Tuesday, December 21, 2010

Interest rates 'will have to rise sixfold in two years'

It will bring financial pain to seven million home owners with floating interest rates who will see a jump of almost £200 on a typical monthly mortgage payment.

Charities have already warned that repossessions are likely to rise next year and the threat of a succession of quick interest rate rises will exacerbate their fears.

The Confederation of British Industry predicts that higher than anticipated rises in the cost of living will push the Bank of England (BoE) to begin increasing interest rates in the spring.

It predicted that the Bank base rate – the interest rate at which the BoE lends to other banks – will rise more than two percentage points by the end of 2012. Mortgage rates are expected to follow closely behind.

“Many households have been benefiting (from the low interest rates) in terms of mortgage payments, but that will start to turn over the next couple of years,” said Lai Wah Co, the CBI’s head of economic analysis. (more)

$24.5 Trillion In US National Debt, $144 Trillion In Unfunded Liabilities In... 2015

By now everyone has seen and played with the US debt clock via usdebtclock.org whereby anyone who so wishes, can find every little detail about America's current sad fiscal state. The fact that America currently has just under $14 trilllion in national debt should be no surprise to anyone who professes to having an even modest interest in the state of the US economy. Yet a new feature on the "debt clock", namely one which extrapolates future debt at current rates of advancement (instead of one based on the always completely inaccurate CBO estimates), and looks at US debt in the year 2015 will probably make many stop dead in the their tracks. If anyone thought that $14 trillion in 2010 debt is bad, just wait until we hit $24.5 trillion in total US national debt in 2015. And it gets even more surreal: total US Unfunded Liabilities are estimated at $144 trillion, roughly $1.2 million per taxpayer... Was that a pin dropping?

As Zero Hedge has long been predicting, we anticipate roughly $2 trillion in incremental debt per year. Surprisingly we are not far too off from where the "debt clock" sees US leverage in 5 years. At an estimated $24.5 trillion in federal debt, our $2 trillion per year run rate is spot on. Another thing that is spot on: our prediction that the US will need not one but two debt ceiling increases in 2011. And probably 6-8 over the next 5 years.

Some other observations for the US economy in 2015 simply assuming current conditions persist:

  • Federal spending will be $3.3 trillion per year, and with federal revenue of $2.3 trillion (this number will be reduced as it also assumes $731 billion in payroll tax, a number which will likely be indefinitely reduced) the result is a budget deficit of $983.7 billion.
  • Annual Medicare/Medicaid expenses will be just over $1 trillion
  • US population: 326.8 million
  • US workforce 131.3 million (and declining)
  • Officially unemployed: 19.4 million
  • Actual unemployed: 22.3 million
  • State/Federal employees: 17.9 million
  • People on SSN and other retirees: 72.6 million

And the most critical data:

  • Food stamp recipients: 89.7 million
  • Foreclosures: 2 million
  • Social Security Liability: $19 trillion
  • Medicare Liability: $99 trillion
  • Total US Unfunded Liabilities: $144 trillion
  • Gross Debt to GDP: 143%

Should one of the bolded predictions hit, the travails of Greek and Irish bondholders will be nothing compared to what those unlucky enough to be in possession of US debt in 2015 will have to go through.

France's AAA Grade at Risk as Rating Downgrades Sweep Europe: Euro Credit

France risks losing its top AAA grade as Europe’s debt crisis prompts a wave of downgrades that threatens to engulf the region’s highest-rated borrowers, with Belgium also facing a possible cut.

Moody’s Investors Service said Dec. 15 it may lower Spain’s rating, citing “substantial funding requirements,” and slashed Ireland’s rating by five levels on Dec. 17. Standard & Poor’s is reviewing its assessments of Ireland, Portugal and Greece. Costs to insure French government debt rose to a record today with the country’s credit default swaps more expensive than lower-rated securities from the Czech Republic and Chile.

“Every sovereign may get penalized in the year ahead,” said Toby Nangle, who helps oversee $46 billion as director of asset allocation at Baring Asset Management in London. “It would be a big deal if France was to have its AAA rating stripped. I don’t think the likelihood of a downgrade is reflected in the market.” (more)

Trends Journal Scoop - The Top Trends Of 2011 (Gerald Celente)

Wake-Up Call: Top 11 Trends of 2011
After the tumultuous years of the Great Recession, a battered people may wish that 2011 will bring a return to kinder, gentler times.
But that is not what we are predicting. Instead, the fruits of government and institutional action ­ and inaction ­ on many fronts will ripen in unplanned-for fashions. Trends we have previously identified, and that have been brewing for some time, will reach maturity in 2011, impacting just about everyone in the world.
1. Wake-Up Call In 2011, the people of all nations will fully recognize how grave economic conditions have become, how ineffectual and self-serving the so-called solutions have been, and how dire the consequences will be.
Having become convinced of the inability of leaders and know-it-all "arbiters of everything" to fulfill their promises, the people will do more than just question authority, they will defy authority. The seeds of revolution will be sown.
2. Crack-Up 2011 Among our Top Trends for last year was the "Crash of 2010." What happened? The stock market didn't crash. We know.
We made it clear in our Autumn Trends Journal that we were not forecasting a stock market crash ­ the equity markets were no longer a legitimate indicator of recovery or the real state of the economy. Yet the reliable indicators (employment numbers, the real estate market, currency pressures, sovereign debt problems) all bordered between crisis and disaster. (more)

Ford Motor Co. (F) Stock Analysis

The following is Ford Motor Co . (F) Technical analysis for December 20, 2010

Ford Motor Co F Resistance, pivot & Support Levels - 12/20/2010

Resistance levels: $17.02, $16.94, $16.87

Pivot point: $16.77

Support levels:$16.70, $16.60, $16.53

Share of Ford is looking strong once again with market. Ford will have resistance located at $16.90 as well as the $17.42 high which was made several weeks ago. If Ford can close above $17.42, I think it could run to $18.25-$18.75. Ford will now have solid support down at $16. If Ford breaks down through $16 again, Ford is a strong buy below $15 Ford is a strong buy below $15.Ford remains a strong buy on any major pullback.This is my long term investment.

BNN: Top Picks

Christine Poole, Managing Director, GlobeInvest Capital Management, shares her top picks.

click here for video

How to Survive the Collapse of America

Activist Post reviews National Bestseller, How to Survive the End of the World as We Know It, by author James Wesley, Rawles (makes an important Christmas gift)

It's a sure sign of the times that a book titled, How to Survive the End of the World as We Know It: Tactics, Techniques and Technologies for Uncertain Times becomes a National Bestseller. First printed a year after the October financial crash of 2008 when the world awoke to the fragility of the "system," author James Wesley, Rawles offers a pragmatic and thorough guide to survive other potentially more severe future crashes.

The book does not go into extended detail about what may trigger the breakdown of civilization, but uses its precious 316 pages to inform readers of how to prepare for nearly any disaster. Many survival books are great references to have in your library should a disaster take place, but this book is essential to read and implement well before disaster occurs.

Author, Jim Rawles, a former U.S. Army Intelligence Officer and founder of the very popular website SurvivalBlog.com, not only talks the talk, but also walks the walk. He lives on a fully self-sufficient and well-stocked retreat "somewhere west of the Rockies." Upon reading the book, one thing is apparent: Rawles has written this book not as a "what if" guide, but rather a "when it happens" guide. The tone of urgent pragmatism enhances the assumption that disaster is not only inevitable, but perhaps imminent. (more)

Coal stocks nearing critical shortage

A severe coal shortage has caused power supplies to factories and residential neighborhoods to be temporarily suspended across seven provinces and regions, as the nation's energy shortage worsens.

Coal reserves have been emptied by a huge surge in power demand, prompted by a cold weather front that swept China last week, according to the State Grid Corporation, China National Radio (CNR) reported Sunday.

In northwest Shaanxi Province, 14 major thermal power stations had only enough coal stocks for four days, with two others already empty. Due to this worrying state of affairs, many enterprises and residents in the province have received notice of impending power cuts, according to the local China Business View.

In provincial capital Xi'an, water supplies and heating systems have been affected. One residential compound containing 12,000 households announced that the power would be cut for the next 10 days from 8 am to 11 pm, the paper reported. (more)

The Case Against Natural Gas

What’s going on with natural gas prices?

It's one of the only (possibly the only) commodities to sell for cheaper than it was a year ago.

Today I’m going to discuss three main reasons why natural gas prices (in the United States) haven’t participated in the commodity boom of 2010.

The first reason is that natural gas prices are loosely tied to oil prices.

Yes, oil prices rose over the past year, but only by about 10%. In order for oil prices to significantly buoy natural gas prices, we’ll need to see another huge ramp up like we did in the summer of 2008. Those higher oil prices (above the $100 mark - as an estimate) bolster demand for natural gas.

Why? Well, natural gas is an input in some oil production. Natural gas is pumped into oil wells in order to sustain pressure to bring oil out of the ground. It’s used to power machinery and produce oil in non-conventional oil production.

The more expensive oil gets, the more likely conventional and non-conventional producers are to boost production - which increases demand for natural gas.

Additionally, as oil becomes more expensive, energy consumers in industries that have the capability to switch between crude oil and natural gas will switch to natural gas. Again, that bolsters natural gas demand. (more)

Meredith Whitney, Chris Christie On 60 Minutes: Illinois & California Are Bankrupt, States Face Reckoning Day

By now, just about everyone in the country is aware of the federal deficit problem, but you should know that there is another financial crisis looming involving state and local governments.

It has gotten much less attention because each state has a slightly different story. But in the two years, since the "great recession" wrecked their economies and shriveled their income, the states have collectively spent nearly a half a trillion dollars more than they collected in taxes. There is also a trillion dollar hole in their public pension funds.

The states have been getting by on billions of dollars in federal stimulus funds, but the day of reckoning is at hand. The debt crisis is already making Wall Street nervous, and some believe that it could derail the recovery, cost a million public employees their jobs and require another big bailout package that no one in Washington wants to talk about. (more)

GE: One of the World's Largest Companies Could Make You a 34% Profit

Rising dividends... A share buyback program... And strategic acquisitions.

This combination of strengths shows General Electric (NYSE: GE) -- one of the world's largest companies -- is again on a roll.

In mid-December, the blue-chip company announced a 17% dividend increase on top of the 20% dividend hike earlier this year. This brings GE's forward annual dividend to an attractive 3.2%.

Additionally, GE recently announced an aggressive buyback of preferred securities sold to Warren Buffett's Berkshire Hathaway (NYSE: BRK-B) during the heart of the financial meltdown. At the time, the sale was used to raise money for the struggling GE Capital division. But, this year, GE Capital expects to bring in more than $3 billion in profit, with rising earnings projected for the coming years.

GE is also pursuing a number of strategic acquisitions, focused primarily on power generation, specifically in offshore wind and solar power plants. It recently acquired Wellstream, a British company whose flexible pipe products are used in subsea energy development projects. The $1.3 billion acquisition should help GE further penetrate the offshore energy market. GE is also in talks with Saudi Arabia to develop an atomic energy program. (more)