Monday, November 30, 2009
Only Thing Rising Faster Than Demand For Government Debt Is Supply Of It
Governments benefit from 'teaser' rates. Wait 'til they come to an end...
There are so many breathtaking things going on around us we practically suffocate. Last week, three-month US Treasury-bills yielded all of 0.015% interest. Some yields were below zero. In effect, investors gave the government money. The government thanked them and promised to give them back less money three months later. How do you explain this strange transaction? Was there a full moon?
Moonlight on the week of November 6 must have been especially intense. Bids totaled a record $361 billion for just $86 billion worth of T- bills. This was $100 billion more than the peak set during the credit crisis a year ago. What? A third of a trillion dollars, per week, gives itself up to the hard labor of government service and asks for nothing in return? (more)
Food Stamp Use Soars, and Stigma Fades
With food stamp use at record highs and climbing every month, a program once scorned as a failed welfare scheme now helps feed one in eight Americans and one in four children. It has grown so rapidly in places so diverse that it is becoming nearly as ordinary as the groceries it buys. More than 36 million people use inconspicuous plastic cards for staples like milk, bread and cheese, swiping them at counters in blighted cities and in suburbs pocked with foreclosure signs.
Virtually all have incomes near or below the federal poverty line, but their eclectic ranks testify to the range of people struggling with basic needs. They include single mothers and married couples, the newly jobless and the chronically poor, longtime recipients of welfare checks and workers whose reduced hours or slender wages leave pantries bare. (more)
Potential For Fed To Hyperinflate
always the question about what the Fed will do, more pressure on small and medium banks, municipal bond meltdown, bailouts cant go on indefinitely, looking at the banks, and recalling the French Revolution, the truth of fractional banking
The following information may be the most important we have ever published. One of our Intel sources, highly placed in banking circles, tells us that on 1/1/10 all banks that have received TARP funds have been informed by the Federal Reserve that they must further restrict any commercial lending. Loans have to be 75% collateralized, 50% of which has to be in cash, which is a compensating balance.
The Fed has to do one of two things: They either have to pull $1.5 trillion out of the system by June, which would collapse the economy, or face hyperinflation. This is why the Fed has instructed banks to inform them when and how much of the TARP funds they can return. At best they can expect $300 to $400 billion plus the $200 billion the Fed already has in hand. (more)
Professor advises underwater homeowners to walk away from mortgages
Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it. Don't think you're doing something morally wrong.
That's the incendiary core message of a new academic paper by Brent T. White, a University of Arizona law school professor, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."
White contends that far more of the estimated 15 million U.S. homeowners who are underwater on their mortgages should stiff their lenders and take a hike.
Doing so, he suggests, could save some of them hundreds of thousands of dollars that they "have no reasonable prospect of recouping" in the years ahead. Plus the penalties are nowhere near as painful or long-lasting as they might assume, he says. (more)
That's the incendiary core message of a new academic paper by Brent T. White, a University of Arizona law school professor, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."
White contends that far more of the estimated 15 million U.S. homeowners who are underwater on their mortgages should stiff their lenders and take a hike.
Doing so, he suggests, could save some of them hundreds of thousands of dollars that they "have no reasonable prospect of recouping" in the years ahead. Plus the penalties are nowhere near as painful or long-lasting as they might assume, he says. (more)
The Geopolitics Of The Dubai Debt Crisis: It's Iran vs. The United States
The role of Iran may be the most overlooked in the Dubai debt crisis.
Of all the states of the United Arab Emirates federation, Dubai has maintained the closest ties to Iran. Indeed, as international pressure has built on Iran over the past decade, Dubai has prospered from those ties. It provides critical banking and trade links for Iran, often serving as the go-between for European or Asian companies and financial firms that want to do business with Iran without violating international sanctions.
Abu Dhabi, the wealthiest member of the UAE and a close ally of the US, may be pressuring Dubai to limit its links to Iran. Indeed, this pressure may be behind statements coming from Abu Dhabi about offering "selective" support for Dubai. Companies or creditors thought to be too linked to Iran could find themselves shut out of any bailout. (more)
Of all the states of the United Arab Emirates federation, Dubai has maintained the closest ties to Iran. Indeed, as international pressure has built on Iran over the past decade, Dubai has prospered from those ties. It provides critical banking and trade links for Iran, often serving as the go-between for European or Asian companies and financial firms that want to do business with Iran without violating international sanctions.
Abu Dhabi, the wealthiest member of the UAE and a close ally of the US, may be pressuring Dubai to limit its links to Iran. Indeed, this pressure may be behind statements coming from Abu Dhabi about offering "selective" support for Dubai. Companies or creditors thought to be too linked to Iran could find themselves shut out of any bailout. (more)
South Africa’s golden age is coming to an end
The high cost of mining old mines and the scarcity of reserves as seen the once mighty South African gold mining industry fall from grace in recent years.
South Africa’s remaining gold reserves are less than half existing estimates and the cost of bringing the dwindling resource into production may be far more than its value, a new report has found.
An article in the South African Journal of Science has highlighted the plight of the country’s gold mining industry, which is afflicted by high costs, environmental damage, falling output and illicit mining. A formerly illustrious industry is in its death throes, according to Chris Hartnady, the report’s author, who predicts that the output of the main Witwatersrand goldfields could fall below 100 tonnes a year within a decade. (more)
Saturday, November 28, 2009
U.S. Stocks, Commodities Decline as Bonds Gain on Dubai Crisis
U.S. and emerging-market stocks slumped and commodities dropped as Dubai’s attempt to delay debt repayments unnerved investors. Treasuries and the dollar rose while credit-default swaps surged. The Standard & Poor’s 500 Index slid 1.7 percent to 1,091.49 at 1 p.m. in New York and the MSCI Emerging Markets Index slipped 1.8 percent at 4:36 p.m. The Chicago Board Options Exchange Volatility Index, the equity-derivatives benchmark known as the VIX, surged 21 percent. Two-year Treasury yields fell to the lowest level since December. Oil and copper tumbled and gold fell for the first time in 10 days as the Dollar Index advanced. Credit-default swaps tied to debt sold by Dubai rose 105 basis points to 646, according to CMA DataVision. (more)
Recession 'is even worse than feared': Chancellor predicts steepest slump ever
The recession is proving even deeper than feared, Alistair Darling will admit in next month's Pre-Budget report.
The Chancellor will forecast the steepest annual slump since modern records began.
But he is likely to put a brave face on the outlook by declaring that Britain has finally returned to growth in the fourth quarter of the year.
Last night Treasury sources indicated that Mr Darling will sharply downgrade his economic predictions in the December 9 statement, forecasting a slump of 4.75 per cent for 2009. (more)
How the other 0.00000003 percent lives
Back in February—when even the mainstream media was convinced the capitalist economy was in full-blown meltdown mode—Newsweekmagazine ran an article titled "Why there won’t be a revolution."
Newsweek wanted to reassure the rich—and convince working people—that the masses weren’t getting ready to dust off their pitchforks and head to the town square. "Americans might get angry sometimes," they wrote, "but we don’t hate the rich. We prefer to laugh at them."
Newsweek couldn’t be more wrong. The 10 percent of Americans who rely on food stamps, the 25 percent of Ohioans who are waiting in lines at food banks, the 500,000 people who lost their jobs last month and the millions more who can’t find work—these people aren’t laughing. (more)
Case-Shiller Still Predicts Massive 45% Fall from Today’s Values
The 10 major cities in the Standard & Poor's/Case-Shiller home price index have risen 5% from their April low, but the index is still predicting a massive 45% fall from today’s values.
Tuesday's new number from the index showed a gain of just under .5% for the month of September, but the index remains 30% below the high in June 2006. Based upon a trend generated from the actual prices of 1987 to 1997, and generated forward in a linear projection, the index will fall a total of 62% before it reaches the trend norm.
A more comprehensive analysis of the 10-city index based upon a 120 years of data shows current values off 36% and a comparatively modest 20% fall ahead.
Review four charts and key data based upon major real estate price indexes at “Property Price Index”.
Climategate Criminals, and Getting Our Money Back
“They are not merely bad scientists — they are crooks. And crooks who have perpetrated their crimes at the expense of British and U.S. taxpayers. I am angry, and so should you be.” —Lord Christopher Monckton November 23, 2009
In a recent article, Lord Monckton pointed out that, far from suffering from global warming, the planet has experienced “rapid and significant cooling” over the past nine years.
That bears repeating. Over the past nine years the world has experienced “rapid and significant cooling.” There has been no global warming—it is a Big Lie. (more)
Friday, November 27, 2009
How to Invest in Gold Mania
“There’s no doubt in my mind that we’ll have a mania in gold. And because the gold and especially silver markets are so tiny, the rush into them will be like trying to push the contents of Hoover Dam through a garden hose. Our positions will go absolutely ballistic.” – Doug Casey, September 2009 There’s certain to be a rush into gold and silver, and buying before Main Street catches gold fever is the only way to play this trend. Because when Midas fever hits, prices will explode to the upside, for both the metals and the stocks. How do we know that?
First, let’s look at gold. If we added up all the gold ever mined on the planet, its total value would equal no more than $5 trillion at today’s prices. Yet, look at how this compares to the debt and bailouts and other monetary mischief of current governments… (more)
California Housing Market Turns Corner, Realtors Say
California, one-time hub of subprime mortgage lending and the nation’s leader in home foreclosures, has turned the corner toward a housing recovery, according to the state Association of Realtors.
Single-family home prices in California rose for the eighth consecutive month in October. The median cost of an existing, detached house gained 0.3 percent from the previous month to $297,500. Prices dropped about 3.2 percent from a year earlier, compared with annual declines of 7.3 percent in September and 17 percent in August.
“California has hit and passed the bottom of this real estate cycle,” Leslie Appleton-Young, vice president and chief economist of the Los Angeles-based Realtors group, said in a statement today. (more)
Single-family home prices in California rose for the eighth consecutive month in October. The median cost of an existing, detached house gained 0.3 percent from the previous month to $297,500. Prices dropped about 3.2 percent from a year earlier, compared with annual declines of 7.3 percent in September and 17 percent in August.
“California has hit and passed the bottom of this real estate cycle,” Leslie Appleton-Young, vice president and chief economist of the Los Angeles-based Realtors group, said in a statement today. (more)
Mortgage Rates in U.S. Match Record Low Set in April
Fixed 30-year mortgage rates dropped for a fourth consecutive week, matching a record low set in April, in a decline that may further support increasing sales in the battered housing market.
The rate dropped to 4.78 percent from 4.83 percent last week, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. The average 15-year rate was 4.29 percent.
Low mortgage costs and a tax credit for first-time homebuyers are helping increase demand for property, putting existing home sales on pace to hit 6.1 million this year. A falling number of unsold homes is also beginning to stabilize prices. The S&P/Case-Shiller home-price index rose 0.27 percent in September from August, the fourth consecutive gain. (more)
Treasuries Rise Most in Two Weeks on Dubai’s Debt Payment Delay
Treasuries rose the most in almost two weeks after a Dubai proposal to delay debt payments set off a slide in stocks and higher-yielding assets worldwide.
Ten-year Treasury yields fell toward the lowest level in seven weeks as the yen strengthened to a 14-year high versus the dollar, boosting speculation the Bank of Japan will intervene in the currency markets. Treasuries headed for a third weekly gain on speculation the Federal Reserve will avoid raising interest rates until the third quarter of next year. U.S. markets were closed yesterday for the Thanksgiving holiday.
“The Dubai issue has caused a flight-to-quality move, which is positive for Treasuries,” said Hiromasa Nakamura, a senior investor in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $21 billion and is part of Japan’s second-largest bank. “The Fed will keep low interest rates for a long time due to low inflation and the continuing credit crunch. That’s supportive for shorter-zone Treasury notes.” (more)
India plans to buy more gold from IMF
India is open to buying more gold from the International Monetary Fund (IMF). It bought 200 tonnes for $6.7 billion on November 3. The Reserve Bank of India (RBI) may well buy IMF’s remaining hoard of 201.3 tonnes on acceptable terms, which are now under negotiation.
A government official said that the additional purchase would depend on the “successful pitching by RBI”. “RBI is an independent body, and the government does not interfere in its affairs. It will get the gold if its bid is successful and at the price it has offered,” said the official.
RBI did not respond to Financial Chronicle questions if it was bidding for the remaining IMF gold. The purchase of the first lot of 200 tonnes, RBI had said at the time, was a part of its foreign exchange reserves management operations. (more)
A government official said that the additional purchase would depend on the “successful pitching by RBI”. “RBI is an independent body, and the government does not interfere in its affairs. It will get the gold if its bid is successful and at the price it has offered,” said the official.
RBI did not respond to Financial Chronicle questions if it was bidding for the remaining IMF gold. The purchase of the first lot of 200 tonnes, RBI had said at the time, was a part of its foreign exchange reserves management operations. (more)
Dubai in deep water as ripples from debt crisis spread
Fears of a dangerous new phase in the economic crisis swept around the globe yesterday as traders responded to the shock announcement that a debt-laden Dubai state corporation was unable to meet its interest bill.
Shares plunged, weak currencies were battered and more than £14 billion was wiped from the value of British banks on fears that they would be left nursing new losses.
Nervous traders transferred the focus of their anxieties from the risk of companies failing to the risk of nation states defaulting. Investors owed money by Mexico, Russia and Greece saw the price of insuring themselves against default rocket. (more)
Thursday, November 26, 2009
McAlvany Weekly Commentary, Nov 25, 2009
The Yellow Brick Road: Relating Oz to a Zero Interest Rate Policy and 6,932 Years
November 25th, 2009
< href="http://www.mcalvany.com/podcast/#" onclick="javascript: podPressShowHidePlayer('1','http://www.mcalvany.com/podcast/wp-content/uploads/ica2009-1125.mp3',300,30,'true'); return false;">Hide Player | Play in Popup | Download Mp3Frontline video expose of the credit card industry
As credit card companies face rising public anger, new regulation from Washington and staggering new rates of default and bankruptcy, FRONTLINE correspondent Lowell Bergmaninvestigates the future of the massive consumer loan industry and its impact on a fragile national economy.
In The Card Game, a follow-up to the Secret History of the Credit Card and a joint project with The New York Times, Bergman and the Times talk to industry insiders, lobbyists, politicians and consumer advocates as they square off over attempts to reform the way the industry has done business for decades. (more)
Click here to watch the video
Bankruptcies Jump, Hitting Highest Level in Four Years
U.S. bankruptcy filings rose 33 percent in the third quarter to the highest number since 2005, government data show, as rising unemployment and tight credit made it more difficult for consumers and businesses to stay current on their debts.
"With unemployment surpassing 10 percent and credit to businesses remaining tight, consumers and businesses are increasingly turning to the financial relief of bankruptcy," said Samuel Gerdano, executive director of the nonpartisan American Bankruptcy Institute, in a statement.
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There were 388,485 filings in the July-to-September period, up from 292,291 a year earlier and up 2 percent from the second quarter's 381,073, according to data released Wednesday by the Administrative Office of the U.S. Courts.
Consumer filings rose 33 percent to 373,308 from 280,787 a year earlier, while business filings increased 32 percent to 15,177 from 11,504. (more)
Soros: Major Bloodletting Ahead
Billionaire George Soros believes a “bloodletting” may be in the offing for leveraged buyout firms (LBOs) and commercial real estate investors amid the worst economy in seven decades.
“In commercial real estate and leveraged buyouts, the bloodletting is yet to come,” Soros said in a speech in Europe, reported by Bloomberg News.
“These factors will continue to weigh on the American economy, and the American consumer will no longer be able to serve as the motor for the world economy.”
Bankers across the globe have accounted for $1.66 trillion of write downs and write-offs on bad loans since the start of the credit crisis in 2007. (more)
Prechter: Leverage 200 Percent, Go Short
One of the leading financial newsletter publishers in the U.S., Mark Hulbert of The Hulbert Financial Digest, is reporting that now may be the time for investors to leverage their portfolios “200 percent” and short the stock market.
Writing in his column for MarketWatch, Hulbert, notes that Robert Prechter, the famous follower of the Elliott Wave theory, is now totally bearish on the U.S. stock market.
“That's because he has been playing the equity market from the short side for quite some time now,” writes Hulbert.
“But what is news is that, earlier this week, he became even more aggressively bearish than usual: He is now recommending that traders allocate 200 percent of their stock trading portfolios to shorting the stock market.” (more)
Yields on Short Term Treasuries
While the stock market continues its “recovery rally,” there’s something strange going on in the bland world of bonds. Check it out:
True, there’s hardly a difference to the everyday investor between a 0.3% and a 0.04% yield. After fees and inflation, you’ll end up losing money either way.
But it’s worth noting that short-term Treasuries are at their highest demand since it hit the fan this time last year. In fact, the Treasury auctioned off $31 billion in 6-month bills yesterday at 0.14%, the lowest level ever. Ditto with their auction of 2-year notes later in the day.
In other words, the majority of the market can’t find anything better to do with cash than stuff it away at a near-negative yield for a few months… not the best sign for stocks. With the holiday lull and tax-selling season right around the corner, it’s hard to blame them.
Wednesday, November 25, 2009
Home Prices in 20 U.S. Cities Rise for Fourth Month
Home prices in 20 U.S. cities rose for a fourth straight month in September, pointing to improvement in real estate that’s helping the economy emerge from recession. The S&P/Case-Shiller home-price index increased 0.27 percent from the prior month on a seasonally adjusted basis, after a 1.13 percent rise in August, the group said today in New York. The gauge fell 9.36 percent from September 2008, more than forecast, yet the smallest year-over-year decline since the end of 2007.
Rising home sales, aided by government programs and a decline in mortgage rates this year, have helped stem the slump in property values that precipitated the worst recession since the 1930s. Home buying and consumer spending may still be hampered by higher unemployment, which may prompt more foreclosures. (more)
IMF warns second bailout would 'threaten democracy'
The public will not bail out the financial services sector for a second time if another global crisis blows up in four or five years time, the managing-director of the International Monetary Fund warned this morning.
Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the “man in the street” and could even threaten democracy.
"Most advanced economies will not accept any more [bailouts]...The political reaction will be very strong, putting some democracies at risk," he told delegates. (more)
Can Asset-Price Bubbles Be Harmless?
There is an increasing concern among some commentators that the current, extremely loose monetary policy of the US central bank could fuel another round of asset-price bubbles. This in turn, it is held, could pose a serious danger to the US economy.
Some commentators, such as John Taylor (the inventor of the Taylor rule), are urging the US central-bank policy makers to start considering a tighter stance as soon as possible, in order to prevent a repetition of the Greenspan Fed's interest-rate policy, which kept rates at very low levels for too long. (The Fed lowered its policy rate from 6.5% in December 2000 to 1% by June 2003. The Fed kept the rate at 1% until June 2004). (more)
Analysis: Fed under fire as public anger mounts
Suddenly the Federal Reserve is everybody's punching bag. Strip the Fed of its bank regulation powers, some in Congress are demanding. Get probing audits of its behind-the-scenes operations, others say.
The chairman of the Federal Reserve Board is always fair game for criticism and second-guessing, usually over interest rate actions. But this year the criticism is much broader as Congress responds to widespread public anger that the Fed bailed out Wall Street but not ordinary Americans, and with unemployment in double digits.
Former Fed Chairman William McChesney Martin Jr. famously said that the central bank's job was to yank away the punchbowl just when everybody is starting to party. And while Fed Chairman Ben Bernanke has signaled the Fed will keep interest rates low for now, a round of higher rates inevitably will come. (more)
LESSONS FROM THE JAPANESE: TIME TO STOP BORROWING MONEY AND START PRINTING IT
“We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon.”
--Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta, 1934
Miners used to keep canaries in coal mines as an early warning device. If the air was so bad that it killed the canary, the miners would soon be next. Japan may be the canary for the out-of-control deficit spending policies now being pursued in the United States and the United Kingdom. In a November 1 article in the Daily Telegraph called “It Is Japan We Should Be Worrying About, Not America,” international business editor Ambrose Evans-Pritchard wrote: (more)
Bank 'problem' list climbs to 552
Despite the frenetic pace of bank failures this year, 552 lenders are still at risk of going under, according to a government report published Tuesday.
The Federal Deposit Insurance Corp. said that the number of banks on its so-called problem list climbed to its highest level since the end of 1993. At that time, the agency red-flagged 575 banks.
Mounting bank failures have proven costly for the FDIC, the government agency created to cover the deposits of consumers and businesses in the event that a bank is shut down.
On Tuesday, the agency revealed its deposit insurance fund, as a result, slipped into the red for the first time since 1991. (more)
The 'Real' Jobless Rate: 17.5% Of Workers Are Unemployed
As experts debate the potential speed of the US recovery, one figure looms large but is often overlooked: nearly 1 in 5 Americans is either out of work or under-employed.
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According to the government's broadest measure of unemployment, some 17.5 percent are either without a job entirely or underemployed. The so-called U-6 number is at the highest rate since becoming an official labor statistic in 1994.
The number dwarfs the statistic most people pay attention to—the U-3 rate—which most recently showed unemployment at 10.2 percent for October, the highest it has been since June 1983. (more)
Nearly 11 Million U.S. Homes Underwater
Some experts say the housing market has bottomed, but one statistic indicates otherwise.
The portion of U.S. homeowners who are “underwater” on their loans — that is, they owe more on the mortgage than the home is worth — surged to 23 percent in the third quarter, or almost 10.7 million households, according to First American CoreLogic, a real estate research firm.
Many of the underwater homes will end up in foreclosure or on the already bulging market of homes for sale.
Of the 10.7 million homes underwater, nearly half have a mortgage that is at least 20 percent higher than the home’s value, according to First American.
More than 520,000 of these homeowners are in default on their mortgages. (more)
Tuesday, November 24, 2009
Is silver's salvation upon us?
ADVANCES in technology, increasing focus on reducing human interaction with bacteria, and tracking goods and people are all good news for silver and the price of the industrial metal, which has lagged for so long, says Jessica Cross, CEO of VM Group. Long regarded as the poor cousin of gold, the metal, which is mainly used in industrial applications as well as to make jewellery, has bright prospects, with off take in a spectrum of new products put at just below 350 million ounces by 2020 (see graph below), Cross argued in a presentation at the LBMA Conference earlier this month. The silver price is currently trading around $17.30/oz, a level that it traded around in the first half of 2008 when it broke up to just shy of $21. These two spikes were unparalleled, certainly since 1985, with the metal touching slightly north of $8.50 just once since then. (more)
Wave of Debt Payments Facing U.S. Government
The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages. (more)
Cities find the fine print is costing millions
Detroit Mayor Dave Bing is struggling to save his city from fiscal calamity. Unemployment is at a record 28 percent and rising, while home prices have plunged 39 percent since 2007. The 66-year-old Bing, a former NBA all-star with the Detroit Pistons who took office 10 months ago, faces a $300 million budget deficit — and few ways to make up the difference. Against that bleak backdrop, Wall Street is squeezing one of America's weakest cities for every penny it can. A few years ago, Detroit struck a derivatives deal with UBS and other banks that allowed it to save more than $2 million a year in interest on $800 million worth of bonds. But the fine print carried a potentially devastating condition. If the city's credit rating dropped, the banks could opt out of the deal and demand a sizable breakup fee. That's precisely what happened in January: After years of fiscal trouble, Detroit saw its credit rating slashed to junk. Suddenly the sputtering Motor City was on the hook for a $400 million tab. (more)
How the financial "Big Players" gained their power
The international financial elites wield enormous power over governments both in developing and developed industrial countries.
Legislation in many parliaments favors large corporations and puts ordinary citizens and small businesses at a disadvantage. Wealth is being systematically transferred from the middle classes to the super-rich. The poor are getting poorer and are joined in by more and more former members of the middle-classes.
Large banks, which had brought themselves and the whole world economy to the verge of bankruptcy by their fraudulent speculations, are being bailed out with tax-payer money, while small banks with honest business practices are being swallowed by those just bailed out. (more)
Legislation in many parliaments favors large corporations and puts ordinary citizens and small businesses at a disadvantage. Wealth is being systematically transferred from the middle classes to the super-rich. The poor are getting poorer and are joined in by more and more former members of the middle-classes.
Large banks, which had brought themselves and the whole world economy to the verge of bankruptcy by their fraudulent speculations, are being bailed out with tax-payer money, while small banks with honest business practices are being swallowed by those just bailed out. (more)
Interest Alone on Federal Debt: $4.8 Trillion
When you think about the government’s exploding debt burden, you probably don’t focus on interest payments.
But those payments will likely total $4.8 trillion over the next 10 years, amounting to more than half the government’s $9 trillion in debt.
Interest rates are near zero now, thanks to the Federal Reserve’s massive monetary stimulus. But at some point the Fed will have to reverse that easing.
"When interest rates rise, even a small amount, the interest payments go up a lot because of the size of the debt," Charles Konigsberg, chief budget counsel of the Concord Coalition, told CNNMoney.com. (more)
Bill Gross: Major China Bubble Emerging
The investment guru who runs the world’s biggest bond fund at Pimco, Bill Gross, says a speculative bubble is emerging in China.
Real economic growth there is still constrained by limited consumer demand from the United States and other trading partners
Gross told Bloomberg News that the Chinese will have “a bubble of their own” to confront shortly.
“It’s gearing up for export that doesn’t find an end consumer, that’s the real problem in China.” (more)
Deficits Do Matter
In short, traders buy credit default swaps to insure against bond default. Hmmm… what could have possibly happened to these four countries -- of all the developed nations, the ones to experience the most rapid CDS purchase growth in the last 12 months. Here’s a hint: Brazil’s CDS volume shrank 16% over the same period.
THE VANISHING OF THE GOLD BASIS
The gold basis is defined as the difference between the nearby futures price and
the cash price of gold in the same location. A positive basis is called contango; a
negative one, backwardation. Since there were no organized futures markets in
gold prior to 1971, the history of gold basis is confined to the last 35 or so years.
Gold futures trading started on the Winnipeg Commodity Exchange in
Canada in 1971 at a time when ownership and trading of gold was still illegal in
the United States. Upon becoming legal the bulk of gold futures trading moved
to New York and Chicago. (more)
the cash price of gold in the same location. A positive basis is called contango; a
negative one, backwardation. Since there were no organized futures markets in
gold prior to 1971, the history of gold basis is confined to the last 35 or so years.
Gold futures trading started on the Winnipeg Commodity Exchange in
Canada in 1971 at a time when ownership and trading of gold was still illegal in
the United States. Upon becoming legal the bulk of gold futures trading moved
to New York and Chicago. (more)
Monday, November 23, 2009
Cramer: “People Like Overpaying!”
(CCN Englewood Cliffs NJ)
With The Dow at new highs of 10440, CNBC¹s resident revisionist historian Jim Cramer encouraged what remains of his audience To “Buy! Buy! Buy!” recommending the purchase of Williams Sonoma (WSM $22) who sells over-priced culinary gadgets that few actually need. “People LOVE overpaying for things!” he exclaimed.
The Carnival Barker host of CNBC’s “Mad Money,” Mr. Cramer’s assertion has a solid basis in truth for those who listened to him. His most notable “Buy” recommendations have been Sears Holdings (SHLD) at $197 down 60%, Google (GOOG) at $700 down 20% and the almost daily reiteration to “Buy” natural gas stocks like Chesapeake Energy (CHK) at $43, which currently
trades for half that at $21. “Hey!” he told a befuddled caller “If you liked the stock at $43, you’ve got to be just nuts about it at $21!”
Coincidentally, Nielsen reports that his viewership has moved in lock-step with his recommendations, and is also down 50%.
Cramer remains his own biggest fan despite studies which show his picks have actually underperformed the markets and are no better than those chosen randomly by a chimpanzee.
Cramer’s most notable calls have been the “Buy!” recommendation of Bear Stearns at $65 which fell to $30 and then $2 the following week, before rebounding to $10. His call of the “market bottom,” which records show he made at 13,000, 12,500, 11,800, 10,000, and 9,000 before advising viewers to get out of the markets at 7900. His revisionist claim that he called the actual bottom at 6500 cannot be verified in print or on tape, and a $15,000 reward posted by a former follower for just such evidence remains unclaimed.
Apparently feeling better than a few weeks ago when he advised viewers to exit the market at 9100, Cramer extolled “I feel really good about the market here” as the Dow peaked for the day.
Gold ETF Impact
Five years ago this week, an obscure little ETF called StreetTracks Gold Shares was born. As the first American ETF enabling stock traders to gain direct price exposure to a physical commodity, GLD was truly revolutionary. Now known as SPDR Gold Shares, this ETF has proven to be a smashing success. Today GLD is the second largest ETF on the planet, behind only SPY which tracks the flagship S&P 500 stock index. GLD now holds a staggering 1117 metric tons of physical gold bullion in trust for its shareholders, which was worth $41.3b this week! This "people's central bank" fueled by stock-trader gold demand has amassed so much bullion it now boasts the world's sixth-largest holdings. (more)
U.S. Housing Recovery Delayed to 2010 as Market Wanes
A recovery in U.S. housing will have to wait at least until next year. The outlook for the home market dimmed this week as residential construction and mortgage applications fell and loan delinquencies reached a record.
“I don’t think the housing crisis is over,” Mark Zandi, chief economist with Moody’s Economy.com, said in a telephone interview. “I think we’re going to see another leg down.”
New home sales may begin to pick up by the start of the so-called spring selling season, said Toll Brothers Inc., the largest U.S. luxury homebuilder. Existing house sales may take longer. Residential construction and property sales led the way out of the previous seven recessions going back to 1960, said David Berson, chief economist of PMI Group, the mortgage insurer in Walnut Creek, California. (more)
The Truth Behind China's Currency Peg
During President Obama's high profile visit to China this week, the most frequently discussed, yet least understood, topic was how currency valuations are affecting the economic relationship between the United States and China. The focal problem is the Chinese government's policy of fixing the value of the renminbi against the U.S. dollar. While many correctly perceive that this 'peg' has contributed greatly to the current global imbalances, few fully comprehend the ramifications should that peg be discarded. (more)
The "Double Dip Economic Depression"
When I was a kid, a “double dip” was an ice cream cone with two scoops. Yummy,
Today, the same expression is being used to warn us that the recession we are still struggling with could, and is supposedly posed for recovery could fall even deeper into another dip. That d word seems to be a substitute for another—a depression.
What’s going wrong? Isn’t the stock market sailing high? Hasn’t GM managed to cut its losses to only a billion? Isn’t Goldman Sachs setting aside “ a half a billion dollars to help small business and show how sorry it is for its role in the financial meltdown? (That pay out is over ten years—just 2.6% of its bonus pile, but who’s counting. A half a billion still sounds like real money. (more)
Red Alert: The Second Wave of The Financial Tsunami
Many of my friends who have been receiving my e-mail alerts over the last two years have lamented that in recent weeks I have not commented on the state of the global economy. I appreciate their anxiety but they forget that I am not a stock market analyst who is paid to write articles to lure investors back into the market. My website is free and I do not sell a financial newsletter so there is no need for me to churn out daily forecasts or analysis.
However, when the data is compelling and supports an inevitable trend, it is time for another review. This Red Alert is to enable visitors to my website to take appropriate actions to safeguard their wealth and welfare of their families in the coming months. (more)
Bob Toll Predicts New Housing Crisis
Luxury builder Robert Toll says the Federal Housing Administration (FHA) is a train wreck waiting to happen.
If he’s right, that’s bad news, because the FHA has played a huge role in buoying the housing market in recent months.
The agency insured lenders against mortgage defaults on 20 percent of homes bought in the last year.
The problem is that it requires down payments of as little as 3.5 percent.
“Yesterday’s subprime is today’s FHA,” Toll Brothers CEO Robert Toll said at a recent conference. (more)
Saturday, November 21, 2009
Stewart: Common Sense to Sell Now
Those who are in the market now may want to start selling, as the “common sense system,” or buy low, sell high strategy, dictates, writes financial journalist James Stewart in SmartMoney magazine.
“Many people equate a decision to sell with a prediction the market is going down,” writes Stewart.
“Who am I to dampen the festive atmosphere of a big rally? But I don’t try to predict short- or even medium-term moves in the market. All I’m trying to do is sell higher, buy lower, and thereby outperform a strict buy-and-hold approach. So far it has been working.” (more)
Priceless: How The Federal Reserve Bought The Economics Profession
The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found. This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed's thrall, the economists missed it, too.
"The Fed has a lock on the economics world," says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. "There is no room for other views, which I guess is why economists got it so wrong." (more)
Goldman Bonuses: An Intriguing Reason Why Treasury Yields Are Going Negative
Short-term US interest rates turned negative on Thursday as banks frantically stockpiled government securities in order to polish their balance sheets for the end of the year.
The development highlighted the continuing distortions in the financial system more than a year after Lehman Brothers’ failure triggered a global crisis.
The growing appetite for short-term government debt reflects an effort by banks to present pristine year-end balance sheets to regulators and investors – an effort known as “window dressing” on Wall Street, analysts said. (more)
The development highlighted the continuing distortions in the financial system more than a year after Lehman Brothers’ failure triggered a global crisis.
The growing appetite for short-term government debt reflects an effort by banks to present pristine year-end balance sheets to regulators and investors – an effort known as “window dressing” on Wall Street, analysts said. (more)
$4.8 trillion - Interest on U.S. debt
Here's a new way to think about the U.S. government's epic borrowing: More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest. More than half. In fact, $4.8 trillion.
If that's hard to grasp, here's another way to look at why that's a problem.
In 2015 alone, the estimated interest due - $533 billion - is equal to a third of the federal income taxes expected to be paid that year, said Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group. (more)
Friday, November 20, 2009
The dark side of the BRICs
Emerging market stocks have been the stars of the global market rally, and the BRICs (Brazil, Russia, India, and China) have set the pace.
Since their lows in late October 2008 -- they bottomed a few months before the U.S. market did -- the MSCI Emerging Markets index has soared 116%, while the MSCI BRIC index has skyrocketed 150% (all measured in dollars).
That makes the Standard & Poor's 500's 65% gains from its March lows look like chump change.
In the past year, Brazil has been on fire, surging 139.5%. Russia and India are close behind, with advances of around 115%, and China is the "laggard," with a mere 94.5% gain. (more)
SocGen On Gold Mania, And Why Gold Is Very, Very Cheap
With David Rosenberg discussing gold undervaluation virtually every day in his Gluskin-Sheff missives, it was only a matter of time before the other key currency contrarian, Dylan Grice, chimed in as well. Sure enough, Grice's latest letter will make Mr. Paulson want to launch his gold fund tomorrow if possible, as by January 1 the precious metal may very well have taken off to new stratespheric heights. Bob Janjuah - we are waiting for the trifecta.
Some preliminary observations from Grice: (more)
1 million jobless face benefits loss in January
One million people could lose unemployment benefits in January if Congress doesn't extend federal aid, according to a report released Wednesday.
The report is likely to turn up pressure on lawmakers and the president, who earlier this month enacted a record-long extension of federally paid benefits. But the law only helps those who exhaust their lifelines by year's end.
As it stands now, the deadline to apply for federally paid benefits is Dec. 31. So while unemployment benefits now run as long as 99 weeks, depending on the state, not everyone will receive checks for that long a stretch. (more)
Mortgage delinquencies hit record high
A rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure, adding to concerns about the strength of the economic recovery.
Driven by rising unemployment, such loans accounted for nearly 33 percent of new foreclosures last quarter. That compares with just 21 percent a year ago, when high-risk subprime loans made during the housing boom were the main reason for default.
At the same time, the proportion of homeowners with a mortgage who were either behind on their payments or in foreclosure hit a record-high for the ninth straight quarter. (more)
Banks face major commercial real estate storm
Sooner or later, office buildings and other commercial real estate financed during the credit bubble will generate hurricane-scale losses for banks.
Banks in recent years have been hammered by losses on home mortgages, buyouts and corporate defaults. Now, lenders face big losses from loans backed by commercial real estate, where a stagnant economy will eventually take its toll, financial services executives told the Reuters Global Finance Summit.
"The commercial real estate business still has not been marked down. It's not been marked to market," Cantor Fitzgerald LP Chief Executive Howard Lutnick said. "The economy can't, in my opinion, grow fast enough that the tenants are going to go out and start hiring and growing and building and take up all these rents at $60 a foot. It's nonsense." (more)
Behind the Gold Market
The rise in gold pre-sages a currency collapse, led by the USDollar. Gold vaults at commodity exchanges in New York and especially London are being drained by delivery demands. Gold demand is skyrocketing, as distrust for the USDollar is broadening and revolt against the US$ is deepening. The quintessential finance war is between the United States and China, with the battlefield being the US$ and Gold. The race over the $1000 price level came in the face of mammoth shorting by the same Usual Suspects on Wall Street, which do so with paper, but without the required collateral. The gold market is poised for a surprise upward move from a basic broken condition, as the Powerz are losing control. It would be a joy to watch except for the extreme hardship due to come to the betrayed American people. (more)
Chinese Mogul Sees Huge Property Bubble
Many outside experts have speculated that a bubble is brewing in China’s property market. Now a major insider is expressing the same thought.
Zhang Xin, chief executive of Soho China, one of the country’s most successful privately-owned real estate developers, says the government’s stimulus program is creating a bubble.
“Real estate prices should only go up because people want to actually use the space, but at the moment we can see more and more empty buildings across the whole country and in every real estate segment,” Zhang told the Financial Times.
Property prices in 70 of China’s biggest cities gained 3.9 percent in October from a year earlier, accelerating from September’s 2.8 per cent increase, according to official data. (more)
Thursday, November 19, 2009
McAlvany Weekly Commentary, Nov 18, 2009
Give Me Liberty: An Interview With Naomi Wolf
November 18th, 2009Author of seven books including The New York Times bestsellers The End of America and Give me liberty, Naomi Wolf compels us to face the way our free America is under assault. She warns us—with the straight-to-fellow-citizens urgency of one of Thomas Paine’s revolutionary pamphlets—that we have little time to lose if our children are to live in real freedom.
Wolf shows that there are ten classic steps dictators or would-be dictators always take when they wish to close down an open society. Each of those ten steps is now underway in the United States today. End of America will shock, enrage, and motivate—spurring us to act, as the Founders would have counted on us to do in a time such as this, as rebels and patriots—to save our liberty and defend our nation.
Naomi Wolf is the cofounder of the American Freedom Campaign. You can learn more about her at: www.fallofamerica.net or www.endofamericamovie.net To purchase her latest book, go to: http://mcalvany.com/main/resources/books/
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Mobius Expects 40% BRIC Stocks Gain, Says Buy on Dips
Mark Mobius said stocks in Brazil, Russia, India and China are likely to rise by 30 to 40 percent within three to four years as higher economic growth and lower government debt spurs corporate earnings. Mobius, chairman of Templeton Asset Management Ltd., said he’s increasing holdings in all emerging markets, with particular focus on the four biggest developing-nation economies collectively known as the BRICs.
“BRIC countries are really at the top” of our favorite holdings, Mobius, who oversees about $25 billion of emerging- market assets, said in an interview at the sidelines of a press conference in Istanbul today. “You can see BRIC countries have been best performing.”
Russia’s RTS Index has surged 135 percent this year, the biggest gainer among 89 equity gauges worldwide, and Brazil, China and India rallied more than 75 percent as the global economic recovery spurred demand for commodity exports. While developed countries may shrink 4 percent this year, emerging markets as a whole may avoid a contraction with zero change in gross domestic product, Mobius said. (more)
Local Currencies: The missing link in the quest for sustainability
Currency is the lifeblood of an economic system. Most people think that there’s only one type of money, because that’s all they’ve ever known. Cheques and credit cards etc. represent special-purpose forms of cash, but money is money, they think, regardless of the form it takes. Few realise that there are, potentially at least, many different forms of money, and each type can affect the economy, human society and the natural environment in a different way.
Bernard Lietaer, research fellow at the Centre for Sustainable Resources, California, and author of "The Future of Money" (2001), says
Richard Douthwaite, author of "The Ecology of Money" (1999), says
Bernard Lietaer, research fellow at the Centre for Sustainable Resources, California, and author of "The Future of Money" (2001), says
‘We create our exchange systems and then they create the world we live in.’
Richard Douthwaite, author of "The Ecology of Money" (1999), says
‘If we wish to live more ecologically, it would make sense to adopt monetary systems that make it easier to do so.’ (more)
The Critical Unraveling of U.S. Society
The economic elite have launched an attack on the U.S.public and society is unraveling at an increased rate.
I: U.S. Societal Breakdown
You may have missed it in the mainstream news media, but statistical societal indicators are reading red across the board. Before exposing the root causes of this breakdown, let’s look at some vital statistics and facts:
* The inequality of wealth in the United States is soaring to an unprecedented level. The US already had the highest inequality of wealth in the industrialized world prior to the financial crisis. Since the crisis, which has hit the middle class and poor much harder than the top one percent, the gap between the top one percent and the remaining 99% of the US population has grown to a record high. (more)
Société Générale tells clients how to prepare for 'global collapse'
In a report entitled "Worst-case debt scenario", the bank's asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.
Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of "deleveraging", for years.
"As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.
Under the French bank's "Bear Case" scenario, the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010. (more)
Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of "deleveraging", for years.
"As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.
Under the French bank's "Bear Case" scenario, the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010. (more)
Gold in the Face of the Fiat Fallout
Gold hit a new record yesterday. The price rose $22.50 to $1,139. And today we take up a foul and disagreeable task. We ask ourselves: what if we are wrong?
If you bought gold when we first recommended it, ten years ago, you are in a very comfortable position. Gold sells for more than 4 times as much today. But what should you do now? And what if you didn’t go for broke on gold in the early ’00s? Is it too late to get in on the bull market?
To give you a warning, in the following windy ambulation we come to no conclusion we haven’t come to before. We say gold is going to the moon. If we are wrong about when…we will be delighted sooner than expected…self-satisfied…and insufferable for years. If we are right, we may have to wait a long time before saying “I told you so.” (more)
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