Friday, December 17, 2010

Euro Collapses, and the US Dollar Takes It to the Bank!



Choppy, Choppy, Choppy!

...And To the Dollar's (Temporary) Benefit

EU Creates Permanent Bailout Fund As Moody's Drastically Downgrades Ireland's Debt

Now this is really reassuring the markets. The Euro is tanking!

 from Reuters:

BRUSSELS, Dec 16 (Reuters) - European Union leaders agreed on Thursday to create a permanent financial safety net from 2013 and the European Central Bank moved to increase its firepower to fight the debt crisis that has rocked the euro zone.
But at Germany's insistence, the 27 leaders said the long-term crisis-resolution mechanism, to be added to the EU's governing treaty, could only be activated "if indispensable to safeguard the stability of the euro as a whole".

 from WSJ:

LONDON—Moody's Investors Service Inc. downgraded Ireland's debt to Baa1 from Aa2 Friday, warning the government's financial strength could deteriorate further if economic growth were to miss its projections.
The five-notch downgrade was made as "Ireland's sovereign creditworthiness has suffered from the repeated crystallization of bank-related contingent liabilities on the government's balance sheet," said Dietmar Hornung, vice president, senior credit officer at Moody's.

Thursday, December 16, 2010

JS Kim Compares Global Economy to Deparment Store Building Collapse

On December 7, 2009, I sent out a warning from our Managing Director, JS Kim, to thousands of people via email about the deterioration of the global economy that he had discussed for years that the great majority of people were ignoring. In that message, I spoke of many serious warnings issued by JS publicly since 2006 (and even earlier than 2006 to his clients) about the necessity to own physical gold and physical silver to avoid financial ruin in the coming years. Here’s some excerpts from that warning below:

"In September of 2006, when Stephen Roach, a senior executive of Morgan Stanley stated that the commodity bull had ended, this man responded,
'Everywhere in the media, you have pundits saying that the commodities Bull Run is over - including even chief global economists of major investment firms like Steven Roach of Morgan Stanley. THEY’RE ALL WRONG…I’ve dug deep enough down into the rabbit hole to know that gold will rise much much higher in the future. Yes, oil has slipped to below $60 a barrel but again, this doesn’t mean that oil is done either.'
Since then, gold did not plummet from $570 an ounce back down to $250 an ounce as many 'experts' predicted, but instead rose to more than $1,200 an ounce as of December, 2009."
"At the very start of September 2007, this man stated,
'Increased volatility in stock markets will occur as $370 billion in sub prime mortgages re-set to higher rates, starting with $50 billion in September and $30 billion every month thereafter for the next 18 months to 2 years. Triple-digit losses in the Dow during single day trading sessions will become commonplace.'
Just three months later, triple-digit losses in the DJIA happened almost daily or several times a week to open January of 2008, shocking the investment community."
In this same warning, JS predicted that the global economy, and in particular the US economy, would experience great shocks in 2010-2011.  While economic shocks have hit other countries in 2010, great economic shocks have not hit the US thus far in 2010, at least on the surface level. Look below the surface, and we have a completely different story regarding the state of the economy. JS now looks for these economic shocks to rise from below the surface into full view for all to see in the timeframe of 2011-2013.

To understand why JS has pushed out this timeframe, I recently sat down with him and asked several questions:

James C: “Why do you think so many people today aren’t able to see the disaster that is coming to the US economy?”
JS: “Despite the weapons of mass financial destruction that bankers have created and governments worldwide have coddled and shielded from proper regulation, the majority of people still incredibly do not understand the crime syndicate-like relationships among governments, corporations and banks. The public sees that the US markets are up a little over 10% this year and many are duped into believing that that the stock market performance means that the economy is recovering. And this belief is reinforced by idiot talking heads on TV like Jim Cramer that do nothing but misinform people. Sure US markets have now risen by more than 36.79% since they crashed in 2008, a figure that sounds impressive on the surface level. Then combine this impressive sounding figure with US Fed Reserve Chairman Ben Bernanke’s national appearance on 60 Minutes, when he lies to the nation about inflation rates and about continuing to create more money out of thin air, and you have millions more that are converted into sheeple. How do I know? Because I talk almost every month to people in the US that tell me they believe the US economy is recovering. So when people believe that inflation is still less than 2% because the Fed tells them to believe this, they look at a near 37% gain in the US markets in the last two years and believe that they have made substantial recovery in their pensions and IRAs and consequently believe the economy must be recovering as well (by comparison, JS’s Crisis Investment Opportunities newsletter has returned more than 105.25% over the same time period, clobbering the S&P 500’s 36.79% return, and yielding very substantial REAL gains, even after the inflationary monetary effects of the US Federal Reserve’s schemes).”

James C: “So besides the government and bankers deliberately keeping people in the dark, why else do you think some, or even many, people believe the economy is recovering?”
JS: “First of all, the Federal Reserve’s insane POMO (Permanent Open Market Operation) schemes this year are largely responsible for propping up the US market this year. In 2009, when I stated that the US would experience significant economic shocks in 2010 and 2011, I did not yet know the duration of the Fed’s POMO operations and how insane they were going to be.  Although daily POMOs had already reached upwards of $6 billion and $7 billion per day as of mid-2009 (just for US Treasuries, but up to multiples of these figures when including US Treasuries and other debt-related financial products), many had speculated that the POMOs would soon end. Obviously, with projected cumulative POMOs of nearly $1,000,000,000,000 just between November 2010 and June 2011 (again just for US Treasuries), the Fed Reserve POMO scheme not only did not end, but it received an injection of steroids in 2010. So POMOs that were used to buy future contracts of US market indexes is a major factor that has kept the US market afloat at this juncture and may continue to keep it afloat for several more months. Rising stock markets have no correlation to a strong economy anymore due to scams run by Central Banks and due to gains that largely occur due to the devaluing currencies that these markets are denominated in. The best performing stock market of the past decade has been the Zimbabwe stock market. Still, it’s irrelevant if you made a quadrillion Zimbabwe dollar profit investing in the Zimbabwe stock market, as by 2008, a loaf of bread would have cost you 1.6 trillion Zimbabwe dollars.”

James C: “If the economy is really not recovering, then can you explain what is really going on?”
JS: “Let me explain what is really going on with the economy with the following disaster analogy. In June of 1995, the Sampoong department store, a five-story building with four basement levels, suddenly collapsed in Seoul, South Korea, tragically killing 501 people and injuring 937 others. When the Sampoong department store was constructed, the owners, due to a desire to cut costs, made several fatal decisions. First, they decided to cut away a number of support columns in the original blueprint in order to install escalators. Secondly, in order to cut costs, the owners shrunk the original width of the support columns from the required 80cms to only 60 cms, an inadequate width to support the load of the building.  In addition, the original blueprint called for only a four-story building but the owners built an additional fifth story that housed a restaurant with a very heavy heated concrete base that quadrupled the load of the original building design. Two months before the building collapsed, worrisome cracks appeared in the ceiling of the south wing’s floor. On the day of the collapse, cracks as wide as 10 centimeters appeared in the top floors of the building five hours before the building collapsed, but the owners hid this information from its patrons and refused to shut down and/or evacuate the building as they did not want to lose its daily revenue. When it became clear that the building was going to collapse, senior executives of the department store fled without warning any of the patrons still inside the building. An alarm to evacuate the building was only sounded when the building started to make loud cracking sounds, just 7 minutes before its collapse at 5:57 PM despite signs of an imminent collapse being clearly visible more than five hours prior. City officials Lee Chung-Woo and Hwang Chol-Min, in charge of overseeing the construction of the building, were responsible with concealing the illegal changes to the original blueprint designs and were later charged with and convicted of bribery.”
“Amazingly, the above story serves as nearly a perfect analogy for the US economy. The government and bankers laud a rising stock market as proof that the economy is recovering. They go on record stating that inflation is less than 2% when in reality it is more than four times higher. They state unemployment is less than 10% when it is nearly 23%. Thus, to many people, the economy appears as the Sampoong department store’s exterior appeared to the public right before its collapse, structurally sound and with a solid exterior. This is the reason why 40,000 people a day visited the department store despite its fatal structural integrity problems. The government and bankers are just like the Sampoong department store owners, actively concealing all warning signs from the public and selling them an illusion that all is okay when instead, the economy is heading for collapse. Just as the Sampoong department store owners constructed a crappy building destined to collapse due to excessive greed, bankers with the help of government officials, constructed dozens of financial derivative products destined to collapse due to their excessive greed as well.”
“The US regulators that also see the impending cracks in the economy, are just like Lee Chung-Woo and Hwang Chol-Min. They receive inordinate pressure and bribes from the bankers to look the other way and keep the public in the dark about the impending doom that is coming.  In the case of the Sampoong disaster, when the contractors refused to continue work on the building when the owners changed structural regulations that endangered the integrity of the building, the owners fired the contractors and hired ones that would cut corners. US regulators that are honest and that try to protect the American public, like Brooksely Born, received the same fate as the original Sampoong contractors and are also fired or forced to resign.  When the entire system is corrupt, even the rare good person can’t save disasters from happening. Thus, the public is none-the-better-off despite the presence of regulators that are supposed to protect the public’s interests and safety, but in reality, protect the greed and profits of companies that exploit the public’s interests.”
“And finally, the economy itself is like Sampoong’s interior. It is replete with cracks and fractures that warn us of the disaster ahead. But even so, a large percentage of the masses still remains ignorant because the banker/corporate/government three-headed monster keeps the people’s vision in a tunnel by pummeling the public with a constant stream of propaganda on MSNBC, newspapers, and financial talk shows. In Seoul, Sampoong’s owners distracted the public’s attention away from the developing disaster with stores fully of luxury goods. So when the US economy finally experiences shocks in the future more disastrous than those in 2008, as was the case with the Sampoong department store collapse, many will believe that no warning signs had existed despite the evidence that exists to the contrary today. And I’m quite certain the media, just as they did in 2008, will stupidly ask the same questions they did back then, such as “How did this happen?” when in fact, all the answers stare them in the face right now. With the Fed’s POMO schemes, regulators that aid and abet fraud, and governments and bankers that conceal truth from the public, the combined effect of these actions is just to delay disaster for another year or two. So that is why I say now that disaster will visit the US sometime between 2011-2013.”

sampoong disaster
The Sampoong Superstore Collapse

James C: “So why do you think some analysts are saying that gold and silver are a bubble now?”
JS: “They’re saying that because either they have been directed by someone above them to say that, or if they really believe it, then they’re merely demonstrating that they have zero understanding of why the global economy is on the brink of disaster right now."

James C: “So is that why you changed the pricing on your services to a constant gold standard? As far as I know, at the time, you were the first US company to do this, and perhaps still the only company that made the decision to price services/products on a gold standard.”
JS: “That’s exactly right, James. A long time ago, I switched the pricing of my services to a gold standard to protect my company’s profits against the destructive policies of Central Banks, in particular the US Federal Reserve. Frankly I’m shocked that no other company has also followed suit since then. At least none that I’m aware of.  I stuck to this policy when gold rose to $1,000 an ounce despite the cries of banking shills that were releasing loads of propaganda against Gold, stating gold was a bubble destined to burst, that gold was heading back down to $500, or even $300 an ounce, and other such nonsense. I stuck to this policy even when the price of gold fell in some of the months after I switched to this policy, and falling gold prices caused the prices of all of my services to decline. I felt that my commitment to a constant gold pricing standard despite gold’s decline would prod many people to inquire of themselves why my company was pricing all of our services on a constant gold standard despite the claim of so many Western bankers back then that gold was a speculative and risky asset. I thought that people would ask themselves, if the bankers were correct, then why in the world would I subject my monthly income flow to the possibility of a gold crash and to price fluctuations of a risky asset? The answer, of course, was that discussions of gold crashing, even back in 2005, and every year since then, have been ridiculous.”
“By sticking to this standard through the various periods of volatility that gold experiences every year, I thought people would come to understand gold (and silver) as real money and to finally realize that all fiat money, as long as it is backed by nothing but the full faith and credit of governments, which in reality means less than nothing, is junk. With the exception of the first several months after we launched our investment newsletter during which we offered special introductory rates, my newsletter has basically remained a constant 0.50 ounces of gold.  It’s true that its price, and the price of all my services, have risen significantly in terms of fiat currencies but in terms of gold, there has been no price increase. But had the price of gold cratered during this time, the prices of my services as denominated in fiat currencies also would have cratered and I was confident in my decision to do so because I knew that the risk of gold cratering was very low while the risk of fiat currencies cratering was very high. If the price of gold continues to soar over the next few years as I expect it to do, for the sole reason that many people have foolishly taken zero steps to get out of fiat currencies, I may have to even lower my prices in terms of ounces of gold even though the prices denominated in fiat currencies may still continue to rise against these lesser amounts of gold.”
"Every gold and silver investor remembers the Fed Reserve/bullion bank engineered collapse in gold/silver prices that happened in October, 2008. But despite what gold/silver investors remember as a monumental collapse back then, in retrospect, if we look at this “collapse” on a 10-year scale, when we look at the big picture, what we remember as a “collapse” was only a speed bump in the ongoing gold and silver bull. So don’t listen to the immoral bankers and their foolish employees that attempt to keep you from purchasing physical gold/silver or tell you to sell it now because it is absolutely the wrong thing to do.”

gold 10-year bull run

silver 10-yr bull run

James C: “So people should purchase physical gold and silver even now?”
JS: “Yes, they should buy even now. Of course, not all corrections in gold and silver are engineered by bankers, and corrections are a natural occurrence as bull markets need time to consolidate and build new bases before moving higher. So these corrections will happen, whether engineered by bankers or whether they are just a natural pause in a bull market, and they may be steep at times. But when they happen, this events only present buying opportunities for the millions of people that still do not own a single ounce of physical gold or physical silver. To someone that still doesn’t own any physical gold and physical silver now, I would say buy at least some today. Wait too long, and in the future, people without physical gold and physical silver may find it impossible to buy at all.”

James C: “I understand why you are so bullish on gold and silver even now, but can you explain more to everyone that doesn’t understand your view?”
JS: “Sure. As I’ve been stating since 2005, we are and have been in a monetary crisis. When stock markets crashed in 2008, it was due to this monetary crisis. When subprime mortgage derivatives crashed, it was due to this monetary crisis. In the future, when tuition rates soar around the world, when food prices soar around the world, it will be because of this monetary crisis. 100% of people in the world should view silver and gold as real money but in reality, well less than 5% of the world does so. That is why, whether people believe that Max Keiser’s efforts will crash JP Morgan or not, everyone in the world should listen to him, and buy not just one ounce of silver, but one ounce of silver every week if they can afford it, and twenty ounces of silver every week if they can afford it. Unfortunately bankers are hellbent on destroying people's wealth today and the system is so corrupt, that governments and regulators will never fix the current monetary crisis. If people want to survive this monetary crisis, they better buy precious metals.”

James C: “And what if their timing is poor, and silver corrects heavily right after buying?”
JS: “I would say use the corrections to buy more unless we have reached the mania period when it will be time to sell. Though the next few years are bound to bring volatile periods when we may see gold rise (and fall) by $100 a day at times and silver rise (and fall) by $3 or $4 a day, the bankers are dead wrong. There is no bubble in gold and silver today, and unless a major world currency collapses next year, there won’t be one next year either. I've been telling people to buy gold since it was about $560 an ounce and silver since it was about $9 an ounce. I wasn't there at the very beginning of these bull markets, but I hope to stay in until it reaches the end."

The Bulls Find Their Footing

We have seen the current pattern of behaviour before. We saw it in 2005-2007 and in 1999-2000. In both cases easy money conditions led to asset bubbles and reckless investor behaviour. Now we are seeing it again even more blatantly, egged on openly by the Fed. Without wanting to sound as over-confident as Ben Bernanke, I do not really have one scintilla of doubt that this will all end in tears - again. -- Albert Edwards, strategist, Societe Generale

Stagnant Stocks

Treasuries, Bonds Continue Downtrend

Jobless Claims Show Stagnant Employment

from Zero Hedge:

Initial jobless claims came at 420K, a slight decline from the prior number of 423K, and as always woefully insufficient to actually start helping the unemployment rate. The prior was naturally revised higher, as we expected last week. On the other hand, continuing claims jumped from 4.086MM to 4.135MM on expectations of 4.115MM. NSA claims continued to be a notably higher than seasonal, and was at 486,284 this week. Most notably, people claiming benefits across all Unemployment Insurance Programs rose by a huge 893,959 in the week ended November 27 (of which 142K was in EUC and 182K was in extended claims)

Wednesday, December 15, 2010

Stocks Fall Out of Bed

It's the Dog Days of December

Poor liquidity, choppy market. And this is the best day of the week. For the previous two days, prices rose, then collapsed in the last hour of trading for a flat day. The Dow, however, rose modestly each of those days. It looks like today will be the same.

Germany Just Says "No" to More EU Bailouts

Germany stiffened its opposition to expanding government-financed aid for debt-plagued euro nations, leaving the European Central Bank to shoulder the bulk of the burden of fighting the crisis.
With Chancellor Angela Merkel ruling out an increase in the euro area’s 750 billion-euro ($1 trillion) emergency fund, Germany yesterday put the spotlight on the ECB by endorsing a possible boost in its capital.
Discord between Merkel and ECB President Jean-Claude Trichet and Luxembourg Prime Minister Jean-Claude Juncker on the eve of a European Union summit evokes the tensions during the first phase of the debt crisis, when Germany held out for more than two months before consenting to a loan package for Greece.
“The consequence is a stalemate that leaves us with a familiar sense of déjà vu,” Ken Wattret, chief euro-area economist at BNP Paribas SA in London, said in a note to investors. “Market tensions are likely to resurface, as governments remain very publicly divided on the appropriate way forward.”
The euro weakened after Moody’s Investors Service said today it may cut Spain’s Aa1 credit rating. The country lost its top rating in September. The currency declined 0.4 percent to $1.3321 at 12:32 p.m. in Berlin.
The review is “not good for spreads or the euro,” Charles Diebel, head of market strategy at Lloyds TSB Corporate Bank in London, wrote in an e-mailed note.
Spreading Contagion
Evidence that core countries in Europe are also at risk mounted yesterday when Standard & Poor’s cut the debt outlook for Belgium, which is stuck with a caretaker government six months after inconclusive elections. Belgian bonds fell, pushing the risk premium against comparable German notes up 2 basis points to 102 basis points.
“The main risk to economic recovery and the main risk to market performance in 2011 is the euro zone,” Andrew Popper, chief investment officer at SG Hambros Bank Ltd., said on Bloomberg Television’s “On The Move” with Francine Lacqua. “The euro zone will be the dominant problem.”
Merkel, in a speech laying out Germany’s position for the EU summit, said that “strict conditions” will be tied to aid for distressed countries under a planned permanent rescue system that leaders are set to discuss.
‘Last Resort’
“For me it’s important that financial aid will, also in the future, be granted only as a last resort,” Merkel told lower-house lawmakers in Berlin today.
EU leaders start a two-day summit at 5 p.m. in Brussels tomorrow with the focus on the permanent crisis-fighting system to be launched in 2013.
Proposals facing German resistance include using EU money to buy distressed governments’ bonds directly or in the secondary market, boosting the fund’s size or redrafting guarantee rules to make more of the money available.
The need for a cash buffer to maintain an AAA credit rating puts the bailout fund’s effective lending capacity as low as 230 billion euros. Abandoning the top rating isn’t up for discussion, an EU official said yesterday.
Leaders of the 16 euro governments continue to be prodded by Trichet and the International Monetary Fund, contributor of 250 billion euros to the European rescue packages.
Trichet said euro-area governments need to put more money on the table to halt the crisis instead of depending on the central bank to soothe markets by buying the bonds of distressed governments.
‘Maximum Flexibility’
“We’re calling for maximum flexibility and maximum capacity, quantitatively and qualitatively,” Trichet told reporters in Frankfurt in remarks released yesterday.
The ECB settled 2.667 billion euros of bond purchases last week, a 23-week high for a program without unanimous support on the bank’s council. With 72 billion euros of potentially loss- making bonds now on its books, the ECB may ask national central banks for more capital, an official with knowledge of the situation said yesterday.
The ECB’s other main crisis-fighting step is to provide unlimited liquidity for commercial banks, a policy it extended on Dec. 2 into the second quarter of 2011.
Germany, Europe’s largest economy and biggest contributor to aid packages for Greece and Ireland, is against tinkering with the 440 billion-euro European Financial Stability Facility, set up in May and underwritten by euro-area governments, a German official told reporters in Berlin yesterday.
Irish Banks
Ireland on Nov. 28 borrowed 17.7 billion euros from the facility as part of an 85 billion-euro package to plug the fiscal holes from the bursting of its property bubble and near- collapse of its banking system.
“These instruments are far from exhausted,” European Commission President Jose Barroso told the European Parliament in Strasbourg, France yesterday. “If need be, they can be improved and adapted much more quickly than any alternative.”
IMF Managing Director Dominique Strauss-Kahn told euro-area finance ministers on Dec. 6 that they should disburse aid preemptively instead of waiting for a last-ditch request as happened with Ireland, an official familiar with the debate said yesterday.
In a side battle with a onetime ally, Merkel is also trying to muzzle proposals by Juncker for joint euro-region bond sales to create a more liquid market.
Juncker, head of the panel of euro-area finance ministers, called for European governments to pool borrowing for debt up to 40 percent of gross domestic product.
To provide an incentive to keep debt down, each country would have to finance borrowing above that limit on its own, incurring penalty interest rates, Juncker and Italian Finance Minister Giulio Tremonti proposed last week.
Merkel reiterated her opposition to euro-area bonds today, saying they “are not the answer” to Europe’s debt challenges.

Rare Earths: About to Become More Rare In the U.S.

So much for cheap technology!

from Reuters:
* China controls 95 percent of global rare earth supplies
* China plans to raises fees on rare earth exports in 2011
* U.S. needs to boost domestic mining of rare earth metals
By Tom Doggett
WASHINGTON, Dec 15 (Reuters) - The United States risks major supply disruptions of rare earth metals used in clean energy products unless it diversifies its sources of the minerals, the Energy Department warns in a report due to be released later on Wednesday.
The United States and other countries are worried that China, which controls 97 percent of the world trade in rare earth metals, will use those supplies as a political weapon and cut back their export when it is in a dispute with another country or to grow China's clean energy technology sector.
"The availability of a number of these materials is at risk due to their location, vulnerability to supply disruptions and lack of suitable substitutes," U.S. Energy Secretary Steven Chu said in a report, due to be unveiled on Wednesday at a rare earth metals conference at the Center for Strategic and International Studies.
The release of the report coincides with trade talks in Washington between the United States and China. U.S. officials are expected to push Chinese officials to loosen export restraints on rare earth elements.
China, which said on Tuesday it planned to raise export taxes on some rare earth metals beginning next month, holds 37 percent of known rare metal reserves, the United States has 13 percent and the rest is in other countries.
The 17 rare earth metals, with exotic names like lanthanum and europium, form unusually strong lightweight materials and are used in a wide range of applications including high-tech and defense products, car engines and clean energy.
China has vowed that it would not use its dominance of rare earth supplies as a bargaining tool with foreign economies but it has cut its exports of the materials on environmental grounds.
U.S. Secretary of State Hillary Clinton raised U.S. concerns over Beijing's export policy with Chinese Foreign Minister Yang Jiechi during a visit to Asia at the end of October.
The Energy Department said in its report that it looked at the use of rare earths in wind turbines, electric vehicles, solar cells and energy efficient lighting because these clean technologies are expected to be deployed substantially on a global basis over the next 15 years, increasing demand for rare earth metals.
It said that in order to manage the risk of rare earth supply disruptions, the United States must increase its domestic extraction and processing of the materials.
There is only one U.S. rare earths producer, Molycorp Inc (MCP.N: Quote). It is the largest non-Chinese rare earths firm and the only rare earth oxide producer in the Western Hemisphere.
The report said the United States must work closely with its international partners, including Europe and Japan, to boost their production of the materials.
"Diversified global supply chains are essential," the report said.
However, mining rare earth metals can be very expensive and the lead times for new mining operations are long, ranging from two to 10 years.
"Whether a deposit can be mined economically will depend on a number of factors, including rare earth prices, regulatory requirements and improvements in extraction and separation technologies," the report said.
Recycling and reusing the rare earth metals could also significantly lower world demand for the materials.
Traditional energy sectors are also at risk from rare earth supply problems, the report said.
Rare earth ores are used in the fluid cracking catalysts that convert heavy oils in the refining process into more valuable gasoline, distillates and lighter products. Rare earth elements are used in catalysts to produce higher yields of more valuable products such as gasoline.
A disruption in rare earth supplies could have a noticeable impact on refinery yields and require oil refinery owners to make investments so the fluid cracking process will work without the rare earth materials, the department said.
The department said it will develop an updated strategy by the end of next year for increasing supplies of critical rare earth metals.

Tuesday, December 14, 2010

Monday, December 13, 2010

Confidence Collapses, Stocks Flatline in Closing Minutes

I view this as evidence that the market is beginning to recognize a seriously overbought condition, unless some breaking news has hit stocks. Now it will be interesting to see if we can hold yesterday's close.

Metals, Grains Rising Again Also



Dollar Slaughter, Commodity Upside Breakout

Dollar Slaughter

Commodities Breaking Out

Sunday, December 12, 2010

Only the WSJ Reported the True Magnitude fo the Debt

Fiscal 2011 deficit (Since Oct 1, two months):  $290.8 billion
Spending for fiscal 2011 :                                $585.7 billion (2 mos.)
Debt as percentage of budget:                         49.65%
In other words, HALF of what we spend is DEBT! We're BORROWING half the budget! This is no longer merely unsustainable! It is unmanageable! And it is unimaginable! Based upon this figure, simple math ($585.7 x 6 to reach a full year) suggests a much larger deficit than what is mentioned in the below article:
 Projected Fiscal 2011 deficit:                          $1.744 trillion

And this figure doesn't even include the cost of the new tax deal, which includes an additional Social Security deficit of $120 billion and the additional cost of the extended unemployment benefits through the end of 2011!

Only the Wall Street Journal reported on the magnitude of the debt announced by the U.S. Treasury Friday (12-10):

WASHINGTON—The U.S. government ran its 26th straight monthly budget deficit in November amid wrangling over a package that would extend big tax cuts to Americans trying to recover from recession.
The Treasury Department, in its regular budget monthly statement, said the government spent $150.4 billion than it collected in the second month of fiscal 2011.
Economists surveyed by Dow Jones Newswires had expected a shortfall of $126.5 billion. November is traditionally a month for deficits.
The Treasury report, detailing the government's spending programs, prompted an economic research firm, Macroeconomic Advisers, to lift its forecast for economic growth from October through December by four-tenths of a percentage point, to 2.7%.
Last month's red ink pushes up the deficit to $290.8 billion for the fiscal year, which began Oct. 1. That figure is a little smaller than the deficit during the same period last year. But President Barack Obama's administration expects the deficit to top $1 trillion in this fiscal year.
Washington has spent in excess of $1 trillion during each of the last two fiscal years, as revenues were reduced by the deep recession. At the same time, the economic slump and Wall Street bailout raised the government's expenses.
The November deficit marked the government's 26th shortfall in a row. As the deficit continues growing, Washington is in the midst of working out key tax legislation. The Senate unveiled final details of a broad tax bill—and its 10-year price tag of $858 billion—and began debate Thursday night on the package. Earlier in the week, Mr. Obama struck a deal with Republicans in Congress to extend for two years tax cuts enacted under former President George W. Bush.
The budget statement Friday said federal spending totaled $585.7 billion so far this fiscal year, with revenues at $294.9 billion. In the last two months, the federal government spent $128.3 billion on defense, $36.8 billion in interest payments on its debt, and $20.0 billion for unemployment benefits.
The U.S. budget deficit in fiscal 2010, at $1.294 trillion, was the second-highest ever, behind the record 2009 deficit of $1.416 trillion.
The administration last July said it was projecting a 2011 budget deficit of $1.416 trillion. But Michael Feroli, an analyst at J.P. Morgan Chase, said Friday he expects the budget gap to set a new record in fiscal 2011, reaching $1.5 trillion as the government pays for the extension of tax cuts.
The tax package prompted Mr. Feroli to raise his forecast of 2011 economic growth by half of a percentage point. This also came after the Fed, to spur the weak economy, announced a decision last month to buy $600 billion in U.S. Treasury notes.
"Because the added growth from the package should be concentrated in the first half of next year, we now believe the Fed will not seek to increase asset purchases beyond the currently scheduled $600 billion amount when it reviews the program next June," he said in a research note.
Write to Jeff Bater at