We keep hearing that we cannot count the consumer out and they will spend to support our robust 2.8% GDP growth we clocked in at last quarter. The experts all claim that same store sales are great, but they forget to tell you that most companies closed down tons of stores and Best Buy is benefiting from Circuit City’s failure. However, all the cheery news we are hearing does not jive with Black Friday’s relatively dismal sales.
According to the NRF consumers spend .5% more this Black Friday than last year, which sounds great, right? Not really. Considering a year ago we were on the “brink” or “abyss,” or any other term you want to use to describe horrible, sales were only up .5% when things were so good? I am sorry, but that does not fit with this strong recovery story being thrown down our throats like it is going out of style. If we were in a recovery or things were as good as we are being told sales would have been estimated to have been a lot higher than .5%.
Not only that, but who believes you get the best deal on black Friday? History has proven that the longer you wait, or buy online as most shipping is free, the better the prices get. On top of that, I did not hear one report of anyone getting trampled to death at Walmart, so I find it hard to believe sales were even up .5%. Not that I am rooting for anyone to get hurt or anything, but with a .5% print we should have seen some good pushing and shoving on the news, I got nothing up where I am.
While I do believe things are better I do not think they are nearly as good as being reported. Even David Rosenberg, who may not be the best market forecaster, but is one heck of a economist, is using the term depression to describe our current situation. I know, there are no soup lines, but here is what you need to remember about a modern day depression, we have unemployment, Social Security, food stamps, a whole variety of other public and private organizations dedicated to helping those less fortunate. In other words, this is not your grandparent’s depression.
Do I think we are really in a depression? If we are not it is very close to one and denying that is crazy. What else would you call 10.2% official unemployment, 17.5% U-6 underemployment? Considering U-6 is how we measured unemployment during the 1930’s I think 17.5% qualifies as a depression, but hey let’s not let facts or history get in the way of a great recovery story. I am a whole lot more optimistic than I was as long as other countries keep printing money as well, but the minute they stop and we continue I will be extremely pessimistic as that is when we head for real trouble. In fact, even with others printing money we are in trouble, but I digress. I believe in America and know we will get through this. However, if government does not get its act together and get out of the private sectors way, well, we will have soup lines again.
Uncle Ben is fighting like no tomorrow to kill the Fed bill in the court of public opinion using the same tactics that the banks used last fall. Basically he is saying if you audit us you risk the entire financial health of the US economy. This is the equivalent of putting a gun to your own head and saying; “if you don’t let me go I fill pull the trigger!” You know what Ben, go for it because what you have done is far worse than the financial system imploding on itself all at once. Instead you opted to destroy our currency system so pull the trigger, you will not be missed.
It is beyond me how an audit 180 days AFTER an FOMC meeting would jeopardize the independence of the Fed in any way. I fail to see how the US taxpayer, the money the Fed is playing with, would be hurt by knowing what Ben is taking in as collateral at the discount window. I fail to see how asking for the Treasury Secretaries signature before issuing $500B in currency swaps would be a “bad thing.” However, Uncle Ben says otherwise and the end of his world is at hand, so I hope.
Even though the likes of Mishkin, Steve Liesman and a host of other idiotic economic commentator’s say the Fed will lose its independence and it will be politicized, I am sorry, but $1T in QE in MBS, and how much in treasury QE again, later and you are already politicized. In fact the mere appointment by the President of the United States makes pretty much makes the Chairmanship of the Fed a political position, kind of. The bottom line is that the Fed is a political machine, it has lobbyists for crying out loud!
What Uncle Ben does not want you to know is what he and his cronies have been doing for the past year and you know what? I am not sure even I want to know. What I do know is that since the secret creation of the Fed in 1913, read The Creatures of Jekyll Island, and the late night passage of the Federal Reserve Act with some 3 affirmative votes on it the US has had more crisis than at any point in our history and our dollar has lost 96% of its buying power. Those are facts the Fed denies, but they are true. What the Fed likes to point out are banking panics prior to its creation, but if we made the Treasury the lender of last resort problem solved.
However, did we ever have a Great Depression before the Fed was created? Did we ever have these massive asset booms so close together, see junk bonds in the 1980’s, internet stocks 1990’s, mortgage crisis 2000’s, before the Fed? Did we ever have stagflation, see the 1970’s, before the Fed? Did we have our currency basically become worthless, except in times of war, see Revolutionary War Continental Notes, the Civil War Greenbacks, before the Fed? The answer to all those questions are NO.
I am not saying the Fed does not have a purpose, it is perfect for printing pieces of paper and wasting trillions of dollars per year, but I thought that was Congress’s job. The Federal Reserve system is old, antiquated and needs to be replaced now, not later. It operates in complete secrecy and is accountable to no one, think about that for a minute. It is more powerful and secretive than the CIA, but the CIA has oversight committees, but the Fed really does not. Yes, the Fed has superficial GAO audits now, but it is an operational audit, yes your operations work, that is the extent of the audit. Wow, I wish the IRS would be that lenient on me if I was audited, yeah, we see you made money and filed the proper paperwork, thanks! However, in real life that is not how things work and the Fed needs to be accountable for its actions.
After all, I have yet to hear Greenspan or Bernanke officially take responsibility for blowing up the economy yet. In fact, I still hear those wonderful words, “the sub-prime crisis is contained” and everything is fine. Either Bernanke is a complete moron or he just relies on old economic models that clearly do not work, either way the Fed deserves oversight. Considering this administration has taken it upon itself to declare itself the “transparent administration” and has also taken it upon itself to make most of the decisions for the American people , or risk imprisonment, why should the Fed not be held to the same standards as the rest of us?
Clearly they are no smarter than the rest of us as they missed the greatest asset bubble in the history of man hit them head on. Not only that, but their response was to expand the same policy that created that enormous asset bubble for “an extended period of time” or forever. In other words, they missed one huge bubble only to create an even larger bubble via the USD carry trade or dollar devaluation, take you pick, and they deserve no oversight? To make matters worse, if you read the Lehman bankruptcy documents you begin to see an ugly picture of the Fed, they were taking stocks as collateral at the discount window, stocks! That is against their charter and it is also no wonder why the market goes straight up if the Fed is taking stocks as collateral at the discount window.
This leads to a bigger question, what other junk is the Fed taking at the window? CDO’s, derivatives, options, junk bonds or what? We don’t know. Considering we, the US citizen, is backstopping their reckless behavior so JP Morgan and Goldman can receive billions in bonuses, we deserve to know what is going on. After all, the American people are the ones suffering, not Wall Street or Uncle Ben who are all gainfully employed and living off of our generosity via our annual tax bill. We are the ones who end up bearing the responsibility for all the executive decisions made in secret, or in public by our wonderful elected officials, so we deserve to know what is going on. You, Uncle Ben, have done your damage to us, so while we may not like what we see and while you may end up embarrassed at what we find, so what. You should have thought about that before you secretly bailed out all those insolvent banks and began destroying our dollar for fun.
The term “Black Swan” is used far too often in today’s discussions about the financial markets and it pertains to unforeseen events that cause havoc on the economy or the markets themselves. Last year was called a “Black Swan” event even though the warning signs were there for at least a year, some say since 2006. In today’s discussion the news coming out of Dubai is being hailed as another Black Swan event as they are talking about delaying payment on some of their debt on December 14th.
The events in Dubai is the furthest thing from a black swan event as we have all known about this problem for the better part of 6 months or more. The country is in poor financial shape and is, basically, insolvent without a bailout from its neighbor Abu Dhabi, the rulers of the two nations are related. I would be willing to bet that the bailout will come in some fashion, but only after an example is made of the smaller nation, but is this a black swan event? What is more a more relevant question is will a technical default on Dubai’s debt be a trigger for something bigger?
I do not believe that the Dubai situation is a black swan event as it was a known situation for some time and those who lent the country money knew they were way over leveraged and lent that money at their own risk. Whether or not this default, if it actually happens, will lead to other events, a domino effect if you will, remains to be seen. Since the sub-prime situation led to a domino effect in the mortgage market it is safe to assume there will be some fallout from a sovereign default somewhere along the way. Considering Mexico was downgraded to BBB and Vietnam raised interest rates and devalued its Dong by 5% there are definitely trembling in the FX markets that cannot be ignored.
The effects of these issues are unknown to me at this time because I do not know how China will respond, although I have my speculations, nor do I know what exposure US or European banks have to the Middles East at this stage of the game. I am willing to bet their exposure, especially JP Morgan, BoA and Citi, is much higher than we all think at this stage of the game since interest rates in that area of the world are much higher than the “norm” in the US and Western Europe. However, the real black swan events that I think are being ignored are the ones in Eastern Europe where currency devaluation and real sovereign default is actually happening and has been happening for some time now. Not that you ever hear about that from the media, but read about it sometime in European blogs or news outlets and it is disturbing.
Basically, I believe the greenback will have the stay of execution I have been expecting for some time now and it should rally nicely on this possible default news. In reality a Dubai default means very little to the US other than it is a sovereign nation defaulting, but it will trigger a flight to quality which means if the dollar equity trade is intact the market could be in real trouble. Further pressure for the greenback is coming from Japan who said it was concerned over the Yen’s strength last night in a Bloomberg story. This is an issue I wrote about a day ago as well, but essentially the Yen is up about 8% against the USD which is an issue for the Japanese since they export more goods than they import. A strong Yen is not good for them as it means their products will be more expensive in the US and China, expect to see Japan intervene in the FX markets to strengthen the USD/JPY pair, IMHO.
This puts the US at odds with its trading partners because while we talk like we want a strong currency we do not. A weak currency means we make our products cheaper overseas, narrow our trade deficit and essentially boost our GDP in a very phony way. As an aside it also makes corporate profits look fantastic if they generate any overseas business as a weak dollar means they can sell the same amount, or less in fact, and when those earnings are turned over to US dollars it looks like sales increased when they did not, Houdini earnings! We will have to see who’s will is stronger, the will of investors who are about to flee to the USD for protection which will surely drive up the USD or Helicopter Ben and our Congress hell bent on devaluing our currency to pay for their crazy social engineering and to make it look like they are leading us to recovery when they are really leading us to a Zimbabwean fate.
Today was packed full of economic data that was less than impressive and in some cases downright scary. As you already know GDP, as predicted, was restated down to 2.8% and is likely going to be pushed further down again by the time we get the next report. Most say that the GDP revision is no big deal because it is looking in the rearview mirror, but I see it as a big problem as the market was pushed up dramatically based upon that report and many hailed the recession over based on that number.
The reality is that the revision down shows, with absolute clarity, that the economy is weak and without the governments support we would have pushed a negative number. I will say the number would have been relatively flat, somewhere in the -.5 to -.1%, but nevertheless very much anemic and not reflective of this so called V shaped recovery. The consumer is also in rough shape and the consumer confidence number was certainly nothing to write home about, but hey let’s not let the facts get in the way of a great recovery story.
The housing data was very interesting especially if you like month old stale data, but the widely watched Case-Shiller Index was up a whopping .3% which gave everyone a reason to cheer this morning. Of course it is widely known that the reason for the increase was because of distressed home sales and the tax credit. That housing data was on top of the huge, seasonally adjusted, data on Monday showing a 10% jump in sales, but again it was seasonally adjusted and the jump was because of, guess what, distressed sales and the first time tax credit. I know, the tax credit was renewed and expanded which I am sure will do wonders for the estimated 25-35% of existing home owners who are underwater in their existing mortgages and the 17.5%, U-6 report, unemployed or underemployed in America, not to mention the 50% of Americans worried about losing their jobs or having their taxes hiked to unspeakable levels. Again, let’s not let the facts get in the way of a great recovery story.
The Fed minutes were released today, nothing too shocking in them, but the mere fact that the Fed is not willing to remove its balance sheet largesse or raising interest rates should be a huge red flag for everyone, but apparently it is not. I happen to agree that there is no immediate inflationary threat, I say that with some apprehension as oil and other commodities do indicate some inflationary pressure, I would not expect any interest rate hike for some time into 2011 or ever. Given our countries debt load do you really think we could ever raise interest rates? I don’t think so. We have $12T in total US debt, treasurydirect.gov which is counting backwards now for some reason, and out of the $7T in treasuries some $2.8T comes due next year.
Add another $1.4-$2T in new deficit spending, plus the next new stimulus to be announced soon, and the US has to raise some $4.8-$5T in debt next year, not including refunding. Based on that number and the current interest rates at 2.4%, or so, we cannot afford to raise interest rates because the debt service costs would cripple us and we are having a hard time placing longer term treasuries, just watch the auctions for proof. That means we will constantly have to be issuing new deficit debt at shorter maturities and rolling our old debt into <10 year treasuries. Soon we will have to be rolling $8-9T a year in new and old debt every year and that means we will not want to be paying a lot of interest on it. Even though the Fed is “independent” from political influence, which it is not (see quantitative easing for proof), it is my contention that it has been told that it has to keep rates low forever. Well, maybe they weren’t told, Ben is no dummy after all, it is really just a math thing.
This leads me to believe that the dollar will probably stay weak for sometime into the future, like forever. I do think that we will see a spike in its value in the near future simply because it is oversold and the global economy is not that rosy, see China and the bubble talk from leading real estate moguls. If China does pop, which it probably will, then the dollar will see its day in the sun for sometime leading equities lower, commodities lower and treasuries higher. As I have said for some time now, stocks, bonds and commodities cannot all be right yet they are all going up at the same time, that is not a good sign, sorry.
Longer term the dollar will go much lower and here is the really scary thing, the Yen is outperforming the dollar. Japan has lower credit ratings than the US, they have an older population and higher debt to GDP ratios, but we are following right behind Japan fairly quickly in all categories. Based on that information how in the world can the Yen be doing so well, comparatively, to the USD? That should worry people, but it does not. Mish Shedlock actually foresees a crisis in the Yen before the USD, but if that is the case why is it doing better than the USD? Mish is no dummy and I hold him in high regards, but the signal I am getting is that we are in bigger trouble than Japan. I base that on a few facts, they save money, are net exporters and creditors, we do the exact opposite. Therefore, if the dollar strengthens and commodities get hit, buy gold heavily.
At the rate the US is going we are heading for fiscal disaster and we have an increasingly bolder President and Congress who seem to endorse the bankruptcy of the republic. The previous administration is equally as guilty as they did not see a spending bill that they did not like either, but the primary difference is we were promised changed, transparency and real change. We received none of what we were promised and from my vantage point the economy, which is what Americans are really looking at, is getting worse not better.
In my neck of the woods Penn Traffic just went into chapter 11 and will promptly be firing 5,000 people, they were a grocer so go figure that a grocer went out of business, and Adidas is moving 100 jobs out of this area for foreign shores, those are not green shoots. Only now does the government decide to make jobs a top priority, but I thought that is what the $797B stimulus bill was for? I guess I misunderstood what they were saying when they passed that bill at the dead of night on that Friday in February. Never fear though as the government is here to save the day with another estimated $500B jobs bill that will more than likely be passed in early January 2010, just in time for the BLS announcement of the overstatement of some 800,000 jobs between January and March of 2009.
My point is that is things were truly better than we would not even be having this discussion. Unemployment would not be climbing towards 11% and firms like Johnson and Johnson would not be trimming their work force by 6%. The Federal Reserve would not be keeping rates at 0% and continuing quantitative easing, which is monetizing the debt no matter how you cut it.
Foreclosures would not be increasing and the mortgage modification programs would not be failing, see CNBC Reality Check for the story how people still fall behind after they modify their mortgage, the FDIC would not be in the red by $8B, there would not be 550 banks on the FDIC troubled bank list (an increase of 140 banks since last quarter), banks would not be worrying about bringing on off balance sheet SIV’s into the light, and the Fed would not fear anyone looking at their books. If all were fine, none of those things would be open for discussion, but they are and we are talking about them. As I have also said many times before, it is a year later and what has really changed? Banks still hold the same bad debt on their books, but the accounting rules have changed, that’s it and everything else is the same which means we still got major problems.
First, let us clear something up, health care reform is totally different from the monstrosity that is currently in front of the Senate at this moment. Health care reform would mean that the government would be telling insurers that they could no longer discriminate against preexisting conditions, annual and lifetime caps would be removed and insurers would lose their federal exemption from anti-trust laws. Health care reform has nothing to do with a public option, period. The current mess in congress does reform some of those issues I mentioned, but not all of them and it creates far more damage to the system than it will solve.
Now, this is an issue near and dear to my heart as someone with cancer and who desperately needs his health coverage that I currently have. I am not the only one in this position, as I am sure you can imagine, and there are millions like me out there who are waiting to see how Congress will screw this issue up for us. Here is what I foresee happening in the near-term and how a death sentence will be issued to many people like me.
Congress will pass this budget busting, horrible health care package that will help the most destitute of Americans, who already qualify for Medicaid or similar programs I might add, and will immediately drive up the cost of existing plans to people like me who already pay through the nose for health care coverage. Once this thing passes my monthly premiums will jump from $1,200 a month to $2,000 or more a month because insurance companies will be out of business starting in 2014 when the public option, i.e. socialized health care, begins. This will make health insurance unreachable for most Americans and small businesses putting people like me at risk of dying because I will not be able to afford health insurance, the irony.
Let’s not forget that I will have a “Cadillac” plan, because that is what NY makes you have, so add another 40% tax to my premium and if I make $250K a year add another tax to my income tax, on top of my already high taxes, and how am I supposed to pay my other bills? It will make very little sense for me to put any effort into anything or to make any money at all if this thing passes. In fact the cross over point is somewhere close to about a third of what I make now so I will literally not have to work in a couple of years and I will end up netting the exact same amount of money and pay less in taxes. I am not the only one figuring this out either, so guess what will happen? All the bad people, i.e. “rich” people, will decide to make less because it is easier and less of a headache which means all those estimates the Senate is coming up with are going to be shot to hell.
The real fun will begin after 2014 when the supposed 31 million Americans, mostly illegal’s from what I can tell, will then flood the doctors’ offices. This is when the fun really begins. We will then have to get used to extremely long waits at doctors’ offices because we have more people with insurance and we will have less doctors because they will be reimbursed less, since it will probably be a Medicare like reimbursement system. Doctors will not stay in this business for the $25-$40 they get reimbursed for government health plans, would you? That means the polls showing that doctors will quite if this nationalized health care plan is approved are probably accurate or at the very least doctors will flock to specialties so you can forget about preventative care or GP doctors.
At this point in time innovation will have stopped because there are going to be taxes on biotech companies and other pharmaceutical companies, read the bill. We will have a health care system exactly like Canada or the UK which by all accounts is great, f you are not sick. If you are sick in those countries you get out and come to, guess where, America, but that will be long gone by 2015. We, Americans, will be flocking to China, India or somewhere else in South East Asia for health care because there will be no waiting, it will be cheaper, the service and survival rates will be better. For the life of me I have no idea why we, the country where other citizens flock to for medical treatment, would revert to a socialized system that is failing other countries not only in terms of their health, but also in terms of their national financial health.
If you think about it who goes to the UK or France to get cured of cancer? I didn’t I went to Boston along with many people from the UK and France. Who goes to Canada for surgery? They come here. The only people who venture to those countries are those who do not have insurance and refuse to pay for anything on their own, which I get that this is an issue, but it does not warrant the US going to socialized health care for 10% of the population. Also, the UK, France, Germany, Switzerland and any other country that offers socialized health care has a debt to GDP ratio that is horrible, worse that ours, but our actual number is that largest of all, so why would we do this at all? We can’t afford this and to think we can is absurd.
We currently owe $12.03T (TreasuryDirect.gov) which is 81% of out GDP and some $3T comes due of the $12T next year. That means we have to fund about $5T in US debt in 2010, depending on how much this wonderful government decides to spend next year, which will be a record, think about that for a minute. We have never done that before and even Moody’s is beginning to doubt the solvency of the US government and now the government wants to add socialized health care to this mess? How in the world can we pay for this? We cannot. Even the Chinese are saying, um, how are you going to pay for this? They, the Chinese, will not show up at some point in time to buy our government paper because they know we will not be able to pay off our debt.
We have yet to even raise our debt ceiling yet from the $12.1T to the $14T we need to raise it to for next year’s deficit spending. Yet our Senators will pass this monstrosity of a bill for the “greater good” of 10% of the population who already qualify for Medicaid, but are too good to apply for it! Then they will wonder why people like me end up losing their insurance next year and rates go through the roof, surely it will because of the big bad insurance company who, by the way, paid for more $10,000 procedures for me than I would care to admit to. This bill not only impacts the insurance industry, but it impacts every American in ways that you cannot imagine from your insurance coverage next year to the very solvency of the country in the next 10 years. This government needs to be stopped before they destroy this country and kill people like me.
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