In the news today…..

Taxpayers sink another $700B – of aid into financial system. Taxpayer support for the financial system increased by $700B over the past year, bringing the total to around $3.7TRILLION, said TARP inspector general Neil Barofsky in a quarterly report to Congress. Most of the increase was due to government pledges to supply capital to Fannie Mae and Freddie Mac and to guarantee more mortgages to support the housing market.

Barofsky also criticized the Treasury’s housing relief efforts, pointing to “anemic” participation numbers that have failed to “put an appreciable dent in foreclosure filings.”

Separately, the Treasury said it plans to end a long-delayed and never-used $30B TARP program designed to boost small-business lending.

What does all this mean???  It means that the governments own people are saying that we are spending too much.  It also means that Obama is spending more on TARP-like projects than TARP ever spent – and is doing it without the involvement of Congress.  Who is in charge?  Obama, of course.  Congress is irrelevent right now when it comes to spending.  Also, note that Barofsky had the audacity to criticize the efforts that Treasury was making to help homeowners.  He went on to say that because Treasury never set any targets, it was impossible to say whether or not the program was working.  As you can see, Treasury doesn’t have anyone inside it with an iota of real world experience, or common sense.

Remember to vote soon, and vote often.

FED Chairman Bernanke – in Congressional testimony today said that the future was “murky.” And, this did not do good things for the market – as markets like certainty, and not uncertainty.  He said that government spending would be less than before as would inventory replenishment.  He also said that consumer and business spending would offset those  losses, so growth would continue.  I am not sure what he smoked just before that statement.

Tonight’s Dinner Conversation……

Quantitative Easing – that is a great topic.  Why talk about it?  Well, the FED said that they think there is a 50/50 chance that the economy will falter (deflation), rather than rise.  So, how does the FED fight deflation?

1. Reduce interest rates – but they are zero now, so they can’t do any more.
2. Buy US Debt – that’s another name for Quantitative Easing.
   

The last quantitative easing took place in late 2008, and amounted to $2 TRILLION of money being created and given to our BIG banks to save them from going bust (Too Big To Fail).    But, I want you to better understand the insanity of quantitative easing.  I will do that with an analogy.

Let’s assume you run a small company, and you’re worried that the customers just aren’t buying enough, and your income doesn’t meet your outgoings (hope this sounds like the Federal Government.)  You have a lot of loans from the banks, and the interest is hurting – but you just want to ignore that side of the equation.  So, you decide that the best way to go forward is to “buy your own debt.”

You go to another bank, and convince them that you have some great investment to make (buying your own debt), and they loan you a bit bundle of money. The bank agrees (reluctantly) and makes a small condition that you put up 100% of the money you want to borrow. You go to the first banks, and buy back your debt (pay off your loan) using the new bank’s loan money.

Now where do you stand?

1. You have removed your old debt.
2. You have added a new equal debt.  We won’t get into the argument about a change in the interest rate.
3. You have put up (printed) an equal amount of money to the new debt, as the new bank is holding this money as “security” on the new loan.
   

As a small business owner, are you better off, or worse off?  This is not a trick question.  You are worse off, of course.  You no longer have the flexibility of using your own cash.  I hope you get the “insanity” of anyone doing this type of transaction.  The FED doesn’t get it, but they are just trying to survive – after all.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,121 (down 109)
10 Year Treasury Bond – 2.898% (down 0.04%)
Euro – $1.2769
Gold – $1192 (no change)
Oil – $77.44 (no change)
Gasoline – $2.07  (down $0.01)

Interest rates remain low, as people still have some faith in bonds, but actually I think they are stupid in a way, as they don’t know where to put their money when they sell their stocks.

The Dollar is tumbling.  Why?  Well, the FED said that it might take 6 years for the economy to recover, and this truthful statement took the world’s breath away.  So, this is the real reason that the Euro is climbing back up from $1.20 to $1.29 in the past week plus.

Gold is getting beat up, but is holding its own.  It fell again today, and is in the buy range now.  If it stays there on Monday, I think it will be time to buy some more.  The key price point to watch for gold is $1215.  There is a determined seller of gold that comes into the market at that price, and keeps knocking it down.  When it breaks above $1215, it will be going up much higher.

Oil/gasoline just move sideways – not knowing what to think about all the shinanigans going on in the Gulf and in politics.  You would think that oil would fall as the US in on the precipice of a double dip recession (aka Great Depression 2).

In the news today……

Financial Reform Bill Passes – and YOU will pay for it.  You thought this was a bill that would protect you from the excesses of Wall St – right?  Well, it does some of that, but the Congress also put a LOT of sneaky things in there that will cost you a lot of YOUR money too.  You know you can’t trust those scumbags.  Well, here is just one example:  Small banks – those banks that didn’t really contribute to the financial meltdown in 2008 – are being overly regulated now, and must spend a lot of money to meet new bureaucratic requirements (like having a “Compliance Officer”).  How do you think the banks will pay for these additional costs?  Easy!!!  They will just raise your charges and lower your services.  Happy?  If so, write your Congressman/woman and thank them.

If the previous diatribe sounds like a rant – it is.  Politicians think they must sneak in everything they ever wanted under the Christmas Tree.  They can’t concentrate on the major things they are supposed to be getting done, and just do those things.  Remember to vote in November, and vote often.

Tonight’s Dinner Conversation….

The economy stinks – right?  Well, why do I say that?   Here are the main reasons:

1. Unemployment remains high – with no solution in sight.
2. Housing continues to looks dismal – and is set to fall in value again.
3. Congress continues to spend like a “drunken sailor” – and there is no end in sight.  This makes the majority of Americans afraid for their future.  They are reducing their spending as they lose confidence in our economy.
   

Take a look at these graphs, and see what conclusions you reach…..

See how persistent the unemployment rate is?  See how we are fed a bunch of lies about how many people are out of work?

The number of Mortgage Applications is falling, and has been for quite awhile.  There doesn’t seem to be any respite for the wicked housing market.  We had a recent spike in applications as the government interfered with the market by offering a tax break to new home buyers, but this has fallen away quite rapidly, and the downward trend of applications continues.  This translates into fewer houses sold.  As you know, we are having many more houses coming on the market throught the foreclosure process as record number foreclosures take place.

You can see that foreclosures just don’t look healthy in the US.  And, I predict this bad trend will continue throughout 2011.

Retail sales picked up after the 2008 economic crisis as the stimulus money kicked in – BUT, it is now turning negative once more. This is the double dip recession looking at you straight in the face – as retail sales represent the MAJORITY of US GDP.

So, now that you’ve seen some facts, what conclusions do you come to?  I want each of you to come to your own conclusions about our economy.  With your conclusions, you will be able to protect your assets much better than if you dig a hole, and put your head in it.  Don’t hide; the economy will bite you wherever you are.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,097 (down 261)
10 Year Treasury Bond – 2.94% (down 0.04%)
Euro – $1.2927
Gold – $1188 (down $20)
Oil – $75.83 (down $0.79)
Gasoline – $2.05  (down $0.01)

I have been out of communication while my wife and I have been making major changes in our life by selling our big home.  Lots of chaos, and lots of moving.  We want to create a bohemian lifestyle where we can travel from place to place for a few months at a time, and enjoy different cultures.  Now that sounds nice, but try to get through the bureaucracy of creating a post office box and change of address at the same time – sound simple?  It isn’t, and I won’t elaborate.

To catch up for the past two weeks, I will provide a narrative of what’s happened, and how that impacts you.  

The Markets

Stocks tanked, and then recovered for the past 6 days.  Today was the turning point for the stock market.  The fundamentals are being dictated by the earnings reports of companies currently coming out.  Could be interesting.   The technicals are “bearish”.  Stocks have hit a technical confirmed bear market, and this should be negative for stocks.  Assuming this bearish stock indication is correct, it foretells a double dip recession.

Treasuries have been telling another story.  Interest rates for the 10 Year Treasury fell to about 2.9%, and have now recovered up to over 3%.  The lows produced extremely low mortgage rates for you who needed to refi.  Where did this move come from?  It came from the European (Greek and Spanish) debt crisis, and people pumped money into Dollars, and bought the strongest instrument on the face of the earth – the US Treasury.  (How long will that epithet last?  That is a story for another time.)  

The Euro (the anti-Dollar) fell to as low as 1.20/$, and has now significantly recovered to 1.27/%.  Remember that it fell from about 1.5/$ – so it has a long way to go back to.  And, why would anyone with a sound mind want Euros?  Well, something who thought that the Dollar might fall, would want Euros. The Europeans have actually tried to constrain their spending – while not in extremes – it is a good start to stem the excess spending and excess debt.  The US is not doing anything like that, and it is apparent that the Dollar is being tarred and feathered in the foreign exchange market right now.  But, maybe the Euro is just having a technical rally because it fell off a cliff from 1.4/$ to 1.2/$.  Time will tell.

Gold fell from about 2240/ounce to as low as 2190/ounce, and has recovered a little to 2207 as of today.  I personally still believe in gold, and see the current hiatus as a technical movement as the rapid move up has been breathtaking.  I see a bright future for gold over the rest of the year.  July is the slowest month for gold price growth historically.

Oil and gasoline are showing the weakness in the Dollar by staying exactly where they were two weeks ago.  Gasoline has fallen a little, but oil is stable – even with the Gulf Oil spill and the possibility of less drilling in the near term.

The Economy

Where to start….  Unemployment is still very high, and new job growth is dismal – that is the best word that I can churn up for what’s going on.  No one likes that fact we are not growing jobs.  Greenspan has stated that factories have stopped their inventory rebuilding program, so that means that factories are not producing as many goods as they did the first to quarters of this year.  A slowdown in other words.  Stimulus spending has stopped, and is on hold as politicians are holding back on stimulus spending until the year 2012 when there will be a Presidential election.  No more housing stimulus money, No more auto stimulus money.  No more unemployment money for those who received it for long periods (90 months?).

The government continues to spend like a drunken sailor.  Deficits are reaching to the stars, and this will end badly for America.  As a tidbit, HUD has a program where they are giving $196M to governmental organizations (like cities) to buy houses on the HUD books at a 25% discount (watch out for appraisal shocks coming into the market place) so that we eliminate homelessness.  Imagine that.  The government is giving money to buy their foreclosed houses, and get them off the books – sounds like it could be illegal if a private citizen did it.

States and counties and cities are busting their budgets and creating deficits that they MUST reel in.  That will mean some hard decisions with respect to employment and services.

All this portends that we are going into a double dip recession, and it will be happening right NOW.  The second half of 2010 doesn’t look pretty.  2011 isn’t much better – or could be even worse.  

Politics

We are in an election year, and posturing is the norm.  Lots of words, and you can’t believe anyone.  So, think before you vote.  I still recommend voting out all incumbents.

The biggest bill coming forward is the Financial Reform Bill – and this was written by the Democrats in control, and it hides lots of ugly partisan sections.  It is flawed massively.  Just get mad when it passes, and vote out the scumbags who are responsible.  Are there some good section?  I don’t know because I haven’t read it – but , what’s new – none of the senators or folks in Congress have read it either.

Did you know that some of the Healthcare legislation is still be revealed – even though it’s law today.  Like a provision for all financial transactions over $600 to documented to by a 1099 form.  Why?  Well, some of the better minds out there say it is to easily enact a VAT, and know all the transactions that it will apply to. Just to put the record straight – I am AGAINST a VAT tax in America.  Everything will jump up in price immediately, and you will see instant inflation – and I can tell you today, and no one will like it.

Here are the last numbers for today (and changes from yesterday):
Dow Jones 30 Industrial – 10,367 (up 4)
10 Year Treasury Bond – 3.05% (down 0.01%)
Euro – $1.2743
Gold – $2207 (no change)
Oil – $76.60 (down $0.44)
Gasoline – $2.07  (down $0.02)

Roman Inflation – so you thought we were the only folks to have inflation?  We’ll the Romans copied someone else, and they did it the old fashioned way. L They had silver coins as their money, and when they needed more money, they brought in all the coins, melted them down, added some base metal (like lead or tin) and reissued the coins.  Here is a chart showing the percentage of silver in these coins over the years.

You can see that the Romans were typical politicians, and nothing is new under the sun.

So, let’s look at how bad this inflation in money (or decrease in silver in each coin) actually inflated the prices of things.  Well, if you look at this downtrend, you will see that there was roughly about 1/5% decrease in silver each year, on average.  And this lasted over 150 to 200 years.  Wow.  These guys were pros, and our politicians could learn something from them.  Here is my conclusion:

1. The Romans weren’t gluttons for inflation – it was only 0.5% each year.
2. The Romans decreased the value slowly so the people in any generation (you didn’t live that long back then) didn’t really see or feel what was happening.
3. Today’s American politicians are decreasing the value of money (inflating our money) about 2 to 3% each year.
4. Americans live longer, and can certainly see and feel the decrease in the value of money.  American politicians are gluttons.
   

And, to further show that things aren’t really changing in our world, from the Roman world, here is a quote:

And, lastly, to put to rest the rumor that gold is a bubble today, here is a chart comparing some real bubble to the gold price action today.  Just look at the chart.  It speaks very lously.

The Euro gained today and is a strange phenomenon.  Perhaps were are seeing the end of a short squeeze on the Euro being played out.

Oil and gasoline at showing strength with oil down a little, and gasoline up a little.

Gold touched its ALL TIME HIGH today, and is continuing to show its very strong bullish move upward.  It is poised to move higher, but markets will do whatever they want to do, and there is a lot of manipulation in the gold market.

In Today’s news……

Missile Defense – is being negotiated very quietly with the Russians right now.  Do you hear about it on the news?  I doubt it.  The Administration doesn’t want you to know that they are giving away your protections.  The delegation representing America believe sthat our Missile Defense systems don’t work, and can’t work, and are willing to give anything away that doesn’t work.  They have stated that missile defense is a barrier to negotiating a comprehensive nuclear peace deal with the Russians.  What fools!!!!  Missile defense is a defensive system and isn’t a threat to anyone.  It shoots down an enemy’s missiles.  How can that be threatening?  Of course it is a barrier to the Russians.  The Russians don’t want our system to be able to shoot down them hydrogen bombs aimed at the USA.  If we give away our missile defense crown jewels, we will be going back to the MAD (mutual assured destruction) days of a nuclear standoff.  The Russians liked that much more because they were “equal” those days.  Today, they are in a disadvantaged position.  If they shoot at us, and we shoot down their missiles with our missile defense system, they will lose a nuclear war.  Remember that Reagan bankrupted the old USSR with Star Wars which was the beginnings of what works today.  It was a dream then, and didn’t work; but we could outspend the Russians, and bankrupt them.  Ergo Russia emerged from the USSR – but remembered.  I have strong feelings about being sold down the river by the Administration.  I have worked on the missile defense system of the US and talked to the Missile Defense Agency officials as well as officials of many of our allied nations.  The military knows that missile defense is the real thing.  What’s wrong with our Administration?

UK complaining – in the form of the UK Prime Minister Cameron that BP is stopping its dividends, and this could hurt UK pensioners.  This is a nation trying to defend its industry (something that is actually refreshing).  However, Americans can view this as a tit for tat taxing of each other’s companies.  Last month, the UK imposed a massive tax on banker’s income in the UK, and this will have an impact of the profits of US banks operating in the UK; banks such as Bank of America, Citigroup, etc (which I don’t have much sympathy for).  The profits of these banks will be reduced by approximately 10% (or a total tax of $2B on US banks) by the imposition of the tax on bankers operating in the UK.  So, they tax us, and we tax them.  Well, it’s not a tax in reality from the BP side, but it has the same effect.  

Jobless Claims – rose to 472,000, and this was a “surprise to the experts” to the upside.  I ask you to ask yourself about the expertise of the experts when they are surprised so much.  Perhaps they are just shills for the Administration????  Why do we get such rosy projections and predictions from the mainstream news and the government – when it is obvious the future has some major bumps in the road??  This increase in the jobless claims is showing VERY CLEARLY that we don’t have a robust jobs market.  Our experts said the economy was creating jobs, and all the jobless rate had to fall to was 426,000 to get to this “job creation” state.  Well, what are they saying today??? As an example, Wynn laid off 250 people from his Las Vegas luxury hotels to save about $8M annually – and you think things are looking good in Las Vegas?  Wynn recently came out blasting the Administration and all its wishy-washy rules that change every minute – making running a business and planning for the future virtually impossible – so he is investing in the Far East (like Shanghai, Macau, etc.) and not the US right now.  Businesspeople are voting with their feet if they have the ability to vote that way.

Private Sector Jobs Created – 214,000 in April and 41,000 in May – is this the trend that looks healthy to you?  Of course, let’s not forget to count the government jobs created in the Census, as they count us.  Those jobs will disappear quickly, and are bogus to begin with as the government lies about its job creations to make you “feel” comfortable in this turmoil.

CPI – fell 0.2% last month.  This is a sign of deflation.  The “core” rate rose slightly when you strip out energy and food – but we must use energy and food, so I don’t like to talk about stripping anything out.  The basket making up the CPI measure is suspect as it is.  Oh, by the way, energy has turned around, and you can expect those cost reductions to disappear this month anyway.

91 Smaller Banks – missed their TARP payment last quarter.  The number of banks missing their quarterly required payments is increasing each quarter.  But, I hear you say “But, the big banks repaid their TARP – so what’s the problem?”  Well, that’s true, as the FED favors those big banks and has given them zero interest money to earn their way out of their mess (good luck), and the FED didn’t do that for the small banks.  But, how big is this problem?  Maybe it isn’t a big deal!!!  Well, all small banks borrowed $130B in total.  This is about the same amount loaned out to the big banks.  That is the amount of money that is at risk.  Not only are we, the taxpayers, not getting the interest on those loans, we are at risk of never getting back the principal – but, so what’s new, as I warned about that when TARP was first handed out to the pals of the Administration.

Spain – continues to deny it is asking for a bailout from the EU and IMF, but rumors persist – and I believe the rumors.  Spain must roll over billions in bonds this year, starting next month, and interest rates have risen about 2.5% for Spanish bonds since the crisis began.  Why do I believe a bailout is in the offing?  Because the majority of the debt is owned by German and French banks who can’t afford to have a default on those bonds – and a bailout would mean they would get their principal and interest back.  Self interest always rules – and this is all high politics.  What could be the downside of all the higher interest rates and decreases in government spending in Greece and Spain and Portugal?  These countries are used to military coups and civil unrest – and either or both could happen.  Not a really rosy picture.

Tonight’s Dinner Conversation…..

US Treasuries – let’s move on in our discussion of things that directly affect your financial wealth position now and in the future.  US Treasuries is one of those, and most people are just not aware of the massive impact they have on their lives.

The San Francisco FED came out with a paper this week that stated that the FED would not be raising rates until 2012.  While the San Francisco FED bank doesn’t speak for the FED as a whole, it does carry a lot of clout, and the new Vice Chairman of the FED is the current head of the San Francisco Federal Bank.  So, there must be credibility in this report.  So, my question to you is “Why 2012, and not sooner??”

You see 2012 is after 2010 and 2011.  In fact, 2012 starts 18 months from now, and lasts to 30 months from now.  If the US economy is so robust, and creating jobs at a great clip, and growing company profits rapidly, and paying more taxes to the government by creating all the new wealth, then why would the FED be waiting 18 to 30 months to raise interest rates?  

I believe the answer is simple.  The FED is very smart.  The FED can predict the future of the US economy better than any other body of experts in the world as it has more information to work with.  The FED does not announce what the future holds for the US economy – it keeps its secrets well hidden so as not to impact the markets.  So, the simple answer is that the FED believes the US economy is not going to recover quickly as everyone else is saying.  The FED believes we are going to have a level economy, or perhaps an economy going back into recession during 2011.  In that scenario, the FED would keep interest rates at ZERO.  If the US economy was heating up, the FED would RAISE interest rates.

So, now you know what the FED really thinks about the future US economy.  This is Logic 101.

Okay, let’s accept that.  What about all those “bond vigilantes” that I talk about so much?  Where are they?  

The bond vigilantes are alive and well. You are seeing them in action over in Europe right now with Greek and Spanish bonds.   The bond vigilantes have more targets than just the FED Funds Rate – and in fact, they can’t really impact the FED Funds Rate  as it is set by the FED; but, the vigilantes could strongly encourage the FED to raise rates if they had a run on longer term Treasuries (5 year, 10 year, 30 year, etc), and those rates rose dramatically.  In addition to the bond vigilantes there are big governments who own US Treasuries and could threaten to sell, or actually sell them, and demand higher interest rates (in fact, you could call these big governments – bond vigilantes too).  In addition to US Treasury bonds, bond vigilantes watch over all bond rates – like corporate bonds, municipal bonds, junk bonds, etc – and when something is smelly, they jump in and sell those bonds causing their interest rates to rise.  So, if there are large changes in interest rates in any class of bonds, you probably are seeing bond vigilantes in action.

How can you make money with bonds?  What bonds are best to make money with?  Great questions.  Here is the answer that I’ve come up with for myself.

I will wait until bond interest rates start rising.  This could be signaled by the FED raising the FED Funds Rate, or it could be signaled by longer term Treasury interest rates rising.  I report on the 10 year Treasury interest rate in every economyguy – because this keeps me up to date on what’s actually going on in the bond market.  The 10 year Treasury is currently around 3.3%.  If and when it reaches 4%, I will get much more interested in the possibility of betting that interest rates are going up.  When it reaches 4.5%, I will probably start worrying that I am missing the interest rate rise phase of the market.  However, I also watch other bond markets to see what they are doing with interest rates as well.  I would expect the junk and low quality bond markets to start rising in interest rates before the 10 year Treasury interest rate takes off.

When I feel confident that interest rates are going to rise for the foreseeable future, I will start a program of shorting bonds.  Which bonds?  Well, I will look at all bond markets, and see which ones have started to rise in interest rates, and which ones haven’t.  I will pick a variety of markets that have started or will begin to rise.  However, this decision must be made in conjunction with maintaining total awareness of the news driving all markets.  For example, if China decides to sell bonds, then Treasuries will shoot up in interest rates, and could lead all other bond markets.  

Hope this helps in your education and understanding.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,434 (up 24)
10 Year Treasury Bond – 3.19% (down 0.12%)
Euro – $1.2388
Gold – $1248 (up $18)
Oil – $76.60 (down $1.07)
Gasoline – $2.16  (up $0.02)