International Forecaster Weekly

Trillions Pumped In And Little to Show For It

Retirement in the worst depression in 60 years, deflation is coming, unemployed face worst odds in over 50 years, IMF specializes in austerity, banks cut lending in anticipation of conditions, Financial Crisis Commission a travesty, a setback for Poland, Florida real estate woes, Greece crisis sparks investor panic,

Bob Chapman | April 14, 2010

Those of you 60 years old and older will spend the next 25 years struggling to survive one of the worst depressions in history or doing whatever you can to support your children and grandchildren.

The move toward eventual deflation is underway. It won’t happen tomorrow, but it is underway. The situation regarding the credit crisis has never been solved, unless you want to keep two sets of books in perpetuity and mark-to-model until the end of time. De-leveraging is in part still in process. The banks have a long way to go. In fact, one has made toxic garbage attractive to banks and bottom fishers. Banks and investment houses as owners and buyers will get taken off the hook by government via loans. This program is supposed to take underwater homeowners on to dry land, when in fact it’s another banking and Wall Street giveaway you will get to pay for. This will be another bailout similar to Bear Stearns that the Fed has finally admitted too. They used tens of billions of dollars to assure JPMorgan Chase would be protected as it took over Bear’s assets, including their large short silver position, which just happened to be naked. They did the same thing at AIG prior to its bailout as well. Incidentally, the taxpayer gets to pay for all this. The Fed still does what it pleases for the financial sector whether you like it or not. All the elitist cronies have to be bailed out before the world economy is taken under.

The last 9 years were losers. Trillions of dollars were forced into the economy and officially all we had to show for it was 2% growth. The price for that was an inflationary/recession/depression. In that process millions of businesses and individuals lost everything they had worked a lifetime for. Even those in the stock market and bonds lost money on a net basis. The only winners were those who sold their homes near the top of the market and those invested in gold and silver related assets.

Based on both earnings and dividends the outlook for the stock market is not very appealing at today’s levels. We are still in a credit crisis and will be for the next couple of years, but it is only a matter of time before the debt crisis begins. The Fed cannot spend its way out of this one, just as they couldn’t in the late 1930s. There is no chance the budget deficit can be brought back into balance and as a matter of fact it will worsen. We have GDP growth based on inventory growth and bogus statistics. What does Washington do after the stimulus ends this month? Inject in more like they just did with HIRE, some $17 billion or add another $500 billion, which is what the economy needs before it collapses. Then will the Fed that is withdrawing funds throw in another $500 billion? Companies are protecting themselves, their earnings and their existence. They won’t stop laying off until they believe that the depression is over. Last week’s survey showed that medium-to-small business doesn’t see any kind of revival for 14 to 18 months. They voted 92% that way.

If the Fed bought 80% of treasury and Agency paper last year will they do that again this year? Who else will buy this paper; our retirement plans?

The probability of someone out of work finding a job is now at the lowest level since 1948. Last month half the jobs created came from bogus birth/death ratio and almost all the rest from census jobs, which will be wiped out in a few months. In reality, no real growth. Remember the easiest way to cut expenses is to lay people off and cut all those benefits. They make up 70 to 75 percent of corporate costs. When we were young we all had what was called pet peeves. Our pet peeve is writers who know the U3, 9.7% unemployment, is a scam and they still quote it and even sometimes in the same breath mention U6. Again they want to be accepted or they are under government pressure. We have never seen such lying in 50 years. These people should be ashamed of themselves. We expect it from Wall Street, banking and government, but not from journalists. Incidentally, we need 125,000 new jobs a month that under present circumstances is a joke. That is even after two stimulus programs and trillions from the Fed. Don’t you find it a little odd that after all that money and credit the economy can’t stage a real rally? Back to unemployment – we see writers who deliberately misquote the actual U6 number and make excuses that it includes part timers, as a sop to the government and to be accepted. How about the bogus birth/death ratio?

If it wasn’t bad enough that the big hitter Illuminists were getting all the bailout money now small businesses are going to get hit with big tax increases.

Even though the Fed has been withdrawing money and credit from the system they know if they do not pour money back into the system it will not only have a double dip recession/depression, we will probably have a deflationary collapse. The big question is when will the elitists pull the plug?

Next year we will see higher taxes and continued government increases in spending. A continued crowding out by government pushing interest rates higher. Ongoing increases in money and credit and more monetization by the Fed. That will give us higher inflation for the next 21 months. That is at least a real 14%. We will also find out whether Greece was a planned or unplanned event. Will the powers that be opt for a deflationary depression?

All of the above events are negative for both stocks and bonds. As interest rates edge upward, especially on the long end, bonds will fall in value. That includes government, corporate and municipals. Stocks will fall and at least test 6,500 on the Dow. Commodities and gold and silver will continue their bull markets. Unemployment will rise and consumption as a percentage will move from 69.5% toward the long-term mean of 64.5%. Overall the outlook generally is bad, and it could be disastrous. All of you who are contemplating retirement put it off and continue to work. Whether we have inflation or deflation we will have less purchasing power. You will need your job to help support your children and grandchildren. Whatever you have in savings and investments you have to preserve and the best way to do that is with gold and silver related assets. The world economy will be in great turmoil and there is the distinct possibility of another war. If you look at history you will find each time there is severe economic or financial problems another war is arranged. The years ahead are not going to be a piece of cake.

The operative word is austerity something the IMF has specialized in for control of governments and economies. That is what we will be practiced on America. You are seeing that reflected in unemployment as business increases profits and throws away employees like used dishrags, especially the longer-term employees. Now government will soon unveil its first version of guaranteed annuities, or it might also be called another tax to fund the unpayable debts of a bankrupt government. All this while banking, Wall Street and insurance prosper, as well as selective other transnational conglomerates. It is all about control and economic and financial enslavement. Banks and Wall Street will ride roughshod over America collecting more and more wealth. Fiscal responsibility is not going to be imposed on Washington, but upon the American people. How else can the system continue as it is? Someone has to pay for it and it is not going to be the rich who own your congressmen and senators. Wall Street and Madison Avenue can’t allow government to be blamed for debt; its consequences have to be laid onto consumers. It has to be understood that consumers caused all this due to their profligate spending, so it is only natural that they should be the ones to pay the debt.

The banks and Wall Street know the above is on the way. That is why lending to small businesses and individuals has been reduced by 20%. Many of these entities are going to fail and the lenders do not want to have to write off the bad debt. Banks, investment banks and brokerage houses are in need of more securitization of debt. That is how they make fabulous amounts of money. They simply package debt and sell it to other professionals, who supposedly know what they are doing and buying. We refer you back to CDOs, ABS and MBS, which got us into the credit crisis nightmare we are still in the midst of. Lenders are saying not us. Either we syndicate or we cut back on lending. Banks and brokerage houses still are leveraged 40 to 1 and they are still bankrupt. The BIS and the FASB, with the concurrence of government and the powers behind government, that they are to continue to be allowed to keep two sets of books and mark their balance sheets to fantasy. They value investments at whatever they wish. You cannot do that you would go to jail if you did. It is called fraud. It’s despicable, disgraceful and total moral capitulation. Overvaluation of assets as we are finding out is 50 to 97 percent of underlying assets. Look at some of the recent bank failures and what is left of there books. Overstatement of assets is going to get worse and, of course, the operators of these institutions are held civilly and criminally blameless. Can you imagine taking over a bank or brokerage house and finding that 40% or less of the assets are salvageable. This is what is going on and the public knows little about it. This is why there are loss-sharing agreements between the FDIC and those who take the sick banks over.

This past week the Dow gained 0.6%; S&P 1.4%; the Russell 2000 2.8% and the Nasdaq 100 1.8%. Banks rose 5.5%; broker/dealers 3.6%; cyclicals 2.2%; transports 2.6%; consumers 0.9%; utilities 4%; high tech 1.6%; semis 2.4%; Internets 2.7% and biotechs 0.4%. Gold bullion rose $41.00, the HUI rose 5% and the USDX fell 0.3% to 80.90.

The yield on the 2-year T-bill declined 4 bps to 0.98%, the 10-year notes fell 6 bps to 3.88%, as the 10-year German bund rose 8 bps to 3.16%.

The Freddie Mac 30-year fixed rate mortgage rates rose 13 bps to 5.21%. The 15’s rose 13 bps to 4.52%, the one-year ARMs rose 9 bps to 4.14% and the 30-year jumbos jumped 12 bps to 5.95%.

Fed credit fell $0.6 billion up 10.6% year-on-year. Fed foreign holdings of Treasuries and Agency debt increased $4.8 billion to a record $3.025 trillion. Custody holdings for foreign central banks have increased $69.2 billion year-to-date, with a one-year rise of $403 billion, or by 15.4%.

M2 narrow money supply fell $11.7 billion to $8,491 trillion. Total money market fund assets fell $18.4 billion to $2.964 trillion. In the first 14 weeks of the year assets have fallen $329 billion, with a 1-year decline of $882 billion, or 22.9%.

Total commercial paper fell $19.6 billion to $1.090 trillion. CP has declined $80.4 billion, or 25.5% ytd, and is off $444 billion, or 29% yoy. This proves one thing and that is the credit crisis is not over.

The recent House hearings called The Financial Crisis Inquiry Commission were at best a travesty. The likes of Robert Rubin and Sir Alan Greenspan would have us believe that what transpired during the creation of MBS, CDOs and ABS was normal. No one ever expected the collapse in that market and the rating agencies. Yes, those agencies were to blame. It is a matter of public record the banks, investment banks and brokerage houses conspired to rate securities as AAA, which should have had a far lower rating. This was done to qualify them so that institutions could buy them and get buried in them. All the people and firms involved should have been and still should be charged with criminal fraud. Then the elitists on Wall Street never seem to get charged, nor do they go to jail. The fine is paid by shareholders and they go right back to doing what they did before.

The Commission got nowhere in the hearings, because Wall Street, banking and insurance provide the funds for them to get reelected. They are bought and paid for. The failure of these mortgage instruments was preordained. Very simply the garbage was dumped on professional investors who believed the ratings. After it was obvious what was happening the Fed supplied endless amounts of liquidity, so central banks, particularly in Europe, could bail the buyers out. This is how the credit crisis was created and funded.

The US budget deficit for March was $65.39 billion.

The April IBD/TIPP Economic Optimism Report was 48.4 versus 45.4 in March.

The big banks, Morgan, Goldman and Citi have sold their longs and are now short the dollar.

Please note the following:  Poland was among the chief opponents of the old USSR in their bid to break free from the Iron Curtain.  Poland had agreed to sponsor some of the Bush Administrations missile/anti-missile installations for its proposed Eastern Europe missile defense system, which Marxist Obama ("The Joker") abandoned as fellow Marxist Putin of Russia assisted his masters in the NWO in taking out Poland's leadership.  Poland was the second last country to sign on to the euro and to join the European Union.   Poland was the only country in the EU to have an economy with positive growth.  Poland had one of the few major economies and banking systems that steered clear of the Illuminist banking fraud derivative orgy and even had the audacity to offer the IMF a loan when the IMF was gunning for more victims to enslave, with Poland conspicuously missing from the IMF's victim list.

Florida remains ground zero of the housing bust with an amazing 19.39% delinquency rate. The Tampa Bay area has a delinquency rate of 17%.

The St. Petersburg Times has the details in Nearly 17 percent of Tampa homeowners three months behind on mortgage. Nearly 17 percent of Tampa Bay homeowners haven't paid their mortgages for at least three months.

The February report by First American CoreLogic shows mortgage delinquencies rising steadily for more than a year. From February 2009 to February 2010, delinquencies increased from 10.84 percent to 16.96 percent of all residential mortgages, making mincemeat of such government anti-foreclosure measures as Making Home Affordable.

Florida's 90-day delinquency rate was even worse at 19.39 percent. The U.S. rate was 8.78 percent.

Credit markets have staged a comeback. Now, too, it seems some of the exotic securities that were hallmarks of the credit bubble are having a small renaissance of their own.  The rally in the corporate-bond market and a steady supply of easy money courtesy of the Federal Reserve are encouraging investors to take more risks. And Wall Street bankers and companies are taking advantage where they can.  Some of the riskier borrowing practices that flourished at the height of the bubble have begun to find buyers. Among them: so-called pay-in-kind bonds that enable companies issue more debt as interest payments, rather than pay cash. Companies are also issuing bonds to pay big dividends to their owners…. Some firms are also trying to pull together bonds backed by mortgages that aren’t guaranteed by the government. [These people did not learn anything.]

High-yield, high-risk bonds make up the biggest share of corporate debt sales on record as investors wagering on a robust economic recovery snap up securities from even first-time issuers.  Global sales of junk bonds total about $91 billion this year, or 12% of issuance, almost double last year’s share.

U.S. apartment rents dropped in the first quarter and the vacancy rate remained at a record as unemployment near a 26-year high limited tenant demand.  Actual rents paid by tenants… declined 1.5% from a year earlier, Reis Inc. said. Vacancies were unchanged at 8%, the highest level since 1980.

Office vacancies in the U.S. rose to the highest level since 1994 in the first quarter as economic weakness reduced demand for commercial real estate space, according to Reis Inc.  The vacancy rate climbed to 17.2% from 15.2% a year earlier.

Bloomberg (Michael Quint):  “The state of New York’s history of budget manipulation is contributing to its chronic deficits and cash squeeze, Comptroller Thomas DiNapoli said.  ‘New York needs to stop playing games with the deficit,’ DiNapoli said. By shifting money between accounts in a ‘fiscal shell game,’ state officials and lawmakers ‘cover cash shortfalls and avoid making the difficult decisions needed to align spending with revenues,’ DiNapoli said.

New York lawmakers resumed talks to close a $9.2 billion deficit in the state’s overdue spending plan with its bonds trading as if they were no more risky than before the budget impasse.  Governor Paterson told a WNYC radio interviewer yesterday that ‘we are literally running out of money.’ Within an hour, at least $2 million of state bonds backed by sales tax traded to yield 1.98%, or 0.06 percentage point more than rates of other AAA rated muni debt. That gap has narrowed by half from two months ago.  ‘People are saying we’ve seen this before, and no matter how ugly the budget process is, the state will pay its debt,’ said Richard Larkin, a senior vice president at Herbert J. Sims & Co.  The deficit has grown from $7.4 billion since Paterson’s budget proposal in January.

Stock market volume remains soft and pundits are starting to notice it and pontificate about it.

"It worries a lot of us," says Wellington Shields' Frank Gretz, a technical analyst who specializes in pinpointing market levels at which stocks might suddenly rise or fall. He wonders whether the volume signals that the rally could soon peter out, like the big surges that preceded steep declines in the 1930s in the U.S. and in Japan more recently.

Louise Yamada, a 29-year veteran of technical analysis who heads an eponymous firm in New York, says she's not just concerned but confused. "Why is the market going up?" she asks. "You usually don't see advances without volume. [Could it be they have discovered the markets are rigged by the government?]

Since July, Bennie Mae has monetized enormous amounts of MBS during expiration week to supply ample juice for market manipulators. This practice ended on March 31. It will be interesting to see if the Fed provides juice by other ways & means.

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.

That practice, while legal, can give investors a skewed impression of the level of risk that financial firms are taking the vast majority of the time…

According to the data, the banks' outstanding net repo borrowings at the end of each of the past five quarters were on average 42% below their peak in net borrowings in the same quarters. Though the repo market represents just a slice of banks' overall activities, it provides a window into the risks that financial institutions take to trade.

Why didn’t Street bank analysts report this chicanery? How can anyone know how to value large banks?

Former Federal Reserve Bank of St. Louis President William Poole said the central bank played favorites when providing aid as part of efforts to stem the financial crisis.

“The Fed did not provide assistance to all on an equal basis but tilted the playing field,” Poole said in remarks prepared for a lecture at the University of Delaware, where he is a scholar in residence. “Why should the Fed have had a program to buy commercial paper from large corporations and no program to help small businesses starved for funds?”

The Fed’s program to purchase $1.25 trillion in mortgage- backed securities issued by government- sponsored enterprises probably contributed to the demise of the market for non- government mortgage- backed securities and will “complicate monetary policy in the years ahead,” Poole said.

“Much more research is necessary to determine whether the Fed made the right choices; clearly, I have my doubts,” said Poole, 72. He was president of the St. Louis Fed from 1998 until retiring from the post in March 2008, the month that Bear Stearns collapsed.

Poole expressed concern about “an appalling lack of economic literacy in Congress” and said that neither the House nor Senate versions of legislation to overhaul financial regulation address the most important shortcomings. Banks should be required to hold more long-term bonds, and tax deductions for interest should be eliminated, he said.

The debt crisis that has taken root in Greece, sparking an investor panic and talk of a national default in the heart of Europe, is at the leading edge of a problem expected to roll through the economically developed world as government borrowing rises into uncharted territory.