MACRO ANALYSIS REPORT
ECONOMICS, CENTRAL BANK POLICY
BANKS, BONDS, GEOPOLITICS

* Miscellaneous Morsels
* US Federal Reserve Insolvency
* Harsh Scrutiny for Bankers
* The Case for Continued 0% Rates
* Titanic Effort to Remake Housing Bubble
* Rebuttal to the Phony Jobs Report


HAT TRICK LETTER
Issue #69
Jim Willie CB, 
“the Golden Jackass”
13 December 2009

"Many of the [US] lost jobs (in construction, finance, from outsourced manufacturing and services) are gone forever. Recent studies suggest that a quarter of US jobs can be fully outsourced over time to other countries." -- Nouriel Roubini

As far as the Fed goes, they should just let the banks in the mud fail. Bailouts will just lead to more government control and more expense than the loss. The Fed will become a deadly virus to industry." -- Phil Mongelluzzo (a little late, as the host is dead)

"The nation must continue to spend its way out this recession until more Americans are back at work." - U.S. President Barack Obama (still no recognition of the dire need to restore industry, to encourage business investment, and to create incentives to establish new businesses with a wave of job creation)

MISCELLANEOUS MORSELS

◄ See the Hat Trick Letter Special Report entitled "Dubai Shock Waves Rock the World" for December. To begin with, the event is a forecast made in August and detailed in the September reports. Ripples from the initial default led eventually to a selloff in British and Euro currencies that continued for two weeks. Impact has spread to government debt downgrades for Greece, Portugal, and Spain. Defaults are my forecast in the next two years, maybe sooner. Many hidden factors are at work, like royal family squabbles, ruin of Iranian assets, and interruption of secretive trade between Dubai and Iran. Abu Dhabi, the richer UAE emirate, will not race to help Dubai, after years of anger toward crazy risk in property development. The Abu Dhabi rulers wish to grab some of the distressed property at low prices, and permit European banks to suffer losses. Estimates have begun to converge for both Dubai and UAE debt exposure, and they are very large. Royal Bank of Scotland and HSBC are the most on the hook.

Dubai the city is at a standstill, both with construction projects and debt repayment. The corporate structure of Dubai World resembles spaghetti, in a confusing secretive maze. Creditors have never been permitted a complete look at its finances even during credit approval. Dubai World is both private and government owned, perhaps neither. The next shoe to drop is the Dubai ruler's private corporation Dubai Holdings. Foreign investors like PIMCO have descended upon the Persian Gulf looking for bargains in the credit market, even as Abu Dhabi and Qatar raise funds via debt sales. Some resentment has surfaced at a Davos-like Economic Summit over 'wasted assets' on US$-based bonds.

◄$$$ A SOLUTION IS DEMANDED FOR THE EXPLOSION IN BANK OWNED HOMES IN INVENTORY. IDLE PROPERTIES SIT ON BANK BALANCE SHEETS, ADDING TO COSTS, RENDERING IMPOSSIBLE ANY HOUSING PRICE REBOUND. EXPECT A NEW STAGGERING FEDERAL BAILOUT OF BANKS SOON, TO TAKE THEIR FORECLOSED PROPERTIES. $$$

Great pressure remains on the housing market, as bank owned inventory weighs down price. Recall during the years 2002 to 2006, the USEconomy was expanding, but atop a housing bubble foundation that eroded into the sea. Any economy built atop a bubble is bound for disaster, the US no exception. But now, the pressure becomes acute, screaming for a solution to the insolvent homeowners, screaming for a solution to the burgeoning banker inventory of unsold foreclosed homes. As the USGovt leaders scramble desperately to re-inflate the finance bubble, new ideas and concepts are needed. The leaders will soon scramble desperately, and find one in the Communist Manifesto. My forecast in 2005 was for Fannie Mae Rentals to be offered to the public, as foreclosed homes would be offered as rented homes. Rental income would augment Fannie income streams. THAT OCCURRED THIS AUTUMN. My forecast next is for a mammoth purchase by Fannie Mae of at least one million foreclosed homes, at a cost of $200 to $300 billion. The goal will be to relieve banks of their unsold inventory and to remove its threat of dumping supply onto the already bloated housing market. The program will eventually purchase a few million homes at a cost of nearly a fresh new $1 trillion. As long as the USGovt is broken, why not add more deficit spending?

The trend toward communism will be applauded by the public, who see the federal solution as supporting the housing market prices. The proletariat workers are being removed from home ownership, replaced by the state landlords, the essence of a communist state. A Czar will sit in control on the US Politburo with expanded powers not founded in the US Constitution. This is not a good solution. However, this path will be seen as the onliest way that housing prices stabilize in the United States, and the onliest way for the USEconomy to rebound. Unfortunately for the blind economists, the plan will hatch price hyper-inflation, since it will bridge the gap between finance and the tangible economy. The dismantle of the republic would take a giant stride. The pressures for Weimar Monetary explosion will continue, even grow, not recede. All talk of federal deficit reduction is political nonsense. Deficits will accelerate, perhaps after a brief pause. No remedy has been put in place, and therefore more rescue and stimulus will be required, even radical concepts.

◄$$$ A FOOD SHORTAGE HAS HIT THE UNITED STATES. HOWEVER, DUE TO A COLOSSAL USGOVT DECEPTION, PHONY INFORMATION HAS BEEN SPREAD BY OFFICIAL SOURCES. CROP OUTPUT IS MARKEDLY DOWN, AS DISASTERS ARE DECLARED COUNTY BY COUNTY. BUT USGOVT STATISTICS REPORT HUGE FORECASTED INCREASES, IN DIRECT CONFLICT, ONE MORE AREA OF DATA DISTORTION. $$$

Take wheat for instance. Going into 2010, a shortage of two month's worth of food will be felt, resulting in a predictable food crisis. The principle reasons for this shortfall are increased demand from China, a lack of emergency stockpiles, and a catastrophic fall in global food production. The USDept Agriculture is working overtime to conceal the 2010 food shortfall. The USDA is misleading the nation and the world. It has been manipulating food production and consumption data in a clear campaign of deception. Exposure of the deception is easy. In the last four months, the USDA estimates for US crop production in 2009 have grown every month, leading to predictions of what they call 'the biggest crop ever.' During that same period, in stark contrast, the quality and size of the US crop has deteriorated into what farmers describe as 'worst harvest season ever seen.' A difficult harvest has turned much worse. The two accounts are light years apart. The differential between the USDA fictional production numbers and the grim reality has become impossible to rationally reconcile. It is like comparing night and day, the cause of bewilderment. Farmers in the Central states report a reality in contradiction to the official nonsensical stories. They mention on a widespread basis wet and frosted beans, wet and moldy corn, damage from snow and flooding. A report directly from a local Minnesota elevator operator said, "They are in a bind because they have contracts to fill but either no beans are coming in or they have to reject them because of high moisture. Biggest crop ever coming in? Where?"

In mid-November, the USDept Agriculture projected the largest US soy crop on record, at 3.3 billion bushels, and the second largest corn crop at 12.9 billion bushels. They apparently are disconnected from the farms, written in ivory towers. The graphic below shows counties designated as agricultural disaster areas by the USDA. To qualify for a federal disaster declaration, each of the yellow/orange colored counties below was required to show 30% loss compared to normal production of a particular crop, such as corn, wheat, soybeans. The year 2009 has been a complete farmer disaster. So much damage was done across the Midwest that Senators Cochran and Wicker introduced a bill offering disaster aid to farmers last month. See the Market Skeptics article (C LICK HERE).

◄$$$ A RISING PROPORTION OF AMERICANS PAY NO TAXES AT ALL. NO TAX DUE DERIVES FROM TWO GROUPS, THOSE WITH DEDUCTIONS ABOVE INCOME, AND THOSE WITH INSUFFICIENT INCOME. $$$

The Tax Foundation reported in December that over 143 million individual income tax returns were filed in 2007, and 46.6 million of those returns had a zero or negative tax liability. Of those with income above a threshold, 32.6% paid zeo tax, setting a new record. These citizens filed tax returns with exemptions, deductions, and credits that eliminated any federal income taxes due. The chart below reflects this non-paying segment. In addition, an additional 15 million people in 2007 do not earn enough income to warrant a tax bill. Thus the total number of Americans who paid no federal income taxes rose to 61 million, equal to 39% of the tax eligible population at 158 million.

◄$$$ GOLDMAN SACHS EXECUTIVES ARE POSSIBLY ARMING THEMSELVES. $$$ The story has been widely denied as sensational and baseless. Reporter Alice Schroeder has taken some heat on the story, maybe soon a suicide victim or a secret purveyor of child pornography, perhaps even someone hiding Islamic terrorists in her basement. Anonymously, a friend of a Goldman Sachs executive said, "I just wrote my first reference for a gun permit," who swore as to the good character of the GSax banker. The banker applied to the local police for a permit to buy a pistol. Word is circulating that senior Goldman people have loaded up on firearms and ammunition. They are now equipped to defend themselves if a populist uprising against the bank comes about. The frequency of cartoons and plackards urging violence upon bankers is escalating in unprecedented fashion. My choice is not to show any. See the Bloomberg article (CLICK HERE).

US FEDERAL RESERVE INSOLVENCY

◄$$$ THE USFED IS BOND BUYER OF LAST RESORT. IN EXPANDING ITS BALANCE SHEET, NEWLY ACQUIRED ASSETS HAVE TERRIBLE QUALITY. THE USFED MIGHT ACTUALLY BE INSOLVENT HERE & NOW DUE TO RISING MORTGAGE BOND PURCHASES. HALF THEIR BALANCE SHEET IS MORTGAGE BONDS. IF THEY ARE WORTH JUST 6% LESS IN TRUE VALUE, THE USFED IS BROKE. MY CONCLUSION IS THAT THE USFED IS $100'S OF BILLIONS IN THE RED. $$$

Monetization is the usage of new Printing Pre$$ money to purchase assets. The US Federal Reserve is debasing the USDollar by massive purchases of impaired assets, often the toxic assets almost no banks or investors want. The most dangerous assets under heavy accumulation are the mortgage backed securities issued by Fannie Mae and Freddie Mac. These federal agencies are deeply insolvent and for all practical purposes bankrupt. The mere fact that the USFed is racking up their bond assets in their balance sheet serves as evidence that demand for them is nonexistent. Instead of acting in its historical role as the 'lender of last resort', the USFed has on its own expanded its mandate to become the 'buyer of last resort.' The end result is powerful, as they are a Junk Bond Warehouse. By purchasing mortgage backed securities off the Printing Pre$$, they are the primary cause for debasing the USDollar. The other primary cause is the trillion$ deficits of the USGovt that must be securitized, again monetized by the USFed. These are Weimar characteristics with uncontrollable money creation. Just how pervasive and deadly this debasement has become is apparent from the following chart prepared by BusinessInsider.com.

According to its latest report, the US Federal Reserve owns over $1 trillion of mortgage backed securities, equal to 45.6% of entire portfolio. One year ago mortgage backed securities were under 1% of its total assets. Just like other major banks such as the Wall Street firms, the USFed is very highly leveraged. In fact, the USFed is much more leveraged than most big banks, to the point of possible insolvency that is never discussed. The USFed carries $2157 billion of debt on $52.8 billion of capital, producing a leverage ratio of 40.8 to 1 ratio. Here is where the insolvency risk screams out in obvious manner. Its listed mortgage bonds are 19 times greater than its capital, equal to 5.3% in inverse. So therefore, if the true value of these toxic assets is actually 6% lower than their recorded book value, the US Federal Reserve capital is depleted, effectively rendering it insolvent. It stands to reason that if Fannie Mae is insolvent, if Freddie Mac is insolvent, and if monetization supports their bonds, while the market shuns them, then the true value of the mortgage backed securities with their brand is less than 94.7% of their book value. Therefore one might safely conclude that on a strict accounting basis, the USFed is effectively insolvent. 

One might wonder of motive for the USFed to offer big banks an interest yield on assets held on account. The reason might be to shore up its broken toxic balance sheet. The USFed remains liquid because banks continue to provide it with funding. The great centerpiece question is the acceptance in commerce of the paper currency it issues, namely the USDollar. Few if any questions come regarding the US Federal Reserve liabilities. The USFed is insolvent, just like the USGovt, just like the Social Security Trust Fund, just like the FDIC, just like US banks, just like US homeowners, and just like US leadership!!! See the Gold Money Report article (CLICK HERE).

HARSH SCRUTINY FOR BANKERS

◄$$$ USFED BATTLE OVER THE BERNANKE REAPPOINTMENT HAS BEGUN. WITHOUT THE PROPER FANFARE, THE BATTLE IS OVER CONTROL OF THE USGOVT FINANCES AND THE USDOLLAR ITSELF. POWER OF THE USFED HAS BEEN EQUATED INCORRECTLY WITH INDEPENDENCE, WHEN EXPOSURE OF ITS DEEP CORRUPTION IS AT THE CENTER OF THE BATTLE. MY EXPECTATION IS FOR HIS REAPPOINTMENT, BUT WITH HEAVY DAMAGE TO PRESTIGE AND SOME LOST POWER. THE SYNDICATE REMAINS IN CONTROL, ALTHOUGH WEAKENED. $$$

USFed Chairman Bernanke is expected to gain approval of a second term, but not without a heavy cost. It might lose its bank supervision role entirely, a consequence of its failure in providing that role up to the bank crisis climax. Banking Committee Chairman Senator Dodd backed Bernanke in the open forum, stating his likelihood to be confirmed by the full Senate. Dodd credited Bernanke with preventing a financial meltdown, even though he called the USFed's oversight of banks leading up to the crisis an 'abysmal failure.' In my view, split praise and criticism is a contradictory position, since the avoided meltdown came with continued subservience to Wall Street firms. The TARP Fund management, the Stress Test farce, the orders not to lend, the ban on shorting bank stocks, the offered interest for USTBonds held at the USFed, the assistance in bank merger raid of deposits, these all smacked of continued failure from dedicated service to the Banker Elite.

Bernanke defended the syndicate position. The Chairman and other Wall Street loyalists declare the need for independence, their catch word for continued non-disclosure, the secrecy essential to hide corrupt operations and avoid disclosure of either TARP Fund disbursement or balance sheet details. Bernanke told the committee that the USFed's ability to maintain a stable financial system and conduct monetary policy is critically dependent on its supervision powers. Ben must not have noticed the crisis that ruined that financial stability under his watch. Ben must not be aware that the 0% monetary policy is the Scarlet Letter that signifies a failure in monetary policy over almost a decade. The USCongress is considering an overhaul of financial regulations, and a realignment of official bodies for their management, even a new line of reporting outside the US Federal Reserve system. The radical plans are not final, and syndicate pressure is likely to influence the outcome. The Congressional committees gave Bernanke no assurances that the USFed's authority would remain intact during the official overhaul.

Christopher Rupkey is chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. He said, "The Fed chairman will have won the battle but lost the war if Congress strips the Fed of its authority to regulate banks." The the Dodd bill might consolidate oversight of banks, now shared between the USFed and three other regulators, into a single new agency. The Bill would also deprive the USFed of consumer protection powers and curtail its ability to make emergency loans to troubled firms. Dodd faulted the USFed for failing to protect consumers from predatory lending (see Subprime loans and Option ARM loans) and for tolerating excessive risk taken by banks. Dodd offered a weak-kneed statement when he said, "We should not have had to go through what we did for the last two years, had there been cops on the street doing their job, telling us what was going on, and allowing us to avoid the problem in the first place." He must not detect a syndicate in his midst. Dodd delivers harsh criticisms throughout the process, and could be giving the USFed empty praise to placate them. The Obama Admin, reinforced by Barney Frank support from the House Financial Services Committee, would maintain the USFed supervisory powers, in direct conflict. Senator Shelby of Alabama, the ranking Republican on the Banking Committee, said the Fed 'has done a horrible job' as a supervisor and 'will have to give up some of the regulatory authority.' He did not commit as to whether he would support Bernanke in the reappointment. The systemic risk is clear, that as the crisis passes, the reforms will be watered down as ineffective, power will remain concentrated within the syndicate, and little change will be evident in the system. That would be a second tragedy. My expectation is for minimal reform to satisfy harsh political pressures, maybe some real weakening of the USFed, but with an official bow to the syndicate in power. Any new agency would avoid investigations and audits of the USFed.

Bernanke showed wisdom to admit errors on the road to a second term as USFed Chairman. He openly stated his failure to anticipate the depth of the crisis, despite having received volumes of data. He admitted, "[Many banks] were not adequately prepared in terms of their reserves, in terms of their liquidity. That is a mistake we will not make again. Our ability to respond to the crisis, to address problems in the banking system, to help stabilize key markets was critically dependent on our ability to see what was going on in the banking system." But he never foresees what is going on with coming events!!

◄$$$ WITH CRITICISM OF BERNANKE AND THE USFED COMES LOST PRESTIGE. ITS CREDIBILITY HAS BEEN SHATTERED BY THE CREDIT SYSTEM BREAKDOWN. OPPONENTS WILL ONLY DELAY HIS REAPPOINTMENT, BUT AFTER DEEP WOUNDS TO THE INSTITUTION. $$$

The surly (but respectable) Senator Bunning of Kentucky delivered the harshest criticism. He stood as the lone lawmaker to oppose Bernanke for his 2005 nomination, despite being a Republican. Bunning scolded Bernanke in disrespectful heated tone. He said, "[The Fed handed out] cheap money to its masters on Wall Street, [and referred to him as] the definition of moral hazard, [guilty of either] incompetence or a desire to secretly funnel more money to a few select firms." Bunning openly accused Bernanke of refusing to pressure New York Fed President Timothy Geithner to demand concessions from AIG's counterparties during the massive bailout last autumn by the USGovt. Bunning was on a roll, saying futher that "[The bailout of American International Group in 2008 was] reason enough to send you back to Princeton... [I will do] everything I can to stop your nomination and drag out the process as long as possible." Two other Republicans promised to delay confirmation until the USCongress votes on increased powers to audit the US Federal Reserve. The timing for the final Bernanke confirmation vote, exclusively a Senate duty, might not occur for at least two months. Bunning has joined Bernie Sanders, the Independent maverick from Vermont, to block the Bernanke approval. They must solicit 39 other votes to join them in opposing Bernanke, or else he will likely be confirmed. That is very unlikely. They will only succeed in delay to the process, with after delivering key wounds to the institution. The USFed credibility has never been lower, since the credit system breakdown and insolvency of the banking system.

Support from the system is disguised from the syndicate. Dean Croushore is a former Philadelphia Fed economist, now at the Economics Dept at the University of Richmond in Virginia. He offered, "The Fed is a convenient whipping boy. Members of Congress want to show they are tough." Yet, a criticism came from a non-New York bank that plays within the Wall Street inner circle. John Silvia is chief economist at Wells Fargo Securities in Charlotte North Carolina and former economist for the Senate Banking Committee. He said, "The criticisms are well placed. If you want to keep your powers, why weren't you using them?" See the Bloomberg article (CLICK HERE). See also the Huffington Post (CLICK HERE).

◄$$$ CHINA BLAMES INVESTMENT BANKS FOR HUGE LOSSES, WITH THE FINGER POINTED DIRECTLY AT WALL STREET BANKS. THIS IS JUST THE LATEST EXPANSION OF A WAR OF WORDS IN THE WIDENING TRADE WAR. $$$

The Chinese Govt lays blame squarely on foreign banks for $1.67 billion in derivatives losses. This latest salvo follows the early September announcement of tactical permitted reneges on derivative contracts, as in contract dishonor. Expect further dishonor to come soon, perhaps in response to trade war tactics lodged by the USGovt in the next round. The Chinese even identified some events as 'Waterloo' with financial suffering, in an escalation of the rhetoric. Li Wei is vice chairman of the state owned Assets Supervision & Admin Commission. In an official government publication, he said "Some international investment banks were the culprits behind the derivatives Waterloo suffered by Chinese companies." That commission oversees companies owned by the central government. It identified 68 companies including China Eastern Air Holding and China National Aviation Holding as having lost money on derivative products sold by banks including Goldman Sachs Group, Morgan Stanley, Merrill Lynch, and Citigroup. He did not elaborate on accusations of which banks used fraudulent practices. The airline firms had engaged in energy price contract hedging. Chinese Govt officials might be starting to see that Wall Street abuses derivative contracts with premeditation for corporate profit in pure exploitation of the system, with USGovt direction and impunity. See the Bloomberg article (CLICK HERE).

◄$$$ BANK OF AMERICA RAISES $19.3 BILLION FROM MORONIC INVESTORS, DUPED INTO BELIEVING A FALSE 'ALL CLEAR' SIGNAL. THEIR INSOLVENCY IS OFFSET ONLY BY NEW FUNDS PUT INTO EQUITY, A DRAIN GAME. CITIGROUP AND OTHER BANKS ARE JOINING THE SAME GAME. $$$

Bank of America has been in the news for numerous topics, with bank losses, TARP Fund usage, official Stress Test passage, shareholder lawsuits associated with the Morgan Stanley merger, firing of CEO Ken Lewis, and more. Now Bank of America has announced completion of a secondary stock issuance of $19.3 billion in size. They raised another $13.5 billion in equity last May following the orchestrated phony Stress Test. In my view, this additional stock issuance testifies to how the bank did NOT pass any legitimate stress test of its financial condition. The issuance last week was the biggest sale of stock or preferred shares by a US public company since 2000. The bank repaid in full the $45 billion of USGovt TARP rescue funds on December 9th. In other words, hapless investors repaid TARP Funds at the cost of further diluation in the stock. The USTreasury continues to hold warrants to buy Bank of America common stock issued as part of the TARP transaction, but BOA is not exercising its right to repurchase the related warrants at this time. In other efforts, BOA will also increase equity by selling $3 billion in assets and raising another $1.7 billion through the issuance of restricted stock in lieu of cash bonuses to certain associates. With the repayment of TARP Funds and other initiatives, the bank's Tier 1 Capital ratio is claimed to be 11.0%, and its Tier 1 Common capital ratio would be 8.4%, both pro forma. Of course, that assumes absurd valuations of much of their toxic assets, fully permitted by FASB rules.

Generally, the big banks wish to free themselves from USGovt restrictions after acceptance of official funds. If truth be told, they do not wish for prying eyes from the USCongress or USDept Treasury into their widespread syndicate operations, complete with bond fraud, naked shorting, front running of policy, and money laundering. They especially wish to avoid prying eyes of underlings in the two chambers of government, like young legislators or officials who wish to make a name for themselves by exposing corruption. The capital raised by Bank of America is viewed widely as a beneficial development. It will grant BOA more flexibility in its operations from reduced USGovt oversight (meddling). It will enable more flexibility for the new incoming CEO, who must replace Ken Lewis after December 31st. Next in line is Citigroup, another broken crippled dead bank permitted to continue operations. They plan to repay the TARP Funds loan, using $26.2 billion of cash and the proceeds from their latest secondary stock issuance. See the Bloomberg article (CLICK HERE). A curious comment came from Bank of America regarding $1500 billion invested into 'The Community' in the next ten years. Could this be USGovt-sponsored liquidation sales of bank owned property, perhaps coordinated with Fannie Mae, designed to relieve the housing market of its bloated foreclosure inventory???

Citigroup also plans to increase equity by $4 billion through asset sales. The USDept Treasury refusal to sell its 34% stake in Citigroup is hampering the bank's plans to repay $20 billion of remaining bailout funds, according to people from the inner circle of the bank. Executives at Citigroup are frustrated since they cannot sell stock to raise money for TARP Fund repayment until the Treasury signals when and how it will unload its 7.7 billion shares, from inside word. Citigroup and Wells Fargo seek to repay federal bailout aid, but incredibly they must received permission from the USGovt. That has not been granted yet. The main sticking point is how much capital the banks would need to raise to repay borrowed taxpayers money. Citigroup received $45 billion in bailout money. Wells Fargo received $25 billion, and Bank of America received $45 billion. In all, over 50 financial firms have repaid TARP Funds to the tune of $71 bullion before last week. The USGovt has told Citigroup that it would need to raise at least $20 billion in common equity to be able to exit the Troubled Asset Relief Program, according to one of the sources. It was unclear how much Wells Fargo needed to raise. At issue is the perceived competitive disadvantage as these large US banks still holding TARP funds are subject to restrictions on employee compensation until repayment. Their best employers could potentially defect to rival firms. Losses to these banks continue like a neverending nightmare, fully within my forecasts. Citigroup reported $8 billion in loan losses 3Q2009, compared with $5.1 billion for Wells Fargo. In repaying its TARP funds, Bank of America joins JPMorgan Chase, Morgan Stanley, and Goldman Sachs Group as large banks that have cut ties with the USGovt and broken free of pay restrictions. They can resume outrageously high compensation packages, after criminal bond fraud, and retain the best criminal banker talent. See the Yahoo Finance article (CLICK HERE).

◄$$$ THE KUWAIT BAILOUT OF CITIGROUP COMES FULL CIRCLE. THEY BAG A HEFTY PROFIT, THANKS TO THE LARGESSE OF THE USGOVT BANK WELFARE, ACCOUTING RULES SUSPENSION, AND PLUNGE PROTECTION TEAM SUPPORT. PERSIAN GULF BANKS ARE RAISING A LOT OF CASH. $$$

The Kuwaiti sovereign wealth fund sold its Citigroup stake for $4.1 billion. In doing so, they recorded a hefty short-term profit of $1.1 billion in under two years. The Kuwait Investment Authority announced the sale of preferred shares after conversion to common stock for $4.1 billion. Gulf Arab nations have been important high volume investors in US and European companies through their sovereign wealth funds. Oil wealth has been devoted to buy large stakes in many Western companies such as Citigroup, Volkswagen, and Daimler AG. A foreign group welfare program went into effect in January 2008 to rescue Citigroup and bolster its equity. The Kuwaiti fund joined the Govt of Singapore Investment Corp and longtime shareholder Prince Alwaleed bin Talal of Saudi Arabia, in providing $12.5 billion into Citigroup. The consortium took action after the Abu Dhabi Investment Authority invested $7.5 billion for a 4.9% stake in Citigroup. The ADIA holdings are equity units that will begin to convert into ordinary shares starting in March 2010. Notice the cashout trend among Persian Gulf banks, certainly under great strain to cover regional debts. The Abu Dhabi Intl Petroleum Investment Co made a $2.5 billion profit in June by selling part of a stake it held in Barclays. Recently, the Qatari sovereign wealth fund sold a stake in Barclays worth $2.25 billion. The Qatari fund is the British bank's principal shareholder. Barclay had turned in desperation to investors from Abu Dhabi and Qatar last November for a total injection of up to £7.3 billion (=US$12 billion) in order to reinforce its balance sheet rather than to engage the British Govt as a major shareholder.

◄$$$ GOLDMAN SACHS CAVES IN TO POLITICAL PRESSURE. THESE PRINCES OF THE SYNDICATE WILL FOREGO CASH BONUSES IN LIEU OF ROSY STOCK OPTIONS. IT IS ONLY COMPENSATION DELAYED. $$$

Goldman Sachs executives have decided to grant themselves restricted stock options instead of cash bonuses for 2009 work. They bowed to political pressure and sharp criticism over compensation packages. The 30 highest ranking executives will instead receive stock that cannot be sold for at least five years. The restrictions do not affect the more than 31 thousand other top employees such as top traders and analysts, who remain in line for hefty bonuses. With rising financial markets in stark contrast to a moribund economy, attention to banker bonuses has become a lightning rod of discontent and anger. Goldman Sachs has also been fielding nasty constant criticism for cornering $10 billion in USGovt bailout money in an offset to losses as they realized full redemption of certain CDSwap contracts. GSax repaid the TARP Fund this summer, allowing it to escape restrictions on compensation. Yet it remains the primary target of corruption focus. Listen to this! GSax declared a new rule, whereby the 30 stock awards to executives could be rescinded by the bank in cases where the employees took too large a risk or failed to raise concerns about risk in the company. How about stock options rescinded for actions as a whistleblower on corruption? See the Yahoo Finance article (CLICK HERE).

◄$$$ FORMER USFED CHAIRMAN VOLCKER URGES AN END TO GOLDMAN SACHS SUPPORT UNLESS IT ACTS LIKE A BANK, NOT A TRADING HOUSE. GSAX USED A CHANGE IN STATUS HASTILY TO GAIN ACCESS TO TARP FUNDS. IT IS NO MORE A COMMERCIAL BANK THAN A LEMONADE STAND. VOLCKER ATTEMPTS TO LAY OUT POLICY THAT CUTS SYNDICATE TIES TO THE COOKIE JAR. $$$

Former USFed Chairman Paul Volcker argues that Goldman Sachs Group should not receive further taxpayer support if the firm focuses on trading over banking. They snuck through the corrupted turnstyles with a formal change to a bank holding company in order to qualify for $10 billion in USGovt bailout funds last year. From Germany, the irrepressible Volcker said "The safety net [provided by the USGovt] should not be extended beyond the core commercial banking business. They can do trading and do anything they want, but then they should not have access to the safety net.  The temptation [toward heavy risk again] is natural. You like to return to normalcy, make some money and get on with it. I am very interested in using this crisis as a way to avoid the next one. This is not the time to go back to business as usual."

Goldman Sachs has gathered over 90% of its pretax earnings this year from trading and principal investments, basically market bets on securities derivatives and arbitrage stakes in companies. The other 10% came from advising clients on formal maneuvers and from asset management, which includes managing hedge funds and merger acquisition funds. They converted into a bank holding company, thus gaining access to USFed funded aid. Since January 2009, Volcker has been on a private mission to urge regulators to provide USGovt support only to banks that provide essential services like deposit taking and business payments. He has suggested prohibiting them from owning or sponsoring hedge funds, private equity funds, or from engaging in proprietary trading. Volcker is a wise man with banking, and perhaps TOO BIG TO NAIL by the syndicate, as in removing him or silencing him. See the Bloomberg article (CLICK HERE).

THE CASE FOR CONTINUED 0% RATES

◄$$$ CHEAP INTEREST TO SERVICE USGOVT DEBT IS A HUGE REASON WHY THE OFFICIAL 0% INTEREST RATE POLICY CONTINUES. THIS ULTIMATE FACTOR OF PRACTICALITY IS OFTEN OVERLOOKED. THE USFED CLAIMS TO WANT TO END ITS ULTRA-EASY MONETARY POLICY, PURE RHETORIC. A HIGHER USFED RATE WOULD NOT ONLY DELIVER A HEAVY HINDRANCE TO THE USECONOMY, BUT AGGRAVATION TO THE FEDERAL DEFICIT. $$$

Despite much higher debt in 2009, the service cost to the USGovt debt went down, something the bank leaders do not wish to change. Bill Buckler of the Privateer provides details. He calls 2009 the 'Interest Free Year' aptly. He wrote: "According to the latest White House estimates, the cost of servicing the US government's funded debt this year will come in at $US 202 billion. That is less than the servicing cost in 2008, even though the official 2009 deficit was $US 1.42 trillion and funded Treasury debt rose almost $US 1.9 trillion over the fiscal year (to September 30). In fiscal 2009, the US government's average interest rate on new borrowing was below 1.0%, the lowest ever. According to TRowe Price, had the government faced the same average rates this year that it faced in fiscal 2008, their servicing costs would have more than doubled. Instead of $US 202 billion, the costs over 2009 would have been $US 423 billion, [higher by] $US 221 billion or almost 110%. The 'savings' on servicing costs were gained by the Fed cutting its rates to zero in December 2008 while going on to buy more than $US 1.5 trillion of Treasuries and Agencies. On top of that there was the $US 300 billion in quantitative easing that the Fed used between March and October 2009. These are one-off measures. The Fed cannot cut its Funds rate any lower. Straight quantitative easing is officially over. And the Fed has promised to stop adding toxic sludge to its balance sheet by March 2010." The USGovt and USFed have enormous motive to keep their borrowing costs down, since savings are significant.

My doubts are very high for any end whatsoever to monetization of USTreasury and USAgency Bonds. My doubts are also very high for any halt to USFed balloon expansions to its balance sheet. If the USGovt and USFed stop buying US$-based official bonds, those bonds must fight on their own in the bond market for proper valuation. That means higher yields and lower price. The marketplace does not want such bonds, so if the USFed sheds them, they will find a suddenly lower value. A crash in mortgage bonds would occur, which is precisely what was happening until the USGovt nationalized the Fannie Mae cesspool of acidic toxic bonds. Foreigners had begun to dump them, led by China. The Fannie Mae nationalization maneuver also covered up the fraud, involving past presidents, and removed the potential for lawsuits by defrauded investors.

◄$$$ STEPHEN ROACH WARNS THE USFED ON A LATE ATTEMPT AT AN EXIT STRATEGY. HIS WARNING COMES WITH AN ASSUMPTION THAT EXIT IS INDEED POSSIBLE WITHOUT RUIN. HE CALLS THE USFED THE WEAK LINK. HE SEEMS STUCK IN IDEALISM, EVEN THOUGH HIS WARNINGS WERE PERFECT 3-5 YEARS AGO. $$$

Stephen Roach is Chairman of Morgan Stanley Asia. From 2003 to 2006, his warnings were constant, loud, and on the mark. He was a nuisance to Wall Street, warning against a housing and mortgage finance bubble, of removing the industrial base, and the certain bust. He was banished to Asia. Maybe next he will be banished to Siberia. At a Berlin conference, he described the USFed errors earlier this decade of being 'quick to slash, slow to normalize' on interest rates. He charges the USFed as having triggered the boom and then bust of the subprime mortgage market. He warns that the USFed might next cause another crisis by botching the withdrawal of liquidity from the USEconomy. He called the USFed the 'weak link' among global central banks, the least likely to tighten monetary policy in timely manner and thus arrest asset bubbles that are forming. He said "There is a great risk in the coming exit strategy. They are lacking primarily a political will to execute the exit in a timely and expeditious fashion that will avoid the mistakes of the last crisis. [The central bank alibi of bubbles being hard to identify] is ludicrous. This is a failed flaw in the intellectual construction of modern central banking that must be addressed. If we do not fix this problem, we are doomed to repeat the failed asymmetric policies of the past and set ourselves up [for another crisis]."

Roach is excellent in delivering warnings, diagnosing problems, and comprehending structural flaw pathogenesis, but in my view he cannot see the lack of viable options. Lacking forward vision, he seems unable to perceive that the proper legitimate paths are not even remotely available, since the financial structures and economic platforms are so badly out of balance and lacking in critical mass. A solution in my view is impossible. Roach does not see the USFed as trapped. Furthermore, so much tainted money flows and so many tainted assets have accumulated, that tentative or lasting solution in my view is impossible due to toxic liquidity (bad blood) in the system. Roach recommended the USFed be required to 'hardwire' its mandate into a structural makeup and formal layout of responsibilities. He urged the end of central banks 'oursourcing of their responsibilities' to regulatory bodies. He appears not to be too aware of the risks for proceeding down the path he suggests. Removing liquidity in the US financial system will leave the USEconomy vulnerable to collapse. What does he expect to provide the natural liquidity and firm demand? So either collapse or more bubbles are the two options. The United States ALWAYS opts for more bubbles, which Wall Street exploits with gilded glee and free rein for fraud. See the Bloomberg article (CLICK HERE).

◄$$$ THE U.S. TRADE GAP FELL AGAIN IN OCTOBER. SIGNS OF FLAT IMPORTS FOR CONSUMERS AND GREATER EXPORTS HELPED TO NARROW THE GAP. THE CHEAPER USDOLLAR IS HAVING AN EFFECT, BUT THE MAGNITUDE OF EXPORT BENEFIT IS GROSSLY INADEQUATE. STIMULUS IS MOSTLY WASTED, WITH RESTRUCTURE AND REMEDY NOWHERE. BANDAIDS WERE HANDED TO THE STATES, A GESTURE THAT MUST BE REPEATED. $$$

The US trade deficit fell to $32.9 billion in October, forming a string of declines. The trade gap was 7.6% below a revised September deficit of $35.7 billion, reported by the USDept Commerce. The improvement reflected a 2.5% lift in exports. Imports were essentially flat, up only 0.4%, held back by reduced energy imports. Much of the improvement in the trade gap reflected that drop in oil imports, a sign of reduced economic activity inside the US. The USEconomy is finding a buoy of support from exports such as farm products, cars, aircraft, and industrial machinery, enough to lower the trade deficit in October. Exports of US goods rose for a sixth consecutive month, but gains are limited since the national industrial base has shrunk during a dismantlement spanning three decades. US industry lost its critical mass. Further minor gains in exports should continue with a falling USDollar. A weaker US$ makes US-made goods cheaper in foreign countries. Construction equipment maker Caterpillar has predicted that its sales will rise next year, reflecting in part greater demand from China and other Asian markets. The traditional self-correcting currency devaluation cannot close the trade gap without a tremendous boom in industrial development and factory formation, sufficient to enable huge export growth, job creation, in a beneficial cycle. The US lacks that base and its leaders have no vision to encourage that industrial revival, with puny comprehension of what remedy involves. See the Yahoo Finance article (CLICK HERE).

Instead of prudent stimulus and revitalization, the USGovt is locked in stupidity, inaction, coupled with passing the buck to states. The Stimulus Bill did provide substantial state aid that plugged holes in a stop gap fashion, except with no vision beyond a few months time. More state aid will be urgently needed soon. The great eyesore of the bill pertained to well over 100 pork projects typical of the corrupt mindless policy disease that pervades the WashingtonDC crowd. See the dumbest projects, most of which are complete wastes. They cover the spectrum of rubbish forced by stupid representatives appealing to local concerns back in constituent territory. They include geothermal system to heat a nearly empty shopping mall, converting a hotel into a visitor center in a small Kentucky town, renovation of a federal building that cost as much as a new one, digital TV promotion, supersonic corporate jet research, water pipeline to a failing golf course, remote control home appliance program, repaving a Georgia road that was just paved two years ago, Icelandic environmental research from the Viking Age, female college student sexual behavior after alcohol drinking, study on male distaste for condom usage in sex, study of wildflowers in a ghost town in Colorado, recovering lost crab traps at sea, lighthouse repairs for an uninhabited Massachusetts island, research on division of ant labor, and boat tours of Alcatraz. See the Global Economic Analysis article (CLICK HERE). Such a list is something one might expect from a misguided high school class that had perhaps indulged in some casual drugs.

The USGovt and USFed must continue near 0% interest rates. The rise in export trade is one of the few small bright spots, in direct response to a lower valued USDollar. A rise in that rate would interrupt the rampup, as tepid and mild as it might be. Furthermore, a rise in the near 0% rates would coincide with rising long-term rates. That would snuff out any potential for stability in the housing market, the principal requirement for any recovery.

TITANIC EFFORT TO REMAKE HOUSING BUBBLE

◄$$$ HOUSING MARKET IS STILL IN TROUBLE. BANK LIQUIDATIONS ARE NOT HAPPENING AS DICTATED BY LOUSY CONDITIONS. THE USGOVT PROGRAMS AND BANKER BEHAVIOR ATTEMPT TO REKINDLE A BUBBLE, AN IMPOSSIBLE TASK LADEN WITH LUNACY. NO CONVICTION TOWARD REMEDY EXISTS. $$$

Usually lowered prices and rising affordability would drive the housing market into a recovery mode. However, liquidation of impaired assets and cleansing of imprudent debt would occur. It is not. Badly damaged assets remain on bank balance sheets, which are not being rebuilt. Banks are delaying decisions on property liquidations with a hope of USFed rescues. They are also extending loan terms in hope of a price recovery, called 'Extend & Pretend' aptly. The housing market clearly is being sustained by the USFed with mortgage bond repurchase and by the USGovt with buyer tax credits. A rekindling of the housing bubble is counter-productive. It interferes directly with a real economic recovery. It signifies denial of the problem, refusal to remedy it, and a mindless return to the bubbly days. Worse outcomes lie ahead due to failed policy beyond the housing bust.

Zero Hedge lays out the anomalies, none of which is encouraging. 1) The data is alarming, as 59% of new home buyers rely on loans from USGovt-backed agencies, like the Federal Housing Admin, the Veterans Admin, and the USDept Agriculture. Most home sales are driven by the first time home buyers. They are enabled by federal tax credits, which has been extended through April 2010. 2) Existing home sales are now being driven by the tax credit. Far too many home sales involve foreclosures, the majority of which are short sales. A short sale involves a bank loan greater than the home sale price. Such distressed sales accounted for 30% of existing home sale transactions in 3Q2009. According to the Natl Assn Realtors, home sales have jumped by first time home buyers seeking to beat the previous November deadline. Future sales will surely be robbed, as demand is pulled forward, a negative impact. The same effect is seen with Clunker Car Programs, another short-sighted idea by the USGovt. 3) Mortgage rates are now at 30 year lows, yet market results are non-existent. The average 30-year mortgage rate was 4.95% in October, lower than the 5.06% average in September, according to Freddie Mac data. In early December, Freddie cited a mortgage rate at 4.7%, even lower. What we have is a disguised liquidation on the fringe, that has been moved to the center, during a concealment of the core home inventory held by banks, amidst a continued bear market in housing. This is anything but a healthy housing market, incapable of recovery.

Despite all the official efforts, home prices are still falling. Bear in mind that the Home Loan Modification programs are a total sham, intended to block lawsuit avenues from bond investor claims and to impose 'Top Down' solutions that cover up multiple title usage in bond fraud, and redeem counterfeit mortgage bonds with no property title linkage at all. The S&P/Case Shiller home price index declined by 8.9% for 3Q2009 versus Q3 a year ago. A deceleration in the decline is notable, seen by comparing to the 14.7% drop in the 2Q2009 and the 19% drop in 1Q2009 (versus year ago quarters). Prices continue down, unabated and unaffected by unprecedented federal programs and the so-called economic recovery. Median prices of existing homes fell in 123 of 153 metropolitan areas during 3Q2009 compared with a year earlier. The national median price was $177.9k, down 11.2% from Q3 of 2008.

Lingering reasons remain to explain a relentless continuation of the housing bear market grip. Almost 25% of home owners are upside down with their mortgages, holding negative equity, whose home loan balance exceeds home value. Nearly 10.7 million households had negative equity in their homes in 3Q2009, according to First American CoreLogic. A new deeper submersion statistic has emerged. Home prices have fallen so much that 5.3 million US households are linked to mortgages at least 20% higher than the home value, from a First American report. More than 520 thousand of these borrowers to date have received a notice of default. Negative equity is being properly recognized as a major curse and ongoing threat. Mark Fleming is chief economist of First American Core Logic. He said, "[Negative equity] is an outstanding risk hanging over the mortgage market. It lowers homeowner mobility because they cannot sell, even if they want to move to get a new job." Bank analysts believe furthermore, that borrowers who owe more than 120% of their home value, regardless of other circumstances, are likely to default eventually. Some do so intentionally.

Mortgage loans have yet another threat from voluntary defaults, apart from job loss and the entire employment factor. The industry calls them 'Strategic Defaults' by name. Credit rating agency Experian, together wtih consulting firm Oliver Wyman, conducted a study. They concluded that 588 thousand borrowers defaulted on mortgages last year even though they could afford to pay, over double the number in 2007. They wrote, "The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that." What the banking industry does not mention is that strategic defaults are a great effective mechanism to force the bank to write down the loan, renegotiate the terms, and start anew, without any change in ownership. It is an aggressive but effective tactic by people to force loan balance markdowns outside toothless USGovt modification programs. Mark Zandi claims that 7.5 million foreclosure sales will have taken place between 2006 and 2011. The majority of these sales will occur in the future, with 4.8 million foreclosure sales expected between 2009 and 2011. The housing supply, officially recorded at just over 7 months supply, will rise again, and prices will continue to decline. However, the inventory level is deeply distorted, since banks are hiding and holding unsold foreclosed homes on their books. In no way has the bottom been seen yet. See the Zero Hedge article (CLICK HERE). Most respected bank analysts forecast higher, not lower, mortgage rates in the near future, such as Meredith Whitney. The support for mortgage bonds is on the decline for both foreign central banks and the USFed itself.

◄$$$ COMMERCIAL MORTGAGE LOSSES LOOM ON THE DOORSTEP, NEVER HAVING GONE AWAY, BUT NOT YET FELT IN FULL BRUNT. DELINQUENCIES ON THE COMMERCIAL SIDE CONTINUE TO HIT RECORD LEVELS. BANK LOSSES CAN BE DENIED BY BASIC REFUSAL TO FORECLOSE, CARRYING DEAD LOANS ON BALANCE SHEETS. MOUNTING LOSSES HAVE A REAL EFFECT WHETHER DECLARED OR NOT, SINCE NEW LOAN APPROVAL IS HAMPERED. $$$

Delinquencies on commercial mortgage backed securities rose to a record 3Q2009. CMBS loans at least 30 days past due rose to 4.06% from 1.17% a year earlier, according to the Mortgage Bankers Assn. It stands at the highest since it began tracking the data in 1997. Portfolio loans (unsecuritized) fare a little better. About 3.43% of bank loans on offices, apartment buildings, shopping centers, and other income producing properties were at least 90 days past due, up from 1.38% a year earlier, again from MBA data. Faltering commercial property loans triggered the majority of failures where banks were seized by the FDIC in the 2009 calendar year. Bond investors in commercial mortgage backed securities suffered the highest delinquency among loan holders in the MBA report. It was comprehensive in nature, covering CMBS debt, property loans held by life insurance companies, and mortgage loans held by Fannie Mae & Freddie Mac (under USGovt aegis). Another interesting aspect of the Mortgage Banker report was the breakdown in commercial debt. Of a total $3.47 trillion in commercial & multi-family mortgage debt outstanding as of midyear, 50% was held by banks, 21% was pooled in CMBS, 10% was owned or guaranteed by Quasi USGovt Agencie (Fannie, Freddie, et al), and 9% was held by life insurance companies. The rest was held by various other government and private entities.

A vicious cycle has turned nasty, involving job cuts, office space vacancy, reduced consumer spending, and retail operations. The commercial delinquency rate will not improve until the labor market improves and consumer spending recovers. Such is the conventional thinking. In fact, unless structural changes and reform are ordered and take root, the deterioration will continue. In the meantime, unemployment rises and landlords struggle to retain tenants in residential and commercial settings. With $3 trillion in commercial real estate loans coming due in the next five years starting in 2010, expect a endless parade of businesses to file for bankruptcy protection. See the Bloomberg article (CLICK HERE).

REBUTTAL TO THE PHONY JOBS REPORT

◄$$$ THE OFFICIAL USGOVT JOBS REPORT IN NOVEMBER WAS A DILIGENT POWERFUL MACHINATION, DESIGNED TO CAUSE A USDOLLAR RECOVERY BOUNCE. IT SUCCEEDED, NOT BECAUSE OF ITS VERACITY, BUT DUE TO ITS LOUD MESSAGE LACED IN DECEPTION TIMED WHEN THE USDOLLAR WAS VERY OVERSOLD AND VULNERABLE. $$$

As a preface, the past monthly revisions were enormous. The October Non-Farm Payrolls Report went from 190k lost jobs to 111k. One should check the footnotes though, since the dubious Birth-Death Model accounted for a robust 708k fictional jobs added from the small business sector. September went from 219k lost jobs to 139k. The footnote for that month was a still hefty 389k fictional jobs from the same Birth-Death Model. This stat lab concoction is far more valuable a propaganda tool than seasonal adjustments. Without the doctored upward adjustment, the October job loss would be 819k and September would be 528k, much closer to reality in my view. See the Current Employment Statistics webpage for the Birth-Death Model from the Bureau of Labor Statistics, which boasts 125 years of experience (CLICK HERE) but tarnished by 15 years of recent extreme distortions. So November was expected to shed something like 100k to 120k jobs, but only 11k jobs were officially lost, or estimated, or announced as lost by the intrepid USGovt agency. What incredibly good news when it was so needed! It turned out that the announced event coincided with expiration of a US$ DX futures contract. The USDollar indeed rallied, as shorts covered feverishly. What a impressive production! But it was fiction again!

The official statistics are not so impressive though. The official jobless rate fell to 10.0% from 10.5% in October. The broader U-6 jobless rate came down to 17.2%, just a small amount, hardly noticeable. It counts those who do not have work, while the 10.5% rate is just those workers who receive state jobless insurance. The wider U-6 graph is shown above. The average workweek increased a little to 33.2 hours, up from 33.1 hours a month ago, while the average weekly earnings rose by 1.6%. The manufacturing workweek increased by 0.3 hour to 40.4 hours. In November, employment fell in construction, manufacturing, and information, while temporary help services and health care added jobs. Construction jobs declined by 27k over the month, an improvement over the average 117k per month in losses suffered during the six months ending in April, and 63k per month in losses from during the six months ending October. There are few construction jobs left to lose. Manufacturing jobs declined by 41k, consistent with the 46k per month lost for the past 5 months. Employment in the information industry declined by 17k in November. Employment in professional & business services rose by 86k in November, mostly from temporary help services, which added 52k jobs. Since July, temporary help services employment has risen by 117k. The other stalwart sector for job growth has been health care. Its industry employment rose by 21k in November. Since the recession began in December 2007, the health care industry has added 613k jobs. The US population is not only aging, but its health is dreadful, hardly evidence of recovery or progress. See the Zero Hedge article (CLICK HERE).

The Shadow Govt Statistics Report made some excellent observations. The SGS unbiased jobless rate is a staggering 21.8% incredibly. That counts the discouraged, newly and chronically, as well as those accepting piddly part-time jobs in grudging manner just to survive. It does not dither on fine meaningless distinctions. The SGS folks comment that the recent monthly estimates are "warped by monthly revisions to the concurrent seasonal adjustment factors, which get reset each month... Underlying economic series remain consistent with a monthly jobs loss of roughly 500,000." The Shadow Govt Statistics folks mention a complete mismatch with underlying economic series. The Purchasing Managers (ISM), the weekly jobless claims, and the Help Wanted surveys fail to confirm the USGovt Jobs Report, a fiction in my book.

Jobless claims remain in the 450k to 500k range per week. The total continuing claims for the jobless remain in a range between 5.4 and 5.6 million, which belies any recovery whatsoever. For the week ending November 28th, the jobless claims totaled 457k, and for the week ending December 5th, they totaled 474k. Contrast to the total a few weeks ago, when for week ending November 14th, they totaled 505k. We are witnessing very minor drop in the fresh job losses, hardly the miraculous 80% to 90% portrayed by the liars before the press. A very important jobless statistic is the Continuing Claims, as these people remain without jobs within the state insurance programs. The total of continuing claims is falling, but only by about 10% in the last month or so. At the start of November the total was 5.650 million, and now at month's end it is 5.157 million. The improvement is again not consistent with the 80% reduction in job loss by the Bureau of Labor Statistics.

As mentioned in previous reports, the seasonal coefficients used in the adjustment should remain stable for at least two to three years. The Bureau of Labor Statistics is altering the seasonal adjustment index every single month in grand distortions. They react to acute disruptions like the shutdown of numerous General Motors and Chrysler plants, the Wall Street deluge of lost financial jobs, and more. No pattern has held firm in the last two years. A more judicious adjustment would be to go with old seasonal coefficients until stability returns. Instead, they resort to complete contamination of the methods with constant fraudulent alteration of the adjustment index. It is statistical heresy of the first order.

◄$$$ PAY LITTLE HEED TO USGOVT STATISTICS ON ECONOMIC GROWTH REBOUND. THE SERVICE INDUSTRY SLOWED UNEXPECTEDLY IN NOVEMBER, ENOUGH TO START A RECESSION WATCH. SERVICE IS THE LEADING SECTOR TO THE USECONOMY, A BLEMISH TO THE MALADJUSTED CONSUMER DRIVEN NATION. OTHER MEASURES CONFIRM THE WEAKNESS. $$$

Service industries in the United States faltered in November. The Institute for Supply Mgmt Index of non-manufacturing businesses fell to 48.7 in November from 50.6 in October. The collection of non-mfg businesses make up almost 90% of the USEconomy. The number 50 serves as the dividing line between growth and decline, meaning November saw outright service sector decline. Furthermore, the ISM index on business activity views dropped to the lowest level in four months. In the previous month, the ISM non-mfg gauge of business activity had declined to 49.6 in November from 55.2 in October, the biggest plunge in a year. See the Bloomberg article (CLICK HERE). By the way, the ISM decline was unexpected for the mainstream analysts directed by Wall Street pablum, but not to the Jackass. No recovery has been detected whatsoever as relapses are expected.

With all the liquidations taking place, much of the measured economic growth is from a rush to close out businesses in my view. This factor, along with two USGovt programs are responsible for the bulk of phony measured economic growth. Two additional data points reinforce the notion of negligible strength. The factory orders rose only 0.6% in October after a 1.6% rise in September. No strength detected. Also, the wholesale business inventory level rose 0.3% in October and a 0.8% rise in September. Inventories rise when customers purchase less. Again, no evidence of economic recovery.

◄$$$ NEXT CONSIDER SOME DIRECT CONTRADICTIONS. THE TRIMTABS JOBS AND THE A.D.P. REPORT SHOWED MARKEDLY HIGHER JOBS LOST. THE CHALLENGER GRAY & CHRISTMAS LARGE SITE REPORT CALLED FOR OVER 50K JOB CUTS IN NOVEMBER ANNOUNCEMENTS. NO CONFIRMATION OF THE USGOVT OPTIMISTIC OUTLOOK IS WITHIN REACH. THE SMALL BUSINESS SECTOR HAS TO DATE BEEN STARVED OF CREDIT AND REMAINS IN RETREAT. $$$

The TrimTabs employment analysis uses daily income tax deposits from all US taxpayers to compute employment growth, with no time delay. TrimTabs estimated that the USEconomy reduced employment by 255k jobs in November. This past month's results were an improvement of only 10.2% from the 284k jobs lost in October, hardly the gigantic reduction in the Non-Farm Report. See the Business Insider article (CLICK HERE). This method is akin to the USGovt IRS tax receipts method, which has careened lower for numerous consecutive months.

The ADP Employer Services estimated that the USEconomy reduced by an estimated 169k jobs in November. That was the fewest since July 2008. The report signaled the job market is still deteriorating and unemployment will probably continue to rise. Ryan Sweet is a senior economist at Moodys Economy.com. Unaffected by fantasy, he said "We are going to see job losses extend well into 2010. The labor market is crawling toward stabilization. We need the labor market to improve to generate the wage income necessary to support spending." In fairness, a bias exists, as the ADP Report excludes hiring by government agencies. Companies employing 500 or more workers shrank their workforce by 44k jobs. Medium sized businesses with 50 to 499 employees eliminated 57k jobs. Small companies decreased by 68k. The ADP report is based upon data from 400 thousand businesses with about 23 million workers on payrolls. It is far more credible than the propaganda put out by the USGovt at the Bureau of Labor Statistics. See the Bloomberg article (CLICK HERE).

The Challenger Gray & Christmas Report is slightly different in type. It tallies the announced job cuts at large work sites. The jobs are not necessarily cut in the month announced though. The CGC Report cited 50,349 job cuts for November. That figure included 9558 in health care, the biggest sector and a contradiction to the BLS Non-Farm Report. The November total was 9.6% below the October total, and it was 7.2% below November a year ago. They pointed out that 27% of the November announced total was derived from the car industry, the government sector, and non-profit organizations. The CGC total year to date in 2009 is 1.243 million. Such large numbers, despite from being from the bigger work sites, does not jibe with the USGovt fiction. Also, the CGC decline from October was nowhere near the abrupt vanishing act of job cuts.

Lastly, consider Michael Panzner of the Financial Armageddon website. He wrote, "While much of the focus was on the overall number, the breakdown by category was less reassuring. Those areas of the economy that would naturally be associated with a sustainable rebound in activity, including manufacturing, trade, transportation, utilities, and construction are still hemorrhaging jobs. Moreover, recent developments suggest that two categories which did see respectable gains, education and health care, face major headwinds in the period ahead. With municipal budgets under growing strain, school budgets (and education related hiring) have nowhere to go but down. And with all eyes now focused on the rising cost of health care, the pressure to rein in spending will only increase."

The National Federation for Independent Businesses has issued a report on a survey of its 400 thousand members. Their Small Business Index fell to 88.3 in November versus 89.1 in October, as the message was a cutback in both jobs and capital expenditures. The Birth-Death Model, which added over 1.1 million fictional jobs in the last three months, claims to estimate the growth in small business jobs. The Small Business Index stands in contradiction. The USGovt response was mealy mouthed in a typical denial, when they rationalized how it is always more advisable to contact actual businesses than trade associations. This is the same USGovt that does not include small business organizations of any type in the White House Jobs Summit. Apparently, only giant firms participate, in keeping with the Mussolini Fascist Business Model.

◄$$$ THE BEST CONTRADICTION OF ALL AGAINST THE PHONY JOBS REPORT COMES FROM THE USGOVT ITSELF. TAX RECEIPTS FROM WORKERS SHOW A NEGLIGIBLE CHANGE, NO RECOVERY WHATSOEVER. PAYROLL DATA IS AN INDISPUTABLE SOURCE OF INFORMATION. $$$

Consider the taxes are collected by the USGovt. To be sure, tax revenue has its largest single item being the income tax, from corporate and individual sources. When businesses add workers, they earn money and pay taxes through withholding means, and tax revenue rises. Check the total employment number versus the total amount of federal government taxes. A close correlation is to be expected, verified by the data. The grand improvement in the jobs number is not noticeable through November. No rise in the tax revenues is evident. The USEconomy remains mired in a recession during a long painful deterioration process. Thanks to Bud Conrad, David Galland, and the Casey Research folks for the fine chart.

The purpose of the phony November Jobs Report was to sustain the US stock market, which is vulnerable, and more importantly to cause a counter-trend upward rebound move in the USDollar. The embattled buck was stuck in a powerful downtrend, very vulnerable to a counter move given its heavily oversold condition. Also, a lift in the US$ was badly needed to halt the rise in the gold price. Even a phony report can cause a rush to the door, and massive short covering in the global reserve currency. The next decline in the US$ and the next stage rise in gold is thus assured, since no substance was behind the change. The events of the last week only cleared out the oversold US$ and overbought gold conditions.

◄$$$ EMERGENCY JOBLESS PAYMENT EXTENSION HAVE BEEN ORDERED, BASED UPON REALITY. THE OBAMA ADMIN HAS EXTENDED THEM WITHOUT END. SUCH A GENEROUS GESTURE HARDLY MATCHES THE END OF THE JOBS DECLINE HERALDED FOR NOVEMBER. $$$

It is called the Emergency Unemployment Compensation, often ignored in the press, too pre-occupied by the recovery fiction. The subsidy given by the USGovt to augment state jobless benefits has been extended indefinitely. Officially, the Obama Admin provides additional state aid for insurance benefits as they roll beyond their standard expiration, now extended to cover a period toward an infinite horizon. No limits are to be imposed! The number of beneficiaries from extended aid skyrocketed by over 265k in one week to an all time record of 3,859,553 for the stated week. That is a single week 7.38% jump, a pace to quadruple when annualized. See the Zero Hedge article (CLICK HERE). My comment is that if the true jobs picture were improving, such aid would not be necessary.

◄$$$ BANKRUPTCIES ROSE 33% IN Q3, AS BUSINESS AND PERSONAL FINANCIAL FAILURES CONTINUED. THE PACE MIGHT BE SLOWING, BUT THE SITUATION REMAINS FIRMLY ON THE DOWNSLIDE, WITHOUT IMPROVEMENT. NO RECOVERY IS EVIDENT. $$$

US bankruptcies rise 33% in 3Q2009, as misery continues from both business and personal failures. In all, a total of 388,485 bankruptcy filings were recorded in the period from July to September. The increase is from 292,291 in Q3 a year ago. The rise was even across type, as consumer filings rose 33% to 373,308 in the last 12 months, while business filings increased 32% to 15,177 in the last 12 months. Take a broader look to see the BK failure rate is not slowly materially. For the first nine months of 2009, a total of 1,100,035 bankruptcy filings were logged, up 35% from the same nine months a year ago. See the Reuters article (CLICK HERE).

Any analysis of bankruptcy filings data must account for the 2005 change in the BK Code. It was redesigned by the banker Ruling Elite to trap, damage, and enslave the average American. View the quarterly filings. Note the huge spike at the end of 2005 before the revamped modern debtor prison was installed. Chapter 7 elimation of debt is virtually impossible anymore. Home mortgage default also became a taxable income event. Once again, the real tangible economy tells a very different story from the USGovt press releases and the Wall Street stock index readouts. The primary factors behind BK filings continue to be job loss, medical expenses, and financial speculation.

◄$$$ FORECLOSURES ARE SET TO RISE BY OVER 20% IN YEAR 2009, VERSUS LAST YEAR WITHOUT IMPROVEMENT. NO RECOVERY IS EVIDENT. THEY STEM DIRECTLY FROM JOB LOSS IN MANY CASES. $$$

Foreclosure filings in the United States are certain to hit a record for the second consecutive year, in the wake of 3.9 million notices sent to homeowners in default. RealtyTrac provides the dreadful details. In 2009, the FC filings will easily surpass the 2008 total of 3.2 million as record joblessness and continued home price erosion continue to force people into loss of homes. John Quigley is Economics professor at the Univ of California Berkeley. He said, "We are a long way from a recovery. You cannot start to see improvement in the housing market until after unemployment peaks. Federal programs have not been successful and have done little about declining asset values. The probability that a renegotiated mortgage goes into subsequent default is substantially high." He does not mention the obvious, the USGovt assistance efforts are not designed to help the people, but rather to conceal the bond fraud. Quigley does not expect unemployment, officially at 10.0% in November, to peak until the first quarter next year.

The monthly tally of foreclosured homes marches along unabated, surely without evidence of any recovery. Foreclosure filings exceeded 300 thousand for the ninth straight month in November. The actual detail is that a total of 306,627 properties received a default or auction notice or were seized by banks last month. That comes to one in 417 US households, according to RealtyTrac. This ratio is not showing any signs of improvement in trend. The tally from January through November is a whopping 3.6 million FC filings, the most in RealtyTrac records dating to January 2005. The combined delinquency and foreclosure rate for all loans climbed to 12.6% through October. The Go-Go states of California and Florida lead the disaster parade. Notice the drop in mortgage rate coincides with slight reduction in foreclosure. The USGovt is monetizing USAgency Mortgage Bonds, thereby pushing down rates, but with paltry benefits. See the Bloomberg article (CLICK HERE).

◄$$$ RETAIL REMAINS IN TROUBLE, AS CONSUMERS ARE UNDER STRAIN. HOME EQUITY RAIDS ARE NO LONGER POSSIBLE. THE DEAN OF RETAIL HAS NOT CHANGED HIS NEGATIVE TUNE. $$$ Howard Davidowitz continues to hammer home his main theme stated for two years. He said, "Massive closure of stores by this spring. President Obama said we are going to have a $7 trillion deficit. It looks like it is more like $9 trillion. That is $2000 billion more. I thought Bush was nuts, but Obama is 10 times nuttier." The retail industry and travel industry and boating industry really need for the housing market to revive. Home equity provided a bottomless well for spending. It has vanished.

Thanks to the following for charts StockCharts,  Financial Times,  Wall Street Journal,  Northern Trust,  Business Week,  CIBC Bank,  Merrill Lynch,  Shadow Govt Statistics.