there was a “man in the street” segment on one of the networks where people were being asked “What should the new President do about the troubled economy?” One man said “He should give money to all the homeowners who are in trouble and give some money to other homeowners too.” I think the idea of bailing out anyone and everyone is now in the vernacular of American society. How do you suppose people are getting the idea that everyone should get a financial rescue? Could it be story after story in the news everyday about how Citigroup, Bank of America or a variety of other banks are getting hundreds of billions of dollars in cash and government backing to keep them afloat? Maybe it’s the 200 billion given to AIG to keep it from causing systemic failure. It just couldn’t be the nearly 18 billion given to GM and Chrysler to keep them in business. Bailout fever is spreading like kudzu. The list of businesses and industries in need of a lifeline are like snowflakes in Colorado. Home builders, airlines, insurance companies, money market funds, states (41 are in financial trouble) and hundreds of cities around the nation are facing big budget shortfalls. Is that going to turn into some sort of bailout too? I was in North Carolina two weeks ago. While watching local television I heard the new Governor, Bev Perdue, say the state was 2 billion dollars in the red and that without federal bailout money there would have to be drastic cuts to the state budget. She was in Washington trying to get a piece of the TARP money and, why not, every other state governor is doing the exact same thing!!! Governors from around the country are asking the Federal government for a trillion dollars so they’ll not have to make some very hard choices.
What about the groundhog day? Well following the old tradition from Punxsutawney, a small town in western Pennsylvania., the groundhog tells us what we have to expect regarding weather. Well this time the groundhog Phil has predicted that America is in for another six weeks of winter. What would his prediction for the economy be? Might it be some six very cold and freezing Kondratieff winter years? Might very well be.
Well the groundhog was certainly news but the real news was the US GDP.
Before going into details, let’s have a look at the market overview from www.prudentbear.com
For another volatile week, the S&P500 ended down 0.7% (down 8.6%), and the Dow fell 1.0% (down 8.8%). The Morgan Stanley Cyclicals fell 3.2% (down 13.3%), and the Morgan Stanley Consumer index declined 1.2% (down 6.4%). The Transports were little changed (down 16.2%), while the Utilities added 0.4% (down 1.3%). The small cap Russell 2000 slipped 0.2% (down 11.2%), and the S&P400 Mid-Caps declined 0.5% (down 7.4%). Continuing to outperform, the Nasdaq100 added 0.4% (down 2.6%) and the Morgan Stanley High Tech index slipped only 0.5% (down 1.8%). The Semiconductors were unchanged (down 1.8%); the InteractiveWeek Internet index gained 1.0% (unchanged y-t-d); and the Nasdaq Telecommunications index sank 3.7% (down 2.0%). The Biotechs gained 0.6% (down 1.9%). The Broker/Dealers dipped 0.2% (down 0.2%), while the Banks recovered 1.0% (down 35.2%). While a resurgent Bullion gained $28, the HUI Gold index declined 1.3% (down 0.8%).
And what’s hot and not
Economy
Well the news was not good at all and following Williams at www.shadowstats.com, the real picture is even worse. Following part of his comment from a last weeks flash update
Quote
Real GNP Weakest Since First-Quarter 1982. The BEA’s "advance" estimate of real annualized growth in the fourth-quarter 2008 GDP was a statistically significant decline of 3.80% +/- 3% (95% confidence interval), reflecting a deepening pace of contraction versus the 0.51% downturn reported in the third quarter. In terms of year-to-year change, the fourth quarter turned negative, down by 0.18%, versus the third quarter’s annual gain of 0.75%.
As usual, the data published for the GDP are of little meaning — other than for political or financial market purposes — given the paucity of hard numbers available at this time for the fourth quarter, and given the heavily rigged nature of GDP reporting in general. Consider, for example, that Personal Consumption Expenditure (PCE), which represents roughly 71% of GDP — improved from an annualized contraction of 3.8% in the third quarter, to 3.5% in the fourth, while the annualized contraction in seasonally-adjusted real retail sales sank from an 11.1% downturn in the third quarter to a 17.1% contraction in the fourth. Key series such as housing, industrial production and new orders for durable goods all are showing annualized quarterly percent declines in excess of 10%.
Based on earlier reporting methodologies and removal of some reporting gimmicks, the SGS-Alternate GDP estimate for the fourth quarter was an annual (not annualized) contraction of roughly 4.1% versus a 3.3% contraction in the third quarter, against official respective estimates of a 0.2% decline and 0.7% gain. Against reporting of underlying economic series, an annualized quarterly contraction in excess of 7% for the fourth quarter would have been more realistic than the published 3.8% estimate.
The BEA’s GDP-like measures for fourth-quarter 2008; Gross National Product (GNP), where GDP is GNP net of trade in factor income (interest and dividend payments); and Gross Domestic Income (GDI), which is the income-side equivalent of the GDP’s consumption estimate; likely will not be published until the second revision in March, due to the lack of hard data available for the advance estimate, and given that the numbers are annual and more heavily relied on than partial-year data.
Unquote
Gold
Well dear reader, gold and silver are doing just fine. Both moved above important resistance levels and therefore I do expect both to increase in value over the next couple of months. Although some corrections will happen on the way up, my 2009 year end target price is close to USD 1,400 per ounce. If you like to get information of a fund that will be ready by the end of February and will invest mainly in physical precious metals, managed by the writer of this blog, please send me an e mail for further information.
More about gold
Gold attracts more flows amid recession Wed Jan 28, 2009 9:29am GMT By Frank Tang and Jennifer Ablan
NEW YORK (Reuters) - Gold, the traditional safe haven in times of economic turmoil, proved to be more a commodity that everyone loved to hate last year even amid the turbulence that engulfed world markets.
But as 2009 gets under way the yellow metal has found huge traction with money managers.
In the last eight sessions, gold has rallied as much as $100 (70 pounds) an ounce to hit a near four-month high of $915.30 on Monday — in spite of a rising dollar.
The furious rally in the bullion stems from expectations that the U.S. government will need to borrow about $2 trillion of debt this year to finance its rescue packages for the battered banking sector. Already, outstanding Treasury debt stood at $5.5 trillion at the end of September.
Against this backdrop, investors are largely shunning everything from U.S. Treasuries to stocks, which are down 10 percent and 7.5 percent so far this year, respectively, while pouring cash into gold.
"I think gold is rising because of fiscal deterioration and the prospect that the U.S. may be downgraded," said Tom Sowanick, chief investment officer for $22 billion in assets at Clearbrook Financial LLC in Princeton, New Jersey.
Gold coin shortage in Dubai
UAE. There is an acute shortage of gold coins at the annual Dubai Shopping Festival taking place this year from 15 January-15 February.
"People are coming and asking for gold coins. But there is a terrible shortage of gold coins. Many gold and jewellery shops in Dubai do not have the stocks of gold coins," said a manager with Joy Alukkas, a leading Dubai jeweller.
He said the main reason for the short supply of gold coins is primarily due to their heavy demand in Dubai, the main regional source for gold in Middle East. "All the jewelers offer special discounts and special offers for gold buying and thus there is a spurt in gold purchases. So there is a shortage of gold coins here," the manager added.
Gold jewelers are offering heavy discounts on purchases at the Festival. For instance, Damas stores, the leading international jewellery retailer in the Middle East, have offered free gold coins with every purchase of gold and jewellery worth AED500.
"This mega promotion offered during the biggest regional shopping bonanza will give five shoppers the chance to win 100gm of gold every day and four lucky winners will also get an opportunity to win the grand prize of 1kg gold each," said a statement from Damas.
Tawhid Abdullah, Managing Director of Damas, said: "During DSF, we witness at least 40% increase in retail activities across our outlets. Damas as a support sponsor of DSF has once again entered in this annual event with the commitment to support the initiatives of Dubai Government to promote tourism in the city. Thus on this occasion, on behalf of Damas, I wish to extend our felicitations to the DSF authorities and the government of Dubai for holding this mega event with a lot of success year-after-year and supporting our retail initiatives."
The financial crisis may have taken its toll but the impact on the UAE's tourism industry was expected to be limited thanks to a continuing stream of visitors from Russia, India and Southeast Asia.
Yogaani Bhatia, Jewellery Marketing Manager for the World Gold Council, an international body formed to promote demand for the precious metal, said the feedback from retailers across the UAE remained positive.
"We do not expect an immediate or drastic downturn," she added. "Gold is seen as a strong hedge against inflation and investors believe in it strongly. In the UAE, there's been a drop of less than 14% in the demand for gold and that is positive compared to other markets."
Crisis / Doom
Well dear reader there is certainly a crisis. Thanks god there are still many people that so far did not have to suffer from any of the effects of the crisis. Others are not so lucky, especially all those that have lost their job. The question is what will happen in the next couple of months. Well my guess is that we are still at the beginning and therefore we should be ready for more. A lady I met at a lunch invitation last sunday mentioned that one should not wait for the government to solve all the problems. I couldn’t agree more with that statement. It is important to prepare oneself and not wait for the rescue that might come or not. In that sense don’t forget to keep food and other stuff stored at your home. If nothing happens you still can consume the food sometime in the future. If something happens, you will be very happy having some food at hand.
Holding stuff will help you to barter. Barter? For some of you that again might sound a bit too far reached. Is it really? Sometimes one is surprised about certain news such as the following
Financial Times: Nations turn to barter deals to secure food "Countries struggling to secure credit have resorted to barter and secretive government-to-government deals to buy food, with some contracts worth hundreds of millions of dollars.
"In a striking example of how the global financial crisis and high food prices have strained the finances of poor and middle-income nations, countries including Russia, Malaysia, Vietnam and Morocco say they have signed or are discussing inter-government and barter deals to import commodities from rice to vegetable oil.
"The revival of these trade practices, used rarely in the last 20 years and usually by nations subject to international embargoes and the old communist bloc, is a result of the countries' failure to secure trade financing as bank lending has dried up.
"The countries have not disclosed the value of any deals, and some have refused even to confirm their existence. Officials estimated that they ranged from $5 million for smaller contracts to more than $500 million for the biggest."
Source: Javier Blas, Financial Times, January 26, 2009.
Well if I say that I believe that we are still at the beginning of the crisis, the question is what will the next leg of the crisis be?
Will it be a Treasury Bond crash, currency crisis, hyperinflation or the derivative blow up I have been expecting for some time? Well dear reader, all of those could cause troubles soon. Will it be in 2009? Maybe. Will it be in March? Might be.
Well why do I mention March and not another month? Well dear reader a couple days ago I came across the information of a radio interview where the person that was interviewed let the listeners know that he developed a software that was able to filter certain words out of the internet. The increase of use of certain words at a certain time, gives the possibility to find out future trends. According to that person there is a clear increase of specific words approximately 6 months before something happens. The interview is long and there is a lot to read but it is interesting. You find the interview on the following link
http://www.projectcamelot.org/clif_high_half_past_human_26_sept_2008.html
on the following link you find some excellent information trying to answer the following question: We've Only Just Begun?
http://www.safehaven.com/article-12483.htm
Bank and Banksters
Well dear reader you know it already. Yes I do believe that the big banks will run into more trouble. You know as well that I have been warning about bank holidays and so on. Still believe that is utter nonsense? Please read the information on the following link and you will find out that England was just shy (3 hours) of that scenario in October last year.
http://www.dailymail.co.uk/news/article-1127278/Revealed-Day-banks-just-hours-collapse.html
By the way dear reader there are rumors that people in the London banking community believe that the UK may be forced to nationalize the big banks over there pretty soon. While there's no way to verify the info, some folks say that where there's smoke, there's fire.
Some more information
January 30 – Wall Street Journal: “What if nearly half of U.S. banking assets turn out to be bad? As the Obama administration readies a plan for the stressed financial system, it is no doubt trying to work out the potential size of the bad-asset pool. It is no longer just subprime mortgages and exotic credit-boom securities that are considered toxic. A wide range of other assets -- from certain prime mortgages to commercial real estate to plain old credit-card loans -- are now experiencing soaring defaults as the economy worsens. Indeed, Goldman Sachs Group estimates that troubled assets could exceed $5 trillion…”
January 30 – Bloomberg (Ari Levy): “Banks in Florida, Maryland and Utah were closed today as regulators wrapped up the busiest month for failures since the housing slump began in 2006. Ocala National Bank in Florida and Suburban Federal Savings Bank of Crofton, Maryland, were shut by federal regulators…”
Well dear reader it looks like laying back and relaxing might not be that good an idea. In my opinion it never has been more important (at least in the last decades) to be on the safe side. Being on the safe side means on one hand to be invested in safe investments such as Gold and Silver and means on the other hand to work with banks that most probably will not run into deep trouble. Of course in the case that bank holidays are declared it will be for all banks. But nevertheless I truly believe that having some funds with smaller well run banks, and especially banks with state guarantee, should be an advantage in any way, even in the event of bank holidays. Well anyway as mentioned a couple of times, holding some cash and gold coins stored in a safe place should help. Food I mentioned already but don’t forget to keep reserves for at least 3 months of gasoline to run your car and smaller electricity generators, matches, candles and so on.
You think that is exaggerated or crazy? Well the people from Iceland and other countries where riots are breaking out whish they would have stored some of the items I mentioned before. In their case the government did not come to help and in fact was the reason why they are now in this mess. Following some news about riots that are breaking out everywhere. By the way do you believe that the same will not happen in the US? Let’s cross the fingers but I truly doubt it. That might be the reason why guns and ammunition is one of the items that is sold most.
Riots
Well dear reader, the government of Iceland stepped down already after weeklong protests and riots. I feel sorry for the icelander, first they saw their banks collapse, then their currency, then the economy. Now the government was forced to do a step they certainly did not want to do.
Others will follow, on the following link the example of Latvia http://www.washingtonpost.com/wp-dyn/content/article/2009/01/25/AR2009012502516.html
Or Rusia
Violent clashes in Russia as angry protesters call for Putin to resign over economy
http://www.dailymail.co.uk/news/worldnews/article-1133002/Violent-clashes-Russia-angry-protesters-Putin-resign-economy.html
or France
http://www.truthdig.com/report/item/20090202_its_not_going_to_be_ok/
an others will follow
Well dear reader it looks like we will have to get used to such news unless the news as such will be censored soon.
To cheer you up a bit.
Husband: I can’t afford to pay the mortgage this months
Wife: There’s no reason to worry, I doubt your bank can afford postage to send you an eviction notice
Bailout
Well dear reader there is an excellent article on Global Research which in my opinion is a MUST READ, please read on
http://www.globalresearch.ca/index.php?context=va&aid=12053
Economy
After having started with John Williams some more info from his side.
John Williams
Resurging Inflation and Accelerating Contraction in Business Activity. President Obama and Congress face extraordinarily troubled times, and I wish them well in the difficult years ahead. The consensus outlook is that the new Administration’s primary problem is the economy, but as discussed in various prior writings, the biggest threat to long-term U.S. economic health and social stability is inflation. Such should become apparent in the year ahead, as funding for stimulus efforts runs head-on into increasingly unwilling investors. With the Federal Reserve the practical buyer of last resort for U.S. Treasuries, increased monetization of U.S. Debt will flow through to accelerating growth in broad money and to what will become rapidly rising inflationary expectations.
Despite a relatively quiet week of economic releases, the unfolding near-term view of economic conditions remains one of economic collapse combined with renewed inflation pressures. On the inflation front, the recent monthly declines in seasonally-adjusted CPI-U and slowing growth in annual inflation were due primarily to the plunge in oil and related gasoline prices. In January, oil prices appear to have bottomed and are slightly higher, so far, than they were in December. Gasoline prices as of the January 19th week averaged 13.6% higher than in the last week of December (Department of Energy). Annual growth in broad money supply appears to have bottomed in November, rebounding sharply in December, with even higher annual growth suggested by last night’s (January 22nd) issuance of major benchmark revisions by the Federal Reserve.
Following last week’s reporting of an 11.5% annualized contraction in fourth-quarter industrial production and a 17.1% and an annualized contraction in fourth-quarter real (inflation-adjusted) retail sales of 17.1%, fourth-quarter housing starts were reported yesterday (January 22nd) as contracting at an annualized pace of 68.5%. These contraction rates are at levels consistent with my definition of depression (a peak-to-trough contraction in excess of 10%). Not only is the economy showing no signs of moderation or pending upturn, but it is in a state of free-fall that suggests an annualized real fourth-quarter GDP contraction well in excess of the consensus 5.0%. Nonetheless, given the financial market and media’s blind acceptance of worthless "advance" reporting, the GDP charade should continue, with "advance" growth coming in near consensus, simply because the advance estimate usually is targeted at consensus forecasts.
Major Benchmark Revisions Show Recent M3 Growth to Have Been Stronger. "The Federal Reserve has revised the measures of the money stock and its components to incorporate the results of its annual review of seasonal factors and a new benchmark revision," advised the U.S. central bank in its most recent release of money stock measures (H.6). Such always serves as a reminder as to the reporting quality issues that beset Federal Reserve reporting, just as they do the government’s statistical agencies. Given the ongoing banking solvency crisis, one might hope that the Fed had better-quality statistics on the banking system.
Based on the revisions, annual growth in M1 was little changed, up 17.0% (was 17.1%) in December, up 11.5% (was 11.5%) in November and up by 7.5% (was 7.6%) in October. For M2, however, annual growth revised to 9.9% (was 9.5%), November was up by 8.0% (was 7.6%), and October was up by 7.7% (7.4%).
Given the large upward revisions to M2 and to institutional money funds, but reflecting no further revisions to large time deposits (H.8), annual growth in the SGS-Alternate M3 estimate for December would revise to 11.4% from 10.7%, November’s growth trough would revise upward to 9.8% from the most recent reporting of 9.1%, with October’s annual growth up by 11.7% versus last reporting of 10.9%. The all-time peak growth in M3 back in March would revise to 17.2% from its prior estimate of 17.2%.
These numbers will be finalized after tonight’s (January 23rd) H.8 reporting, with detailed annual growth rates and estimated monthly average levels to be updated on the Alternate Data tab over this weekend.
In conjunction with the published revisions, however, the latest weekly data suggested stalled weekly growth in the M3 components, which could be a signal of pressures rebuilding in the banking solvency crisis. The weeks ahead will tell.
Hyperinflation is a possibility, say Morgan Stanley
Morgan Stanley’s Jocahcim Fels and Spyros Andreopoulos look at the possibility of hyperinflation hitting the western shores of the UK, Europe and the US in their latest note. Their conclusion is a little scary
http://ftalphaville.ft.com/blog/2009/01/30/51876/hyperinflation-is-a-possibility-say-morgan-stanley/
Well dear reader the possibility of hyperinflation is certainly a possibility we have to take into consideration. How can you protect yourself from such a scenario?
Buy gold. As mentioned before, if you like to receive some more information about the fund I will be managing, let me know it.
Well dear reader the analysts are now coming out with dire predictions. Following another of the same kind
Merrill Lynch Analyst Says Depression is the New Recession
ML chief economist David Rosenberg has broken the D(epression)-word seal. In his most recent report "Some Inconvenient Truths" he says we are currently in a depression, and uncharacteristically doesn't mince his words: Not your father’s recession, but maybe your grandfather’s In our marketing tour through Europe last week, we brought along our new chart package entitled "Not your father’s recession, but maybe your grandfather’s". Looking at the youthful demographics that characterize today’s money management industry, we should have probably gone with "great-grandfather’s" instead. How is a depression defined? It shouldn’t come as any big surprise that with such a provocative title, we would be saddled with questions as to how an economic depression is even defined. Of course, most portfolio managers still don’t know that a recession is not defined as back-to-back quarters of negative real GDP prints (which we had neither in 2002 nor 2008) but instead the timing of the peaks in real sales activity, employment, industrial production and organic personal income growth. We are likely enduring a depression today As for depressions, there is no official definition, except to say that they have existed in the past. There were no fewer than four in the nineteenth century, one in the twentieth century, and we are very likely enduring another one today. Though this current one is muted by the fact that most countries have an elaborate social safety net (deposit insurance, unemployment benefits, welfare, and socialized health care). Depressions can last anywhere from three to seven years Depressions are basically long recessions – they can last anywhere from three to seven years, while historically cyclical recessions last 18 months – and tend to follow years of leveraged prosperity of Gatsby-like proportions. Considering that in this most recent leveraged cycle from 2002-07, we reached a point where a record 40% of corporate profits were derived from financial activities, where household debt relative to income and assets surged to unprecedented levels and the personal savings rate briefly went negative at the height of the housing bubble, it is safe to say the down-cycle we are currently experiencing did indeed follow a classic elongated period of leveraged prosperity. It is now reverting to the mean. Here are some of the inconvenient truths that David uncovers:
- $6 trillion in private sector debt must be eliminated
- Still in the early states of the credit contraction
- Economy saddled with $1 trillion of excess capacity
- Credit card delinquency rates break to new high
- Housing market index slides to record low despite low interest rates
- Fed's balance sheet expansion needed to prevent deflation
- Record wealth implosion - 20% hole driven into household balance sheet
- Real unemployment rate at 13.5% Intentions to raise wages slides to record low
- We have no idea when the credit cycle will hit bottom
- Rising savings rate will be incredibly deflationary
- And scariest of all - The well for the US consumer has run dry for good
Consumption
Well dear reader last week I came across an estimation of the unemployed rate in the US. According to that estimation the rate could reach 20% by the end of the year or with other words approximately 20 Million people. Well even if the number finally would be lower and closer to 10 Million, it is still a lot of people who will be unable to consume as before. My guess is that the earnings estimations of many US companies are too high. Without the US consumer consuming as he/she used to do, the earnings will fall a lot.
Internet
Well dear reader are you a frequent internet user as I am? Yes? Well if that is the case you should watch the you tube videos on the below link. Very interesting indeed. http://www.youtube.com/results?search_type=&search_query=alex+jones+death+of+the+internet&aq=0&oq=alex+jones+death+of+the
Fixed income
Bloomberg: Treasuries are moving into a "full- blown" bear market as global stimulus packages increase demand for capital, according to Citigroup Inc.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLo0Fh1bNmVw&refer=home
A major reason that so many traders, investors and money managers got caught in the current financial mess is that unless a person was around in 1990, they had never seen a credit cycle turn. This means investment professionals under the age of 40.
And the last ‘full-blown’ bond bear market commenced decades ago; it ended in 1982. Most industry people under the age of 50 have never experienced a ‘full-blown’ bond bear.
Ergo, many of the mistakes that occurred over the past year or so in equities and other assets – staying invested too long, over-investing, picking bottoms and ‘buying all the way down’ – will be replicated in bonds and similar instruments
Energy
Well dear reader as a strong believer in the peak oil theory and believing that we passed the peak in 2006, I have not doubt that oil prices will go up again sometime in the next months. However for the time being it looks more like we will see lower prices in the next days.
On the following link you can find the Peak Oil review from ASPO
http://www.aspo-usa.com/
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