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March 13, 2010
Issue 86  -  Losing Jobs Isn't "Good"
 
A short (crazy) clip from the U.S. Senate:
 
 
 
 
 
Sorry Senator Reid, losing jobs is never good.  That's absurd.  I know he's talking about the relative job loss, but I really think, if you listen to his tone, that he REALLY believes it's good.  Understand that we need to ADD 150,000 a month just to keep up with population growth so that means we were 186,000 jobs below BREAK EVEN.  Not good under any definition.  In fact, other than the stock market, there is very little that is good.  This isn't good:
 

U.S. credit card defaults surge 11%

March 3 - U.S. credit card charge-offs surged to near record levels set last fall, according to the latest Credit Card Index results from Fitch Ratings.

Fitch's prime credit card charge-off index jumped 112 basis points (11%) to 11.37%. The results, which cover the January collection period, pushed the index to its highest level since September 2009's record 11.52% and 54% above year earlier levels. The increase was largely driven by a payment holiday for Chase credit cardholders, which pushed more chargeoffs into the current period.

Conversely, 60+ day delinquencies fell for the second straight month, down three bps to 4.16%, while the 30-day rate declined six bps to 5.38%. Consistent with seasonal patterns, the 60-plus day delinquency index is off its 4.54% record high set in December and is essentially flat versus year earlier levels. The 30-day delinquency index, meanwhile, is 5%below February 2009 rates. The improvement of delinquencies is largely attributable to improvements in Bank of America's delinquency rates partly due to the increased use of modification programs by cardholders.

'Late-stage delinquencies are still trending in the 4% range industrywide, which is keeping chargeoff levels in the double-digits,' said Managing Director Michael Dean. 'Until we see some meaningful improvement in employment numbers, consumer delinquencies and defaults will remain elevated at or near these levels.'

 In fact, that's pretty bad.  Is this good:
 

More consumers file for bankruptcy protection

By Christine Dugas, USA TODAY

The economic recovery effort has not slowed consumer bankruptcy filings. They surged 14% in February compared with a year earlier, according to the American Bankruptcy Institute.

The 111,693 cases filed last month also represented a 9% increase from January, the report said.The debt-stress overhang from years of consumer spending has a more acute impact now because of troubling economic times," says Samuel Gerdano, American Bankruptcy Institute executive director.

And that financial distress is driving more Americans to file for Chapter 7 bankruptcy, which — if approved — allows a court to discharge most unsecured consumer debt, including credit card bills…

When a stricter bankruptcy law took effect in 2005, a major goal was to require more families to rely on Chapter 13 bankruptcy, which requires filers with regular income to repay debts in full, or in part, over several years…

 
Hmmmmm......that's not good either.   One more try:
 

Congressional estimates show grim deficit picture


By ANDREW TAYLOR, Associated Press Writer Andrew Taylor, Associated Press Writer2 hrs 19 mins ago

WASHINGTON – A new congressional report released Friday says the United States' long-term fiscal woes are even worse than predicted by President Barack Obama's grim budget submission last month.

The nonpartisan Congressional Budget Office predicts that Obama's budget plans would generate deficits over the upcoming decade that would total $9.8 trillion. That's $1.2 trillion more than predicted by the administration.

The agency says its future-year predictions of tax revenues are more pessimistic than the administration's. That's because CBO projects slightly slower economic growth than the White House.

 
Sheesh, maybe I'm reading the wrong web sites, but I'm having a real difficult time finding good news.  Wait a second, the unemployment is down so that chart showing the worsening unemployment rates by county must look better now, right?  Here it is:
 
 
 
Wow, that looks a little WORSE???!??  What is going on here?  It seems like we're trying to be talked into feeling better about things while things are, as I've shown, getting worse.  Here's a blog post from Rick Ackerman that gets it just right:
 
 
Wall Street Parties as Great Cities Fail

by Rick Ackerman

With the Mother of All Bear Rallies about to enter its second year and the banking business going like gangbusters, one could lose sight of the fact that quite a few American cities, counties and states are facing the most dire economic circumstances since the Great Depression.  San Francisco became the latest casualty of hard times when it put more than 15,000 of its 26,000 workers on notice that they will be laid off at the end of this week. Most supposedly will have the option of being rehired to work shortened hours, but they will not be returning to the same jobs. For one, employees with many years on the job will lose their seniority and many supervisory positions will be eliminated. And for two, the city will no longer be bound by certain past agreements with the unions.  By cutting workers back to 37.5 hours and reducing their paychecks by 6.25 percent, Mayor Gavin Newsom hopes to save $100 million. However, the total budget shortfall for the 2010-11 fiscal year is $522 million, so the city will need to come up with additional, presumably drastic, ways to close the $422 million gap that will remain.

San-Francisco

Mind you, this is not some depressed town with a down-and-out manufacturing base and no economic options. In fact, the tourist economy has remained relatively robust, and redevelopment has turned the once-dingy South of Market area and warehouse district into thriving incubators for new businesses. But like so many other large cities, San Francisco has been expanding its payroll at several times the rate of the private sector in recent years, resulting, for one, in more supervisors making six-figure salaries than any of the rank-and-file workers and taxpayers can comprehend, much less pay for.

Isn't that incredible?   As things (revenue) gets worse, the government is adding more employees.  Now they are cutting the hours?  See what is going on here?  This is a desperate attempt to cushion the fall.  The only problem is that the government can't hire EVERYONE.  Who would pay then?   Even as things stand right now, the money just keeps on flowing....out:
 
 
Fannie Taps Treasury for $15.3 Billion More After a 10th Loss

Feb. 27 (Bloomberg) -- Fannie Mae will seek $15.3 billion in U.S. aid, bringing the total owed under a government lifeline to $76.2 billion, after its 10th consecutive quarterly loss.

The mortgage-finance company posted a fourth-quarter net loss of $16.3 billion, or $2.87 a share, Washington-based Fannie Mae said in a filing yesterday with the Securities and Exchange Commission…

 
That's one fantastic "investment" isn't it?  Money down the drain, a billion at a time. 
 
Now most Americans, me included, are fairly American-centric, meaning we focus on the U.S. and not much else.  This has a lot to do with our media, as they don't cover the world news as much and that is a major source of news for most people.  Even the mainstream web sites like MSN and Yahoo focus right here.  So.....you may think that gold is off it's all-time highs, and that would be true in dollars, but not so elsewhere:
 
 

Gold hits record highs in sterling, euro terms

Tue Mar 2, 2010 10:04am 

LONDON, March 2 (Reuters) - Gold priced in both euros and sterling hit record highs in Europe on Tuesday as the precious metal benefited from volatility in the currency markets, with spot gold prices XAU= also extending earlier gains.

 
 
 Gold has been moving up in dollars too, just not as fast.  Expect that to change as the monetary base just hit ANOTHER new high:
 
 
 
 
 
This type of monetary expansion will EVENTUALLY hit prices.  It may take a while, but the money has to go somewhere.  This hockey stick expansion is just unprecedented.  I expect gold to continue higher with this outrageous behavior of the Federal Reserve. 
 
Here is another one of those gold "bubble" stories:
 
 

Soros Signals Gold Bubble as Goldman Predicts Record (Update2)

March 01, 2010, 7:33 AM EST

By Nicholas Larkin and Pham-Duy Nguyen

March 1 (Bloomberg) -- George Soros is helping drive up gold prices by doubling his bet in a market even he considers a “bubble” as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts.

Soros Fund Management LLC, which manages about $25 billion, increased its investment in SPDR Gold Trust, the world’s largest exchange-traded fund for the metal, by 152 percent in the fourth quarter, a Feb. 16 Securities and Exchange Commission filing shows. While prices have fallen 9.2 percent since reaching a record on Dec. 3, 15 of 22 analysts in a Bloomberg survey say gold will reach a new high, with the median forecast predicting a 17 percent advance to as much as ,300 an ounce this year.

“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.

In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.

Gold’s fourfold rally since the end of 2000 has also attracted money managers John Paulson, Paul Tudor Jones and David Einhorn. Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 by betting that subprime mortgages would plummet. Einhorn said in October that his Greenlight Capital Inc. bought gold to bet against the dollar.

The metal dropped from the record high as recovering economies pushed up the dollar. The Washington-based IMF increased its forecast for world economic growth in 2010 to 3.9 percent in January, from 3.1 percent in October.

Gold may drop 28 percent to $800 this year if the U.S. raises interest rates, said New York-based Tom Winmill, who manages $120 million at the Midas Fund. Gold generally only earns interest for banks that lend it, so its lure over cash diminishes as borrowing costs increase.

Fed Chairman Ben S. Bernanke said Feb. 24 that the U.S. economy is in a “nascent” recovery that still requires low borrowing costs. U.S. policy makers likely will start raising the target rate for overnight loans between banks from the record low range of zero to 0.25 percent in the third quarter, according to the median estimate of 72 economists.


 
First off, there is no WAY you see this many stories that something is in a bubble WHEN it's in a bubble.  Investor psychology just doesn't work that way.  Let me ask you this, how many MAINSTREAM stories have you seen that recommended buying gold?  I've seen less than 5.  Those types of stories HAVE to appear before a bubble occurs.  This particular story is about the world famous hedge fund manager, George Soros, and how he says gold is a bubble.  If, however, you read the story carefully, he doesn't say the bubble is here .....yet.  That's why he is still buying gold.  The bubble will come later.  Here's another famous investor who is more straight forward:  (from Zerohedge)
 

Marc Faber: "I Would Recommend People Buy Every Month Some Gold For Ever"

Tyler Durden's picture
Submitted by Tyler Durden on 03/04/2010 12:07 -0500


Marc Faber's latest thoughts on the euro (not good), on Greece (also not too good), and gold (good to quite good). "I don't think it will work out, and I think other countries like Spain and probably Portugal (and Italy) will then also have to be bailed out eventually, and it will lead to more monetization in Europe, one of the reason the euro has been so week... The pain of the austerity will be very, very burdensome on Greece, and eventually the economy can not grow with the kind of budget they will have to enact, and under these conditions their currency is way overvalued (they are in the euro). And so without the ability to grow, their ability to pay the interest and repay the debt will actually diminish.... I think everybody should accumulate some gold over time. I would recommend people to buy every month some gold for ever."

Faber's response to whether gold is the "ultimate ponzi scheme":

"Gold is not a liability of someone else, you really own it, you keep it in a safe deposit box, its quantity can not be increased at the same rate as you can print money which will eventually again weaken the US dollar. I am not saying that the dollar will go straight down, but eventually the purchasing power of money will lose."

Lastly, for Faber's view on why this time it is different, and the developed world will not be able to pull itself out by its bootstraps, his view:

If you compare the depression years, in the depression years we did not have credit cards and we did not have unfunded liabilities from Social Security, from Medicare, from Medicaid. These are all debts that will come due that will have to be paid by the government, and eventually this fiscal deficit will lead to a government debt that will then, because of its increasing size lead to sharply rising interest burden. In other words,  in ten years time I would estimate that between 30 and 50% of tax revenue will be spent on the interest payments on the government debt. That will necessitate the monetization of the debt and that will then lead to a weak dollar.

 

Read what Mr. Faber says very carefully.  Comparing today to the great depression years is totally wrong headed.  Heck, they didn't even HAVE credit cards then.  Gold is still a great place to put your money but probably not as good as silver:
 

Silver Supply Crisis Looms, Part 2

Jeff Nielson

03/02/10 - 10:41 AM EST

By Jeff Nielson of

Bullion Bulls Canada, second of two parts. Here is Part 1.

Silver has reflective, chemical, and conductive properties that are superior to all other metals. This provides two key uses for silver in the production of solar energy. As the world's most-reflective metal (reflecting 97% of all solar energy), silver is used to make the world's best mirrors -- a vital component of solar energy production. In addition, because silver is such a superb catalyst, it also can improve the efficiency of "solar cells," by being blended with these semiconductor materials to increase the power output of any such power unit by approximately 12% (as reported by The Silver Institute).

In an energy-starved world, it is already a "given" that the entire world will have to dramatically increase the percentage of power from such clean-and-"green" power sources. With "peak oil" an obvious reality, and thus oil prices certain to increase to multiples of the current price, even a sharp rise in the price of silver would not reduce the demand for this power source, and there is no substitute for silver -- as peak efficiency of these solar power units must be achieved for solar energy to be a viable energy source (in any kind of large-scale applications) …

 
There can be no doubt that solar energy will be playing a bigger and bigger role in energy production in the coming years, and silver is a key ingredient.  I still see silver over $100 an ounce at some point and probably higher. 
 
Printing unlimited dollars at an all-time record pace, all-time highs in credit, government debt spending run amuck, yeah, I'd say it's still safe to buy gold and silver.  I'll finish up this week with a video I found a few years ago.  It's a street performer in Amsterdam who is just phenomenal with a soccer ball.  Have a great week!