According to the National Retail Federation, Halloween Sales May be Haunted this year. No shock as people are struggling to put food on the table let alone candy.
Retail Stores Closing Doors is one of the better summaries of the dire state of retail out there.
Tuesday, September 29, 2009
Monday, September 28, 2009
Tehran Dumps Dollar for Euros
Not good - not good at all.
Tehran Dumps Dollar for Euro
by Martin Morris
Monday, 21 September 2009
Iran's President Mahmoud Ahmadinejad has ordered the replacement of the US dollar by the euro in calculating the value of the country's Oil Stabilisation Fund (OSF).
The edict, issued on Sept 12, follows a recommendation by the trustees of the country's foreign reserves, Iran's English-language daily The Tehran Times said on Monday, citing Iran's semi-official Mehr News Agency.
The move was taken because the government wishes to protect itself from the fragility of the US economy and the weak dollar.
The OSF, which forms part of Iran’s foreign exchange reserves, is a contingency fund set aside to cushion the economy against fluctuating international oil prices.
It is also used to help both the public and private sectors with their hard currency needs by extending loans.
Press TV meanwhile reported that following the switch the interest rate for facilities provided from the foreign exchange reserves is to be cut to 5 percent from 12 percent.
Since its introduction in 1999 by the EU the euro has gained popularity internationally and there are now more euros in circulation than the dollar.
Tehran Dumps Dollar for Euro
by Martin Morris
Monday, 21 September 2009
Iran's President Mahmoud Ahmadinejad has ordered the replacement of the US dollar by the euro in calculating the value of the country's Oil Stabilisation Fund (OSF).
The edict, issued on Sept 12, follows a recommendation by the trustees of the country's foreign reserves, Iran's English-language daily The Tehran Times said on Monday, citing Iran's semi-official Mehr News Agency.
The move was taken because the government wishes to protect itself from the fragility of the US economy and the weak dollar.
The OSF, which forms part of Iran’s foreign exchange reserves, is a contingency fund set aside to cushion the economy against fluctuating international oil prices.
It is also used to help both the public and private sectors with their hard currency needs by extending loans.
Press TV meanwhile reported that following the switch the interest rate for facilities provided from the foreign exchange reserves is to be cut to 5 percent from 12 percent.
Since its introduction in 1999 by the EU the euro has gained popularity internationally and there are now more euros in circulation than the dollar.
Thursday, September 24, 2009
Sunshine and Roses With Marc Faber
Faber indicates that 5-10 years is the horizon for the end of the existing financial system and the US dollar.
For a laugh, listen this joker Fisher in the beginning of the video "more debt is good - we are under leveraged." Highlight of the video the description of home purchase sale closings - the buyer drops the gold down on the table!
For a laugh, listen this joker Fisher in the beginning of the video "more debt is good - we are under leveraged." Highlight of the video the description of home purchase sale closings - the buyer drops the gold down on the table!
Today In Paradise
Shocker of the day, World Central Banks Trimming U.S. Dollar Infusion. So this begs the question, who will step in and save the day? The Federal Reserve of course...that is with your money. How are they taking my money, I'm not giving them anything? Simple of course, they will create new money which can be applied to interest payments and deficits which simultaneously diminishes the value of your dollars. Directly taking the value out of every dollar in existence - including yours.
Retail purgatory is getting crowded as Samsonite files bankruptcy and Rite Aid is Downgraded.
California State Corrections will be laying off almost 1,500 workers. Perhaps they should let some of the non violent prisoners out as well and save us all a lot of time and money. While at it, why not legalize marijuana for starters and do away with one of the many bloated, unofficial and xenophobic rooted wars we are waging right now.
Retail purgatory is getting crowded as Samsonite files bankruptcy and Rite Aid is Downgraded.
California State Corrections will be laying off almost 1,500 workers. Perhaps they should let some of the non violent prisoners out as well and save us all a lot of time and money. While at it, why not legalize marijuana for starters and do away with one of the many bloated, unofficial and xenophobic rooted wars we are waging right now.
Deflationary Champion Weiss Sounding Inflation Alarm
The rate at which the dollar is being destroyed is shock and awe-inspiring. If the DJIA takes another hit, expect massive quantitative easing which will exacerbate the debt/interest debacle and fortify a dramatic inflationary scenario. The wheels are coming off the bus as the Federal Reserve's gold manipulation is being exposed and the shell game of supporting a zombie currency is accelerating.
From Deflation to Inflation
Step by step, with little fanfare and great complacency, we are witnessing a fundamental, global shift that’s rapidly transforming the investment scene:
The forces of deflation are temporarily receding; and in the meantime, the forces of inflation threaten to roar back with a vengeance.
They are everywhere. They could be overwhelming. They must NOT be ignored …
Inflationary Force #1 Never-Ending, Out-of-Control U.S. Federal Deficits
As Larry Edelson explained here one week ago:
* Through August, the federal deficit hit $1.38 trillion, or three times last year’s all-time record deficit of $454.8 billion. And in September alone, the administration expects another $200 billion in red ink, bringing the total for the year to $1.58 trillion.
* The U.S. government’s official debt is now at an all-time high of $11.8 trillion, or over $100,000 for each and every household in America.
* Both the administration and its opponents agree that, over the next 10 years, the cumulative federal deficit will be another $9 trillion, driving the burden per household up to $177,000.
* The Federal Reserve is also in hock up to its eyeballs, with more than $2 trillion in liabilities on its balance sheet. That brings the total burden up to $194,000 per household.
* Perhaps worst of all, the government’s unfunded obligations for Social Security, Medicare, and Federal pension payments are also ballooning higher and now stand at an estimated $104 trillion, or $886,000 per household.
Total burden per household: More than $1 million!
This is, by far, the largest federal deficit in U.S. history — in proportion to household income … in comparison to the nation’s population … or even as a percent of the total economy (other than during major World Wars).
It drives the Fed to print money without restraint. It pumps up demand for scarce goods. And in the months ahead, it’s bound to be the single most powerful pressure point on public policy, financial markets, the U.S. dollar and … inflation.
Inflationary Force #2 New Lows in the U.S. Dollar
Last week, the U.S. dollar sunk to a new, one-year low against a basket of major currencies.
It’s just five points away from its lowest level in history.
And, as Mike Larson detailed this past Friday, the U.S. dollar is now being driven lower by a new, unprecedented factor:
For the first time since 1933, it is now cheaper to borrow dollars than Japanese yen. Indeed, the three-month London Interbank Offered Rate (LIBOR) on the U.S. dollar has slumped to a meager 0.292 percent, while the equivalent rate on the Japanese yen is 0.352 percent.
This means that, instead of using Japanese yen to finance the carry trade — borrowing low-cost money to buy high-yielding investments — international investors will now start using U.S. dollars to finance the carry trade.
It means that, instead of the dollar being a magnet for frightened money, it is becoming precisely the opposite — a source of financing for the risk trade.
Most important, it means that, instead of buying dollars, they have every incentive to borrow dollars and promptly SELL them in order to purchase the higher yielding instruments.
End result: More momentum to the dollar’s decline.
Inflationary Force #3 U.S. Household Wealth Now Expanding Again
For nearly two years, U.S. households were continually losing wealth. They lost trillions in stocks, bonds, insurance policies, real estate. And these losses, in turn, emerged as a major deflationary force, driving consumer price inflation to zero or lower.
Now, however, in the second quarter of 2009, that trend has reversed.
According to the Fed’s Flow of Funds released just last week, in just the last three months, U.S. households have enjoyed wealth gains of
* $1.1 trillion common and preferred stocks
* $494 billion in mutual funds
* $157 billion in real estate
These gains are still far from enough to recoup the peak asset levels of 2007. But the change in trend is enough to rekindle inflation, and that inflation is likely to take most economists by surprise.
Inflationary Force #4 Exploding U.S. Money Supply
Money pouring into the economy and chasing scarce goods is the classic cause of inflation.
But throughout 2007 and much of 2008, there was no growth whatsoever in U.S. money supply (M1).
During that period, despite the Fed’s efforts to shove interest rates down to practically zero, the total amount of money outstanding remained under $1.4 trillion — another deflationary force.
Now, however, as you can see in this chart provided by www.Shadowstats.com, the outlook has changed dramatically:
Since mid-2008, money supply has exploded beyond $1.65 trillion, with more rapid growth on the way.
Is Deflation Dead?
No. It will return.
But at this juncture, inflation is the primary concern, with far-reaching consequences on how you invest, when and where.
In the days ahead, my team and I will give you step-by-step instructions on how to protect yourself — and profit.
But first, I want to clear up a few basic points. Although we may sometimes disagree on the specific timing and magnitude of particular market moves, we are unanimous in our views about a few fundamental issues:
First, until and unless there is a dramatic change in these inflationary forces, it should be clear that the U.S. dollar’s decline will accelerate in the months ahead.
Second, despite its decline, the U.S. dollar will continue to be a viable, widely traded currency. It will not, as some seem to fear, simply disappear from the face of the earth.
Third, it is both impractical and unreasonable to abandon U.S. Treasury bills and other conservative dollar-denominated investments. They continue to provide U.S. citizens and residents the best safety and liquidity in the world today.
Fourth, the best way to protect yourself from a falling dollar is with contra-dollar investments such as precious metals, natural resources and assets tied to strong foreign currencies.
From Deflation to Inflation
Step by step, with little fanfare and great complacency, we are witnessing a fundamental, global shift that’s rapidly transforming the investment scene:
The forces of deflation are temporarily receding; and in the meantime, the forces of inflation threaten to roar back with a vengeance.
They are everywhere. They could be overwhelming. They must NOT be ignored …
Inflationary Force #1 Never-Ending, Out-of-Control U.S. Federal Deficits
As Larry Edelson explained here one week ago:
* Through August, the federal deficit hit $1.38 trillion, or three times last year’s all-time record deficit of $454.8 billion. And in September alone, the administration expects another $200 billion in red ink, bringing the total for the year to $1.58 trillion.
* The U.S. government’s official debt is now at an all-time high of $11.8 trillion, or over $100,000 for each and every household in America.
* Both the administration and its opponents agree that, over the next 10 years, the cumulative federal deficit will be another $9 trillion, driving the burden per household up to $177,000.
* The Federal Reserve is also in hock up to its eyeballs, with more than $2 trillion in liabilities on its balance sheet. That brings the total burden up to $194,000 per household.
* Perhaps worst of all, the government’s unfunded obligations for Social Security, Medicare, and Federal pension payments are also ballooning higher and now stand at an estimated $104 trillion, or $886,000 per household.
Total burden per household: More than $1 million!
This is, by far, the largest federal deficit in U.S. history — in proportion to household income … in comparison to the nation’s population … or even as a percent of the total economy (other than during major World Wars).
It drives the Fed to print money without restraint. It pumps up demand for scarce goods. And in the months ahead, it’s bound to be the single most powerful pressure point on public policy, financial markets, the U.S. dollar and … inflation.
Inflationary Force #2 New Lows in the U.S. Dollar
Last week, the U.S. dollar sunk to a new, one-year low against a basket of major currencies.
It’s just five points away from its lowest level in history.
And, as Mike Larson detailed this past Friday, the U.S. dollar is now being driven lower by a new, unprecedented factor:
For the first time since 1933, it is now cheaper to borrow dollars than Japanese yen. Indeed, the three-month London Interbank Offered Rate (LIBOR) on the U.S. dollar has slumped to a meager 0.292 percent, while the equivalent rate on the Japanese yen is 0.352 percent.
This means that, instead of using Japanese yen to finance the carry trade — borrowing low-cost money to buy high-yielding investments — international investors will now start using U.S. dollars to finance the carry trade.
It means that, instead of the dollar being a magnet for frightened money, it is becoming precisely the opposite — a source of financing for the risk trade.
Most important, it means that, instead of buying dollars, they have every incentive to borrow dollars and promptly SELL them in order to purchase the higher yielding instruments.
End result: More momentum to the dollar’s decline.
Inflationary Force #3 U.S. Household Wealth Now Expanding Again
For nearly two years, U.S. households were continually losing wealth. They lost trillions in stocks, bonds, insurance policies, real estate. And these losses, in turn, emerged as a major deflationary force, driving consumer price inflation to zero or lower.
Now, however, in the second quarter of 2009, that trend has reversed.
According to the Fed’s Flow of Funds released just last week, in just the last three months, U.S. households have enjoyed wealth gains of
* $1.1 trillion common and preferred stocks
* $494 billion in mutual funds
* $157 billion in real estate
These gains are still far from enough to recoup the peak asset levels of 2007. But the change in trend is enough to rekindle inflation, and that inflation is likely to take most economists by surprise.
Inflationary Force #4 Exploding U.S. Money Supply
Money pouring into the economy and chasing scarce goods is the classic cause of inflation.
But throughout 2007 and much of 2008, there was no growth whatsoever in U.S. money supply (M1).
During that period, despite the Fed’s efforts to shove interest rates down to practically zero, the total amount of money outstanding remained under $1.4 trillion — another deflationary force.
Now, however, as you can see in this chart provided by www.Shadowstats.com, the outlook has changed dramatically:
Since mid-2008, money supply has exploded beyond $1.65 trillion, with more rapid growth on the way.
Is Deflation Dead?
No. It will return.
But at this juncture, inflation is the primary concern, with far-reaching consequences on how you invest, when and where.
In the days ahead, my team and I will give you step-by-step instructions on how to protect yourself — and profit.
But first, I want to clear up a few basic points. Although we may sometimes disagree on the specific timing and magnitude of particular market moves, we are unanimous in our views about a few fundamental issues:
First, until and unless there is a dramatic change in these inflationary forces, it should be clear that the U.S. dollar’s decline will accelerate in the months ahead.
Second, despite its decline, the U.S. dollar will continue to be a viable, widely traded currency. It will not, as some seem to fear, simply disappear from the face of the earth.
Third, it is both impractical and unreasonable to abandon U.S. Treasury bills and other conservative dollar-denominated investments. They continue to provide U.S. citizens and residents the best safety and liquidity in the world today.
Fourth, the best way to protect yourself from a falling dollar is with contra-dollar investments such as precious metals, natural resources and assets tied to strong foreign currencies.
Wednesday, September 23, 2009
Household Names Hit Iceberg, Now Sinking
Ten companies? Yes 10 - 10,000 companies are on the verge of bankruptcy more like it. The names below are part of dying industries. Macy's is the perfect example and is the GM of retail.
Ten Big Companies That Are Veering Toward Bankruptcy
From The Business Insider, Sept. 18, 2009:
Despite a few green shoots in the economy and a rocketing stock market, many large companies are still struggling to avoid bankruptcy.
A new report by Audit Integrity identifies some high-profile names "that have the highest probability of declaring bankruptcy among publicly traded firms."
Which companies appear the worst off? We took the list and removed any company with a market cap under $3 billion. We then ranked the remaining names by a simple measure of the market's perceived bankruptcy risk - Market Cap (MC) divided by Enterprise Value (EV). The less MC vs. EV, the less residual shareholders' value (above what debt holders can claim) the market is pricing-in for the company. Thus a lower MC/EV means the market thinks the company is more likely to go bankrupt.
1. Hertz
When you have tons of debt financing your fleet of cars, falling rental demand really hurts.
While the company raised new capital in May for some breathing room, Fitch and Moody’s actually cut their ratings for the company in July.
Ignoring the downgrade, shares kept rallying and are now at over five times the March $2 low. Best of luck.
Market Cap (MC)/Enterprise Value (EV) = 32%
2. Textron
What a tough time to be selling business jets.
Textron wrote down $2.3 billion its backlog this year after it canceled a new jet design, and demand for its other aircraft-related offerings has plummeted.
Shareholders may be heartened by the company’s ability to push back some debt maturities lately, but deteriorating credit quality at the company’s leasing arm makes the outlook uncertain at best.
MC/EV=39%
3. Sprint Nextel
Sprint Nextel is bleeding customers, and could lose as many as 4.4 million net post-paid subscribers this year.
This is a huge problem when you have large amounts of maturing debt over the next few years.
A recent Deutsche Telekom acquisition rumor offered some hope, but that appears to have faded. Facing a difficult road ahead on its own, the company better keep its lawyers on speed-dial.
MC/EV=41%
4. Macy's
Does anyone even shop at department stores anymore?
Same store sales will likely keep falling at Macy’s right through 2009. With $2.4 billion of maturing debt over the next five years, the company is trying to cut costs, and has already reduced its dividend.
Hopefully the US consumer will bounce back soon, and actually want to shop at Macy's.
MC/EV=47%
5. Mylan
In a classic case of management empire building, Mylan overpaid big time when it bought Merck’s generic business back in 2007 and is now stuck with $5 billion of long-term debt as a result.
From 2007 – 2008, the company lost over $1.3 billion very much due to goodwill write-downs.
While the company could earn $300 million this year, they’ll have to earn far more than that in the future to make their debt manageable.
MC/EV=51%
6. Goodyear
Demand for Goodyear tires has sunk, and the company is saddled with massive debt and pension obligations.
It doesn’t help that The United Steelworkers union prevents the company from proper cost control by forcing factories to stay open.
Shareholders have to wonder how much value will be left of the company after bondholders and the union members have their way.
MC/EV=53%
7. CBS
Weak advertising and falling license fees have sent CBS's earnings off a cliff in 2009.
If they remain depressed for too long, the company could have trouble refinancing $3.2 billion of debt coming due over the next five years.
It will really come down to whether or not CBS’s earnings collapse is merely cyclical, or the result of structural trend whereby traditional TV is dying.
As a business blog, we can't help but feel partly guilty here.
MC/EV=55%
8. Advanced Micro Devices
When will AMD actually make money again? The question is becoming more important by the day since it carries over $5 billion in long-term debt.
After losing almost $3 billion from 2007 – 2008, analysts expect the company to lose more money in 2009 and 2010.
While the shares rallied from their February $2 low, they still appear stuck in a long-term down trend from $40 highs way back in 2006.
MC/EV=55%
9. Las Vegas Sands
Las Vegas Sands over-expanded and over-levered in the last few years and now has over $10 billion in debt to deal with.
Despite jumping 13 times from their March low, Las Vegas Sands shares still face an uphill battle.
Conditions in Las Vegas are horrible, Asian expansion isn’t enough, and if this lasts too long then LVS will end up in bankruptcy court looking like it bit off more than it can chew.
MC/EV=60%
10. Interpublic Group
As one of the largest advertising and marketing companies in the world, IPG was slammed by the global recession.
As the company’s CEO said during recent second quarter results, the downturn “is proving steeper and more lasting than expected”.
Revenues have fallen double digits and the company’s exposure to General Motors as its largest client hasn’t helped.
MC/EV=80%
Ten Big Companies That Are Veering Toward Bankruptcy
From The Business Insider, Sept. 18, 2009:
Despite a few green shoots in the economy and a rocketing stock market, many large companies are still struggling to avoid bankruptcy.
A new report by Audit Integrity identifies some high-profile names "that have the highest probability of declaring bankruptcy among publicly traded firms."
Which companies appear the worst off? We took the list and removed any company with a market cap under $3 billion. We then ranked the remaining names by a simple measure of the market's perceived bankruptcy risk - Market Cap (MC) divided by Enterprise Value (EV). The less MC vs. EV, the less residual shareholders' value (above what debt holders can claim) the market is pricing-in for the company. Thus a lower MC/EV means the market thinks the company is more likely to go bankrupt.
1. Hertz
When you have tons of debt financing your fleet of cars, falling rental demand really hurts.
While the company raised new capital in May for some breathing room, Fitch and Moody’s actually cut their ratings for the company in July.
Ignoring the downgrade, shares kept rallying and are now at over five times the March $2 low. Best of luck.
Market Cap (MC)/Enterprise Value (EV) = 32%
2. Textron
What a tough time to be selling business jets.
Textron wrote down $2.3 billion its backlog this year after it canceled a new jet design, and demand for its other aircraft-related offerings has plummeted.
Shareholders may be heartened by the company’s ability to push back some debt maturities lately, but deteriorating credit quality at the company’s leasing arm makes the outlook uncertain at best.
MC/EV=39%
3. Sprint Nextel
Sprint Nextel is bleeding customers, and could lose as many as 4.4 million net post-paid subscribers this year.
This is a huge problem when you have large amounts of maturing debt over the next few years.
A recent Deutsche Telekom acquisition rumor offered some hope, but that appears to have faded. Facing a difficult road ahead on its own, the company better keep its lawyers on speed-dial.
MC/EV=41%
4. Macy's
Does anyone even shop at department stores anymore?
Same store sales will likely keep falling at Macy’s right through 2009. With $2.4 billion of maturing debt over the next five years, the company is trying to cut costs, and has already reduced its dividend.
Hopefully the US consumer will bounce back soon, and actually want to shop at Macy's.
MC/EV=47%
5. Mylan
In a classic case of management empire building, Mylan overpaid big time when it bought Merck’s generic business back in 2007 and is now stuck with $5 billion of long-term debt as a result.
From 2007 – 2008, the company lost over $1.3 billion very much due to goodwill write-downs.
While the company could earn $300 million this year, they’ll have to earn far more than that in the future to make their debt manageable.
MC/EV=51%
6. Goodyear
Demand for Goodyear tires has sunk, and the company is saddled with massive debt and pension obligations.
It doesn’t help that The United Steelworkers union prevents the company from proper cost control by forcing factories to stay open.
Shareholders have to wonder how much value will be left of the company after bondholders and the union members have their way.
MC/EV=53%
7. CBS
Weak advertising and falling license fees have sent CBS's earnings off a cliff in 2009.
If they remain depressed for too long, the company could have trouble refinancing $3.2 billion of debt coming due over the next five years.
It will really come down to whether or not CBS’s earnings collapse is merely cyclical, or the result of structural trend whereby traditional TV is dying.
As a business blog, we can't help but feel partly guilty here.
MC/EV=55%
8. Advanced Micro Devices
When will AMD actually make money again? The question is becoming more important by the day since it carries over $5 billion in long-term debt.
After losing almost $3 billion from 2007 – 2008, analysts expect the company to lose more money in 2009 and 2010.
While the shares rallied from their February $2 low, they still appear stuck in a long-term down trend from $40 highs way back in 2006.
MC/EV=55%
9. Las Vegas Sands
Las Vegas Sands over-expanded and over-levered in the last few years and now has over $10 billion in debt to deal with.
Despite jumping 13 times from their March low, Las Vegas Sands shares still face an uphill battle.
Conditions in Las Vegas are horrible, Asian expansion isn’t enough, and if this lasts too long then LVS will end up in bankruptcy court looking like it bit off more than it can chew.
MC/EV=60%
10. Interpublic Group
As one of the largest advertising and marketing companies in the world, IPG was slammed by the global recession.
As the company’s CEO said during recent second quarter results, the downturn “is proving steeper and more lasting than expected”.
Revenues have fallen double digits and the company’s exposure to General Motors as its largest client hasn’t helped.
MC/EV=80%
Tuesday, September 22, 2009
Nassim Taleb to President Obama: 'I want my vote back'
You and millions of others Mr. Taleb. Bush, Clinton, Bush - Obama same politics, newer politician. You want change, vote third party - PERIOD!
Nassim Taleb to President Obama: 'I want my vote back'
“I want my vote back,” Mr Taleb told an audience of business people in Toronto, according to Bloomberg.
Mr Taleb said that the US should avoid the 'moral sin' of converting private to public debts, but that "no one has the guts to say let's bite the bullet."
America's budget deficit reached a record $1.38 trillion in the 11 months to August as spending on unemployment rose and the cost of the $787bn stimulus programme was shouldered.
Analysts have warned that a failure on the part of the US to ease the deficit could force long-term interest rates higher and slow a recovery in the world's biggest economy.
Mr Taleb, whose black swan theory contends that history is made up of rare, totally unpredictable events, also said that financial markets are getting overconfident about a recovery.
Nassim Taleb to President Obama: 'I want my vote back'
“I want my vote back,” Mr Taleb told an audience of business people in Toronto, according to Bloomberg.
Mr Taleb said that the US should avoid the 'moral sin' of converting private to public debts, but that "no one has the guts to say let's bite the bullet."
America's budget deficit reached a record $1.38 trillion in the 11 months to August as spending on unemployment rose and the cost of the $787bn stimulus programme was shouldered.
Analysts have warned that a failure on the part of the US to ease the deficit could force long-term interest rates higher and slow a recovery in the world's biggest economy.
Mr Taleb, whose black swan theory contends that history is made up of rare, totally unpredictable events, also said that financial markets are getting overconfident about a recovery.
Monday, September 21, 2009
IMF Selling, China Buying
Replace might with WILL. Regarding having an impact on the market price of gold - the gold will never hit the market as it will be purchased by China first.
China Might Buy Gold From the IMF
Despite lifting its gold reserves from 400 to 1,054 tonnes, China's central bank might still want more.
The IMF recently approved a plan to sell one eighth of its gold holdings, about 403 tonnes, and China could be a key buyer.
Given that the IMF can't sell such a large amount into the market without depressing prices, China, or any other country, would be expected to argue for a bulk discount.
Thus any such private transaction might not boost market prices for gold.
Also, even if China bought the entire amount from the IMF, the purchase would be tiny relative to the country's $2 trillion in reserve assets. Like it or not, they'll have to stick with US debt for some time to come.
China Might Buy Gold From the IMF
Despite lifting its gold reserves from 400 to 1,054 tonnes, China's central bank might still want more.
The IMF recently approved a plan to sell one eighth of its gold holdings, about 403 tonnes, and China could be a key buyer.
Given that the IMF can't sell such a large amount into the market without depressing prices, China, or any other country, would be expected to argue for a bulk discount.
Thus any such private transaction might not boost market prices for gold.
Also, even if China bought the entire amount from the IMF, the purchase would be tiny relative to the country's $2 trillion in reserve assets. Like it or not, they'll have to stick with US debt for some time to come.
Wednesday, September 16, 2009
This Is Not A Drill
In a shocking first, the President of the United States has appointed himself the chair of the United Nations Security council in direct violation of article 1, section 9 of the United States Constitution which states: no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince or foreign State.
As a signatory to the United Nations charter, the United States is obligated to obey the laws of the Nuremberg trials outlawing unprovoked war, among other things.
In spite of repeated, public intelligence reports dispelling the myth that Iran has nuclear arms and ignoring the International Atomic Energy Agency chief's opinion that the Iran threat is "hyped" the war drums are beating.
Flying in the face of the US Constitution, the UN Charter and intelligence reports we have "reports" urging Obama to strike Iran.
Why write about this on a blog dedicated to economics? Aside from being a horrible blow to world peace, a strike on Iran would have tremendous impact upon oil, gold & silver and just about everything imported and exported to major countries like China and Russia who coincidentally, are now part "Top Concerns" next to Iran and North Korea.
Obama Urged to Ready Tougher Iran Sanctions, Military Strike
Sept. 15 (Bloomberg) -- The U.S. should begin preparing crippling sanctions on Iran and publicly make clear that a military strike is possible should the Iranian government press ahead with its nuclear effort, a bipartisan policy group said.
“If biting sanctions do not persuade the Islamic Republic to demonstrate sincerity in negotiations and give up its enrichment activities, the White House will have to begin serious consideration of the option of a U.S.-led military strike against Iranian nuclear facilities,” said the study from the Bipartisan Policy Center in Washington.
The report was written by Charles Robb, a former Democratic senator from Virginia; Daniel Coats, a former Republican senator from Indiana who also served as ambassador to Germany, and retired General Charles Wald, the former deputy commander of U.S. European command. Their assessment comes as the U.S. prepares to participate in preliminary talks with Iran on Oct. 1 designed to gauge its commitment to address concerns about its nuclear aims.
The report echoes the Obama administration’s conclusion that Iran’s atomic work is approaching a destabilizing point at which it may be able to build a bomb.
Coats, Robb and Wald write that Iran will have enough fissile material for a nuclear weapon by next year, “leaving little time for the United States to prevent both a nuclear- weapons capable Islamic Republic and an Israeli strike on Iranian nuclear facilities.”
Gasoline Sanction
The authors back a bill that would sanction foreign companies that export gasoline to Iran, if negotiations fail. They say the administration should have prepared “sufficient financial, political and military pressure” before agreeing to negotiations.
The U.S. will dispatch its undersecretary of state for political affairs, William Burns, to the Oct. 1 meeting with U.S. allies and Iran without conditions. Iran has said its nuclear program is closed for discussion. The State Department said yesterday it will use the meeting to outline the consequences of Iran proceeding with a nuclear program.
The U.S. and its allies on the United Nations Security Council plus Germany have pushed Iran to accept a suspension of sanctions in exchange for Iran’s halt to uranium enrichment.
Iran has expanded its nuclear stockpile to 1,430 kilograms of low-enriched uranium hexafluoride compared to 75 kilograms in December 2007, according to the International Atomic Energy Agency. It has also almost doubled its number of centrifuges at its uranium enrichment facility at Natanz since 2007.
Deadline Proposed
The authors say a deadline of 60 days should be set for determining Iran’s seriousness once it commits to negotiations. If those negotiations fail, the administration should toughen sanctions and “prepare overtly for any military option.”
Such preparations could include deploying an additional aircraft carrier battle group to the waters off Iran and conducting joint exercises with U.S. allies.
In the absence of U.S. action, Israel is more likely to strike, the authors argue, saying that an Israeli strike “entails more risks than a U.S. strike.”
Israeli officials say that a nuclear-armed Iran would pose a threat to their country’s existence.
As a signatory to the United Nations charter, the United States is obligated to obey the laws of the Nuremberg trials outlawing unprovoked war, among other things.
In spite of repeated, public intelligence reports dispelling the myth that Iran has nuclear arms and ignoring the International Atomic Energy Agency chief's opinion that the Iran threat is "hyped" the war drums are beating.
Flying in the face of the US Constitution, the UN Charter and intelligence reports we have "reports" urging Obama to strike Iran.
Why write about this on a blog dedicated to economics? Aside from being a horrible blow to world peace, a strike on Iran would have tremendous impact upon oil, gold & silver and just about everything imported and exported to major countries like China and Russia who coincidentally, are now part "Top Concerns" next to Iran and North Korea.
Obama Urged to Ready Tougher Iran Sanctions, Military Strike
Sept. 15 (Bloomberg) -- The U.S. should begin preparing crippling sanctions on Iran and publicly make clear that a military strike is possible should the Iranian government press ahead with its nuclear effort, a bipartisan policy group said.
“If biting sanctions do not persuade the Islamic Republic to demonstrate sincerity in negotiations and give up its enrichment activities, the White House will have to begin serious consideration of the option of a U.S.-led military strike against Iranian nuclear facilities,” said the study from the Bipartisan Policy Center in Washington.
The report was written by Charles Robb, a former Democratic senator from Virginia; Daniel Coats, a former Republican senator from Indiana who also served as ambassador to Germany, and retired General Charles Wald, the former deputy commander of U.S. European command. Their assessment comes as the U.S. prepares to participate in preliminary talks with Iran on Oct. 1 designed to gauge its commitment to address concerns about its nuclear aims.
The report echoes the Obama administration’s conclusion that Iran’s atomic work is approaching a destabilizing point at which it may be able to build a bomb.
Coats, Robb and Wald write that Iran will have enough fissile material for a nuclear weapon by next year, “leaving little time for the United States to prevent both a nuclear- weapons capable Islamic Republic and an Israeli strike on Iranian nuclear facilities.”
Gasoline Sanction
The authors back a bill that would sanction foreign companies that export gasoline to Iran, if negotiations fail. They say the administration should have prepared “sufficient financial, political and military pressure” before agreeing to negotiations.
The U.S. will dispatch its undersecretary of state for political affairs, William Burns, to the Oct. 1 meeting with U.S. allies and Iran without conditions. Iran has said its nuclear program is closed for discussion. The State Department said yesterday it will use the meeting to outline the consequences of Iran proceeding with a nuclear program.
The U.S. and its allies on the United Nations Security Council plus Germany have pushed Iran to accept a suspension of sanctions in exchange for Iran’s halt to uranium enrichment.
Iran has expanded its nuclear stockpile to 1,430 kilograms of low-enriched uranium hexafluoride compared to 75 kilograms in December 2007, according to the International Atomic Energy Agency. It has also almost doubled its number of centrifuges at its uranium enrichment facility at Natanz since 2007.
Deadline Proposed
The authors say a deadline of 60 days should be set for determining Iran’s seriousness once it commits to negotiations. If those negotiations fail, the administration should toughen sanctions and “prepare overtly for any military option.”
Such preparations could include deploying an additional aircraft carrier battle group to the waters off Iran and conducting joint exercises with U.S. allies.
In the absence of U.S. action, Israel is more likely to strike, the authors argue, saying that an Israeli strike “entails more risks than a U.S. strike.”
Israeli officials say that a nuclear-armed Iran would pose a threat to their country’s existence.
More Trouble For Banks
Who will be next to join the Corus line of insolvency is anyone's guess, however, some names to consider can be found on the Troubled Bank List.
AmTrust Bank of Cleveland seems like a natural with more than $13 billion in assets unless industry has moved back to the city and the brain drain has finally been plugged. Lebron James is in the off season so business may be slow.
California National bank out of Los Angeles with a little over $7 billion in assets is also sinking faster than a politician's ratings these days. It will take plenty of reconstructive surgeons from the valley to keep them intact.
Let's not forget about the soviet Citi and Wells Fargo banks that are even scarier as the walking dead than zombies from a George Romero movie. Throw Bank of America and Chase in there, heck, throw just about every bank in this category.
AmTrust Bank of Cleveland seems like a natural with more than $13 billion in assets unless industry has moved back to the city and the brain drain has finally been plugged. Lebron James is in the off season so business may be slow.
California National bank out of Los Angeles with a little over $7 billion in assets is also sinking faster than a politician's ratings these days. It will take plenty of reconstructive surgeons from the valley to keep them intact.
Let's not forget about the soviet Citi and Wells Fargo banks that are even scarier as the walking dead than zombies from a George Romero movie. Throw Bank of America and Chase in there, heck, throw just about every bank in this category.
Tuesday, September 15, 2009
Ben Bernanke: Recession Over!
One would have to have the ignorance of a child to listen to Uncle Ben. The video below is a classic highlighting his empty, false promises and propaganda.
Bernanke Says U.S. Recession ‘Very Likely’ Has Ended
By Craig Torres and Scott Lanman
Sept. 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the worst U.S. recession since the 1930s has probably ended, while warning that growth may not be strong enough to quickly reduce the unemployment rate.
“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said today at the Brookings Institution in Washington, responding to questions after a speech.
The remarks by the Fed chief followed a report today showing retail sales surged last month by the most in three years, adding to evidence of a recovery. The central bank has kept the benchmark lending rate as low as zero since December and in August said “exceptionally low” rates are likely warranted for “an extended period.”
“Unemployment will be slow to come down” if growth turns out to be “moderate” and not much more than the economy’s underlying potential, Bernanke said.
The central bank in March authorized $1.45 trillion in purchases of mortgage-backed securities and other housing debt this year. Policy makers decided last month to taper off a $300 billion program buying U.S. Treasuries through October, while debating a similar move for MBS purchases. Bernanke convenes the next meeting of Fed policy makers Sept. 22-23 in Washington.
The economy will rebound at a 2.3 percent pace next year, according to the median estimate in a Bloomberg News survey of economists. The growth rate won’t be fast enough to lower the unemployment rate below 9 percent, the economists predict.
Bernanke Says U.S. Recession ‘Very Likely’ Has Ended
By Craig Torres and Scott Lanman
Sept. 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the worst U.S. recession since the 1930s has probably ended, while warning that growth may not be strong enough to quickly reduce the unemployment rate.
“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said today at the Brookings Institution in Washington, responding to questions after a speech.
The remarks by the Fed chief followed a report today showing retail sales surged last month by the most in three years, adding to evidence of a recovery. The central bank has kept the benchmark lending rate as low as zero since December and in August said “exceptionally low” rates are likely warranted for “an extended period.”
“Unemployment will be slow to come down” if growth turns out to be “moderate” and not much more than the economy’s underlying potential, Bernanke said.
The central bank in March authorized $1.45 trillion in purchases of mortgage-backed securities and other housing debt this year. Policy makers decided last month to taper off a $300 billion program buying U.S. Treasuries through October, while debating a similar move for MBS purchases. Bernanke convenes the next meeting of Fed policy makers Sept. 22-23 in Washington.
The economy will rebound at a 2.3 percent pace next year, according to the median estimate in a Bloomberg News survey of economists. The growth rate won’t be fast enough to lower the unemployment rate below 9 percent, the economists predict.
Advertising Manipulation (Propaganda) 101
How do you sell sub standard products to consumers that can't afford them? Spin, spin, spin and put a friendly looking, elderly gentleman in front of a camera and make him speak slowly in colloquialisms in a Texas drawl. I can tell you one thing Whitacre, the best will win and it sure as hell won't be Government Motors.
Watch 20 seconds of the video below and notice the difference between this snake and his trained, manipulated delivery.
Watch 20 seconds of the video below and notice the difference between this snake and his trained, manipulated delivery.
Monday, September 14, 2009
A New Low
Had trouble deciding on a title for this post as the story makes me sick, it is simply outrageous. Where is the humility, the shame?
"A Wells Fargo & Co. executive who oversees foreclosed properties hosted parties and spent long summer weekends in a $12 million Malibu beach house, moving into the home just after it had been surrendered to Wells Fargo to satisfy debts, neighbors said.
The previous owners of the beachfront home in Malibu Colony -- a densely built stretch of luxury homes that has been a favorite of celebrities over the years -- were financially devastated in Bernard Madoff's massive fraud scheme, real estate agent Irene Dazzan-Palmer said.
The couple signed the property over to Wells Fargo last spring, and the bank subsequently denied requests to show the house to prospective buyers, Dazzan-Palmer said.
Residents in the gated community told the Los Angeles Times that a woman they believe was Cheronda Guyton took up occupancy at the home in May. Residents said they obtained Guyton's name from the community's guards, who had issued her a homeowner's parking pass.
"It's outrageous to take over a property like that, not make it available and then put someone from the bank in it," said Roman, who lives a few homes away from the property.
Residents said Guyton, along with her husband and two children, often hosted guests at the home, including a large party the last weekend of August. Malibu Colony is about 25 miles from downtown Los Angeles."
Read the full story here.
"A Wells Fargo & Co. executive who oversees foreclosed properties hosted parties and spent long summer weekends in a $12 million Malibu beach house, moving into the home just after it had been surrendered to Wells Fargo to satisfy debts, neighbors said.
The previous owners of the beachfront home in Malibu Colony -- a densely built stretch of luxury homes that has been a favorite of celebrities over the years -- were financially devastated in Bernard Madoff's massive fraud scheme, real estate agent Irene Dazzan-Palmer said.
The couple signed the property over to Wells Fargo last spring, and the bank subsequently denied requests to show the house to prospective buyers, Dazzan-Palmer said.
Residents in the gated community told the Los Angeles Times that a woman they believe was Cheronda Guyton took up occupancy at the home in May. Residents said they obtained Guyton's name from the community's guards, who had issued her a homeowner's parking pass.
"It's outrageous to take over a property like that, not make it available and then put someone from the bank in it," said Roman, who lives a few homes away from the property.
Residents said Guyton, along with her husband and two children, often hosted guests at the home, including a large party the last weekend of August. Malibu Colony is about 25 miles from downtown Los Angeles."
Read the full story here.
The Ghost Fleet of the Recession
"The 'ghost fleet' near Singapore. The world's ship owners and government economists would prefer you not to see this symbol of the depths of the plague still crippling the world's economies."
http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession.html
"The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination - and is why your Christmas stocking may be on the light side this year."
1 in 8 Americans Living In Poverty
Counting homeless, immigrants or those not registered as US citizens, this number is
much larger and growing quickly.
Poverty Hits 1 in 8 Americans
About 2.5 million Americans slipped below the poverty line as recession and layoffs hammered the economy last year, driving poverty to its highest level since 1998, the U.S. Census Bureau reported Thursday.
The annual survey showed that more than one in eight U.S. residents - 13.2 percent - are living on less than $10,991 for an individual - slightly more than $200 a week - or $22,025 for a family of four.
The report came as no surprise to those who work daily with the poor and homeless.
B.J. Iacino, public affairs director for the Colorado Coalition for the Homeless, said her organization has been stretched to the limit by the heightened demand for services. "We are definitely seeing dramatic increases in the numbers of people coming here for help, both for housing and for medical and mental health care," she said.
Barbara Droher Kline, president and chief executive officer of Lutheran Social Services of Northern California, said the economic crisis has driven up the number of families in need of food, housing, employment and youth services.
"It's just so monumental, so widespread," said Ms. Kline, whose administrative offices are in Concord, Calif. "Fresno is in tough straits, all the way down to Bakersfield. It's like, 'Where do you look?' There is so much of it going on, and I don't know how some people are getting by. ...
"Everybody here is trying to figure out how to stretch everything as much as they can. It's really, really rough."
The increased poverty rate was accompanied by falling real incomes for all Americans, the Census Bureau report showed. The country's median household income fell to $50,303 from $52,163 a year earlier, the first drop in four years.
The data also showed poverty disproportionately affecting families, which accounts for a 19 percent poverty rate last year among children, or those younger than 18. That was up from 18 percent the year earlier.
"The number of families, as opposed to individuals, coming to us is increasing, and that's a trend," Ms. Iacino said.
much larger and growing quickly.
Poverty Hits 1 in 8 Americans
About 2.5 million Americans slipped below the poverty line as recession and layoffs hammered the economy last year, driving poverty to its highest level since 1998, the U.S. Census Bureau reported Thursday.
The annual survey showed that more than one in eight U.S. residents - 13.2 percent - are living on less than $10,991 for an individual - slightly more than $200 a week - or $22,025 for a family of four.
The report came as no surprise to those who work daily with the poor and homeless.
B.J. Iacino, public affairs director for the Colorado Coalition for the Homeless, said her organization has been stretched to the limit by the heightened demand for services. "We are definitely seeing dramatic increases in the numbers of people coming here for help, both for housing and for medical and mental health care," she said.
Barbara Droher Kline, president and chief executive officer of Lutheran Social Services of Northern California, said the economic crisis has driven up the number of families in need of food, housing, employment and youth services.
"It's just so monumental, so widespread," said Ms. Kline, whose administrative offices are in Concord, Calif. "Fresno is in tough straits, all the way down to Bakersfield. It's like, 'Where do you look?' There is so much of it going on, and I don't know how some people are getting by. ...
"Everybody here is trying to figure out how to stretch everything as much as they can. It's really, really rough."
The increased poverty rate was accompanied by falling real incomes for all Americans, the Census Bureau report showed. The country's median household income fell to $50,303 from $52,163 a year earlier, the first drop in four years.
The data also showed poverty disproportionately affecting families, which accounts for a 19 percent poverty rate last year among children, or those younger than 18. That was up from 18 percent the year earlier.
"The number of families, as opposed to individuals, coming to us is increasing, and that's a trend," Ms. Iacino said.
Deep Job Cuts
The hits just keep coming for the American workforce. Consider learning a second or third language and to differentiate yourself and skill set from the thousands of others competing for a job you want.
Eli Lilly Cuts 5,5000 Jobs
Lilly to Reduce Headcount, Confirms Forecast
John Deere Cuts 367 Jobs
Layoffs at John Deere Harvester Works
Rhode Island to Lay off 1,000
Talks Underway to Avert RI Government Shutdown
Philadelphia to Cut 3,000 Jobs This Week
Philly Mayor Says Major Cuts, Layoffs are Near
Astra Zeneca to Cut 113 Jobs
AstraZeneca Plans Layoffs at Westborough Plant
Virginia To Cut 600 State Jobs
Kaine Announces More Layoffs, Job Cuts
Eli Lilly Cuts 5,5000 Jobs
Lilly to Reduce Headcount, Confirms Forecast
John Deere Cuts 367 Jobs
Layoffs at John Deere Harvester Works
Rhode Island to Lay off 1,000
Talks Underway to Avert RI Government Shutdown
Philadelphia to Cut 3,000 Jobs This Week
Philly Mayor Says Major Cuts, Layoffs are Near
Astra Zeneca to Cut 113 Jobs
AstraZeneca Plans Layoffs at Westborough Plant
Virginia To Cut 600 State Jobs
Kaine Announces More Layoffs, Job Cuts
Wednesday, September 9, 2009
Mixed into the VAT Taxes
Maybe this is intriguing if the income tax goes away, however, no government will make any tax changes which benefit the people as every government is motivated by its own bureaucratic, self interest.
Laying more taxes on the backs of Americans is simply not possible as the cost - benefit analysis of going to work everyday is suffering from diminishing returns.
What are recent college graduates to do with bloated debt loads and no jobs but to go Jack Kerouac, hit the road and enjoy life?
When do the cogs of innovation and industry get discouraged to the point that they no longer motivated by their work and head for Atlantis?
How is an economy and a culture sustainable when Veblen's leisure class is only 1% of the population controlling 75% of all of the wealth?
Why the U.S. needs a Value Added Tax
Swelling deficits and an aging population leave few palatable options when it comes to taxes.
The best choice by far would be the creation of a new value added tax — a “money machine” that can bring in huge sums with relatively little effort. America is alone among rich nations in not charging a VAT, and its continued unwillingness to do so will make it harder to cope with the fiscal challenges ahead.
Giving birth to a new tax will certainly not be an easy sell. The stunning 1980 reelection defeat of Al Ullman, the powerful chairman of the House Ways and Means Committee who had advocated a VAT, is still a warning to American politicians.
The timing of a new tax on consumption may also seem suspect. Aren’t we supposed to be getting Americans back into the malls?
VAT, however, is worth the risk. It could yield enough money to pay for healthcare reform, as well as a meaty cut in income tax and a reduction in the deficit. It could also be done without destroying Obama or the Democrats.
Unlike taxing the rich — which has emerged as a favorite strategy of many Democrats — a VAT is extremely easy to collect. This is partly because it is gathered from each producer in a chain.
Take bread. The farmer, miller, baker and grocer all pay their share of the tax. If the grocer cheats, the government loses only a quarter of its tax. Furthermore, each producer has incentive to make sure its suppliers have paid VAT. The miller becomes liable for the farmer’s share of VAT unless he can prove the tax has already been paid. VAT collection polices itself to a large extent. The sums of money that could be raised are immense, making it easier to strike a political compromise. Exactly how lucrative VAT would be depends largely on which goods are exempt.
Canada, for example, gives up about a third of potential revenue by excusing food, drugs and transportation from the tax. Even if the United States did the same, a 10 percent tax rate could raise $500 billion a year, according to Eric Toder, an analyst at the Tax Policy Center.
Raise the rate to 15 percent and you get $725 billion. (In comparison, income taxes are expected to yield $968 billion this year.)
This might be hard to square with President Obama’s commitment not to raise taxes on anyone making less than $250,000 a year. VAT is a regressive tax — eating up a larger share of the income of lower wage groups.
This could be offset through the income tax system. In addition, there would be a natural counterbalance if the tax were used to fund an expansion of healthcare. With current health proposals expected to cost around $100 billion a year, there would be plenty of money to spare.
Obama could also borrow a trick from Margaret Thatcher, who used the proceeds from almost doubling VAT to slash British income taxes. A 15 percent VAT would give Obama tremendous leeway to simplify a Byzantine income tax system and to cut rates.
And introducing a VAT need not derail economic recovery. Indeed, if the tax were introduced with a six-month delay it could even provide Americans with an incentive to bring forward spending.
America cannot temporize forever. The aging population will demand both painful spending cuts and tax increases. If the burden is placed on income taxes alone then any increase in rates will be monumental.
When politicians finally confront the looming fiscal crisis, a VAT would be an invaluable tool.
Laying more taxes on the backs of Americans is simply not possible as the cost - benefit analysis of going to work everyday is suffering from diminishing returns.
What are recent college graduates to do with bloated debt loads and no jobs but to go Jack Kerouac, hit the road and enjoy life?
When do the cogs of innovation and industry get discouraged to the point that they no longer motivated by their work and head for Atlantis?
How is an economy and a culture sustainable when Veblen's leisure class is only 1% of the population controlling 75% of all of the wealth?
Why the U.S. needs a Value Added Tax
Swelling deficits and an aging population leave few palatable options when it comes to taxes.
The best choice by far would be the creation of a new value added tax — a “money machine” that can bring in huge sums with relatively little effort. America is alone among rich nations in not charging a VAT, and its continued unwillingness to do so will make it harder to cope with the fiscal challenges ahead.
Giving birth to a new tax will certainly not be an easy sell. The stunning 1980 reelection defeat of Al Ullman, the powerful chairman of the House Ways and Means Committee who had advocated a VAT, is still a warning to American politicians.
The timing of a new tax on consumption may also seem suspect. Aren’t we supposed to be getting Americans back into the malls?
VAT, however, is worth the risk. It could yield enough money to pay for healthcare reform, as well as a meaty cut in income tax and a reduction in the deficit. It could also be done without destroying Obama or the Democrats.
Unlike taxing the rich — which has emerged as a favorite strategy of many Democrats — a VAT is extremely easy to collect. This is partly because it is gathered from each producer in a chain.
Take bread. The farmer, miller, baker and grocer all pay their share of the tax. If the grocer cheats, the government loses only a quarter of its tax. Furthermore, each producer has incentive to make sure its suppliers have paid VAT. The miller becomes liable for the farmer’s share of VAT unless he can prove the tax has already been paid. VAT collection polices itself to a large extent. The sums of money that could be raised are immense, making it easier to strike a political compromise. Exactly how lucrative VAT would be depends largely on which goods are exempt.
Canada, for example, gives up about a third of potential revenue by excusing food, drugs and transportation from the tax. Even if the United States did the same, a 10 percent tax rate could raise $500 billion a year, according to Eric Toder, an analyst at the Tax Policy Center.
Raise the rate to 15 percent and you get $725 billion. (In comparison, income taxes are expected to yield $968 billion this year.)
This might be hard to square with President Obama’s commitment not to raise taxes on anyone making less than $250,000 a year. VAT is a regressive tax — eating up a larger share of the income of lower wage groups.
This could be offset through the income tax system. In addition, there would be a natural counterbalance if the tax were used to fund an expansion of healthcare. With current health proposals expected to cost around $100 billion a year, there would be plenty of money to spare.
Obama could also borrow a trick from Margaret Thatcher, who used the proceeds from almost doubling VAT to slash British income taxes. A 15 percent VAT would give Obama tremendous leeway to simplify a Byzantine income tax system and to cut rates.
And introducing a VAT need not derail economic recovery. Indeed, if the tax were introduced with a six-month delay it could even provide Americans with an incentive to bring forward spending.
America cannot temporize forever. The aging population will demand both painful spending cuts and tax increases. If the burden is placed on income taxes alone then any increase in rates will be monumental.
When politicians finally confront the looming fiscal crisis, a VAT would be an invaluable tool.
China To Build World's Largest Solar Field
When a country is not dependent on cheap oil and foreign interventions, there is extra capital left over to invest in sustainable energy. Seems like a winning formula to me.
First Solar Nabs China Contract to Build World's Largest Field
By John Letzing, MarketWatch
A previous version of this story contained an incorrect size comparison for the new solar field. The story has been corrected.
SAN FRANCISCO (MarketWatch) -- First Solar Inc. said Tuesday it has signed an agreement with China to build a sprawling, 2-gigawatt solar power field, possibly becoming the world's largest such facility.
The plant, to be built in Ordos City in the province of Inner Mongolia, won't be entirely completed until 2019, Tempe, Ariz.-based First Solar /quotes/comstock/15*!fslr/quotes/nls/fslr (FSLR 134.41, +12.94, +10.65%) said.
The project "represents an encouraging step forward toward the mass-scale deployment of solar power worldwide to help mitigate climate-change concerns," First Solar Chief Executive Mike Ahearn said in a statement.
The project will depend upon a "feed-in-tariff" supplied by the Chinese government, which will guarantee the pricing of the electricity it produces over a certain period, First Solar said.
"This type of forward-looking government policy is necessary to create a strong solar market ... which in turn continues to drive the cost of solar electricity closer to 'grid parity' -- where it is competitive with traditional energy sources," Ahearn said.
According to a filing with the U.S. Securities and Exchange Commission, the First Solar project would be built on 65 square kilometers (25 square miles) of land, slightly larger than the size of Manhattan.
As part of the arrangement, First Solar also intends to "actively participate in the development of the photovoltaic [solar cell] industry in China," the company said.
The China deal comes on the heals of First Solar's announcement in August it will build a 550-megawatt solar power generation facility for Southern California Edison, a unit of Edison International /quotes/comstock/13*!eix/quotes/nls/eix (EIX 33.31, +0.19, +0.57%) , by the end of 2015. See story on First Solar's Edison deal.
Shares of First Solar closed Tuesday more than 10% higher, at $134.41.
First Solar Nabs China Contract to Build World's Largest Field
By John Letzing, MarketWatch
A previous version of this story contained an incorrect size comparison for the new solar field. The story has been corrected.
SAN FRANCISCO (MarketWatch) -- First Solar Inc. said Tuesday it has signed an agreement with China to build a sprawling, 2-gigawatt solar power field, possibly becoming the world's largest such facility.
The plant, to be built in Ordos City in the province of Inner Mongolia, won't be entirely completed until 2019, Tempe, Ariz.-based First Solar /quotes/comstock/15*!fslr/quotes/nls/fslr (FSLR 134.41, +12.94, +10.65%) said.
The project "represents an encouraging step forward toward the mass-scale deployment of solar power worldwide to help mitigate climate-change concerns," First Solar Chief Executive Mike Ahearn said in a statement.
The project will depend upon a "feed-in-tariff" supplied by the Chinese government, which will guarantee the pricing of the electricity it produces over a certain period, First Solar said.
"This type of forward-looking government policy is necessary to create a strong solar market ... which in turn continues to drive the cost of solar electricity closer to 'grid parity' -- where it is competitive with traditional energy sources," Ahearn said.
According to a filing with the U.S. Securities and Exchange Commission, the First Solar project would be built on 65 square kilometers (25 square miles) of land, slightly larger than the size of Manhattan.
As part of the arrangement, First Solar also intends to "actively participate in the development of the photovoltaic [solar cell] industry in China," the company said.
The China deal comes on the heals of First Solar's announcement in August it will build a 550-megawatt solar power generation facility for Southern California Edison, a unit of Edison International /quotes/comstock/13*!eix/quotes/nls/eix (EIX 33.31, +0.19, +0.57%) , by the end of 2015. See story on First Solar's Edison deal.
Shares of First Solar closed Tuesday more than 10% higher, at $134.41.
Tuesday, September 8, 2009
UN: New Currency Needed to Fix Con Game
There is no cause for concern regarding the purchasing power of your dollars...the rest of the world is totally DEPENDENT on the dollar and INCAPABLE of life without it - HA!
Follow the dollars - the US is by far the largest player in the UN and bankrolls it - this "new currency" is in the US playbook.
UN Says New Currency Is Needed to Fix Broken ‘Confidence Game’
By Jonathan Tirone
Sept. 7 (Bloomberg) -- The dollar’s role in international trade should be reduced by establishing a new currency to protect emerging markets from the “confidence game” of financial speculation, the United Nations said.
UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.
China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. China, the world’s largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund’s special drawing rights, or SDRs, may add stability.
“There’s a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management,” Heiner Flassbeck, co-author of the report and a UNCTAD director, said in an interview from Geneva. “An initiative equivalent to Bretton Woods or the European Monetary System is needed.”
The 1944 Bretton Woods agreement created the modern global economic system and institutions including the IMF and World Bank.
Enhanced SDRs
While it would be desirable to strengthen SDRs, a unit of account based on a basket of currencies, it wouldn’t be enough to aid emerging markets most in need of liquidity, said Flassbeck, a former German deputy finance minister who worked in 1997-1998 with then U.S. Deputy Treasury Secretary Lawrence Summers to contain the Asian financial crisis.
Emerging-market countries are underrepresented at the IMF, hindering the effectiveness of enhanced SDR allocations, the UN said. An organization should be created to manage real exchange rates between countries measured by purchasing power and adjusted to inflation differentials and development levels, it said.
“The most important lesson of the global crisis is that financial markets don’t get prices right,” Flassbeck said. “Governments are being tempted by the resulting confidence game catering to financial-market participants who have shown they’re inept at assessing risk.”
The 45-year-old UN group, run by former World Trade Organization chief Supachai Panitchpakdi, “promotes integration of developing countries in the world economy,” according to its Web site. Emerging-market nations should consider restricting capital mobility until a new system is in place, the group said.
The world body began issuing warnings in 2006 about financial imbalances leading to a global recession.
The UN Trade and Development report is being held for release via print media until 6 p.m. London time.
Follow the dollars - the US is by far the largest player in the UN and bankrolls it - this "new currency" is in the US playbook.
UN Says New Currency Is Needed to Fix Broken ‘Confidence Game’
By Jonathan Tirone
Sept. 7 (Bloomberg) -- The dollar’s role in international trade should be reduced by establishing a new currency to protect emerging markets from the “confidence game” of financial speculation, the United Nations said.
UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.
China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. China, the world’s largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund’s special drawing rights, or SDRs, may add stability.
“There’s a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management,” Heiner Flassbeck, co-author of the report and a UNCTAD director, said in an interview from Geneva. “An initiative equivalent to Bretton Woods or the European Monetary System is needed.”
The 1944 Bretton Woods agreement created the modern global economic system and institutions including the IMF and World Bank.
Enhanced SDRs
While it would be desirable to strengthen SDRs, a unit of account based on a basket of currencies, it wouldn’t be enough to aid emerging markets most in need of liquidity, said Flassbeck, a former German deputy finance minister who worked in 1997-1998 with then U.S. Deputy Treasury Secretary Lawrence Summers to contain the Asian financial crisis.
Emerging-market countries are underrepresented at the IMF, hindering the effectiveness of enhanced SDR allocations, the UN said. An organization should be created to manage real exchange rates between countries measured by purchasing power and adjusted to inflation differentials and development levels, it said.
“The most important lesson of the global crisis is that financial markets don’t get prices right,” Flassbeck said. “Governments are being tempted by the resulting confidence game catering to financial-market participants who have shown they’re inept at assessing risk.”
The 45-year-old UN group, run by former World Trade Organization chief Supachai Panitchpakdi, “promotes integration of developing countries in the world economy,” according to its Web site. Emerging-market nations should consider restricting capital mobility until a new system is in place, the group said.
The world body began issuing warnings in 2006 about financial imbalances leading to a global recession.
The UN Trade and Development report is being held for release via print media until 6 p.m. London time.
Forbes: Sky is Blue (Dollar Collapsing)
The Dollar Collapses
Commodities, stocks and foreign currencies all rise as investors sell dollars.
The U.S. dollar reached its lowest point against the euro this year due to a myriad of forces including rising global stocks and commodities prices, low interest rates, and investors diversifying out of Treasury debt and into other assets including U.S. stocks with the Dow Jones industrial average approaching 9500 in late afternoon trading.
Stocks in Asia and Europe saw big gains, and gold topped $1,000 an ounce. (See "Stocks, Commodities Rally After Long Weekend.") Oil also gained 4.9%, or $3.31, to $71.33, on the New York Mercantile Exchange, due in part to Goldman Sachs affirming its year-long outlook. By midday trading one euro traded for $1.45, meanwhile the Dollar Index, which tracks the greenback against a basket of currencies, fell to its lowest level since September of 2008.
READ FULL ARTICLE
Commodities, stocks and foreign currencies all rise as investors sell dollars.
The U.S. dollar reached its lowest point against the euro this year due to a myriad of forces including rising global stocks and commodities prices, low interest rates, and investors diversifying out of Treasury debt and into other assets including U.S. stocks with the Dow Jones industrial average approaching 9500 in late afternoon trading.
Stocks in Asia and Europe saw big gains, and gold topped $1,000 an ounce. (See "Stocks, Commodities Rally After Long Weekend.") Oil also gained 4.9%, or $3.31, to $71.33, on the New York Mercantile Exchange, due in part to Goldman Sachs affirming its year-long outlook. By midday trading one euro traded for $1.45, meanwhile the Dollar Index, which tracks the greenback against a basket of currencies, fell to its lowest level since September of 2008.
READ FULL ARTICLE
The Deflationary Scenario
Today, the chairman of Elliott Wave international made headlines with Robert Prechter Warning Economic Depression and Financial Crisis Worse To Come. This is as good a time as any to review his ultra bearish, long term deflationary scenario. The excerpt below is from April 2009 but highlights the basic pillars of his projections. When his new work becomes public it will be posted.
Two important points between Inflation and Deflation:
1.) They are not mutually exclusive
2.) Purchasing power in terms of gold and silver will go down (even in deflation markets collapse further than precious metals)
Dent, Prechter and Other Experts Warn: Worst is Yet to Come
Robert R. Prechter Jr. is author of a number of books including “Elliott Wave Principle” (1978) in which he predicted the super bull market of the 1980s; “At the Crest of the Tidal Wave – A Forecast of the Great Bear Market” (1995) in which he predicted a slow motion economic earthquake, brought about by a great asset mania, that would register 11 on the financial Richter scale causing a collapse of historic proportions; and “Conquer the Crash: You can Survive and Prosper in a Deflationary Depression” (2002) in which he described the economic cataclysm that we are just beginning to experience and advised how to position one’s self financially during that period of time. Prechter also publishes two newsletters, the ‘Elliott Wave Theorist’ and the ‘Elliott Wave Financial Forecast’ both of which are paid subscription based. The Elliott Wave Theory takes a ‘socionomic’ approach to forecasting which contends that markets are driven by psychology and, while it is relatively easy to understand in concept, the interpretation and resultant application of the trends are difficult to implement consistently.
The above being said, there are no shortage of senior economists, analysts and financial industry executives who sing the praises of his work. Such words as “ignore Bob’s books at your peril”; “it could help you save your financial future”; “the closest thing to a crystal ball we could look for…it is a road map that no investor should be without”; “ignorance may not be bliss – it may mean bankruptcy. Ignore the message at your risk”; “knowing long term risks and opportunities in financial markets ahead of time is absolutely the key to consistent investment success”; “if you want to preserve your wealth (or what little is left of it) I urge you to follow Prechter’s advice. You will be grateful that you did”. There are more words of praise to be had but I’m sure you get the idea of what astute professionals think of Prechter’s work.
So what does Prechter have to say about the current situation and how we should deploy our assets? He is not as exact with free advice as Dent and Napier are but, as a result of his analyses, he has the following to say about the economic and financial environment (and I paraphrase):
A Deflationary Crash and Depression is Imminent
Deflation requires a precondition: a major societal buildup in the extension of credit and its flip side, the assumption of debt. Credit expansion continues as long as there are those willing to lend and borrow and there is the general ability of borrowers to pay interest and principal. These components depend upon whether both creditors and debtors think that debtors will be able to pay, and the trend of production, which makes it either easier or harder in actuality for debtors to pay. So long as confidence and productivity increase, the supply of credit tends to expand. The expansion of credit ends when the desire or ability to sustain the trend can no longer be maintained. The supply of credit contracts as confidence and productivity decrease.
The social mood trend changes from optimism to pessimism when creditors, debtors, producers and consumers change their respective primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending. As debtors and potential debtors become more conservative, they borrow less or not at all. As producers become more conservative, they reduce expansion plans. As consumers become more conservative, they save more and spend less. These behaviors reduce the ‘velocity’ of money, i.e. the speed with which it circulates to make purchases, thus putting downside pressure on prices.
At some point, a rising debt level requires so much energy to sustain – in terms of meeting interest payments…. chasing delinquent borrowers and writing off bad loans – that it slows overall economic performance. When this burden becomes too great for the economy to support the trend reverses causing reductions in lending, spending, and production which, in turn, cause debtors to earn less money with which to pay off their debts, so defaults rise.
Default and fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further. A downward “spiral” begins, feeding on pessimism just as the previous boom fed optimism. The resulting cascade of debt liquidation is a deflationary crash. Debts are retired by paying them off, by “restructuring” or by default. In the first case, no value is lost; in the second, some value; in the third, all value. In desperately trying to raise cash to pay off loans, borrowers sell all kinds of assets to market – including stocks, bonds, commodities and real estate – causing their prices to plummet. (Sound familiar? It should because such behavior is unfolding as you read this very article!) The process ends only after the supply of credit falls to a level at which it is collateralized acceptably to the surviving creditors.
Editor’s note: Where are we at this point in time? Let’s take a look again at the various stages of decline to determine where we are:
Stage one
The major banks of the world major are concerned that any credit obligations that they were to enter into with other banks would not be honored because of the unknown extent of toxic assets (such as derivatives and sub-prime Mortgage Backed Securities) on their books – as was/is the case on their own books.
This, in turn, has caused them to go from an expansion mode to a conservation mode resulting in a credit crisis such as we currently are experiencing.
Stage two
The major banks’ refusal to lend money to business has caused, or is causing, business to go from an expansion mode to a conservative mode which has, in turn, adversely affected the trend of production.
This is evidenced by the 6.2% seasonally adjusted annualized decline in GDP during the 4th Qtr. of 2008 which was the worst decline since a 6.4% decrease in the 1st qtr of 1982. To make matters worse, economists don’t expect any relief in the current quarter, which ends March 31st, projecting a further -4.8% annualized rate which would be the first time since 1947 that the GDP has fallen by more than 4% for two quarters in a row.
Stage three
a) The reduction in production by business has, in turn, led to or is leading to, over-capacity which has increased employee layoffs.
Indeed, unemployment soared to 8.1% in February, the highest rate in over 25 years. The consensus of private forecasters is for the unemployment rate to get close to 9% in 2010 with some forecasters suggesting a 10% rate. The Federal Reserve, itself, doesn’t expect the unemployment rate to fall below 7% until 2011.
b) The increase in unemployment has, in turn, reduced the affected consumers’ ability to buy goods and services.
c) The consumers’ inability to buy goods and services has, in turn, reduced company sales and profits.
d) The reduction in company sales and profits has, in turn, caused the price of their stock to decline.
e) The lack of easy credit and/or loss of employment has meant that home “owners” (i.e. mortgagees in some degree of co-ownership with whichever financial institution holds their mortgage) have not been able, in increasing numbers, to re-finance and/or afford to re-finance their mortgages and, as such, have not been able to make their escalating monthly mortgage payments which have, in turn, led to a record high number of mortgage foreclosures.
Indeed, as of the end of 2008 12% of Americans with a mortgage were at least 1 month late or in foreclosure which was up from 8% a year earlier. Even worse, a stunning 48% of home “owners” who have sub-prime, adjustable-rate mortgages are currently behind in their payments or in foreclosure which, in turn, has resulted in ever more distressed house sales by the mortgagors and other neighborhood homeowners with, or without, a mortgage.
Stage four
The dire economic scene (fear of loss of job, loss of money invested in the stock market, reduced resale value of their house, etc.) has seen, in turn,
a) a major increase in savings (the personal savings rate rose by 5.0% in January, the highest rate since 1995)
b) a reduction in spending (it dropped 0.2% in December)
c) a reduction in the sale of goods and services
d) a decline in the price of such goods and services (as evidenced by the U.S. GDP Price Index which declined by 0.1% on a quarter-over-quarter annualized basis in the 4th Qtr of 2008 – the 1st decline since 1954 – and supporting the Fed’s obtuse view that “inflation pressures will remain subdued in coming quarters.” That tells us that deflation is imminent.
Stage five
We are going to see a self-reinforcing escalating vicious cycle of stage two, stage three and stage four over and over again. The downward “spiral’ is in progress.
So there you have it! We are in the early weeks of stage five. As such, it is fully understandable why the governments of the world are throwing money at the credit problem so excessively in an attempt to get the wheels of industry turning to stem the decline before it takes hold. It is an extremely dire situation with no end in sight at the moment.
Gold and Silver Beginning a Decline to Under $680 and $8.39 respectively
Gold and silver will fall into their final dollar price lows at the bottom of the deflation…after which time these metals should soar in price. Given the likely political inflationary forces following the period of deflation the rebound could be much stronger than anticipated so owning precious metals prior to the onset of the post-depression recovery is desirable.
Should you buy gold and silver now? If you are willing to accept the dollar value of the precious metals dropping another 30% ($680 gold represents a 26% decline from the early March 16, 2009 price of approximately $923) or more before they rise substantially….but are willing, nevertheless, to pay such a price for its current availability and for the ‘insurance’ of greater portfolio stability under an unexpected inflation scenario, then the answer is yes.
The above being said, it is probably not as good an idea to invest in gold stocks because in common stock bear markets stocks of gold mining companies usually go down with the overall market trend except in relatively rare 5 to 10- year periods of accelerating inflation. As such, in this early stage of deflation gold mines will enjoy no false advantage over any other companies. Their stocks will probably rally when the overall stock market rallies. Owning gold shares is fine at the top of the Kondratieff economic cycle when inflation is raging and political tensions are their most severe.
DJIA Should Fall Below 777
The Dow Jones Industrial Average will go down to at least 1000, most likely to below 777 which was the starting point of its mania back in August 1982, and quite likely drop below 400 at one or more times during the bear market.
Editor’s note: To Prechter’s credit he acknowledges that these aforementioned forecasts are considered to be impossible by virtually everyone. He is of the opinion that the price swings will be dramatic over the course of the decline – as evidenced by recent swings in the Dow 30 from 11,723 on Jan.14th, 2000 to 7286 on Oct.9th, 2002 (-37.8%); to 14,165 on Oct.9th, 2007 (+94.4%); to 6594 as of March 5th, 2009 (-53.4%) – providing phenomenal investment returns to the successful long term in-and-out investor. Even short term in-and-out investors can profit considerably from the current market volatility as the market swings up and down (October ’08 low of 7774 to a November ’08 high of 9654 (+24.2%), to a late November ‘08 low of 7449 (-22.8%), to a January ’09 high of 9088 (+22.0%): to an early March ’09 low of 6594 (-27.4%). Is another 20% to 25% increase about to occur in the very near future (i.e. to approx. 8250) followed by an even lower low of 25% to 30% (i.e. to 6000 or so)? Only time will tell but Prechter sees money to be made during such times for those astute and fortunate investors who choose not to park their money in some form of cash or just ‘buy and hold’ as so many financial/investment advisors are so prone to recommend.
U.S. Dollar Index to Continue to Rise
It is important to make a distinction between the dollar’s domestic and international values. In a deflation, the value of any currency – the U.S. dollar, in this case – rises domestically while the USD’s international value, as represented by the U.S. Dollar Index, can rise or fall relative to other currencies in a deflation. In a time of financial crisis, however, the U.S. dollar is considered to be a safe-haven currency. This time is no exception, particularly given that the Euro, a major component of the USD Index, is going through extremely trying times itself. As the deflationary depression proceeds over the next few years demand for U.S. dollars should increase even further. In such a deflationary environment, where a strong dollar still persists, you want to be in safe cash equivalents such as U.S. T-bills.
Treasury Bonds are in a Bear Market
The 10-year Treasury note yield has been in a sharp decline since the early ‘80s when it reached 15.84% at the height of inflation and is at a deflationary level of 2.89% as of March 13, 2009. The gargantuan government bond issuance to fund the U.S. debt bubble, however, may push yields, which move inversely to prices, steeply higher in the years ahead.
Prechter has been quoted as saying “The reason that I remain willing to express my unconventional view is that I believe that my ideas of finance and macroeconomics are correct and the conventional ones are wrong. True, wave analysts make mistakes, but they also make stunningly accurate long-term forecasts.” Updates to Prechter’s insights and predictions on all asset classes can be found at www.elliottwave.com. I encourage those readers who have found his above forecasts and investment advice to be informative to buy Prechter’s books for a more in-depth read and understanding of the basis for his making such projections of future events with such confidence.
READ FULL ARTICLE
Two important points between Inflation and Deflation:
1.) They are not mutually exclusive
2.) Purchasing power in terms of gold and silver will go down (even in deflation markets collapse further than precious metals)
Dent, Prechter and Other Experts Warn: Worst is Yet to Come
Robert R. Prechter Jr. is author of a number of books including “Elliott Wave Principle” (1978) in which he predicted the super bull market of the 1980s; “At the Crest of the Tidal Wave – A Forecast of the Great Bear Market” (1995) in which he predicted a slow motion economic earthquake, brought about by a great asset mania, that would register 11 on the financial Richter scale causing a collapse of historic proportions; and “Conquer the Crash: You can Survive and Prosper in a Deflationary Depression” (2002) in which he described the economic cataclysm that we are just beginning to experience and advised how to position one’s self financially during that period of time. Prechter also publishes two newsletters, the ‘Elliott Wave Theorist’ and the ‘Elliott Wave Financial Forecast’ both of which are paid subscription based. The Elliott Wave Theory takes a ‘socionomic’ approach to forecasting which contends that markets are driven by psychology and, while it is relatively easy to understand in concept, the interpretation and resultant application of the trends are difficult to implement consistently.
The above being said, there are no shortage of senior economists, analysts and financial industry executives who sing the praises of his work. Such words as “ignore Bob’s books at your peril”; “it could help you save your financial future”; “the closest thing to a crystal ball we could look for…it is a road map that no investor should be without”; “ignorance may not be bliss – it may mean bankruptcy. Ignore the message at your risk”; “knowing long term risks and opportunities in financial markets ahead of time is absolutely the key to consistent investment success”; “if you want to preserve your wealth (or what little is left of it) I urge you to follow Prechter’s advice. You will be grateful that you did”. There are more words of praise to be had but I’m sure you get the idea of what astute professionals think of Prechter’s work.
So what does Prechter have to say about the current situation and how we should deploy our assets? He is not as exact with free advice as Dent and Napier are but, as a result of his analyses, he has the following to say about the economic and financial environment (and I paraphrase):
A Deflationary Crash and Depression is Imminent
Deflation requires a precondition: a major societal buildup in the extension of credit and its flip side, the assumption of debt. Credit expansion continues as long as there are those willing to lend and borrow and there is the general ability of borrowers to pay interest and principal. These components depend upon whether both creditors and debtors think that debtors will be able to pay, and the trend of production, which makes it either easier or harder in actuality for debtors to pay. So long as confidence and productivity increase, the supply of credit tends to expand. The expansion of credit ends when the desire or ability to sustain the trend can no longer be maintained. The supply of credit contracts as confidence and productivity decrease.
The social mood trend changes from optimism to pessimism when creditors, debtors, producers and consumers change their respective primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending. As debtors and potential debtors become more conservative, they borrow less or not at all. As producers become more conservative, they reduce expansion plans. As consumers become more conservative, they save more and spend less. These behaviors reduce the ‘velocity’ of money, i.e. the speed with which it circulates to make purchases, thus putting downside pressure on prices.
At some point, a rising debt level requires so much energy to sustain – in terms of meeting interest payments…. chasing delinquent borrowers and writing off bad loans – that it slows overall economic performance. When this burden becomes too great for the economy to support the trend reverses causing reductions in lending, spending, and production which, in turn, cause debtors to earn less money with which to pay off their debts, so defaults rise.
Default and fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further. A downward “spiral” begins, feeding on pessimism just as the previous boom fed optimism. The resulting cascade of debt liquidation is a deflationary crash. Debts are retired by paying them off, by “restructuring” or by default. In the first case, no value is lost; in the second, some value; in the third, all value. In desperately trying to raise cash to pay off loans, borrowers sell all kinds of assets to market – including stocks, bonds, commodities and real estate – causing their prices to plummet. (Sound familiar? It should because such behavior is unfolding as you read this very article!) The process ends only after the supply of credit falls to a level at which it is collateralized acceptably to the surviving creditors.
Editor’s note: Where are we at this point in time? Let’s take a look again at the various stages of decline to determine where we are:
Stage one
The major banks of the world major are concerned that any credit obligations that they were to enter into with other banks would not be honored because of the unknown extent of toxic assets (such as derivatives and sub-prime Mortgage Backed Securities) on their books – as was/is the case on their own books.
This, in turn, has caused them to go from an expansion mode to a conservation mode resulting in a credit crisis such as we currently are experiencing.
Stage two
The major banks’ refusal to lend money to business has caused, or is causing, business to go from an expansion mode to a conservative mode which has, in turn, adversely affected the trend of production.
This is evidenced by the 6.2% seasonally adjusted annualized decline in GDP during the 4th Qtr. of 2008 which was the worst decline since a 6.4% decrease in the 1st qtr of 1982. To make matters worse, economists don’t expect any relief in the current quarter, which ends March 31st, projecting a further -4.8% annualized rate which would be the first time since 1947 that the GDP has fallen by more than 4% for two quarters in a row.
Stage three
a) The reduction in production by business has, in turn, led to or is leading to, over-capacity which has increased employee layoffs.
Indeed, unemployment soared to 8.1% in February, the highest rate in over 25 years. The consensus of private forecasters is for the unemployment rate to get close to 9% in 2010 with some forecasters suggesting a 10% rate. The Federal Reserve, itself, doesn’t expect the unemployment rate to fall below 7% until 2011.
b) The increase in unemployment has, in turn, reduced the affected consumers’ ability to buy goods and services.
c) The consumers’ inability to buy goods and services has, in turn, reduced company sales and profits.
d) The reduction in company sales and profits has, in turn, caused the price of their stock to decline.
e) The lack of easy credit and/or loss of employment has meant that home “owners” (i.e. mortgagees in some degree of co-ownership with whichever financial institution holds their mortgage) have not been able, in increasing numbers, to re-finance and/or afford to re-finance their mortgages and, as such, have not been able to make their escalating monthly mortgage payments which have, in turn, led to a record high number of mortgage foreclosures.
Indeed, as of the end of 2008 12% of Americans with a mortgage were at least 1 month late or in foreclosure which was up from 8% a year earlier. Even worse, a stunning 48% of home “owners” who have sub-prime, adjustable-rate mortgages are currently behind in their payments or in foreclosure which, in turn, has resulted in ever more distressed house sales by the mortgagors and other neighborhood homeowners with, or without, a mortgage.
Stage four
The dire economic scene (fear of loss of job, loss of money invested in the stock market, reduced resale value of their house, etc.) has seen, in turn,
a) a major increase in savings (the personal savings rate rose by 5.0% in January, the highest rate since 1995)
b) a reduction in spending (it dropped 0.2% in December)
c) a reduction in the sale of goods and services
d) a decline in the price of such goods and services (as evidenced by the U.S. GDP Price Index which declined by 0.1% on a quarter-over-quarter annualized basis in the 4th Qtr of 2008 – the 1st decline since 1954 – and supporting the Fed’s obtuse view that “inflation pressures will remain subdued in coming quarters.” That tells us that deflation is imminent.
Stage five
We are going to see a self-reinforcing escalating vicious cycle of stage two, stage three and stage four over and over again. The downward “spiral’ is in progress.
So there you have it! We are in the early weeks of stage five. As such, it is fully understandable why the governments of the world are throwing money at the credit problem so excessively in an attempt to get the wheels of industry turning to stem the decline before it takes hold. It is an extremely dire situation with no end in sight at the moment.
Gold and Silver Beginning a Decline to Under $680 and $8.39 respectively
Gold and silver will fall into their final dollar price lows at the bottom of the deflation…after which time these metals should soar in price. Given the likely political inflationary forces following the period of deflation the rebound could be much stronger than anticipated so owning precious metals prior to the onset of the post-depression recovery is desirable.
Should you buy gold and silver now? If you are willing to accept the dollar value of the precious metals dropping another 30% ($680 gold represents a 26% decline from the early March 16, 2009 price of approximately $923) or more before they rise substantially….but are willing, nevertheless, to pay such a price for its current availability and for the ‘insurance’ of greater portfolio stability under an unexpected inflation scenario, then the answer is yes.
The above being said, it is probably not as good an idea to invest in gold stocks because in common stock bear markets stocks of gold mining companies usually go down with the overall market trend except in relatively rare 5 to 10- year periods of accelerating inflation. As such, in this early stage of deflation gold mines will enjoy no false advantage over any other companies. Their stocks will probably rally when the overall stock market rallies. Owning gold shares is fine at the top of the Kondratieff economic cycle when inflation is raging and political tensions are their most severe.
DJIA Should Fall Below 777
The Dow Jones Industrial Average will go down to at least 1000, most likely to below 777 which was the starting point of its mania back in August 1982, and quite likely drop below 400 at one or more times during the bear market.
Editor’s note: To Prechter’s credit he acknowledges that these aforementioned forecasts are considered to be impossible by virtually everyone. He is of the opinion that the price swings will be dramatic over the course of the decline – as evidenced by recent swings in the Dow 30 from 11,723 on Jan.14th, 2000 to 7286 on Oct.9th, 2002 (-37.8%); to 14,165 on Oct.9th, 2007 (+94.4%); to 6594 as of March 5th, 2009 (-53.4%) – providing phenomenal investment returns to the successful long term in-and-out investor. Even short term in-and-out investors can profit considerably from the current market volatility as the market swings up and down (October ’08 low of 7774 to a November ’08 high of 9654 (+24.2%), to a late November ‘08 low of 7449 (-22.8%), to a January ’09 high of 9088 (+22.0%): to an early March ’09 low of 6594 (-27.4%). Is another 20% to 25% increase about to occur in the very near future (i.e. to approx. 8250) followed by an even lower low of 25% to 30% (i.e. to 6000 or so)? Only time will tell but Prechter sees money to be made during such times for those astute and fortunate investors who choose not to park their money in some form of cash or just ‘buy and hold’ as so many financial/investment advisors are so prone to recommend.
U.S. Dollar Index to Continue to Rise
It is important to make a distinction between the dollar’s domestic and international values. In a deflation, the value of any currency – the U.S. dollar, in this case – rises domestically while the USD’s international value, as represented by the U.S. Dollar Index, can rise or fall relative to other currencies in a deflation. In a time of financial crisis, however, the U.S. dollar is considered to be a safe-haven currency. This time is no exception, particularly given that the Euro, a major component of the USD Index, is going through extremely trying times itself. As the deflationary depression proceeds over the next few years demand for U.S. dollars should increase even further. In such a deflationary environment, where a strong dollar still persists, you want to be in safe cash equivalents such as U.S. T-bills.
Treasury Bonds are in a Bear Market
The 10-year Treasury note yield has been in a sharp decline since the early ‘80s when it reached 15.84% at the height of inflation and is at a deflationary level of 2.89% as of March 13, 2009. The gargantuan government bond issuance to fund the U.S. debt bubble, however, may push yields, which move inversely to prices, steeply higher in the years ahead.
Prechter has been quoted as saying “The reason that I remain willing to express my unconventional view is that I believe that my ideas of finance and macroeconomics are correct and the conventional ones are wrong. True, wave analysts make mistakes, but they also make stunningly accurate long-term forecasts.” Updates to Prechter’s insights and predictions on all asset classes can be found at www.elliottwave.com. I encourage those readers who have found his above forecasts and investment advice to be informative to buy Prechter’s books for a more in-depth read and understanding of the basis for his making such projections of future events with such confidence.
READ FULL ARTICLE
Friday, September 4, 2009
The Worst Yet To Come?
Stephen Lendman does a good job below of tying together several prominent, dire forecasts. Unfortunately, the probability that these projections are at least somewhat fulfilled is very likely.
What to do? China is recommending their citizens buy gold and silver.
Remember, in the worst possible scenario one would need to exchange precious metals for goods so make sure you do have some silver.
Predicting Worse Ahead from America's Economic Crisis
by Stephen Lendman
Troubled Times Ahead
On July 14, Egon von Greyerz, Founder and Managing Partner of Zurich-based Matterhorn Asset Management AG, specializing in precious metals and other investments, said "The Dark Years Are Here" and explained why.
Because of "the devastating effects of credit bubbles, government money printing (and) disastrous actions that governments are taking, (upcoming) tumultuous events will be life changing for most people in the world." They'll begin by year end, last for two to three years, then be followed by extended economic, political, and social upheaval, perhaps continuing for two decades.
Greyerz cites three main concerns:
-- exploding unemployment and government deficits;
-- trillions of unreported bank losses and worthless derivatives; and
-- rising inflation, high interest rates, collapsed Treasury bond (and UK gilt) valuations resulting in more money creation, worthless paper, and a "perfect vicious circle (leading to) a hyperinflationary depression followed by the collapse of the dollar and British pound.
America is hemorrhaging financially and economically. Other countries now realize they hold "worthless" US dollars. Reckless money creation achieved short-term hope, benefitted Wall Street alone short-term, elevated world stock markets, and led some to believe the crisis was over when, in fact, it's worsening.
Aside from expected short-lived upturns, "every single sector of the real economy is deteriorating whether it is production, unemployment, corporate profits, real estate, credit defaults, construction, federal deficits, local government and state deficits etc."
In response, the Fed keeps printing money and destroying its value. "This is total lunacy! How can any intelligent person believe that printed pieces of paper can solve an economic catastrophe?"
We're in "the first phase of this tragic saga." Likely by year end, a second more serious one will start. Real unemployment now tops 20%. It hit 25% in the Great Depression with 35% of the nonfarm population out of work and desperate.
"It is our firm opinion that (US) non-farm unemployment levels will reach 35% at least....in the next few years" with all uncounted categories included.
Growing millions with no jobs, incomes, savings, or safety net protections will create "a disaster of unimaginable consequences that will affect the whole fabric of American society" to a degree far greater than in the Great Depression.
Growing unemployment now plagues Western and Eastern Europe as well, and by 2010 will more greatly affect most parts of the world, "including China, Asia and Africa. Never before has there been a global unemployment crisis affecting the world simultaneously." Ahead expect sharp drops in consumption and global trade leading to depression, poverty, "famine and social unrest."
Already, conditions are worse than in the 1930s, but the worst is yet to come. xpect:
-- an extremely severe global depression in most countries with grave economic, political, and social consequences;
-- social safety net protections will end;
-- private and state pensions will likely collapse; and
-- unemployment, poverty, homelessness, hunger, and famine will cause a protracted period of economic, political, social, and institutional upheaval.
If von Greyerz, Panarin, Todd, and others with similar views are right, a deepening, protracted, unprecedented global catastrophe approaches that "will be life changing for most people in the world."
READ FULL ARTICLE BY CLICKING LINK IN TITLE
What to do? China is recommending their citizens buy gold and silver.
Remember, in the worst possible scenario one would need to exchange precious metals for goods so make sure you do have some silver.
Predicting Worse Ahead from America's Economic Crisis
by Stephen Lendman
Troubled Times Ahead
On July 14, Egon von Greyerz, Founder and Managing Partner of Zurich-based Matterhorn Asset Management AG, specializing in precious metals and other investments, said "The Dark Years Are Here" and explained why.
Because of "the devastating effects of credit bubbles, government money printing (and) disastrous actions that governments are taking, (upcoming) tumultuous events will be life changing for most people in the world." They'll begin by year end, last for two to three years, then be followed by extended economic, political, and social upheaval, perhaps continuing for two decades.
Greyerz cites three main concerns:
-- exploding unemployment and government deficits;
-- trillions of unreported bank losses and worthless derivatives; and
-- rising inflation, high interest rates, collapsed Treasury bond (and UK gilt) valuations resulting in more money creation, worthless paper, and a "perfect vicious circle (leading to) a hyperinflationary depression followed by the collapse of the dollar and British pound.
America is hemorrhaging financially and economically. Other countries now realize they hold "worthless" US dollars. Reckless money creation achieved short-term hope, benefitted Wall Street alone short-term, elevated world stock markets, and led some to believe the crisis was over when, in fact, it's worsening.
Aside from expected short-lived upturns, "every single sector of the real economy is deteriorating whether it is production, unemployment, corporate profits, real estate, credit defaults, construction, federal deficits, local government and state deficits etc."
In response, the Fed keeps printing money and destroying its value. "This is total lunacy! How can any intelligent person believe that printed pieces of paper can solve an economic catastrophe?"
We're in "the first phase of this tragic saga." Likely by year end, a second more serious one will start. Real unemployment now tops 20%. It hit 25% in the Great Depression with 35% of the nonfarm population out of work and desperate.
"It is our firm opinion that (US) non-farm unemployment levels will reach 35% at least....in the next few years" with all uncounted categories included.
Growing millions with no jobs, incomes, savings, or safety net protections will create "a disaster of unimaginable consequences that will affect the whole fabric of American society" to a degree far greater than in the Great Depression.
Growing unemployment now plagues Western and Eastern Europe as well, and by 2010 will more greatly affect most parts of the world, "including China, Asia and Africa. Never before has there been a global unemployment crisis affecting the world simultaneously." Ahead expect sharp drops in consumption and global trade leading to depression, poverty, "famine and social unrest."
Already, conditions are worse than in the 1930s, but the worst is yet to come. xpect:
-- an extremely severe global depression in most countries with grave economic, political, and social consequences;
-- social safety net protections will end;
-- private and state pensions will likely collapse; and
-- unemployment, poverty, homelessness, hunger, and famine will cause a protracted period of economic, political, social, and institutional upheaval.
If von Greyerz, Panarin, Todd, and others with similar views are right, a deepening, protracted, unprecedented global catastrophe approaches that "will be life changing for most people in the world."
READ FULL ARTICLE BY CLICKING LINK IN TITLE
Thursday, September 3, 2009
Kucinich: Fed Paying Banks Not to Lend
The economy and the structure of the bailout in the U.S. are totally out of control.
Wednesday, September 2, 2009
The Worst Case Scenario
After reading the article below, watch the video on "The Collapse of the Soviet Empire." Nobody - no country - no city - no town - no family - no person should throw their head in the sand and ignore this because it's scary. Prepare for the worst and hope for the best because it can happen anywhere. Unfortunately, peace and prosperity are the historical exceptions, not the rule. I don't believe this will happen but will not ignore the possibility that it could.
Russian Professor: Collapse of America Could Begin in Two Months
Russian Professor Igor Panarin has stated that certain events that are occurring in the United States is actually confirming his doomsday forecast for the US: collapse.
Igor Panarin, doctor of political sciences and professor of the Russian Diplomatic Academy Ministry of Foreign Affairs, told reporters and journalists, after unveiling his new book, that the United States is in the beginning of its demise and that its collapse could occur within the next two months, according to Russia Today.
'Obama is “the president of hope”, but in a year there won’t be any hope. He’s practically another Gorbachev – he likes to talk but hasn’t really managed to do anything. Gorbachev at least had been a secretary of a regional communist party administration, whereas Obama was just a social worker. His mentality is totally different. He’s a nice person and talks nicely – but he’s not a leader and will take America to a crash. When Americans understand that – it will be like a bomb explosion.'
For more than a decade now, Panarin has been forecasting the collapse and disintegration of the United States and, like many economic analysts these days such as Jim Rogers and Peter Schiff, the utter devaluation of the US Dollar. Last year he stated, according to a report by Rianovosti, 'The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse.'
Also, the recent Japanese elections further show, at least to Panarin, that the financial disaster is imminent in the United States. As well, China would dump the US dollar in massive amounts and the Russian Federation would begin to sell their oil and gas for Roubles.
'Today I received another confirmation that the collapse of the dollar and the US is inevitable. Japan’s Democratic Party won the election, and I’d like to remind you that its leader [Yukio Hatoyama] has the snubbing of the dollar among his economic plans. In plainer words, he plans to transfer Japan’s monetary reserves from US dollars into another currency. The move will seriously accelerate the dollar’s exchange slump as early as this November. Disintegration will follow shortly.'
In another frightening prediction for America, he sees the US separating into four parts, quite similar to the Civil War in 1865, 'The Pacific coast, with its growing Chinese population; the South, with its Hispanics; Texas, where independence movements are on the rise; the Atlantic coast, with its distinct and separate mentality; five of the poorer central states with their large Native American populations; and the northern states, where the influence from Canada is strong.'
Panarin thinks the east coast will be taken over by the European Union, the Pacific coast will be controlled by the Chinese, northern and mid-west states will be dominated by Canada and the south will be owned by Mexico. A map can be viewed here.
'In my opinion, the probability of the US ceasing to exist by June, 2010 exceeds 50%. At this point, the mission of all major international powers is to prevent chaos in the US.'
Russian Professor: Collapse of America Could Begin in Two Months
Russian Professor Igor Panarin has stated that certain events that are occurring in the United States is actually confirming his doomsday forecast for the US: collapse.
Igor Panarin, doctor of political sciences and professor of the Russian Diplomatic Academy Ministry of Foreign Affairs, told reporters and journalists, after unveiling his new book, that the United States is in the beginning of its demise and that its collapse could occur within the next two months, according to Russia Today.
'Obama is “the president of hope”, but in a year there won’t be any hope. He’s practically another Gorbachev – he likes to talk but hasn’t really managed to do anything. Gorbachev at least had been a secretary of a regional communist party administration, whereas Obama was just a social worker. His mentality is totally different. He’s a nice person and talks nicely – but he’s not a leader and will take America to a crash. When Americans understand that – it will be like a bomb explosion.'
For more than a decade now, Panarin has been forecasting the collapse and disintegration of the United States and, like many economic analysts these days such as Jim Rogers and Peter Schiff, the utter devaluation of the US Dollar. Last year he stated, according to a report by Rianovosti, 'The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse.'
Also, the recent Japanese elections further show, at least to Panarin, that the financial disaster is imminent in the United States. As well, China would dump the US dollar in massive amounts and the Russian Federation would begin to sell their oil and gas for Roubles.
'Today I received another confirmation that the collapse of the dollar and the US is inevitable. Japan’s Democratic Party won the election, and I’d like to remind you that its leader [Yukio Hatoyama] has the snubbing of the dollar among his economic plans. In plainer words, he plans to transfer Japan’s monetary reserves from US dollars into another currency. The move will seriously accelerate the dollar’s exchange slump as early as this November. Disintegration will follow shortly.'
In another frightening prediction for America, he sees the US separating into four parts, quite similar to the Civil War in 1865, 'The Pacific coast, with its growing Chinese population; the South, with its Hispanics; Texas, where independence movements are on the rise; the Atlantic coast, with its distinct and separate mentality; five of the poorer central states with their large Native American populations; and the northern states, where the influence from Canada is strong.'
Panarin thinks the east coast will be taken over by the European Union, the Pacific coast will be controlled by the Chinese, northern and mid-west states will be dominated by Canada and the south will be owned by Mexico. A map can be viewed here.
'In my opinion, the probability of the US ceasing to exist by June, 2010 exceeds 50%. At this point, the mission of all major international powers is to prevent chaos in the US.'
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