government will arrange it for you. The list goes on and on. This is the same list used in Nazi Germany.

Government cannot create recovery and wealth. The insistence of the fed of massive injections of money and credit only eventually destroys wealth and capital. Such devices demand more taxes at a time when unemployment is rising, and tax revenues are falling; yet, debt is rising exponentially. We have a cadre of elitist banks, Wall Street firms, insurance companies and transnational corporations that will never be allowed to fail. Each time they use leverage and gamble and lose you will get to pay for it, on a never-ending basis. This is the heart of corporatist fascism. All those not in the elite Illuminist circle will eventually be gobbled up into giant transnational monopolies under world government.

Today’s modus operandi of the Treasury, the Fed, Congress, our President and the faceless bureaucrats from the Council on Foreign relations, Trilateral Commission and the Bilderberg Group is to debase our currency and other currencies as well and to increase unemployment, reduce income and stop capital formation. Whatever is left over will be confiscated from Americans, because the Illuminists believe that all your wealth belongs to them, because they allowed you to earn it. That is why they are chasing down all the offshore accounts. Once that is completed they will have a financial dossier first on Americans and then everyone in the world. Ultimately all countries will be currency blocked and then they will control all the world’s wealth. Of course, we now have to stop that. We’ll have to remove them from their pedestal. Egalitarianism caused 300,000 Illuminists to lose their heads in the late 1700s in France. History has a way of repeating itself.

The average person now pays about 40% in taxation, direct and indirect. If Health Care Reform and Cap & Trade are passed you can add another 40%. That is 80% Americans. This is exactly what the gang from the CFR has planned for you. That, of course, does not factor in inflation.

We are facing the worst depression in America’s history and perhaps in the last 500 years. Eventually due to higher taxes and less opportunities people will close up businesses and walk away from their jobs. These are the jobs that make the economy work.

How far away is collapse? We just do not know, but a good bet is within three years and perhaps a lot sooner. The trigger will probably be a collapsing dollar or a derivate collapse. Maybe it could be the passage of the HR 1270 to audit and investigate the Fed. When the public discovers what the Fed has been up to there will be thunder and lightning. Could it be that finally the public and professionals will demand front-running Goldman and 15 other Illuminist firms to return the money they have stolen? As you can see the media has buried the story. This gives you an idea of the shape of things to come. Get ready for hard times and protect your wealth in gold and silver related assets.

Many believe that global reflation and recovery chances are getting greater and that the American consumer is about to ride to the rescue. We do not know what US economy they are looking at, but it is not the same one we are. Unemployment continues to rise. Consumers are paying off debt and consumer buying continues to fall. What can they be missing here? The psychology of the public changed two years ago and it is still going in the same direction. Just because there is global reflation it doesn’t mean consumers will take the bait and buy. The Fed and many other central banks may be coordinating reflation but it doesn’t mean banks will lend and consumers will buy.

We hear a dollar rally will bring back American and world confidence. We just had a dollar rally to 89.5 and it evaporated. As we write it is 78.07 not only having great difficulty rallying back past 80, but government intervention had to save it last Friday as it tested the 77.50 area. At the same time budget deficits get larger and larger and the fed cannot print money and credit fast enough. Right now debt issuance is being secretly purchased by the Fed and all the central banks know it. These are not formulas for success, but for hyperinflation.

We ask over and over again how is it that the major policymakers and top economists at the BIS, Bank for International Settlements, the bankers bank, in Basel (Bale) Switzerland, said the US and world finance were headed for very serious trouble, but yet the BIS and the central banks rejected their admonitions? The reason is the bankers knew the US and world economies were being deliberately destroyed in order to force the world’s population to accept world government.

These economists and analysts have been proved correct but a power greater than the BIS was pulling the strings. Obviously having the biggest failure since 1930 doesn’t concern the BIS or its masters.

Fifty-five central banks own the BIS and every two months they journey to the Basel headquarters near the German border to discuss direction, drink the world’s best wines and to eat the best cuisine. Then there is the BIS’s privately owned country club and tennis accommodations. This is why the BIS is called the “Vatican of Finance.” All meetings are in secret and nothing is ever divulged. It is a stock cooperation and once was publicly traded until they forced sale of the shares owned by the public. Needless to say, they tried to screw the shareholders on the buyback.

The BIS pays no taxes and it’s members and employees enjoy extensive immunity. The BIS is totally a secret cabal of bankers. It manages 4% of the world’s currency reserves and 120 tons of gold. They set interest rates as well. What a sweet racket.

It should have been obvious to many economists that what Greenspan did during the 1990s creating the boom and then their real estate bubble that he was leading America toward financial trouble. The management of the BIS and those 55 central bankers had to know these were the wrong things to do, as the BIS professional staff was saying you are doing the wrong thing.

The BIS even published a report in 2003 warning buyers about collateralized debt obligations and the incestuous ratings of the rating services with Wall Street. The warnings were deliberately ignored. Since Ben Bernanke has taken over it’s been more of the same. Whatever they do it is over. We will have our deflationary depression and more war and the world public will stumble to their demise.

AMG data reports equity fund outflows were $1.1 billion for the week ended 8/19 versus inflows of $391 million the prior week.

July existing home sales were better, but this is the center of the home buying season, much Fed money has been poured into the economy including an $8,000 first time buyer tax credit. Single family homes sold fell 5,000 units, as Northeast condo sales rose.

The big problems are fewer and fewer qualified buyers and massive inventory, which grow every day, plus all the houses lenders haven’t even listed yet. First-time buyers and foreclosures, short sale buyers, the distressed investors, represent 61% of the estimated July sales. The $8,000 incentive is similar to the Cash for Clunkers. It just takes sales away from the future. The home selling season peaked this month. Then you have the foreclosure flippers, who if they cannot get a buyer have to rent the dwelling out. The problem is the rental market is loaded with inventory as well. The percentage of properties in foreclosure or delinquency has hit a high of 13.2% of all single-family mortgages. Making matters worse is that there has been a steady jump in foreclosures in prime mortgages and FHA insured mortgages most of which are the result of a resumption of subprime lending 1-1/2 years ago. The Fed trying to put a floor under the market will end up being a loser to be added to their long list of fascist policies.

Philadelphia has unveiled its worst service cuts since 1951. Eliminated will be 929 police officers, 120 firefighters, 520 recreation positions, 490 library staff and 112 health workers.

Last week saw the Dow up 2% and the S&P 2.2%. The Russell 2000s, up 3.1% and Nasdaq was up 1.6%. Banks gained 2.8%; broker/dealers 1.2%; cyclicals 1.5%; transports 1.7%; consumers 3%; utilities 2%; high tech 1.7%; semis 2.3%; Internets 1.6% and biotechs 2.4%. Gold bullion rose $5.60 and the HUI added 0.3%. The USDX fell 1% to 78.07.

Total commercial paper out jumped $35.9 billion to $1.111 trillion. CP has declined $571 billion ytd, or 54% annualized. Asset backed CP fell $6.2 billion, with a 52-weekdrop of $334 billion.

The federal government is casting more broadly as it seeks buyers for a growing number of failed banks, including entertaining bids from foreign firms and seeking to attract new investors to the industry by easing restrictions.

The results were on display Friday, as regulators seized Guaranty Bank of Texas and immediately sold its branches, deposits and most of its assets to Spain's Banco Bilbao Vizcaya Argentaria.

The failure of Guaranty, with $13 billion in loans and other assets, was the 10th-largest in U.S. history and the fourth-largest since the financial crisis began last year.

The greatest threat to that process is the dwindling supply of buyers. Guaranty is the 106th bank to fail since the beginning of 2008, and some healthy banks have sated their appetites for acquisitions. Regulators liquidated a Nevada bank last week after failing to find a buyer.

The sale of Guaranty to BBVA is the first to a foreign buyer during this crisis. The Federal Deposit Insurance Corp., which sells failed banks, also is considering rules that would make it easier for private investors to participate in the bidding, which is generally restricted to healthy banks. The agency already sold BankUnited of Florida to private investors in May.

Guaranty Bank, based in Austin, has its roots in the nation's previous banking crisis, the savings-and-loan failures of the late 1980s. The company was created from the pieces of several troubled Texas savings and loans, and then later expanded into California.

Guaranty's troubles stemmed mostly from its mortgage lending business. The bank made billions of dollars in high-risk mortgage loans in booming markets such as California and Florida, and it invested billions more in loans made by other companies. Spiraling losses ate through the company's capital cushion, leading it to issue a highly unusual public prediction earlier this month that it would be seized by regulators.

The failure of Guaranty is another black mark against the Office of Thrift Supervision, the federal agency that regulates banks specialized in mortgage lending. Most of the largest firms to fail during the current crisis were regulated by the OTS, including Washington Mutual, IndyMac Bancorp and now Guaranty. As with the other OTS failures, Guaranty's troubles derived in large part from the sale of "option ARM" mortgages, adjustable-rate loans that were specifically structured to allow people to borrow more money than they could afford.

Option ARM loans made up about one-third of Guaranty's portfolio of mortgage loans, according to the company's financial disclosures.

Financial analysts considered it only a matter of time until a foreign bank would prevail in the bidding for a failed U.S. bank. Several foreign banks have large footholds in the United States, including HSBC, Toronto-Dominion and the Royal Bank of Scotland, which owns Citizens Bank. Toronto-Dominion has made bids for failed banks through its U.S. subsidiary, TD Bank, but analysts said many foreign banks have been preoccupied healing their own wounds.

BBVA and its major Spanish rival, Banco Santander, are notable exceptions. Spain's unusually stringent banking regulations kept both banks relatively healthy, and they have emerged from the crisis looking to expand. Santander bought struggling Sovereign Bank last fall.

BBVA expanded its U.S. presence with its $9.6 billion purchase of Compass Bancshares in 2007, giving the company almost 600 branches from Alabama to New Mexico. The Guaranty deal gives the company more than 150 additional branches split between Texas and California.

The company also owns the largest bank in Mexico, Bancomer.

AnnTaylor Stores Corp., the retailer of women's business attire, reported a 21 percent drop in revenue in the second quarter and forecast continued pressure on sales this year.

Sales at locations open at least one year declined 22.5 percent. Comparable-store sales at Ann Taylor stores plummeted 38 percent, while those at Loft dropped 15.4 percent.

Manufacturing employment in the U.S. peaked in June 1979 with 19,553,000 jobs and by July of this year manufacturing employment had fallen to 11,817,000, the lowest level of manufacturing jobs since April 1941 (see chart above).

As a percent of the total labor force, manufacturing employment fell below 9% in the lowest level in BLS history (back to 1939).

The number of New Yorkers filing bankruptcy has spiked 21 percent in the first half of 2009 -- a clear indication that the still weak job market will continue to hamper a consumer spending revival and weaken the recovery now underway.

In all, 22,014 persons throughout the state were forced to seek court-protected safety after running up too much debt -- some were forced to file after attempting for years to right their fiscal situation on their own, which shows just how stubborn this recession is.

Angry victims of Bernie Madoff opened up a new front last week in their battle to regain some of the $65 billion lost to the epic Ponzi schemer -- they are demanding an elite investment bank fork over as much as $7.5 million in fees it pocketed after handing over their cash to one of the fraudster's giant feeder funds.

The investors claim Standard Chartered Bank blindly handed over the funds to Walter Noel's Fairfield Sentry fund and then collected the fees on "phantom valuations," provided by Madoff. The demand for the return of fees, which came in a lawsuit filed in Miami this month, is the first time victims have lashed out at investment bank fees.

"It is our view that this case is indisputable," said Scott Dimond, the lawyer representing the victims. "We are not seeking the return of the principle investment here, we simply believe that Standard Chartered should not have been collecting fees for investing in assets that did not exist."

Dimond estimates that Standard Chartered, which bought the international banking arm of American Express for $823 million last year, placed about $300 million of its clients' cash with Fairfield Sentry that was in turn invested in Madoff's Ponzi scheme.

Standard Chartered declined to comment on the lawsuit.

If the Miami case succeeds it could be the start of a slew of lawsuits against Standard Chartered and other investment banks that charged their clients fees for investing with Madoff.

Jake Zamansky, a New York securities lawyer, claims to have amassed a group of additional former Standard customers who want to sue the bank for the money they lost and for the fees they paid.

In the depths of the recession, the tiniest private firms accounted for a disproportionate share of the job losses, the Labor Department said. Companies that employed fewer than five workers -- where 5.1% of the private-sector work force is employed -- accounted for 14.5% of the job losses in the fourth quarter of 2008.

The ruins of Washington Mutual’s aggressive and unorthodox growth strategy is no more apparent than in the Windy City, where roughly 75% of the bankrupt bank’s branches have gone dark.  It’s a stark harbinger of what looms ahead for recession-battered retail real estate. A growing number of vacant branches being dumped on the market due to mergers and Chapter 11 filings are poised to push vacancy rates higher and exacerbate weak property values.

Nationally, 29% of adults believe economic conditions in the U.S. are getting better while 46% say they are getting worse.

The Rasmussen Investor Index, which measures the economic confidence of investors on a daily basis, dropped a point on Sunday to 85.6. While the index is down three points over the past week, it is up 17 points over the past month. Investor confidence is now up 23 points from the beginning of the year. Among investors, 34% say economic conditions are improving and 41% say they are getting worse.

The inventory of unsold homes on the market increased to 4.1 million, from 3.8 million, a 9.4-month supply at the current sales pace, unchanged from June…Is this data a sign of economic recovery?

To be sure, the stock market and smart money often try to anticipate recoveries long before they are evident in the numbers.

But a “relief rally” — that is, the exuberance that accompanied the fact that our economy appears to have avoided another Great Depression — won’t have the same staying power as a move based on solidly improving operations. So understanding what’s going on in banks’ financial statements is worthwhile.

Unfortunately, that assessment shows that the number of financially sound banks is declining and that the ranks of troubled institutions are growing. Indeed, Mr. Whalen said his figures show more stress in the banking industry in the second quarter of 2009 than in the immediately previous periods.

For example, Institutional Risk Analytics gave 4,234 banks a rating of A+ or A (as a measure of their financial soundness) as of June 30. That total was down 21 percent from the end of March and 25 percent from the end of 2008. Meanwhile, it slapped a failing grade on 1,882 banks as of June 30, up 16.5 percent from the end of March; the number with failing grades had dropped a bit in the first quarter.

This downward migration is a sign that more banks are now feeling the effects of economic conditions regardless of their business models, Mr. Whalen said. In other words, even the best-run banks are having trouble escaping the impact of a sluggish economy and high unemployment.