International Forecaster Weekly

The Easy Days Of Wall Street Are Over

zero interest rate mantra, world production fallen drastically, consumer spending fallen off a cliff, how many banks really have problems right now we wonder,  next G20 may end the era of free trade and globalization, hyperinflation is on its way, de-leveraging has dried up bank liquidity, hedge funds live in the Cayman Islands, BVI, and Bermuda, mainstream media not serving the needs of its viewers in how it reports the economy.

Bob Chapman | March 18, 2009

The new mantra for central banks is ‘zero-interest rates’ and an increase of 2% of GDP in money and credit. After this game has spent itself the only room left to maneuver in will be more inflationary increases in money and credit and monetization. Parallel to these actions are exploding budget deficits worldwide.

As a result of this short-term, opportunism stock markets worldwide are suffering, most recently have broken to new lows not seen in years. Earnings are plunging and dividends are being cut to the bone.

It is like someone flipped the switch off and world production came to a standstill. Production has fallen in every country from 9 to 43 percent. That certainly will catch the world’s attention. On February 1st we declared a depression and this is one of the reasons why. The global economy is headed to a shutdown and that should bring free trade and globalization to a halt.

Just as we see, just in time inventory, and production we also see the same in the availability of capital. Companies once had several months’ cash available. That is no longer the case. They borrow for up to 30 days. The result of banks not lending or issuing letters of credit has led to a global credit contraction. The lack of credit is forcing businesses everywhere to shut down.

It won’t be long before inventory is depleted. In fact, it should start to become evident in the second quarter. Supply has put a sign up – out of business. This absence of goods although deflationary will drive prices higher for remaining goods. Food prices are still rising as well. It would be a very good idea to buy what you can now.

Expenditures for fiscal 2009 continue to climb. We had 8 years of disastrous government and now we are headed into at least four more years of the same. A fiscal deficit that was supposed to be $1 trillion is now projected to be $2 trillion, as revenues dip to below that level. If you add in bank and Wall Street bailouts and stimulus you are looking at $4 trillion. That means that Treasury needs $2 trillion more or 50% more than it has in revenue. That is a 32% increase in spending. During the 1930s deficit spending increased 45%, that didn’t work, and we have now just begun the spending.

Personal savings have just risen from 2.5% to 5% in just three months to the highest in 13 years, or some $550 billion. Overall consumer spending is off close to 5%. They have fallen off a cliff. That is the biggest yearly drop in over 60 years. The government officially admits to a 6.2% fall in GDP, the worst fall in 25 years. If government cannot get people to borrow or banks won’t lend then government will have to spend, as they are to keep the economy from falling into deflation. While this passes our president wants to raise taxes on the wealthy. We do not know that is such a good idea at this juncture. In time government spending won’t work and we’ll fall into a deflationary depression. First though, we will go through an inflationary cycle. Government borrowing and stimulus will eventually end in financial and economic collapse. Over the past 21 months government says it will spend about $12 trillion, which is what we projected nine months ago when experts were talking in terms of $1 trillion. Next year that figure will pass $20 trillion.

Companies and financial institutions are going bankrupt and that will continue in a major way. Government tells us that 252 banks have problems. As you know government never tells the truth. What is the real figure 500 or 1,000? We’d guess $500 billion or more will be needed to cover depositors, another burden for the taxpayer to bear.

Another problem is as consumers save more and spend less the economy suffers. That was reflected in the 5.2% fall in January of orders for durable goods, which has fallen six months in a row and 43% in the last three months. We call that depression and free fall.

Needless to say, government’s response is we will fix it, and the result is the situation gets worse. Money is what is being used today to bail out banks, Wall Street, insurance companies, which happen to be not only broke, but an intricate part of the elitist system. The result is socialism for the rich and powerful known as corporate fascism. The public, as a result, become slaves in a new world order. The markets haven’t failed us. The failure has been deliberately by those within the markets who want total control. We are seeing those results today as the state becomes more powerful, by using debt to rescue the fortunes of their funds.

On April 2nd the G-20 meet in London. We believe it will result in the end of free trade and globalization, as we have known it. There can be no pulling back. Subsidies and tariffs are already being raised as currencies are deliberately being devalued. The centerpiece of the talks will be the future role of the dollar and the ultimate move to a world currency. Of course you won’t hear about this in the major media. The best that can happen for the dollar will be a phase in as one of four major reserve currencies, the dollar, ruble, yuan and the euro. America’s illuminists are not going to agree to such an arrangement and that means big trouble for world markets. It is the perfect excuse to dump the dollar and to stop financing its deficit.

One of the downsides in zero interest rates is that depositors are reluctant to be savers, because they are losing buying power. We’ve seen resurgence in the US of savings to about 5% of GDP. But we do not see a move toward 10%. We believe debt will be liquidated more aggressively.

In England we see the Bank of England openly printing and injecting new money into the economy to buy British treasuries. The Swiss National Bank has done the same and we believe the Fed and the Treasury has been secretly doing the same thing.

This, of course, is all monetization and the next episode is hyperinflation, the last stage before collapse. How long will hyperinflation last? We don’t know, but if we had to guess probably two to three years. Printing money and buying bonds is an exercise of last resort. Desperate people doing desperate things. England and the US didn’t have any other choice nor will hundreds of other nations. The Swiss have done it for political reasons and to gain time. The Swiss believe the system will collapse before they have to relinquish secret accounts, and they are right.

As a result of zero interest rates and falling real estate and stock prices people have been drawn into gold and silver related assets to preserve their buying power and preserve their wealth. People no longer believe the promise of government guarantees. Government lies over and over again. People know their governments are insolvent – bankrupt, so why would they want to stay in a failing currency? They know they shouldn’t have to bailout bankrupt banks, Wall Street, insurance companies and a host of others to come. We suspect that the negative results of the G-20 meeting will finally make nations and individuals realize that this is the beginning of the end. One by one, nations will bolt from the Illuminist system and economic and financial warfare will begin. The move this past week by the Swiss could prompt such action. We think the Swiss beat the elitists to the punch. The US and Europe were attempting to destroy the Swiss economy by demanding that they end secrecy. The Swiss have taken the offensive in spite of the fact they are saying they are going to cooperate with other nations regarding secrecy. Next they will probably have their gold sent back from the US.

Part of the reason banks are in real trouble is that de-leveraging has sapped their liquidity. They and hedge funds miscalculated the yen carry trade, which caused the collapse of the world’s financial markets. The derivatives’ bets added to the carnage that we’ve seen over the past year.

8,282 of 9,800 hedge funds operate from the Cayman Islands, which is run by the Queen of England, head of the European “Black Nobility.” We hear lots about Switzerland, but hardly a word about Cayman. The oversight is a joke. The hedge funds operating there do not pay taxes and don’t answer to anyone concerning their derivates and other trading. Most of the rest of the hedgies are located in other former British Colonies. The intertwined banks and hedge funds are the elitists’ foremost instruments of power, to control the financial system, and to loot and devastate the public.

In the Caymans there are no regulatory restrictions on investment policies or strategies. There is no capital gains tax or income tax on profits of funds. It takes 2 to 5 days to get approved and costs $3,600.00 in total fees. All information is kept secret. These funds currently hold about $1.4 trillion. This is the 4th largest banking system in the world behind the US, Japan and the UK. The US has over 300 million inhabitants and Cayman has 56,000. It is the epicenter for globalization and financial warfare.

Those running this operation that so few know about are Stuart Duncan Jack, Knight Commander of the Royal Victorian Order. Timothy Redley, Order of the British Empire, Warren Coats who was with the IMF for 26 years and was used by the US to be an advisor to Iraq and Afghanistan on rebuilding, which was a disaster. Richard Rahnk, member of the Mount Pelerin Society, the Black Nobility’s coordinating center for deregulation and elimination of the nation-state and world government, and head of the center for economic growth. This center is an offshoot of the Freedom Works Foundation, a neocon offshoot, run by C. Boyden Gray, heir to the Reynolds Tobacco fortune and also on board is none other than Dick Armey (D-TX. There are over 2,000 hedge funds in the British Virgin Islands and over 500 in Bermuda.

These internationalists and hedge funds are the dominant forces behind the yen and Swiss-franc carry trades. All the carnage caused by de-leveraging last year has been caused by these hedge funds. Both traders provided an enormous source of liquidity for derivatives and leveraged financial bets. These funds have been responsible for 50% of the transactions in London and on the NYSE.

Hedge funds are being used to shelter hot money flows, launder drug money and shelter taxes. These are the people who are destroying the financial system. Any wonder derivatives are worth over $600 trillion. This is how the Illuminists are preserving their system and control. This time we believe they have taken matters a step too far.

As we pointed out over the past few months’ non-financial credit is at 6.3% in the 4th quarter. That is off from 8.1% in the prior quarter. This supply barely forestalls systemic implosion. It took the federal government a 37% expansion in borrowing to just keep the ship afloat.

You might ask how can the system show a 1.9% compensation in the 4th quarter and national income up 1.5% in a recession?

Financial sector debt grew from 6.8% to 7.2% in the 4th quarter, as ABS contracted $616 billion. This was accomplished by increasing US Treasuries by $1,239 trillion, or 24.3% and GSE debt and MBS jumped $716 billion, or 9.6%. Federal and quasi-federal securities grew $1.955 trillion in just one year.

Broker/Dealer assets on Wall Street fell $785 billion in the fourth quarter in part caused by the Lehman and Merrill Lynch reclassifications of assets. On the B/D, assets fell $875 billion, or 28% to $2.217 trillion.

For 2008, Agency debt rose 9% to $3.459 trillion, or 29%. Combined with Treasury’s two-year debt issuance of $1.4777 trillion, it leaves an incredible 2-year federal government issuance of $3.190 trillion. At the Fed total assets expanded by a new record $729 billion during the quarter to $2.270 trillion with one-year growth of 139%. This can’t continue indefinitely. As you can see the economy requires massive ongoing increasing credit creation.

The explosion of money and credit will soon spur runaway inflation in spite of total household assets falling a record $5.419 trillion, or 31% annualized, to $65.719 trillion. Financial assets fell $4.537 trillion to $40.814 trillion. Real estate fell a record $871 billion to $20.512 trillion. Household net worth fell a record $5.110 trillion during the quarter to $20.512 trillion. For the year, they collapsed $11.30 trillion, or 14.7%. On the year $11.213 trillion of household net worth disappeared. This wipes out twice the net worth gained from 2003 through 2006.

The nation was saved temporarily from financial collapse as investors added $724 billion to money market funds, up 24% yoy. The government may have stabilized the situation for now by underpinning wages and incomes, but they have been unable to rejuvenate deflating assets. What the Fed and the treasury have done has trapped themselves in a massive inflation of government obligations, which can only end in credit inflation. It is now only a matter of time before the Treasury and the Fed admit they have been monetizing debt. When that happens foreign creditors will fall away and the economy and the stock market will fall further.

Debt begetting more debt is a poor prescription for sustainable long-term growth. All it does is extend the time line for collapse and in the long run the policy is doomed. There is nothing on the horizon that we can see that will generate sufficient tax revenue to pay for government spending and in fact the administration wants to raise taxes that will further retard recovery. We need real economic demand and it isn’t going to happen until the system is purged. What we are seeing is political reality colliding with economic reality. U6 unemployment is already 17.8% and will be over 22% by the end of the year. In 2009, it will range from 25% to 35% dependent on how much the stimulus package helps. We see nothing that contributes to the productive capacity of the economy, only activity in speculation and finance transactions. It is no wonder the Dow is headed to 6,000 and lower.

Growth should be minus 7% to minus 9% of GDP this year. The stimulus will only be a respite in 2010.

This reminds us of the late 1950s and early 1960s. The recent easy days in the markets are over. In order to survive as we did in the 1960s and 1970s, you will have to work very hard and be very smart. The easy days of Wall Street are over. Slow and steady will be the ticket to survival. Once we reach bottom 75% of former brokers and bankers will be gone. We know we have been there. There are very limited opportunities in investment today. Thinking outside the box is where it is at and most Wall Street types are incapable of doing that. They worry about what their peers think of them.

CNBC should be renamed imaginarium clouded in smoke with mirrors. Debt is being destroyed, as massive amounts of money and credit are being pumped into the economy in a futile attempt to save the un-savable. Unemployment is rising exponentially, as manufacturing and exports fall like an avalanche had hit them. The amount of Treasury and Agency bonds being bought by foreigners continues to fall. Bank and brokerage stocks are off 90% and the market over the past 21 months is off more than 50%. Credit spreads have widened to historic levels. The financial industry is imploding, yet in watching CNBC you would think everything was all right. The answer from the get go should have been to let all of these insolvent companies fail and sort out the mess as best we can. All those behind the scenes are doing is delaying the agony. They are subsidizing failure.