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June 19, 2010

Issue 101  -  Double Dip Anyone?

 
Let's start this week with a chart courtesy of contraryinvestor.com:
 
 
What this shows is the GDP growth mapped against Chief Financial Officers' optimism.  These guys are the money gurus at major corporations and are obviously in tune with the dynamics of sales and profits.  Looking at the chart you will see that they are very accurate in their anticipation of GDP growth.  They are usually well ahead of the uptick or downtick.  Their optimism has now been down for 4 quarters.  This should lead to a drop in GDP in the near future.  Is this the long awaited and predicted "double dip?"  I believe it is.  What other signs are there?  Here's one:
 

More Than 90 Banks Miss TARP Payments
Published: Wednesday, 16 Jun 2010 | 12:36 PM ET
By: Reuters
More than 90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government under its main bank bailout program, signaling a rising number of lenders are struggling to meet their obligations.
The statistics, compiled by SNL Financial from U.S. Treasury data, showed 91 banks and thrifts skipped the May dividend payment under the Troubled Asset Relief Program, or TARP. It was the first missed payment for 23 of the banks; for the others, it was at least their second miss.
The number of banks missing their TARP payments rose for the third straight quarter. In February, 74 banks deferred their payments; 55 deferred last November.
SNL Financial's analysis found 20 banks have missed four or more payments since the program began in 2008, while eight banks have missed five payments.
Under the TARP program, the U.S. Treasury invested in preferred shares issued banks looking for funds. The banks were to make regular dividend payments to the Treasury, and have the right to repurchase the shares at some point in the future…
-END-

 
Boy, I thought the banks were getting better?  I anticipate that a lot of these banks will eventually fail.  Remember the TARP money was only to save the large banks.  Helping the smaller ones was just a smoke screen to hide what was being done.  If the smaller banks aren't improving, how can the economy be getting better?  It's not.  Here are 4 more reasons that the double dip is on the way:
 

Hussman: Four Factors Pushing Us Toward a Double-Dip

In his latest weekly market commentary, top fund manager John Hussman says four factors are indicating that the U.S. is on the verge of a double-dip recession.

“In every instance we’ve observed these conditions, the U.S. economy has either already been in a recession, or has been within a few weeks of what turned out in hindsight to be the official beginning of a recession,” Hussman writes. “There have been no false signals.”

The four factors:

1: Widening credit spreads: Hussman says this is already occurring.

2: Moderate or flat yield curve: “Virtually any decline” in the 10-year Treasury yield  will make this occur, Hussman says.

3: Falling stock prices: This, of course, has occurred in recent weeks.

4: Moderating ISM and employment growth: The measures Hussman uses for employment growth are moderating;  the ISM growth is not.

 
This is a very smart guy and I trust his opinion.  He has made a lot of money.  These 4 events are strong evidence of a new decline.  Not to worry though, we have another financial guy predicting the opposite:
 

Obama Tells G20 That Double Dip Recession Is Out of the Question

The economy faces a certain amount of risk of inflation or deflation, another term for recession. President Obama told the G20 in a letter today that as a matter of policy, double-dip recession is out of the question. It won't be tolerated, at least by the U.S. With the jobless rate stuck in the 10 percent range, and weekly jobless claims rising and consumer prices falling, the Obama administration is bound and determined to foster economic growth and job creation. The political consequences for failure would be high, indeed.

He said G20 leaders must "provide the policy support necessary" to maintain economic growth in the event that "confidence in the strength of our recoveries diminish." Obama said "we should be prepared to respond again as quickly and as forcefully as needed to avert a slowdown in economic activity."

Well there you have it.  A double dip won't be "tolerated".  I'm very fearful that this guy is going to make Bush look good.  If his knowledge of economics makes him think a recession can be stopped just because the government stands ready to stop it, then he is deluded or receiving VERY bad advice.  If this was possible, why have we EVER had a recession?  Does he think its because he's smarter than all the leaders who ever suffered a recession?  I do know this, he hasn't stopped this type nonsense:  (from Zerohedge)

 

GS Has Bought Over 1K S&P Big Contracts Since The Open

Submitted by Tyler Durden on 06/10/2010 09:06 -0500


Straight from the pits. Call it a cool half a billion used to ramp up the market.

 
What is happening is that Goldman Sachs is buying futures to drive the price of the general stock market up.  This is intervention, pure and simple.  Here's something that intervention can't stop:
 
U.S debt to rise to $19.6 trillion by 2015
WASHINGTON
Tue Jun 8, 2010 6:19pm EDT
WASHINGTON June 8 (Reuters) - The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress.
The report that was sent to lawmakers Friday night with no fanfare said the ratio of debt to the gross domestic product would rise to 102 percent by 2015 from 93 percent this year.
"The president's economic experts say a 1 percent increase in GDP can create almost 1 million jobs, and that 1 percent is what experts think we are losing because of the debt's massive drag on our economy," said Republican Representative Dave Camp, who publicized the report.
He was referring to recent testimony by University of Maryland Professor Carmen Reinhart to the bipartisan fiscal commission, which was created by President Barack Obama to recommend ways to reduce the deficit, which said debt topping 90 percent of GDP could slow economic growth.
The U.S. debt has grown rapidly with the economic downturn and government spending for the Wall Street bailout, the wars in Afghanistan and Iraq and the economic stimulus. The rising debt is contributing to voter unrest ahead of the November congressional elections in which Republicans hope to regain control of Congress.
The total U.S. debt includes obligations to the Social Security retirement program and other government trust funds. The amount of debt held by investors, which include China and other countries as well as individuals and pension funds, will rise to an estimated $9.1 trillion this year from $7.5 trillion last year.
By 2015 the net public debt will rise to an estimated $14 trillion, with a ratio to GDP of 73 percent, the Treasury report said. (Reporting by Donna Smith; Editing by Kenneth Barry)
 
These numbers are obviously atronomical.  You can't recover if you just keep digging a deeper and deeper hole.  We are sinking fast.  How about that "investment" in Fannie Mae and Freddie Mac?  Well that investment needs to become another chapter in that famous book, "Incredibly Obvious Outcomes":
 
  • Fannie, Freddie Delisting Signal They Have No Value

    By Jessica Holzer and Jacob Bunge

    Of DOW JONES NEWSWIRES

     

    WASHINGTON (Dow Jones)--The regulator for Fannie Mae (FNM) and Freddie Mac (FRE) ordered them to voluntarily delist their shares from U.S. stock exchanges Wednesday, underscoring that the once-mighty mortgage behemoths no longer have value as private firms.

    The move comes as the Obama administration begins to shift its focus to the future of the companies, which were seized by the federal government in September 2008 and are on track to becoming the largest recipients of bailout dollars in the financial crisis.

    The company's regulator, Federal Housing Finance Agency Acting Director Edward J. DeMarco, cited stock-exchange rules related to minimum share-price levels as the basis for his action. But his hand was not forced by such rules.

    "This is a positive step," Phillip Swagel, a former Treasury Assistant Secretary for Economic Policy during the Bush administration, argued. "It signals that these guys are going to come out [of conservatorship] in a different form and that the existing shareholders are not going to get anything."

    In case you're wondering, those existing shareholders who get nothing includes us taxpaying rubes who "bailed" these guys out.  Disgusting.  This should have been the plan from the beginning, but no, we decided to waster billions of dollars.  Maybe some of that money made its way into insiders bank accounts.  Nah, there's nothing that shows these big wigs are all connected is there?  Mmmmmmm:  (from zerohedge)
     

    Chairman of Goldman Sachs International Was - Until Last Year - Also Chairman of BP

     

    Speaking of things that make you go hmmmmmmm, this story gives a lot food for thought while building on the last headline:
     

    Goldman Sachs sold $250 million of BP stock before spill

    By John Byrne
    Wednesday, June 2nd, 2010 -- 10:12 am

    Firm's stock sale nearly twice as large as any other institution; Represented 44 percent of total BP investment

    The brokerage firm that's faced the most scrutiny from regulators in the past year over the shorting of mortgage related securities seems to have had good timing when it came to something else: the stock of British oil giant BP.

    According to regulatory filings, RawStory.com has found that Goldman Sachs sold 4,680,822 shares of BP in the first quarter of 2010. Goldman's sales were the largest of any firm during that time. Goldman would have pocketed slightly more than $266 million if their holdings were sold at the average price of BP's stock during the quarter.

    Maybe they were just lucky?  Who knows, and I am a "conspiracy" type guy, but this is a pretty big coincidence.  Did someone know this was going to happen?  We'll probably never know for sure, but the way all these guys are intertwined it makes me very suspicious.
    Which is why I put my trust in the oldest forms of money, which very up big last week.  Right now, gold is at an all time high, but silver lags, will this last?  From GATA:
     
    Do you think silver is undervalued??
    In 1900 there was 1 billion oz. of gold at $20.00 = $20 Billion
    In 1900 there was 12 billion oz. of silver at .65 cents = $7.8 billion
    Ratio was $20.00 divided by .65 cents = 30 oz silver to 1 oz gold
    Ratio in market cap is 20 billion divided by 7.8 billion = 2.5 to 1
    The total amount of gold was worth 2.5 times more than silver in
    1900
    In 2010 there is 5 billion oz gold at 1200.00 = $6 trillion dollars
    In 2010 there is 1 billion oz silver at $18.00 = $18 billion dollars
    Ratio today is $1200.00 divided by $18.00 = 66 oz silver to 1 oz of
    gold
    Ratio in market cap is $6 trillion divided by $18 billion = 333 to 1
    The total amount of gold today is worth 333 times more than silver
     
    Doing some quick math, shows that silver could rise to 65 times it's current price which would be about $1200 an ounce, giver or take.  Now if this seems impossible, think what people would have said when silver was below a $1 to someone predicting $50 silver.  This is NOT out of the question.  Not when stories like this are still circulating:
     
    Ted Butler alluded to the fact that the Central Fund of Canada (CEF), which just did a huge stock deal and purchased a massive amount of gold and silver, has to wait 5-6 months for the silver to be delivered. Anyone see the problem there? A friend and colleague of mine with a good call into the managers of the fund confirmed this. If silver was in bounteous supplies, how come CEF can't get its silver delivered right away?
    While I differ with Mr. Butler on his view that the CFTC will ultimately do the right thing and clean up the corruption in the gold/silver futures market, I have to say - in following his work for over 8 years - that he knows more about the dynamics of the silver market than ANY market professional I've ever been exposed to knows about any market, and that includes the Nobel professors I had at U of Chicago. His "bullish" meter for silver right now is 90%. If JPM takes silver below its 200 dma this week (around the $17.40 area), his meter will hit 100%. Historically his bullish meter is remarkably accurate.
     
    Silver is up since this was written and I believe it's going higher.  I've not sold one ounce of silver and won't even think of doing so until it hits $100 an ounce.  I'd advise anyone to do the same.  If you don't have any silver yet, what are you waiting for?  Maybe this image of a silver coin from ancient Greece will show remind you that paper currencies never last:
     
     
    This coin sells for thousands of dollars on ebay.  Silver is lasting, paper is fleeting.  Make the right choice.  Lastly, if you've ever seen a remote control airplane flown, then you will be really impressed by the pilot in this video.  All the movements are choreographed to music.  Oh, and he's indoors!  Have a great week!