Wednesday, December 9, 2009

Not Sure Where Obama Sees The Economic Improvement He Claims To See

Quite frankly, the U.S. financial economic system is a catastrophe waiting to happen.  Just a few anecdotes in the news from today and yesterday.  First, Meredith Whitney - who for some reason has a loyal following of bubblevision worshippers and brain-dead institutional investors AND who has yet to respond to my open challenge of her "300 bank failures" number (I gave her an extra 10 banks and took the "over" for any amount of money she wants to wager) - was on The Bubblevision stating that there are no more green shoots and the Government is out of bullets.  To that I say:  the Government may be out of bullets but the Fed is not even remotely close to being out of trees with which to print paper money (I know, U.S. fiat currency is made from cotton fiber material, so throw "proverbial" in front of "trees").

Second, the CEO of Southwest Airlines issued this statement this morning:  "Business travel continues to lag, and I'm not comfortable reporting any improvement in that market...I don't think it's gotten worse, but I'm not expecting strong economic growth in 2010 or a rebound in business travel" (Link). Southwest is also going to cut capacity in 2010.  Declining business travel is not the indicator of a rebounding economy.

Third, the credit rating agencies downgraded the status of sovereign Spanish and Greek debt and have threatened to lower their ratings on U.A.E. debt.  These downgrades will trigger hidden OTC credit default swap liabilities, of which many will likely default, wreaking all kinds of downside havoc to our bubbliciously overvalued equity markets.

Speaking of sovereign credit rating credibility, the U.S. Treasury has $2 trillion in short term Treasury debt which has to be refinanced in the next 12 months.  This does not include the net Treasury borrowing that will be required to fund the 2010 spending deficit (note: "spending," not "budget," as "spending" includes off-budget expenses like the Iraq/Afghanistan wars, the costs of running FNM, FRE, AIG, GM, C and many other programs).  As a professional speculator, I would bet - back of the cocktail napkin guesstimate - the U.S. has to borrow an additional $3 trillion next year to fund everything.

We see that Tiny-Brain Tim Geithner has extended the TARP program until October 2010. If Bernanke and Geithner have already saved the world, how come they don't close down TARP and use that money elsewhere?   Is it a coincidence that the expiry of the program was set to coincide with mid-term elections?  This action by Geithner is sending the signal that Government still sees big problems with the Too-Big-To-Fails.

There are many more very visible signs that the economy is still headed south, despite the slowing loss of jobs reported by the Government - a number which was still being defended by CNBC two days ago and which has been thoroughly discredited by many insightful analysts.  The Black Friday weekend sales report was much worse than expected and showed a negligible .5% increase from last year.  It will be interesting to see how much holiday spending was pulled into that weekend. Judging by what I saw at the malls this past weekend - 50% off signs everywhere and very few people spending money - I would be willing to bet that holiday spending, best-case, will be flat to last year.  With the loss of jobs, wages, disposable income, millions of credit card accounts cancelled and ever-shrinking home equity lending, I can easily see holiday sales ending up negative to last year.

And not to throw out a rhetorical question, but what is going on with Government unemployment benefits?  Obama keeps extending the benefit period and the number of people increasingly dependent on those benefits keeps expanding.  Imagine will happen if Obama does not extend the benefit period and those who exhaust them fall off the benefit program.  Given that the economy is still losing jobs, we could end up with millions of people who are dependent on those benefits with no way to house or feed their themselves and their families.  It would appear to me that Obama will have no choice but keep extending the benefits period, thereby in effect converting unemployment insurance into another form of welfare.  This is not the sign of a rebounding economy and it means Government borrowing will increase a lot more than is being planned.

To close, there are several more indications that our economy is going to fall off another cliff in 2010, including declining rail and trucking freight traffic, declining imports and a massive wave of housing foreclosures starting to occur.   The speculators out there who are buying foreclosures and short sales and who do not get their bounty flipped into the extended homebuyer tax credit program will end up sitting on unexpectedly big losses.  To anyone looking at buying a "good deal" home, I would advise you wait for at least a year, because today's "good deal" will be next year's foreclosure offering.

And for those of you who already understand all of this and perceive the catastrophic nature of the fundamentals underlying our financial and economic system, use this pullback in gold, silver and mining stocks to add aggressively to your positions.  I don't know if anyone will be spiritually better off a year from now, but you'll at least be materially better off  if you convert as much of your dollar reserves into gold/silver as you can, leaving room to pay your ongoing expenses with increasingly worthless U.S. fiat confetti.


  1. Whitney is the safe option for CNBC. She allows the network and "bubblevision worshippers and brain-dead institutional investors" to kid themselves that they are considering things from a broad perspective.

    However, Whitney's relatively darker assessment regarding the condition of the banking industry does not, in any appreciable way, challenge the benign status quo notion of how The Republic functions. If it did, she would not be featured at all let alone over and over.

    Whitney, for all her adumbrations about the condition of the banks, which, as you suggest, have never been as brilliant as her reputation argues, projects the feeling that the U.S. is an honestly run, yet injured state. This view is safe amongst the CNBC cadre, as opposed to a picture where it could be convincingly asserted that the U.S. political class and banking industry, for example, have collectively created a statist, corporatist kleptocracy, aka fascism, albeit without the concomitant racist ideology as in Nazi Germany.

  2. As opposed to considering things from a broad's perspective.

  3. ROFLMAO on point #2. Good comments on points #1

  4. Edwardo,
    Oh man that was funny!

    Something just feels wrong right now and even after I tried to flesh it out last night, I still cannot put my finger on it. December is getting creepy. I am watching gold $1100 and silver $17 right now. I ant to see how many of the later comers are going to get scared away.

  5. You say: "what is going on with Government unemployment benefits... keeps extending the benefit period and the number of people keeps on expanding".

    I say: "That is how Ben drops money from his Helicopters. He loans it to the US government which drops it out of helicopters on the unemployed where it flows immediately into the economy. This is the key to understanding why deflation won't happen. The worse things get they more they will helicopter cash."

  6. Check the Economic news as well as what Celente has to say about Bernenke Here

  7. Thanks for the link EA. Nice Blog.

    Monty, totally agree. The deflationist argument is based on the theory of "debt reduction/destruction." The truth of the matter is that the overall level of debt embedded in the system isn't declining, it's been transferred from the financial industry - mainly the large banks - to the public sector - the Treasury.

    The overall level of debt in the system increases daily. And you are right, it takes an increasing amount of helicopter cash to service the increasing level of debt. Soon that dynamic will rear its ugly head as serious price inflation.

  8. @gyc: I left a comment on your blog post tonight. By the way, we know this bull market isn't over, because silver would be at $70, not $17 (16:1 historical ratio, and it was even lower in Roman times).

    So if you're alarmed about $1100 gold and $17 silver, imagine what it will be like with $5000 gold and $166 silver (30:1 ratio, but not the end of the pm bull yet LOL).

  9. Dave,
    thanks so much for the great comment you left tonight. Very spot on indeed.

    Those gold/silver numbers just mean those are levels I am watching for the trading positions I have (GLD/SLV) as those babies I move in and out of. My core (physical) holdings are not up for sale as nothing has changed in my longer term ideas.

  10. gyc: I'm alarmed by the fact that the Thurs night game sucks and the MNF game is only of mild interest. This is the time of year the NFL needs to have an even more flex schedule to accomodate games that matter.