NEWS #90

From October 18, 2009 to December 4, 2009

December 4, 2009

Here is a link to 'The ISM Non-Manufacturing Report: Six Causes for Concern', by James Kostohryz of Minyanville.Com.

.......................

I still believe we are still in the entry phase of a Depression. Here are some ruminations of mine (and others).

(1) President Obama recently announced a 'surge' in Afghanistan. This was one of Obama's campaign promises. The timing of the announcement really caught my eye. It came (almost as a response?) after the Iranians signalled they would be expanding their nuclear program. Coincidence? I think not.

So we are going to be more heavily involved in Afghanistan...OK...there may be a silver lining in that yet. Like Marc Faber, I too believe the world is looking down the gun of another major war. I think this time it will be between the Europeans and the Muslims. I think it will be marked by a lot of bad blood between the two groups which will lead up to an attack on European soil by the radical Muslims. The one target in Europe that would lead that continent to rise up, would be the Vatican. Blow up the Sistine Chapel and even the Danes would send troops. If we are bogged down in two wars of our own, we may dodge the next one....maybe.

(2) We are hunkering down. The 911 attacks worked, they changed the way we think big time. We are really starting to be concerned about borders. Our emigration policies are getting to be very tight. These are not the signs of an expansive nation. I think our economy will follow our attitude...it will hunker down.

(3) It occurs that the baby boomers are getting ready to retire. There is a ton of their monies sitting in 401k's. I have to believe that something will happen to those monies. The boomers simply will not be allowed to take the money and retire. One sure way to take the money away would be to have a dandy of a market crash...I mean a DJIA of 1000. Then the boomers would not be able to retire. It is an idea to contemplate.

December 2, 2009

Lar sends along these comments.

"The notion that Government expenditure will jump start the economy so that a return of 'confidence' will enable a return to 'normal' rates of growth is based on false premises.

From an economic point of vies, taking on more debt has produced ever smaller amounts of growth, and we are now pushing on a string. No recovery is possible until debt is paid down or written off.

Present living standards in the US and UK are only possible because of massive imports. Rebalancing means a decline in living standards of at least 25%, and that is currenly being expressed through rising unemployment.

Even on the fiddled current figures, a rate of 20% unemployment or so seems likely, just as in Spain at the moment. In short, high unemployment is the new 'normal'.

In the US, and even more in the UK, the gini coefficient, the ratio of wealth held by the top people as against the masses, are simply at Third World levels. Many of those who are still grabbing huge wealth from their bankrupted and taxpayer-rescued banks will be very lucky if they are not hung by the neck until they are dead, dead, dead as the realisation sets in that the good times are not returning, and common folk are suffering whilst the top bods still grab more and more. This is similar to events in the thirties, when the elite realised that there personal safety was in question and current attitudes were unacceptable.

Underlying the financial and political turmoil is the root case, that the engines of growth since the Second World war no longer exist.

The first was demographics, which are a drag on the Western world now, not a source of growth.

The second is interrnationalism, which has hollwed out well-paying jobs in the West as they migrate to cheaper places. Incomes are averaging. Some of this gap will be covered by rising incomes in countries like China, but a lot will be due to falling income in the West. I see isolationism and much reduced international trade coming as the West desperately tries to hold on.

The third force is oil. This drove growth for many years, but is now getting both scarce and expensive. In a frantic attempt at a cover up, oil and gas reserves are now mark to fantasy, just like the finances of banks. Here is the full, absurd story of what they have done to the figures, and how little they are related to reality:

http://www.cwsx.org/21darts.pdf

Recession will be the norm for at least the next twenty years, and current expenditure is not only of little use, but can’t continue indefinitely. The next leg down will be a lot deeper, and collapsing house and CRE values are going to turn the banks, and likely Government finances, into toast."

Rich Kolon sends this link to another grim read titled 'Anatomy of a Government-Abetted Fraud: Why Indymac/OneWest Always Forecloses', by Patrick Pulatie of IAmFacingForeclosure.Com.

November 30, 2009

Red and White D sends along this link to 'How I knew that Royal Bank of Scotland was going under' , by Jeremy Warner of The Telegraph. I quote it below.

"Two days later I received a phone call asking me if I still wanted to switch the money. Owing to a mix up in the paper work, my money hadn't been moved when I requested it. It was then that I realised that RBS, the biggest retail bank in the land, hadn't got the funds to pay me."

Red and White D also sends this link to 'Dubai is just a harbinger of things to come for sovereign debt', also by Jeremy Warner of The Telegraph. I quote the article below.

"Small wonder, though, that this minor tremor has sent such shock waves around the wider capital markets. The fear is that threatened default in this tiny desert kingdom is just a harginger of things to come for government debt markets as a whole. According to new estimates by Moody's, the credit rating agency, the total stock of sovereign debt worldwide will have risen by nearly 50 per cent between 2007 and 2010 to $15.3 trillion."

Red and White D the comments:

"How nice it is (or was), borrowing and spending yourselfrich.

When sovereign nations begin defaulting.....Whoa baby, there will be no safe haven.

Methinks I hear another shoe falling."

Here is a link to 'Predictions of War, Financial Bust, and More Gloom', by Mike Mish Shedlock of Minyanville.Com. I quote it below.

"Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, said eventually there will be a big bust and then the whole credit expansion will come to an end. Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to continued stimulus."

A related link is this one to 'World's press dissect Swiss minaret ban', on SwissInfo.ch.

Here is a link to 'The Reprioritization of Consumer Debt', by Peter Atwater on Minyanville.Com. I quote it below.

"Further, what does all of this say about the future of home prices, as well as the ultimate cost to the government (as the backstop for Fannie Mae (FNM), Freddie Mac (FRE), the FHA, and the Federal Home Loan Bank System)?

And finally, looking even longer term, what does this mean for future mortgage rates in America if mortgage debt is the last, rather than the first bill paid?

I can't underestimate the importance of this issue. It cuts across America socially, economically, and politically. If, as the data suggest, millions of Americans have stopped paying their mortgages to put food on the table and gas in their car, the underpinning of our economy is at great risk.

The reprioritization of payments doesn't equal a sustainable recovery."

A related link is this one to 'Are Housing Fundamentals Still Deteriorating?', by Andrew Jeffery on Minyanville.Com. I quote it below.

"The number of mortgages in the '90+ delinquency but not yet foreclosed' bucket is still growing and the rate of change is yet to slow. The looming backlog of foreclosures not yet completed is growing much faster than banks can (or are allowed to) push them through the system. Lender Processing Services (LPS), a spinoff of Fidelity National Information Services Inc. (FIS) estimates that 710,000 mortgages are more than six months delinquent but not yet in foreclosure. A year ago, that number was 'just' 203,000."

Keith send this link to 'China refuses to budge on EU plea to boost yuan', by Carolynne Wheeler at TheGloveAndMail.Com. I quote it below.

The trade relationship between the two has become increasingly acrimonious in that time. China filed a complaint to the World Trade Organization last summer over anti-dumping duties imposed by European countries on imports of its steel wire rods; Chinese exports of shoes and some solar-power technology have also been subject to European charges of dumping, while China has placed anti-dumping tariffs on imports of European nylon in apparent retaliation.

In one apparent conciliatory move, China announced yesterday that it would review anti-dumping measures against chloroform imports from the EU, South Korea and the United States. But analysts have warned that more heated trade battles will be inevitable if China's currency remains at its current low value."

And here is a link to 'Get Ready for Half a Recovery', by Gretchen Morgensen of NYTimes.Com. I quote it below.

"All that debt overhanging consumers and organizations is the pivotal reason we are still seeing a free fall in bank lending. And small businesses, which account for half of all jobs in this country, are taking the brunt of this credit contraction. Smaller banks are especially worried about their own balance sheets and aren't making loans. This puts small businesses - important engines of growth - squarely on the brink.

...The N.F.I.B. data was far more prescient than that of the I.S.M. in predicting the current recession, which began in December 2007, Mr. Shepherdson says. The N.F.I.B. survey signaled a downturn in the spring of 2007, while I.S.M. studies didn't point to a recession until after Lehman Brothers failed in September 2008.

In its survey, the N.F.I.B. asks small businesses how easy it is for them to get loans. The most recent data shows that credit tightness peaked earlier this fall - the worst levels in 23 years, Mr. Shepherdson says. Although credit continues to remain troublingly hard for small business to come by, that phenomenon is a largely untold story.

'Wall Street focuses on big companies because they are in the Standard & Poor's 500, but small businesses are still in a very grim state,' he says. 'Small-company activity according to the N.F.I.B. is still at deep recession levels.'"

November 22, 2009

Here is a link to 'Ohio Sues Rating Firms for Losses in Funds' , by David Segal of NYTimes.Com. I quote it below.

"'If they hold themselves out to the marketplace as objective when in fact they are influenced by the fees they are receiving, then they are perpetrating a falsehood on the marketplace,' said Rodney A. Smolla, dean of the Washington and Lee University School of Law. 'The First Amendment doesn't extend to the deliberate manipulation of financial markets.'"

Now the Attorney Generals of the various states are going to act, finally. They are a formidable group, doing what the SEC should have been doing all along. The rating agencies are waving the old 'freedom of speech' constitutional flag. A clever Attorney General may be able to manuever them into a position in court where they have to declare that their ratings are either (1) serious estimates, or (2) are just entertainment, pure fiction created for the amusement of the audience. If the ratings agencies decide to abandon the 'freedom of speech' ploy, in order to salvage their businesses, they will come face to face with the question of manipulation.

I offered to set up the Slam Bam It's A Scam Bond Rating Agency a long time ago. Under this scheme, no pretence would be made about the accuracy of the rating. A customer could order up as many A's as he could afford.

Here is a link to 'Revisiting a Fed Waltz With A.I.G.' , by Gretchen Morgenson of NYTimes.Com. I quote it below.

"The Fed, under Mr. Geithner's direction, caved in to A.I.G.'s counterparties, giving them 100 cents on the dollar for positions that would have been worth far less if A.I.G. had defaulted. Goldman Sachs, Merrill Lynch, Societe Generale and other banks were in the group that got full value for their contracts when many others were accepting fire-sale prices.

...The report zaps Fed claims that identifying banks that benefited from taxpayer largess would have dire consequences. Fed officials had refused to disclose the identities of the counterparties or details of the payments, warning 'that disclosure of the names would undermine A.I.G.'s stability, the privacy and business interests of the counterparties, and the stability of the markets,' the report said.

When the parties were named, 'the sky did not fall,' the report said.

Finally, Mr. Barofsky pokes holes in arguments made repeatedly over the past 14 months by Goldman Sachs, A.I.G.'s largest trading partner and recipient of $12.9 billion in taxpayer money in the bailout, that it had faced no material risk in an A.I.G. default - that, in effect, had A.I.G. cratered, Goldman wouldn't have suffered damage."

The outrage here is the assumption that one could receive public monies and claim a privacy priveledge. I'm sorry, Wall Street, if you take the money, we the public get to find out."

Here is a link to 'The Mother Goose Economy' , by Scott Reeves of Minyanville.Com. I quote it below.

"The Federal Reserve reports that consumer credit fell for the eighth straight month. Consumer credit fell at an annual rate of 6% in the third quarter of 2009, including a 7.25% decline in September. Revolving credit fell at an annual rate of 10% and non-revolving credit fell at an annual rate of 3.75%. Tighter credit limits consumer spending, even if consumers were in a mood to buy."

Rich Kolon sends along this link to AmericanObserver.net. This very scary illustration probably provides a clue as to why consumers are not in the mood to buy.

Keith sends this link to 'U.S. housing crisis hits new level', by Steve Ladurantaye of TheGlobeAndMail.com. I quote it below.

"The Mortgage Bankers Association said Thursday a record one in seven U.S. mortgages, or four million homeowners, were in foreclosure or at least one payment late in the third quarter. The housing market accounts for about 20 per cent of the U.S. economy, and a stabilization in plummeting property values is seen as a key pillar of an economic recovery."

Of course, banks have been given a great deal of leaway on how they report late payments. The real numbers are probably a lot higher than we, the public, can dig out.

Here is a related link to 'The Great Credit Crunch Is Deepening', by Richard Suttmeier of Minyanville.Com. I quote it below.

"Housing Starts declined 10.6% in October sequentially and are down 30.7% year-over-year. So where's the housing recovery? The annual rate of starts is just 529,000 units annualized.

Single family homes, the beneficiary of the $8,000 first-time home buyer tax credit fell 6.8% to an annual rate of 476,000 units. Will this be just a lull, as the tax credit expired but then extended beyond November 30? Go to contract by April 30 and to closing by June 30 to qualify.

It's tough to keep a housing recovery going with community and regional banks choking on C&D and CRE loans, strapped to pay Deposit Insurance Fees and TARP Dividends. Bank failures will continue."

Finally, The Orange Section sends these comments:

"Nice set of comments that you posted yesterday [November 18]. I especially like this line:

'Second, the Fed, like many economists and corporate CEOs, is operating under the assumption that this recession, like most traditional recessions, is only temporarily depressing consumption and credit demand. This view that credit demand is simply seeing a cyclical downturn will be severely tested in the year ahead.'

I think in many respects the policy choices we are seeing are going to be an indictment on the Keynsian approach to Macroeconomics as well as Macroeconomics itself. Economists needs to go through the same transformation that Accounting did in the 1970s. They need to realize that us Finance guys are not stupid and that all their assumptions are foolhardy without an inclusion for the effects of debt. The Cobb Douglas function is overly simplistic in it's approach to output. This needs to change. Then again, the reliance on GDP as a meaningful measure is probably a bit short sighted as well.

We are living through strange times. Right now I feel like I don't have enough time to properly complain about all the things that are worth complaining about. I don't mean to come off as a whiner either, it is just that in these interesting times there is much that is worthy of complaint."

November 18, 2009

Here is a link to an interesting article: 'Five Things: The Economic Crisis Takes a Virulent Turn', by Kevin Depew on Minyanville.Com. I quote it below.

"The reality, however, is that when you look inside the report, it is clear that broader consumer spending remains under pressure. Excluding auto sales, retail demand rose 0.2%, half of the expected 0.4% rise. The main sticking point, however, is that the government revised the September performance down to show a 2.3% decline, from the 1.5% drop initially reported. Ooops.

...First, it's likely because there's nothing the Federal Reserve can do to stimulate credit demand. The Fed can make credit available, but if there's no demand for it, well, good luck.

Second, the Fed, like many economists and corporate CEOs, is operating under the assumption that this recession, like most traditional recessions, is only temporarily depressing consumption and credit demand. This view that credit demand is simpy seeing a cyclical downturn will be severely tested in the year ahead."

I, for one, believe that credit demand could be depressed for up to another five years.

Here is a link to: 'The Reality of the Recovery', by John Mauldin on Minyanville.Com. I quote it below.

"First off, I can find no single source of recent sales tax information. It's all one-off, but it's consistent. Sales taxes in my home state of Texas are down 12.8% year-over-year, and we're in the fifth straight month of decreases of 11% or more. Projections are for sales taxes to continue to decline into 2010.

There's a very revealing study by the Pew Center on state taxes, called 'Beyond California.' Everyone knows how bad California is. The Pew Center looks at how the rest of the states are doing and focuses on 10 states that also have severe problems. Sales tax receipts are down 14% in Arizona, and state income taxes are down 32%.

On average, revenues are down almost 12%. Oregon has seen their revenues collapse a stunning 19%. New York is down 17%, with a deficit of 32%. Illinois has a projected deficit of 47% of its budget, second only to California with 49%. You can see how your state fares here.

...Fully nine states are in fiscal distress and only two have balanced budgets. States like Michigan are planning 20% budget cuts for the coming year. Indiana is planning a 10% spending cut in light of a 7.4% YoY revenue decline. How can the economy really be out of recession if government revenues are still deflating?

The states are filling around 40% of their fiscal gaps with the federal stimulus (so much for spending on 'shovel ready' infrastructure projects). Even after the fiscal help from Washington, the state governments will still face a projected deficit of $142 billion for 2011 (versus $113 billion in 2010). All in, the restraint in the state and local government sector is estimated to drain a full percentage point from US GDP growth in 2010 and more than fully offset the stimulative efforts from Washington. The US economy is more likely to post growth of little more than 2% next year, rather than the 5% currently being discounted by the equity market.

...In August, I did an interview with CNBC from Leen's Fishing Lodge in Maine. The unemployment numbers had just come out. I did a back-of-the-napkin estimate that we would need about 15 million new jobs over the next five years just to get back to where we were when the recession started.

That works out to a need for about 125,000 new jobs each month to handle new workers coming into the market (which comes to a total of 7.5 million over five years), plus the 8 million and rising jobs we've lost. That's a daunting number. It amounts to 250,000 new jobs a month every month for five years. And we're still losing more than that number a month, never mind adding the needed 250,000.

...I think we're in for a double-dip recession in 2011, yet I readily admit there will be little, if any, statistical evidence in advance this time. This is more of an instinct call. I have serious doubts that we can have what amounts to the largest tax increase of all time in what will be a very weak (albeit, growing) economy, without putting us back into recession. And Speaker Pelosi thinks it's a smart thing to add another 5.4% surtax on what will already be a rising capital gains and dividend tax.

Taxing small businesses - and that's what the tax increase amounts to - is a very bad idea in a weak economy. Small businesses are where the job growth comes from. Taking money from productive businesses and giving it to government is a fundamentally flawed concept."

It never fails to amaze me that the first thing Congress thinks to do during a 'crisis' is to raise taxes on the only true growth engine our economy has: small business. It is the worst thing it could do to restart the economy.

And here is a link to: 'U.S. House Dems sharpening 'too big to fail' plan', by Kevin Drawbaugh of Reuters.Com.

The Orange section had already sent me comments on this topic. I include them below.

"...For example, Frank [Rep. Barney Frank] has proposed that the Fed be in charge of enforcing tougher regulations on large and influential financial firms so that they don't grow 'too big to fail.' A council of regulators would monitor these firms and make recommendations."

[Would this be the same group of regulators - or their philosophical descendents - who allowed all this craziness to occur in the first place? Does Rep. Frank remember how Congress responded when Hank Paulson, then the head of Goldman, came to Washington to plead for an easing of restrictions on the banking industry, so those big boys could compete with European banks? How would a similar Congress respond to the banking industry in a similar situation? And what kind oversight would that Congress give to a council of regulators?]

"...Under Dodd's bill, the Fed would have less reach. An 'agency for financial stability,' managed by a board that includes Fed representation would enforce new rules and dismantle complex financial firms if they threaten the broader economy."

How is 'too big to fail defined'? So they want to give themselves the power to break up a firm if it is perceived to threaten the economy? What do they consider a threat? What will be done to insulate this from becoming Political Witch Hunts?

This is a direct assault on Liberty being brought to you on the shoulders of class envy. Of course, hidden under the covers is an acute desire to gain political return.

The biggest lesson of 2008 Election: Politicians make decisions for political gain, not economic gain. That is why the stimulus has failed and it is why we live in a political environment rife with class envy."

Here is a note that Rich Kolon sent along.

"Art Cashin says that the small caps as measured by the Russell 2000 are now underperforming the large caps, and that they appear to have made a top.

So I looked at the $SPY and $RUT daily charts and verified it.

http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=6&dy=0&id=p91058887254

http://stockcharts.com/h-sc/ui?s=$RUT&p=D&yr=0&mn=6&dy=0&id=p91058887254

There is a double top in the Russell 2000 index, and dip well below the 50-day moving average that have since rebounded to just above it.

The S&P 500 index however is near its high and well above the 50-day moving average.

Art Cashin also mentioned that the advance-decline line has been lagging as well.

http://online.barrons.com/public/page/9_0210-trddiary.html

The Barron's chart in the link above confirms that the cumulative advance-decline line stopped going up in October.

I found a table of the percentage number of stocks trading above various moving averages.

http://www2.barchart.com/momentum.asp

Compared to last month, this percentage has dropped in all categories from the 50-day moving average on up.

So it does appear the stock market has lost momentum.

The dollar continues to head down, while gold and silver are strong.

http://stockcharts.com/h-sc/ui?s=$USD&p=D&yr=1&mn=0&dy=0&id=p58615266706

It appears that speculators are cashing in on the small caps before year end to lock in profits. The dollar carry trade appears to be now favoring a narrower set of stocks, basically the larger caps.

Overall this shows a broad market top is in the making, where investors and traders prefer to be in the "safer" larger cap stocks.

It's possible that the small cap stocks may come back into favor in January (the January effect), but I suppose that would be a function of whether the Fed intends to keep interest rates very low at that time.

Gold and silver continue to act well. Charles Nennar predicts their next top will be in February 2010.

Rich"

Here is a link to: 'Stocks Fall on Disappointing Economic Data', by Javier C. Hernandez on NYTimes.Com.

Here is a link to: 'Obama warns on US public debt pile', by Edward Luce in Beijing and Krishna Guha in Washington of Financial Times.

November 3, 2009

Here is a link to an interesting article on retail: 'The Top Ten Holiday-Shopping Trends', by Carol Kopp on Minyanville.Com.

My local paper delivered to my door on Sunday, November 1, a tall stack of fliers from all the grocery stores, all the department stores, the home improvement stores, and even one from Proctor and Gamble. The P&G flier had coupons for virtually all the P&G products. Wow!

WalMart's flier was hard to miss. In the background behind the ads for the discounted flat screens, was a Christmas tree. The general theme for all the fliers seemed to be: Start the Holidays Now! While I sympathize with the retailers, I have serious doubts that this strategy will work. More on this later.

Another interesting link is this one to: 'States Are Pondering Fraud Suits Against Banks', by David Streitfield on NYTimes.Com. I quote it below.

"While statutes vary, those of every state prohibit fraud in consumer lending. The attorneys general are considering the theory that the banks essentially perpetrated a vast fraud on consumers by marketing exotic loans that would prove impossible to pay back.

During the boom, the banks earned short-term fee income from generating the loans, then quickly resold most of them to investors or to Fannie Mae and Freddie Mac, two government-sponsored housing agencies that eventually required costly taxpayer bailouts."

Red and White D sends this link to an Opinion piece: 'Governed by Callous Children', by Peggy Noonan on WSJ.Com. I quote it below.

"The new economic statistics put U.S. growth at a healthy 3.5% for the third quarter. We should be dancing in the streets. No one is, because no one has any faith in these numbers.

Waves of money are sloshing through the system, creating a false rising tide that lifts all boats for the moment. The tide will recede. The boats aren't rising, they're bobbing, and will settle. No one believes the bad time is over. No one thinks we're entering a new age of abundance. No one thinks it will ever be the same as before 2008.

...This is historic. This is something new in modern political history, and I'm not sure we're fully noticing it. Americans are starting to think the problems we are facing cannot be solved."

Here is a link to another Opinion piece: 'Wall Street Cries 'Feed Me' or World Will End', by Susan Antilla on Bloomberg.Com. I quote it below.

"A poll of Bloomberg customers released last week revealed that 21 percent of traders, analysts and fund managers polled in the U.S. expect their 2009 bonuses to be bigger than last year. Another 24 percent expect their bonuses to be about the same, which is pretty good when you consider the employment woes of the rest of the nation. Frustrated taxpayers wonder how they got into a mess where $700 billion of their money went to bailing out people who today are poised to pocket record amounts in some cases (9 percent in the Bloomberg survey).

...I get it when the tech geek huddles in a garage for three years with a couple of pals and comes up with a blockbuster idea that brings pleasure to consumers or profits to companies, and then takes the company public. But why am I supposed to be losing sleep that new rules might impede the creation of the new, new thing in tax evasion? Or high-frequency trading? Maybe a new flavor of collateralized-debt obligation bearing a delusional AAA rating?"

Rich Kolon sent me this link that I requested:

http://www.aar.org/NewsAndEvents/WeeklyTrafficReport.aspx

What this link gives you, dear reader, is an insight into how well the U.S. economy is really doing...without all the 'filtering' that the U.S. Government likes to do with the numbers it generates.

Before goods are manufactured raw materials must be shipped to the factories. After manufacture, the goods are then shipped out to consumers across the country. Both the comings and the goings require shipping. Therefore, a glance at how busy the railroads are will give a good feel for how the ecomomy is doing.

On this site I found the following this link.

'AAR Reports Weekly Rail Traffic Down Year Over Year [October 22, 2009]'

Here is the especially revelent quote: "For the first 41 weeks of 2009, U.S. railroads reported cumulative volume of 10,930,879 carloads, down 18.1 percent from 2008."

But that made me wonder how well volume had been doing a year ago, in 2008. So, on the first page, I found this other link.

'Rail Freight Volume Trails Last Year During Most Recent Week [October 30, 2008]'

Here is the especially revelent quote: "Cumulative volume for the first 43 weeks of 2008 totaled 13,996,433 carloads, down 0.4 percent from 2007;"

The U.S. economy is not getting better. A year ago it was just beginning to fall. Now, it is falling a good clip. There are no green shoots. This is not Oz. Not only is there no place like home, Dorothy, there no way to get back there, not this time, not now. Put your ruby slippers away.

October 31, 2009

Here is a link to 'U.S. Consumer Spending Slipped in September', by REUTERS on NYTimes.Com.

Here is a link to 'Investment Outlook - November', by Bill Gross on PIMCO.Com. I quote it below.

"To get more than that, high yield, distressed mortgages, and stocks beckon the investor increasingly beguiled by hopes of a V-shaped recovery and 'old normal' market standards. Not likely, and the risks outweigh the rewards at this point. Investors must recognize that if assets appreciate with nominal GDP, a 4 - 5% return is about all they can expect even with abnormally low policy rates. Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets - while still continuously supported by Fed and Treasury policymakers - is likely at its pinnacle. Out, out, brief candle."

Here is a link to 'Wilbur Ross Sees 'Huge' Commercial Real Estate Crash', by John Gittelsohn and Thomas R. Keene on Bloomberg.Com.

Rich Kolon sends along this link to:

http://www.cnbc.com/id/15840232?video=1313902050&play=1

He notes that Art Cashin, "appears about 3 minutes into video."

Rich explains:

"Traders are following dollar. A geopolitical event could cause a repeat of last year's drop."

For readers who don't know, Art Cashin is definitely an insider on the NYSE. He was an exchange employee during the crash in October 1987. Many believe that it was Cashin's quick thinking and great timing that pulled the markets back away from the edge of the abyss.

October 30, 2009

Rich Kolon sends this note along.

"Bender,

The dollar is coming off its lows.

http://tinyurl.com/ykf7mgj

These were extreme lows, where very few bulls existed. 4% was the estimate number of bulls on the dollar. Such extreme can create contrarian moves.

Foreigners were likely playing the dollar carry trade. They borrowed dollars at near zero interest rates. Then threw those dollars into gold, silver, US stocks, longer term treasury bonds, etc.

But now the dollar has been rising. If they were to buy dollars to cover their borrowing, they would have to use more local currency to get the same amount of dollars, if they were to maintain their gold or stock positions.

Instead they take profits in those positions to get the dollars back.

That is what I think is affecting our stock market right now.

Can this reversal change soon? I don't know. But if this stock market was in bubble mode, unjustified by no economic recovery in the U.S., it could continue into a steep drop.

What is "unjustified"? Take a look at P/Es.

http://online.barrons.com/mdc/public/page/9_3021-peyield.html? mod=bol_topnav_9_3000

The P/E on as-reported earnings on the S&P 500 is 77.75.

Rich"

Red and White D writes:

"I did a little research on some fees on cards after reading your last post.

Ya gotta check out this this example.

https://www.firstpremierbankgold.com/carddetails.aspx?appid=RP09102900064Y6JF

$250 credit limit.......But, you incur $179 in fees as soon as you press the "apply" button plus a $7 monthly maintenance fee. So, you have $71 in credit till you pay off the 179.

Wow! What a business."

And, he sends along this note.

"A snippet from the last post:

'It now looks like the financial sector avoided Armageddon, but the economy is not yet out of the woods'

--------------------------

Donald Rumsfeld, may he rest in peace, had a choice saying which seems apropos to the current economic news.

"There are the things you know, the things you don't know and the things you don't know you don't know" -Rummy

I have to wonder what hideous new bombshell is ticking away in the wacky, risk taking world, of banking and insurance.....that we don't know about.....yet."

For you gold bugs out there, Ben Smith sends along this link:

http://www.321gold. com/editorials/hoye/hoye102909.html

October 27, 2009

Here are two related links to articles by Mike Mish Shedlock:

'Citigroup's 'Hail Mary Pass': How To Know Citigroup Is In Serious Trouble'

'Citigroup's Unregulated Credit Card Rates Are Breaking Down Consumers'

I quote below from the first article.

"I have since confirmed that this letter is not just going to people who have had credit "challenges". Indeed, this appears to be a blanket change on the part of Citibank.

...Perhaps what we're really seeing is a business reacting to hidden deterioration of asset bases that are not known by investors and the public due to the legitimation of bogus accounting that happened this last March, but which is known by company executives!

Ding! Ding! Ding!

We have a winner. Citigroup needs money, and needs money badly. Moreover, there is no reason to believe this is all credit card related. In fact, there is every reason to believe Citigroup (and other banks) are in trouble on multiple fronts."

Here is a link to 'Reading Between the Lines of Rosy Economic Forecasts', by Scott Reeves on Minyanville.Com. I quote it below.

"It now looks like the financial sector avoided Armageddon, but the economy is not yet out of the woods. Bank of America (BAC) continues to struggle and recently reported a third-quarter net loss of $1 billion. General Motors remains an appendage of the government and the jolt provided to the auto industry by the Cash for Clunkers program appears to be temporary."

Here is a link to 'Post-Bailout Blues as Europe Orders ING Group to Sell 2 Units', by Eric Dash and David Jolly on NYTimes.Com. I quote it below.

"On Monday, the Dutch financial conglomerate ING Group became the first bank to be ordered broken up by regulators as the price for a taxpayer bailout of 10 billion euros ($14.9 billion). Under pressure from the European Commission, the bank announced plans to accelerate the sale of its insurance operations and its Internet banking business in the United States to refocus on its European customer base. ING nearly collapsed last fall under a mountain of troubled American mortgage assets.

Other European banks propped up by taxpayer money, like the Royal Bank of Scotland and Commerzbank of Germany, could soon face pressure to sell major businesses, too."

And last, here is a link to 'Consumer Confidence Declines in U.S.', by THE ASSOCIATED PRESS on NYTimes.Com.

Consumer Confidence is absolutely critical because the consumer drives 70 percent of the economy. Any 'recovery' in housing, autos, or even banking has to be temporary if Consumer Confidence keeps falling.

ARMS begin resetting at a high rate beginning the quarter we are in now. That means that financials are in for bad news for at least three quarters in a row.

October 26, 2009

My last posting drew this comment from Red and White D:

"Interesting post from Rick Kolon.

Assuming he is right.....what hope is there for us?

The fuel that runs the American enterprise system now is pure money, whereas once it was driven by ideas and imagination aided by money. We have been seduced by the notion that piling up wealth will insulate us from the risks and tragedies of life. Our leaders are drunk with power and are on a bender of titanic proportions.

Great time to be alive. Lots of adventure."

He also sends along this link to: 'We're All Balloon Boys Now', by Daniel Henninger on RealClearPolitics.Com

Rich Kolon also send along this link:

http://tinyurl.com/yk3z82g

and the following quote from the article.

"On two occasions last year: on March 16, 2008, and subsequently on September 14, 2008, the Federal Reserve first established what is known as the Primary Dealer Credit Facility (PDCF), and subsequently amended it, so that the Fed, in becoming the lender of last resort, would allow any collateral, up to and including stocks, to be funded by the Federal Reserve's credit facility, in order to prevent the $4.5 trillion repo financing system from imploding. By doing so, the Federal Reserve effectively gave a Carte Blanche to primary dealers to purchase any and all equities they so desired, with such purchases immediately being funded by the US taxpayer, via the PDCF. In essence, this was equivalent to the Fed purchasing equities by itself through a Primary Dealer agent."

..............

I have noticed that the FED is intent on delivering an impression that it is being deliberate as it considers raising interest rates. I suspect there is nothing calm at all about their 'deliberations'. What I suspect is going on is that Bernanke and the boys are under intense pressure from the Europeans and the Chinese to raise interest rates. I also suspect that to counteract those pressures, the FED has floated the idea of devaluing the dollar by at least 40 percent. That would be a dagger to the heart of the Chinese in particular. I think there is a titanic struggle going on and it will be interesting to see what the FED does end up doing.

October 24, 2009

It was pure coincidence that yesterday Rich Kolon sent out the following note.

"Bender,

I'm not going to post a link. Just give you some of my thoughts.

The banks are not loaning out their excess reserves, estimated at a trillion dollars. It was only a couple years ago that this amount was under two billion dollars.

Sure, the banks have trouble with toxic assets that they are afraid to write down, since that would then expose these banks to reveal how insolvent they are. Hence the Fed prop up with bailouts.

However it appears evident that they are willing to subsidize speculation, and a new dollar carry trade has been born. It's similar to the old Japanese carry trade. Borrow real cheap in one currency, and invest it in something likely to appreciate, such as foreign bonds, gold, forex. Then pay back in cheapened currency.

But what has happened is that the stock market is priced beyond a reasonable expectation for economic growth. The stock market is in a bubble, due to this speculative borrowing. Unemployment is going up. It's worse than the official figures. And businesses are not getting the loans they need to expand. So one day the speculation will bust. (Watch the QQQQ 20-week signal!)

I believe the Fed should immediately raise short term interest rates to 4%.

First we need to raise interest rates to stop this speculation and dollar carry trade.

It's not going to hurt bank profits, since they aren't loaning money at the current rates, except to their speculative buddies.

Sure, stocks would go down on the news, but bursting from a higher bubble is even worse.

Savings rates would become reasonable for people to at least make some money on their CDs or savings accounts. It would especially help retirees to eke out a living. And US citizens need to save more, before the world stops accepting a devaluing dollar.

Raising rates would increase savings, as well as stop the decline in the dollar value. And it would give a normal reason for banks to loan money to non-speculators, after the speculative excess is ringed out of the system. Otherwise these speculators will just swing money from one bubble into new bubbles.

In addition, the Fed should stop its new policy of paying interest on bank reserves. The banks should not be rewarded for sitting on bailout dollars.

The real problem behind all this is the government does not want to punish all the con men who created the toxic assets and sold them with phony safety ratings to pension funds. That's because these con men made lots of financial contributions to the elected official's campaigns.

A top ten list of contributors to Obama's campaign includes people who work for Goldman Sachs and JP Morgan, for example.

The corruption starts with the con men, and is aided and abetted by elected officials, who threw trillions to the con men companies, instead of doing the right thing. Let them go bankrupt.

Now they get to keep their losses hidden by changing the accounting rules, and damaging everyone's purchasing power in the process.

Even my short term proposal does not solve the root cause of this problem. It's not pikers like Bernie Madoff. It's the breaking of the Constitution which states that money is gold and silver. Fiat "print them up" money is the mother of all scams. Our government is responsible for that con job, because politicians want more money to spend to reward lobbyists who fund their campaigns.

America is corrupt to the core.

Rich"

...............

I offer this again. I first posted it April 4, 2008.

Deregulation, don't you remember its sweet promise?
Savings and Loans will become banks
And lend on shopping malls and oil wells
Tell me again dear Walrus
How did that work out?

After deregulating savings and loans
Let's do the same to banks and brokers, said the Carpenter
Banks will do brokering and brokers will be banks
We'll let diversification and consolidation
Run its ugly course
Till all our yesterdays have but lighted
Fools the way to dusty death
(Sorry, Billy Spearshaker)

We have allowed, even promoted,
Diversification and consolidation
To run the fat oysters to exhaustion
And yes, Bunning, they are very weak indeed
Just as you, and your fellow
Deregulators would have them

If you want strong banks,
Let there be more of them, not fewer
If one of twenty fail, the rest will survive
If one of five fail, the rest of us will suffer
Bigness, in an of itself, is not strength

If you want strong banks,
Let them not be brokers

When was it ever in the best interests
Of the rest of us for there just to be
Five big banks in the country?
And then four, and then three, and then two?

And when there are only the Walrus and the Carpenter
Left standing on the beach
Where will the rest of us be?

October 23, 2009

Lar sends this link to 'Wall Street's Naked Swindle', by Matt Taibbi on RollingStone.Com. I think this is a must read for all Benders. I quote the article below extensively.

"This was a brokered bloodletting, one in which the power of the state was used to help effect a monstrous consolidation of financial and political power. Heading into 2008, there were five major investment banks in the United States: Bear, Lehman, Merrill Lynch, Morgan Stanley and Goldman Sachs. Today only Morgan Stanley and Goldman survive as independent firms, perched atop a restructured Wall Street hierarchy. And while the rest of the civilized world responded to last year's catastrophes with sweeping measures to rein in the corruption in their financial sectors, the United States invited the wolves into the government, with the popular new president, Barack Obama — elected amid promises to clean up the mess — filling his administration with Bear's and Lehman's conquerors, bestowing his papal blessing on a new era of robbery.

To the rest of the world, the brazenness of the theft - coupled with the conspicuousness of the government's inaction — clearly demonstrates that the American capital markets are a crime in progress. To those of us who actually live here, however, the news is even worse. We're in a place we haven't been since the Depression: Our economy is so completely fucked, the rich are running out of things to steal.

...Given the Fed's cloak of confidentiality, we simply don't know what happened at the meeting. But what we do know is that from the moment it ended, the run on Banks, brokers and hedge funds that held cash in Bear's accounts yanked it out in mass quantities (making it harder for the firm to meet its credit payments) and took out credit-default swaps against Bear (making public bets that the firm was going to tank).

...All of these tactics were elements that had often been seen in a kind of scam known as a 'bear raid' that small-scale stock manipulators had been using against smaller companies for years. But the most damning thing the attack on Bear had in common with these earlier manipulations was the employment of a type of counterfeiting scheme called naked short-selling. From the moment the confidential meeting at the Fed ended on March 11th, Bear became the target of this ostensibly illegal practice - and the companies widely rumored to be behind the assault were in that room. Given that the SEC has failed to identify who was behind the raid, Wall Street insiders were left with nothing to trade but gossip.

...Analyzing the problem, Trimbath came to an ugly conclusion: The fact that short-sellers do not have to deliver their shares made it possible for two people at once to think they own a stock. Evil Hedge Fund X borrows 100 shares from Unwitting Schmuck A, and sells them to Unwitting Schmuck B, who never actually receives that stock: In this scenario, both Schmucks will appear to have full voting rights. 'There's no accounting for share ownership around short sales,' Trimbath says. 'And because of that, there are multiple owners assigned to one share.'

...What naked short-sellers do is sell large quantities of stock they don't actually have, flooding the market with 'phantom' shares that, just like those Island Rubles, depress a company's share price by making the shares less scarce and therefore less valuable.

...Not only has there been virtually no enforcement of the rule, but the SEC doesn't even bother to track who is targeting companies with failed trades. As a result, many stocks attacked by naked short-sellers spent years on the threshold list, including Krispy Kreme, Martha Stewart and Overstock.com.

'We were actually on it for 668 consecutive days,' says Patrick Byrne, the CEO of Overstock, who became a much-ridiculed pariah on Wall Street for his lobbying against naked short-selling. At one point, investors claimed ownership of nearly 42 million shares in Overstock - even though fewer than 24 million shares in the company had actually been issued.

...'This really isn't about my company,' Byrne says. 'I mean, I've made my money. My initial concern, of course, was with Overstock. But the more I learned about this, the more my real worry became 'Jesus, what are the implications for the system?' And given what happened to Bear and Lehman last year, I think we ended up seeing what some of those implications are.'

...The best way to grasp what happened is to look at the data: On Tuesday, March 11th, there were 201,768 shares of Bear that had failed to deliver. The very next day, the number of phantom shares leaped to 1.2 million. By the close of trading that Friday, the number passed 2 million — and when the market reopened the following Monday, it soared to 13.7 million. In less than a week, the number of counterfeit shares in Bear had jumped nearly seventyfold.

...It would be an easy matter for the SEC to determine who killed Bear and Lehman, if it wanted to - all it has to do is look at the trading data maintained by the stock exchanges. But 18 months after the widespread market manipulation, the federal government's cop on the financial beat has barely lifted a finger to solve the two biggest murders in Wall Street history. The SEC refuses to comment on what, if anything, it is doing to identify the wrongdoers, saying only that 'investigations related to the financial crisis are a priority.'

...When lenders couldn't find enough dope addicts to lend mansions to, some simply went ahead and started selling the same mortgages over and over to different investors. There are now a growing number of cases of such double-selling of mortgages: 'It makes Bernie Madoff seem like chump change,' says April Charney, a legal-aid attorney based in Florida. Just like in the stock market, where short-sellers delivered IOUs instead of real shares, traders of mortgage-backed securities sometimes conclude deals by transferring "lost-note affidavits" — basically a 'my dog ate the mortgage' note - instead of the actual mortgage. A paper presented at the American Bankruptcy Institute earlier this year reports that up to a third of all notes for mortgage-backed securities may have been 'misplaced or lost' - meaning they're backed by IOUs instead of actual mortgages."

October 19, 2009

Here are two links:

'Wall Street's Fatal Lack of Skepticism', by Bill Feingold on Minyanville.Com.

'October 2007 Shows Us How This Rally Ends', by Ron Coby on Minyanville.Com.

October 18, 2009

Rich Kolon sends along this note:

"Inflation, Deflation, or Both?

Need vs. Want.

Demand vs. Supply.

http://www.financialsense.com/fsu/editorials/2009/1012.html

I tend to think of inflation as easy credit. The money supply increases before you earned it.

I tend to think of deflation as restricting credit, or default. The money supply decreases or does not grow. I would also add fraud.

The US government rewarded defrauders when they gave out TARP funds.

Back to the article, I have been or are invested in gold, silver, seeds, food, oil, natgas, coal, uranium, and other commodity stocks. I also consider health as a need.

I also looked at China as source for demand and supply. I have about a half dozen China plays.

Examine my portfolio and you'll see many of these long term themes in play. These themes have been long term winners for me.

http://tinyurl.com/yhbmtrt

Rich"

Rich Kolon also sends along this link about Chinese Drywall.

http://tinyurl.com/ygumrpf

And here is a link to an interesting article: 'Rising Oil Prices May Be the Forerunner to War', by Ron Coby on Minyanville.Com.

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