"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."
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)
◄ See the Hat Trick Letter Special Report entitled
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
◄$$$ A FOOD SHORTAGE HAS HIT THE UNITED STATES. HOWEVER,
DUE TO A COLOSSAL USGOVT DECEPTION, PHONY INFORMATION HAS
BEEN SPREAD BY OFFICIAL SOURCES. CROP OUTPUT IS MARKEDLY
DOWN, AS DISASTERS ARE DECLARED COUNTY BY COUNTY. BUT USGOVT
STATISTICS REPORT HUGE FORECASTED INCREASES, IN DIRECT CONFLICT,
ONE MORE AREA OF DATA DISTORTION. $$$
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
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
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
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
◄$$$ 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.
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
◄$$$ CHEAP INTEREST TO SERVICE USGOVT DEBT IS A HUGE
REASON WHY THE OFFICIAL 0% INTEREST RATE POLICY CONTINUES.
THIS ULTIMATE FACTOR OF PRACTICALITY IS OFTEN OVERLOOKED.
THE USFED CLAIMS TO WANT TO END ITS ULTRA-EASY MONETARY
POLICY, PURE RHETORIC. A HIGHER USFED RATE WOULD NOT ONLY
DELIVER A HEAVY HINDRANCE TO THE USECONOMY, BUT AGGRAVATION
TO THE FEDERAL DEFICIT. $$$
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 $US 1.5 trillion
of Treasuries and Agencies. On top of that there was the
300 billion in quantitative easing that the Fed used between
March and October 2009. These are one-off measures. The
Fed cannot cut its Funds rate any lower. Straight quantitative
easing is officially over. And the Fed has promised to stop
adding toxic sludge to its balance sheet by March 2010."
The USGovt and USFed have enormous motive to keep their
borrowing costs down, since savings are significant.
My doubts are very high for any end whatsoever to monetization
of USTreasury and USAgency Bonds. My doubts are also very
high for any halt to USFed balloon expansions to its balance
sheet. If the USGovt and USFed stop buying US$-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).
◄$$$ THE U.S. TRADE GAP FELL AGAIN IN OCTOBER. SIGNS OF
FLAT IMPORTS FOR CONSUMERS AND GREATER EXPORTS HELPED TO
NARROW THE GAP. THE CHEAPER USDOLLAR IS HAVING AN EFFECT,
BUT THE MAGNITUDE OF EXPORT BENEFIT IS GROSSLY INADEQUATE.
STIMULUS IS MOSTLY WASTED, WITH RESTRUCTURE AND REMEDY NOWHERE.
BANDAIDS WERE HANDED TO THE STATES, A GESTURE THAT MUST
BE REPEATED. $$$
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 $35.7 billion, reported by
the USDept Commerce. The improvement reflected a 2.5%
lift in exports. Imports were essentially flat, up only
0.4%, held back by reduced energy imports. Much of the
improvement in the trade gap reflected that drop in oil
imports, a sign of reduced economic activity inside the
US. The USEconomy is finding a buoy of support
from exports such as farm products, cars, aircraft, and
industrial machinery, enough to lower the trade deficit
in October. Exports of US goods rose for a sixth consecutive
month, but gains are limited since the national industrial
base has shrunk during a dismantlement spanning three decades.
industry lost its critical mass. Further minor gains
in exports should continue with a falling USDollar. A weaker
US$ 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
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
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. $$$
Service industries in the United States faltered in November. The Institute
for Supply Mgmt Index of non-manufacturing businesses fell
to 48.7 in November from 50.6 in October. The collection
of non-mfg businesses make up almost 90% of the USEconomy.
The number 50 serves as the dividing line between growth
and decline, meaning November saw outright service sector
decline. Furthermore, the ISM index on business activity
views dropped to the lowest level in four months. In the
previous month, the ISM non-mfg gauge of business activity
had declined to 49.6 in November from 55.2 in October, the
biggest plunge in a year. See the Bloomberg article (CLICK
By the way, the ISM decline was unexpected for the mainstream
analysts directed by Wall Street pablum, but not to the
Jackass. No recovery has been detected whatsoever as relapses
With all the liquidations taking place, much of the measured
economic growth is from a rush to close out businesses in
my view. This factor, along with two USGovt programs are
responsible for the bulk of phony measured economic growth.
Two additional data points reinforce the notion of negligible
strength. The factory orders rose only 0.6% in October after
a 1.6% rise in September. No strength detected. Also, the
wholesale business inventory level rose 0.3% in October
and a 0.8% rise in September. Inventories rise when customers
purchase less. Again, no evidence of economic recovery.
◄$$$ 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
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. $$$
Consider the taxes are collected by the USGovt. To be sure,
tax revenue has its largest single item being the income
tax, from corporate and individual sources. When businesses
add workers, they earn money and pay taxes through withholding
means, and tax revenue rises. Check the total employment
number versus the total amount of federal government taxes.
A close correlation is to be expected, verified by the data.
The grand improvement in the jobs number is not noticeable
through November. No rise in the tax revenues is evident.
The USEconomy remains mired in a recession during a long
painful deterioration process. Thanks to Bud Conrad, David
Galland, and the Casey Research folks for the fine chart.
The purpose of the phony November Jobs Report was to
sustain the US stock market, which is
vulnerable, and more importantly to cause a counter-trend
upward rebound move in the USDollar. The embattled
buck was stuck in a powerful downtrend, very vulnerable
to a counter move given its heavily oversold condition.
Also, a lift in the US$
was badly needed to halt the rise in the gold price. Even
a phony report can cause a rush to the door, and massive
short covering in the global reserve currency. The next
decline in the US$ and the next stage rise in gold is thus assured,
since no substance was behind the change. The events of
the last week only cleared out the oversold US$ and overbought
◄$$$ 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
◄$$$ RETAIL REMAINS IN TROUBLE, AS CONSUMERS ARE
UNDER STRAIN. HOME EQUITY RAIDS ARE NO LONGER POSSIBLE.
THE DEAN OF RETAIL HAS NOT CHANGED HIS NEGATIVE TUNE. $$$
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