|A Professional Run On Banks Has Begun||01.29.09|
Global issues Complicate American Financial Challenge
The International Forecaster
Private equity investors and professionals are pulling their money out of banks. If you have CDs or funds in banks that exceed six months of operating expenses remove them immediately.
US MARKETS ... We are not going to belabor this point but it is deadly important. Private equity investors and professionals are pulling their money out of banks. A professional run on banks has begun. If you have CDs or funds in banks that exceed six months of operating expenses remove them immediately. Your alternative is gold and silver related assets or Swiss franc Treasuries. If you need help email me or call 1-800-375-4188.
Our Treasury is going to have to raise over $2 trillion to fund fiscal needs in the next six months, which will be no easy feat. Will foreigners continue to fund such massive reckless spending? We do not know. We do not believe they want too, but do they have much choice? They are holding 64.5% of their foreign reserves in US dollars.
The US Treasury's needs for funds are enormous and fulfilling those needs will be very difficult. Are US Treasuries still the world's safest investment? We do not believe they are. Today this is a false perception, as it has been several times in our history. History is replete with other major nations defaulting on their bonds and arbitrarily devaluing their currencies in the last 150 years. The bottom line is there are no safe bonds or currency from any nation. Gold always has been and always will be the only safe option.
Today we have zero interest rates or for that matter negative rates if you consider the loss via real inflation. Owners of US debt are losing at least 10% annually on their investment. Our unprecedented expansionary monetary policy can only end in disaster via hyperinflation and default and devaluation. Even a 10% yield in today's market cannot compensate for the loss in buying power.
The creation of American debt is totally out of control and there will come a time when foreigners will be forced to say no -- no more. They will be under enormous pressure from their own constituents. Besides, who is capable of funding such debt? China and Japan are loaded up. Oil producers are in a bind. England is on the edge of bankruptcy, as are Ireland and Spain. Perhaps Germany and France can help. We do not know who'll attempt to help, but more than $2 trillion in a year is a lot of money. We do not think it can be done and that means the Fed buys the Treasury's bonds, bills and notes by creating more fiat money monetizing the debt and sending inflation straight into the stratosphere. That means much higher gold prices are in our future.
There is no flight to the dollar. There has been a flight from other currencies to the dollar for several reasons and those reasons are now history. We could see the dollar again test the upper limits on the USDX at about 88, but that should be it. We expect the dollar to firmly put in a double top. In fact, we may well never get to 88, which often happens in situations like this. The dollar has gone up as much as it is going too.
Can you imagine what a dollar at this level will do to exports? It will probably cut GDP growth% to 1%, and at this stage that would be most unwelcome. The dollar is going lower versus other major currencies, which have all just fallen versus the dollar over the past five months. Next all the currencies will take a bath versus gold.
As an aside, events in Europe are horrible. England and Europe are trapped in depression and England is bankrupt. In Greece and in the Baltics and South Balkans they are having the worst riots in almost 20 years. S&P has cut Greek debt to near junk and the bonds of Italy, Spain, Portugal and Ireland are on negative watch.
This is a worldwide catastrophe. There will be no decoupling. Ireland has nationalized the Anglo Irish Bank, the biggest bank in the country. The social fabric is being torn as it soon also will be in the US and other countries. The entire world is entrapped in a web created to bring about world government.
Latvia's streets look like a war zone, but little of this carnage reaches us via the US media. This is important, as are the riots in Greece. They were all about economic and financial failure and no jobs. This is going to happen worldwide.
As we've said, the major financial institutions in the US are broke. The Fed and Treasury know and a few in Congress. The rest of our legislators do not understand or want to understand. Congress is only interested in payoffs and pedophilia. These are the same people who allowed $350 billion in TARP funds to be stolen.
There is no question now but Bank of America and Citigroup are broke. Plus banks in Canada and Europe. You can add JP Morgan Chase and Goldman Sachs. They went a bridge too far. These are banks and investment banks owned or controlled by the Illuminist Black Nobility. The connections in these stocks and others are just the prelude to oblivion. Wait until the derivative bomb explodes.
As the Baltic Dry Index falls 95%, oil and gas prices are decimated. Oil falls from $147 to $35.00 a barrel in order to destroy OPEC in another power play. In the end Russia will emerge as a winner. This is how fascism works. Our new President tells us he is committed to pressing China on its currency practices. Don't hold your breath. Just more political posturing.
President Obama is freezing salaries for top White House aides and will put in place new stricter ethics and lobbying rules.
He also said he will change the way the FOIA (Freedom of Intermation Act) is interpreted. There will be more transparency. He will err on the information release side.
The CBO says only $136 billion of the $355 billion that House leaders want to allocate to infrastructure programs will be spent by October 1, 2010. The rest will be spent after the recession/depression is projected to have ended. The report does not analyze the entire $825 billion stimulus package.
Building industry economists who have been perpetually wrong, see a deepening correction this year - see no recovery until 2010. We say more wishful thinking. Inventory of unsold homes is 11.5 months. That won't be reduced anytime soon.
The ISM Index of factory activity was 32.9 versus 32.4 originally reported for December. The non-manufacturing index was 40.1 in December versus 40.6 previously reported. What poor reporting.
The NAHB/Wells Fargo Housing Market Index was 8 in January, down from 9 in December. Chairman Sandy Dunn says, "Clearly conditions in the nation's housing market are not getting any better until the federal government takes substantial action to encourage qualified buyers to get back into the market."
The gauge of current single-family homes sales fell to 6 from 8. The index of sales for the next six months increased to 17 from 16. The prospective-buyer traffic measure also climbed to 8 from 7.
They say through the end of 2009 housing prices will have fallen 45%, a broad countrywide number.
The S&P/Case-Shiller Home Price Index fell 25.3% from March 2006 to October 2008. The expectation is for a 29% fall in 2009. Houses are going to fall to 1995 levels and we could see 1981 levels.
Phillips Van Husen will fire 400 workers and shut 175 stores.
Intel will stop production at five US and Asian plants and lay off 6,000. Top Oppenheimer bank analyst Meredith Whitney says banks are going to have to sell their crown jewels.
In commercial real estate delinquency rates are rising very quickly nationwide. Office and retail space are getting hit hardest.
The delinquency rate on retail mortgages was under 0.4% a year and a half ago and is now rising past 1.0%. Currently another service has the 60-day delinquency rate at 1.71%.
As both the above transpire, banks are becoming more and more reticent to lend to anyone. Loans are being lifted from developers who have met every payment.
Mortgage applications fell 9.0% last week.
The American Council of Life Insurance has been pleading with regulators to adopt a variety of changes in capital and reserve requirements before companies must file their annual reports for 2008. They believe the reports will spook policyholders into dropping coverage and liquidating policies. These changes would mask real problems in the life insurance industry.
Insurers have to maintain prescribed levels of capital. If they fall below these levels, state regulators are required to intervene. When a company's capital sinks to 35% of the required level, regulators are required to take it over.
The meltdown in the financial markets has reduced the value of insurance companies' investments, leaving them with a thin cushion. You all know what will happen when the Dow falls from 8,000 to 4,000, they'll be out of business, and you will lose lots of money.
In 2007 they had about four times the required capital. In 2008 that dropped to about three times. If we may reflect back to 2003 when the Dow hit 7268 that ratio was 3.25%. Do you get the picture? 2009 will be a dangerous year for life insurers and 2010 will be worse.
Do not stand by as regulators paper over insurers' problems. It could well mean a disaster for you later. There is a serious problem and the insurers and regulators do not want you to know about it. Consumer protection is getting thrown out the window just as protection in banking has.
Proposals are being considered that range from allowing insurers to assume certain policyholders will live longer to allow them to account potentially unusable tax credits toward their capital requirements. One would put an artificial floor under calculations related to declines in the value of commercial mortgages. This is to avoid unrealized losses, or mark-to-market as has been avoided in stock and bond investments. We see insurers and policyholders on a collusion course with reality. You should start selling insurance. If you need help let us know.
THE INTERNATIONAL FORECASTER
P. O. Box 510518,
Punta Gorda, FL 33951-0518
An international financial, economic, political and social commentary.
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