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July 31, 2010

Issue 107  -  More Bad News

 
The past week brought no shortage of dismal economic news.  I'm going to cover a few of the more important headlines and show why a double dip recession is nearly a sure thing.  First here's a story that shows what I've been writing about for years, that the government cooks it's books:
 

Recession was deeper than gov't previously thought

By JEANNINE AVERSA (AP)

WASHINGTON

The recession was deeper than the government previously thought.

The Commerce Department, in revisions issued Friday, estimates the economy shrank 2.6 percent last year, the steepest drop since 1946. That's worse than the 2.4 percent decline originally estimated.

The economy's plunge underscores why the unemployment rate surged to 10.1 percent in October, a 26-year high.

The revisions in gross domestic product, or GDP, now show zero growth in 2008. That compares with a 0.4 percent gain previously estimated. The economy also grew less in 2007 (1.9 percent) than earlier thought (2.1 percent).

For all three years, consumers spent less and home builders cut more deeply than had been thought. Those factors help explain the downward revisions on the economy.

The revisions also show that struggling state and local governments cut spending more last year than previously thought. And they spent less in 2007 and 2008.

The economy slid into its worst recession since the Great Depression in late 2007. Many economists think the recession ended last summer, although a panel of academics that dates the start and end of recessions hasn't declared when this one ended. The panel usually does so well after the fact.

From the start of the recession in December 2007 until the April-to-June quarter of 2009, the economy sank 4.1 percent. That was deeper than the 3.7 percent decline previously estimated for the recession.

GDP is the broadest gauge of the economy's health. It measures the value of all goods and services from machinery to manicures produced in the United States.

The Commerce Department's latest revisions reach back to 2007. They're based on more complete data and on methodology thought to be more accurate.

END

 
So we are making revisions back to 2007?  Am I supposed to believe that we just caught our mistakes from 3 years ago?  Nice try Uncle Sam, but I didn't just roll off the ole turnip truck.  This is a systematic, broad based deception, meant to fool the masses.  It's kind of like the musicians playing on the Titanic to distract the passengers.
 
 
The deception is now just the way things are done.  Normal operations.  Another example:  (from GATA)
 

Dave from Denver…

Monday, July 26, 2010

Some Monday Observations...

New Home Sales - The media ushered in the Commerce Department's new home sales for June with unusual ebullience and positive spin. Seasonally adjusted new home sales, as reported, came in a little better than Wall Street was forecasting at 330,000 (please note: seasonally adjusted - no one outside of the Govt's Ministry of Truth really knows what this means). The "spin" was evident in the headlined "23.6% sales increase" from May. What wasn't spelled out is that May's record low new home sales number was revised down even more from the originally reported - seasonally adjusted - 300,000 to 267,000. The 300,000 reported for May is the lowest new home sales number ever reported going back to 1963. That should put the 267,000 in perspective. However, arithmetically, that downward revision lets the media/CNBC jump all over the "23.6% increase" from May to June. See how this game works? The seasonally adjusted, annualized number for June was 16.7% below the sales rate for June 2009. In terms of the inventory being reported as declining, don't put any stock in that number. The way the Census Bureau accounts for new home sales and cancellations - it's been running around a 20% cancellation rate industry-wide for about 3 years now - cancelled homes are not added back into the new homes inventory. So the real inventory of new homes has been significantly understated for at least 3 years. Given that the Government is the entity that accounts for the new home sales market, this should not surprise anyone.
 
Adjust the older months numbers and no one will notice.  Well, WE notice and are not fooled.  Eventually the majority will wake up and then it's game over.  Perhaps some of that majority will come from the waves of coming foreclosures: 
 

Foreclosures up in 75 percent of top U.S. metro areas

NEW YORK (Reuters) - Foreclosures rose in 3 of every four large U.S. metro areas in this year's first half, likely ruling out sustained home price gains until 2013, real estate data company RealtyTrac said on Thursday.

Unemployment was the main culprit driving foreclosure actions on more than 1.6 million properties, the company said.

"We're not going to see meaningful, sustainable home price appreciation while we're seeing 75 percent of the markets have increases in foreclosures," RealtyTrac senior vice president Rick Sharga said in an interview.

Foreclosure actions -- which include notice of default, scheduled auction and repossession -- in the first half rose in 154 of the 206 metro areas with populations 200,000 or more.

"We're not going to see real price appreciation probably until 2013," said Sharga. "We don't see a double dip in housing but we think it's going to be a long painful recovery for the next three years."

Nine of the 10 areas slammed hardest by the foreclosure tidal wave improved from the first half of 2009, suggesting a peak at rates that are still up to five times the national average, RealtyTrac said in its midyear 2010 metropolitan foreclosure report…

 
As the story says, they don't see housing prices rising until 2013.  I'm less optimistic than that, but that's just me.  Perhaps stories like this are affecting my mood:
 

FDIC flashes SOS – 1,000 bank failures before recession is over – FDIC not too far away from tapping into U.S. Treasury $500 billion taxpayer lifeline. Georgia leads the pack with 40 bank failures since 2008.

By the end of the recession, there will be approximately 1,000 bank failures. Does this sound extreme? It should but the numbers don’t cover the entire story. Since 2008 the number of bank failures has reached 269 and this doesn’t include consolidations done through the FDIC where bigger banks ate up smaller banks before they officially failed. Last week, 7 banks failed. At that pace, we are looking at 364 bank failures per year and the actual number of closings per week has consistently gone up. The FDIC is in a precarious situation. The Deposit Insurance Fund (DIF) is technically speaking, broke. They have added additional cash reserves by front loading premiums on surviving banks but this can only stunt the financial bleeding for so long. The problems in the banking system run deep and many of the smaller regional banks are failing because of commercial real estate loans going bad
 
One thousand banks!  That is incredible.  The FDIC is broke now!  Where is the money going to come from?  The main reason these banks are going to close stems from.....surprise, surprise.....real estate.  Here's a letter written to a blog by a mortgage insider:
 
http://www.boombustblog.com/ is one of the definitive truth-in-disclosure forensic accounting blogs out there:

     Hello Reggie,
I’m a big fan of your blog and greatly appreciate your diligent efforts in effectively educating your readers while exposing the the biggest heist ever perpetrated on the American Public by Wall Street. I know you are the most up to date person out there when it comes to the scams the banks are running but I wasn’t sure if you knew of a specific scam that they have been running on the mortgage side of their business. I’m hoping you can be the voice that warns people of a new type of fraud which the banks are perpetrating in broad day light.

I have been a Mortgage Banker for the last 18 years. I also follow the markets and particularly the banking sector with great interest. While reviewing the Banks most recent quarterly earnings, the common theme evident in all of their disclosures was that their delinquency rates had dropped dramatically and hence they were lowering their loan loss reserves.

Meanwhile, I have repeatedly come across delinquent and even defaulted loans which are not being properly reported by the loan servicers to the credit bureaus.

As an example, I recently came across a new mortgage client who was referred to me and I thought I’d share it with you for a potential story. These particular clients had a house which they were way upside down on, so last year they went ahead and purchased another house under an FHA loan with 3.5% down and immediately let the old, upside down house go into foreclosure thereafter.

These particular clients called me to see if they could refinance their new home’s FHA loan to a lower rate. I told them that it would be near impossible because of the damage done to their credit by the foreclosure on the previous house. They were adamant that their scores were still in the high 670’s and so I ran both of their credit reports. Sure enough, his middle score was a 674 and her score was a 678. When I looked at the previous mortgage, it showed as “FORECLOSED- NO DELINQUENCIES”!!! When I asked them they stated that they hadn’t made a payment to the bank for more than a year prior to the foreclosure on their house.

Same is true for many loan modification cases that I have come across. While the banks are dragging out the process with the borrowers, who are living in the homes 100% mortgage free, their statements reflect the borrowers as being current every month.

Is that not just absolutely ridiculous!?!? This is blatant fraud!

While Bank CEO/CFOs are going on their quarterly calls and lying to investors about how they are reducing their loan loss reserves due to their delinquency rates being substantially lower, they are deliberately falsifying their credit ratings while foreclosing on homeowners.

What happens when these banks end up losing billions of dollars on all of these foreclosures after depleting their loan loss reserves? More of 2008 is what I imagine. Except their won’t be any more bailouts.

I implore you to please feel free to contact me or any other sources you may have at your disposal to investigate this newest fraud being perpetrated against investors. Should you be interested, I can forward you the above credit report for your review.

Investors should know what the heck is going on before they listen to analysts telling them that “this is a buying opportunity of a lifetime” while the banks are fudging their numbers. This is exactly how we got into this mess. Investment Banks pulling Repo 105 scams, not marking their books correctly, and so on.

Shame on them for defrauding investors and the Public the first time and causing the global credit crisis. Shame on us for sitting by and letting it happen again two years later while they wipe out millions more of investors retirement accounts and cause the next Great Depression.
 
This is not surprising in the least.  The banks are insolvent so they HAVE to lie about values and delinquencies.  If they didn't, they would just have to close up shop.  It is the only way the game can continue.  Wonder if there is any other things amiss in the government:
 

The US Mint Fraud

By Bix Weir

One of the more disingenuous frauds the citizens of the United States are being subjected to these days is coming out of the US Mint. For over 2 years the Mint has been illegally rationing gold and silver American Eagles and now the Director of the U.S. Mint, Edmond Moy, is finally on the hot seat.

"A congressional subcommittee has been asked to investigate the growing backlog in and foreign procurement of U.S. bullion and collectors' precious metals coin blanks manufactured by the U.S. Mint."

http://www.mineweb.co.za/ mineweb/view/mineweb/
en/page72068?oid=108615&sn= Detail&pid=102055

On June 4, 2008 I wrote an letter to Henry Paulson and Edmond Moy explaining that their announcement of Eagle rationing was against US Law: 31USC5112(e). The Law clearly states that "the silver coins must be supplied to the US public in 'quantities sufficient to meet public demand' EVEN IF it means the US Mint drives up the price of silver bullion on the open market in order to obtain the silver needed to produce the US Silver Eagles."

That letter is posted here:

http://www.roadtoroota.com/ public/140.cfm

Now Mr. Moy is claiming that the problem is not with the sourcing of the gold/silver bullion (sure it isn't) but with the sourcing of the coin blanks:

"We experienced considerable difficulty in getting this raw material fabricated into planchets by our vendors in sufficient quantities to meet public demand."

GIVE ME A BREAK! Tell me where the law states "if they can't obtain planchets the Mint does not have to supply the coins"? The reality is that the supply of planchets is NOT the problem as the US Mint can out bid other buyers of planchets all-day-long! The supply of gold and silver planchets is UNLIMITED to the US Mint as they can secure all supply or even make their own planchets to satisfy demand.

Just look at their system for obtaining those "oh-so-rare" planchets:

"Congress requires the Mint to procure the gold for its Eagle bullion coins from newly mined U.S. deposits, the Mint then ships that gold to Australia to be made into blanks. Then, the fabricated blanks are later shipped back to the United States for the production of coins."

(*note: the law states that Gold must be sourced domestically but not silver)

Now with investigations into the INCOMPETENCY of the US Mint in not supplying the market with American Eagle Coins in "quantities sufficient to meet public demand" the same guy who hasn't figured out how to increase production to meet Federal Law...WANTS TO CHANGE THE LAW!

"Moy said he was encouraged that the House Subcommittee on Domestic Monetary Policy "is exploring the possibility of an amendment that would afford the Secretary [of the Treasury] the authority to approve the minting and insurance of American Eagle Silver Proof and Uncirculated Coins even when we are unable to meet the public's demand for the bullion versions of these coins."

The Tim Geithner and Banking Cabal who currently control the US Treasury is now trying to take control of the entire gold and silver American Eagle Program by "determining the materials" used in the coins!

"The Department of Treasury is seeking the authority to determine the materials for all coin dominations. Moy said "we are proposing to save millions of dollars per year-over one billion dollars in the next 10 years-by determining the materials for the other coin dominations."

The reality is that the US Mint is deliberately breaking the law by rationing gold and silver American Eagles.
 
If the government is committing fraud and the banks are committing fraud, and the US Mint is breaking the law, what do you suppose the message is?  Fraud is ok, right?  Laws are merely "suggestions".  Why all the deception?  It's quite simple, actually, without it, we go down.  The fall will come but not until the truth reveals itself to a critical mass of the populace.  Until then, the game continues unabated.  Here is another topic to mull over:
 
Who is buying our Federal debt? 
  • By William Willkomm III
  • Posted July 30, 2010 at 9:49 a.m.

Another $100 billion of Treasury debt is being sold this week at historically low interest rates. The Federal Reserve (which is an independent entity, not a department of our federal government) sells US Treasury debt and returns to the Treasury the currency received to fund the operations of the Federal Government. The Treasury needs these sales because tax receipts collected are not nearly enough to cover current expenditures. The shortfall this year is over 1.5 trillion dollars, with no end in sight. To put that into perspective, you could have spent over 2 Million Dollars a DAY since the birth of Christ, and you still would not have spent what our budget deficit is for this year alone.

The historically low interest rates that the Treasury pays supposedly is because there is such a large demand that the Treasury does not have to offer higher interest rates to sell the Bills, Bonds and Notes.

There is only one problem. According to the latest TIC (Treasury International Capital) report, China, Japan and the oil-exporting countries are systematically and discretely dumping our Treasuries. These countries have historically been the largest buyers of our debt. By analyzing the data provided by various published government reports, one cannot determine an answer as to who is actually now buying most of our debt; you can only determine who is not buying most of it.

PIMCO (Pacific Investment Management Company), the largest bond fund in the world, has analyzed the situation and believes the Federal Reserve could be secretly purchasing up to 80% of the Treasuries sold. Eric Sprott of Sprott Asset Management likens what is transpiring in the Treasury market to a Ponzi scheme (remember Bernie Madoff). Ben Bernanke, the Chairman of the Federal Reserve, has arrogantly stated, "the US Government has a technology, called the printing press that allows it to produce as many US dollars as it wishes at essentially no cost".

Buying our own debt thru "phantom" entities is currency debasement. If true, as PIMCO and Sprott suggest, the Federal Reserve and our federal government, through the Treasury, are committing financial fraud on an international scale.

All roads of my investigation end in the same place. Take your pick of the following: undercover quantitative easing; creating dollars out of the "clear blue sky" or debasement of our currency. They are all the same. They all lead to perdition.

As we all know, Ponzi schemes eventually have to collapse. I worry that when this massive fraud becomes general knowledge, the wholesale selling of US treasuries will commence in earnest. The massive dumping of US Treasuries will be like everyone running to the exits of a burning theater at the same time. The first lucky few will make it through the exit in time. The vast majority will not.

Reckless money printing will eventually render a country's currency worthless. The cost of borrowing will skyrocket. Savers will be destitute. Prices will spiral upwards. Commerce and trade, as we now know it, will cease. It has happened many times before in other countries that have recklessly debased their currency.

I truly fear that we are at the precipice of a currency collapse of biblical proportions.

-END-
 
Yes, the Fed and the government are buying the debt.  There is no one else to buy, so what other explanation is there?  This means the end is nearer than ever.  That's why I continue to recommend gold and silver.  The paper markets are controlling the prices for now, but eventually, physical will win out.  Don't think that this type of occurrence isn't going to be more common:
 

Rust Discovered On Bank Of Russia Issued 999 Gold Coins

Submitted by Tyler Durden on 07/16/2010 20:32 -0500


Here's a head scratcher: as everyone knows from elementary chemistry courses, gold is the most inert metal in the world - it  does not rust, nor corrode. Yet this is precisely what Russian commercial precious metal trading company, International Reserve Payment System, discovered on thousands of (allegedly) 999 gold coins "St George" (pictured insert) issued by the Central Russian Bank. The serendipitous discovery occurred after various clients of the company had requested that their gold be stored not in a safe, but in a far more secure place: "buried under an oak tree." As the website of IRPS president German Sterligoff notes: once buried, "the coins began to oxidize under the influence of moisture." And hence the headscratcher: nowhere in history (that we know of) does 999, and even 925 gold, oxidize, rust, stain, spot or form patinas, under any conditions. Furthermore, as IRPS discovered, Sberbank of Russia released an internal memorandum ordering the purchase of the defective coins with the spotted appearance. Sterligoff concludes: "It should be noted that the weight and density of the rusty coins coincide with the characteristics of gold that would be expected after after conventional testing methods would reveal. We think that the experts will be interesting to determine the nature of this phenomenon." So just how "real" is 999 gold after all, either in Russia or anywhere else?
 
Yeah, gold doesn't rust.  I believe the run up in gold stocks is about to take place.  The majority of these stocks are miles from their all-time highs.  Those highs occurred at much lower metal prices.  This mismatch will eventually right itself and much higher precious metal stock prices will happen.  My favorite metal stock, GORO, is at all-time highs, but that is the exception.  Once the other stocks start moving, I believe GORO will mover even higher.
 
This past couple weeks GORO announced that they are moving to the AMEX stock exchange and they also declared a $.03 dividend.  These are very good news and will bring in many more investors as a lot of mutual funds aren't permitted to buy bulletin board stocks.  If you are still considering buying this stock, and I think anything under $15 is still a safe bet, here is an excerpt from a recent goldseek.com article:
 

Give Me a Reason to Sell:

Gold Resource Corporation has undoubtedly become a very successful investment for investors as the share price continues to hit new price records, easily attracting new investment capital. What has made this company so incredibly successful is what I see as a combination of talent, vision, experience, hard-work, an incredible mining asset and perhaps one of the most important aspects to investors, management which understands what investors want.  And with management owning around 1/5th of the company, they are highly motivated investors-managers.

Since meeting with management in 2006, the same principals-goals remain in place. Bring an ultra-low cost asset into production (done), minimizing shareholder dilution during the process (accomplished), and reward investors with a strong share price and through dividend distributions (completed, in progress and pending).

That is what takes me to the question; give me a reason to sell! Gold Resource Corp. has successfully not only outperformed the gold price but outperformed the vast majority of public gold mining companies, from the explorers to juniors to seniors. Yet now in commercial production, continuing to expand the size of its resources, I find it difficult to sell at these levels and under current gold-market circumstances.

So what is a share of GORO worth to me? When determining what a share of GORO could be worth, I take quite a few circumstances into consideration. Among them are: A mine life with around decade+ production (GORO is near this mark and expanding), resources increasing (significant upside through exploration – system is large and growing! Big upside through ongoing exploration), key shareholders, a quickly strengthening treasury, a growing production profile: 70,000 -> 200,000 gold eq. ounces, production costs reducing from an already low $200 to $0/ounce.

With gold trading around $1,200 and silver around $18, and in my opinion heading higher by year’s end and significantly higher over the next 2-3 years, should GORO meet its objectives, we will see a significant cash flow generator. So with the current gold price, GORO should generate around $70 million in year one production cash flow (70k ounces at $200/ounce cost). Even applying a fully-diluted share structure (53M), I come up with $1.32 per share in operating positive cash flow. Producers with similar production profiles are seeing valuations with a 10-12+ operating cash flow expansion (I would contend that GORO should easily receive a premium when considering the ORE GRADES), which would produce $13.20-$15.84 a share valuation, but just based off initial production levels.

But the real treat is as the underground mine comes into production, which saw accelerated development with Hochschild’s recent investments. Therefore reaching upwards of 200,000 gold equivalent ounces may come sooner. Using full production figures and the associated fall in production costs to $0+/-, we could see upwards of $1/4-billion in operational cash-flow per year. That translates into roughly $4.53 a share. Using relative valuation metrics, a 10-12+ operational cash-flow multiplier, that projects a valuation of just over $45-54/share. Plug in a $1,500 gold price scenario, then the valuation continues to move to even more impressive levels. When using other industry valuation models, I receive similar share price projections.

On the risk side, one factor to consider is to see what if gold prices pulled back? With GORO’s large profit margin, say a $200 an ounce drop in gold to $1,000 an ounce (cash flow would fall to $3.77/share at full production) would not affect the profit margins to the degree a producer which requires $600 an ounce gold price to break even. In that scenario, GORO’s profit margin would decline 16.6% versus a 33.3% for the $600/ounce producer. Sure, there is more leverage for that risk, but that makes GORO a significantly safer investment in my view. Should gold drop to $600 an ounce, how many gold miners would be able to survive?

 

Please don't buy this because I say so.  Do your homework.  Go to their web site and look around.  Learning to look at a company is a skill that every investor needs.  Look at there financials.  Yahoo Finance has all the documents linked from the stock quote page of any stock.  I'll finish off this week with a video from America's Got Talent.  This a bunch of college kids that came up with a really cool act, check it out and have a great week!