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December 28, 2008
Issue 26  -  A Not so Merry Christmas...for Retailers

All those signs and sales couldn't pull this one out, from the Wall Street Journal:

"Even price-slashing did not bring retailers happy holidays - WSJ
MasterCard's Spending Pulse unit says total retail sales, excluding automobiles, fell 5.5% y/y in November and 8% in December through 24-Dec. Excluding sales of 40%-cheaper gasoline, the drops narrow to 2.5% in November and 4% in December. Luxury goods fell 21.2%, or 34.5% including jewelry. Last-minute Christmas shoppers failed to materialize, as traffic last weekend fell 27% y/y, with sales down 5.3%, according to ShopperTrak RCT Corp. All retail sectors lost ground. Some retailers are hoping to make up ground in post-Christmas sales, which would be useful as they are sitting on much larger inventories than planned."

This shouldn't surprise anyone. Years of over spending are finally coming home to roost. Each and every person has a lifetime of earnings from which they can draw to make purchases and live. Different people have different earning potentials and some may hit the lottery or some other lucky anomaly. But most have normal jobs and normal salaries, depending on the area of the country they inhabit. With this income, they make choices, some good, some bad. If a bad choice is made than a piece of that lifetime of earnings is gone.

Today's "gotta have it now" adult has constantly been making bad choices: 7000 square foot McMansions, Cadillac Escalades, wine cellars, media rooms, multiple recreational vehicles and numerous other non-essentials. They have used vast portions of their lifetime incomes at the expense of saving. A lot of this usage wasn't even wasted present time spending, it was spending of future earnings in the form of debt. Now comes pay back time.

Current debt levels look something like this, from the Grandfather report:

"America has become more a debt 'junkie' - - than ever before
with total debt of $53 Trillion - - and the highest debt ratio in history.

That's $175,154 per man, woman and child - - or $700,616 per family of 4,
$33,781 more debt per family than last year.

Last year total debt increased $4.3 Trillion, 5.5 times more than GDP.
External debt owed foreign interests increased $2.2 Trillion;
Household, business and financial sector debt soared 7-11%.

80% ($42 trillion) of total debt was created since 1990,
a period primarily driven by debt instead of by productive activity.

And, the above does not include un-funded pensions and medical promises.

America's Total Debt Report - Grandfather's Economic Series"

The graph of this doesn't look any better:

Notice the growing differential between debt and income.  At the same time our government is spending money and not even asking for accounting, from Businesswire:

"Financial Condition of TARP Bailout Companies Likely Worse Than Publicly Disclosed, Analysis Finds

More Than Eighty Percent Employ Aggressive Accounting and Likely Will Experience
Restatements and Other Adverse Events

LOS ANGELES--(Business Wire)--
The vast majority of financial services companies being bailed out under the Federal Troubled Assets Relief Program (TARP) are likely in worse condition than publicly disclosed, according to an analysis announced today by Audit Integrity, an independent research firm that measures corporate integrity risk.

More than 80 percent of TARP financial services companies have a "Very Aggressive" or "Aggressive" Accounting and Governance Risk (AGR) rating based on their most recent regulatory filings. As a result, these companies have a high statistical likelihood they will restate their earnings and suffer from other adverse events, including regulatory actions, shareholder litigation and bankruptcy. By comparison, two-thirds of the more than 7,000 publicly-traded North American companies rated by Audit Integrity have "Average" or "Conservative" ratings.

The AGR rating is a forensic indicator of the transparency and reliability of a corporation's financial reporting and identifies metrics most highly associated with financial statement fraud, as measured by SEC enforcement actions.

"As a group, these are very risky companies. The use of federal money to bail them out should be pause for concern on several levels," said Jack Zwingli, CEO of Audit Integrity. "Unfortunately, the odds are that a number of these companies will fail at some level in the future, which raises the concern that the Federal Government is throwing good money after bad. At a minimum, before we hand over government funds to these firms, we should demand a thorough review of their accounting and corporate governance practices. The recipients of the bailout money should be required to run their business with integrity."

The Audit Integrity analysis focused on the 25 financial services companies that have received more than 90 percent of TARP funds to date. Of the 14 financial services companies that received "Very Aggressive" ratings, ten were among the recipients of the largest amounts of TARP money, including:

* American International Group, Inc.
* Bank of America Corporation
* Citigroup, Inc.
* Fifth Third Bancorp
* Goldman Sachs Group, Inc.
* J.P. Morgan Chase & Co.
* Merrill Lynch & Co. Inc
* Morgan Stanley
* PNC Financial Services Group, Inc.
* Wells Fargo & Company

General Motors Corporation and Ford Motor Company, which have been mentioned for
possible TARP bailouts, also have low Audit Integrity ratings.

Audit Integrity`s analysis is available on
auditintegrity.comor by calling
877-44-AUDIT. "

If anyone can now argue that this "rescue" is not a scam then they are need of some serious medication. This scheme is going to explode some time in the not too distant future. Time to protect yourself. Time to protect your family. No one is going to "rescue" you. All the band aids like rebates and raises will pale in comparison to what is coming down the pike. Gold and silver will be the only survivors. I know I sound like a broken record at times but the facts are clear. Logic will rule the day. Fundamentals will matter.

In case you still haven't bought any gold and silver read this from AP:

"Gold coin rush

AP Business Writer

DENVER (AP) -- Investors who have forsaken shaky financial markets for the safety of gold must feel a little bit like prospectors.

As the worst recession in at least a generation spreads, so too does the clamor for gold bars and coins, assets less likely to go up on smoke like so many derivatives and asset-backed securities.

"I've never seen a case where demand was so high and supply was so short," said Chicago coin dealer Harlan Berk, who has been in the business 44 years.

Spikes in demand for gold coins this year appear to run parallel with the mounting woes on Wall Street.

In August, as the Federal Reserve pumped $62 billion into the U.S. banking system and rejected requests for mortgage finance giants Fannie Mae and Freddie Mac to take on more debt, sales of the popular American Eagle coin were suspended for a week.

The U.S. Mint was unable to get enough gold blanks from suppliers to match demand, Mint spokesman Michael White said.

In late September, when a massive bailout for the nation's biggest banks failed, sales of the American Buffalo coin were suspended until Nov. 3 because of shortages.

Yet even before the full extent of the financial crisis was known, investors had begun to load up on gold and other assets that could be held in the hand.

By early spring, investors were snapping up precious metals such as gold, silver and platinum, said Beth Deisher, editor of Coin World trade magazine.

Gold for April delivery shot up to a record of $1,033.90 an ounce on the New York Mercantile Exchange March 17. According to a report by the National Bureau of Economic Research released this month, that was just three months into the U.S. recession.

That correlation continued throughout the year as Wall Street institutions fell.

"People sensed there was something going on that they didn't quite understand," Deisher said.

In the third quarter, when the U.S. bailed out Fannie Mae and Freddie Mac, the Fed gathered the chiefs of major banks on Wall Street to plot a rescue, and Lehman Brothers descended into bankruptcy protection, gold sales went into high gear, said Natalie Dempster, head of the World Gold Council's North American investment unit.

U.S. demand for gold coins and small bars jumped 600 percent and international demand rose 121 percent, according to the council.

"The fact that gold is nobody else's liability was really an extremely important trait for investors in Q3 that were growing increasingly mistrustful of financial institutions in general," Dempster said.

To get gold as stocks began to fall, investors were willing to pay.

"You saw people paying premiums to get coins and small bars," Dempster said. "The refiners, et cetera, just wouldn't have been set up to produce that amount of gold, the same way as any other product."

Compounding the shortage somewhat, Deisher said, was a decision years ago to offshore some of the tasks that go into making U.S. gold coins.

Under the law, gold used in U.S. coins must be mined domestically. However, the government contracts with private companies to fabricate blank coins for striking with images such as the American Eagle. One of those companies is Gold Corp., owned by the government of Western Australia and operator of the Perth Mint.

Demand for gold coins continued to grow as economic news from Wall Street and Washington grew more ominous.

In early October, the Dow Jones industrial average closed below 10,000 points for the first time since 2004. At the same time, coin dealers saw demand a hit a peak, and bullion coins were fetching huge premiums, said Larry Shepherd, executive director of the American Numismatic Association.

"That's created a shortage not only in the secondary market, where shops are competing with each other to find enough supply to meet the demand but it's also created a real shortage in the primary market where the Mint itself is having difficulty getting enough supply to meet demand," he said.

At his coin shop in downtown Chicago, Berk advises customers to plan ahead when arranging purchases, as much as two to three months.

It's frustrating, but "you learn to live with it," he said."

Read the next to last paragraph again. Two to three months wait times are now normal. The futures market is now in backwardization, meaning that current spot prices are higher than future prices. This shouldn't happen as there are storage and insurance costs and the cost of capital, which should make gold more expensive in the future. This is showing that traders are nervous that the future deliveries are at risk and may not be made. This is another telltale sign that gold will soon take off. Please take heed.

Next week: Year end predictions.