The concept of decoupling is dead on arrival. The financial crisis is affecting every country throughout the world. It is seeping into the real economy in every nation. Export orders have fallen off a cliff just as consumer buying has. In every nation the crisis has spread into the real economy via both unemployment and inflation. The economists and analysts who scoffed at us almost two years ago when we announced that the recession, are all stumbling over themselves in announcing we may have a depression. Already there is talk that exporters like Japan and China may not recover for years.

          As you are aware we believe corporate earnings will be on a level in 2009 with that of a 6,000 Dow Jones Industrial Average. We also believe that the consumer will take a holiday taking personal consumption down from 70% to 72% of GDP to 69% or less. We believe the global economy and financial markets will stay depressed for some time to come. You cannot use previous recessions or depressions as a yardstick. This failure is nothing like we have seen in the past few hundred years. The average post-war recession lasted about 10 months. By our calculations we are into the 23rd month and there is no end in sight. In fact, we are really just getting underway. Thus far this recession is similar to 1982, but much more like 1974 so far. They lasted 16 months respectively. This implies little to us. As we said, we have only just begun.

          Unemployment is going to be the over-riding factor in the economy. The official Labor Department report was that in December there was a massive 524,000 decline in non-farm payrolls putting the unemployment rate at 7.2%, the highest rate in 16 years. What is compelling is that these statistics are lies. This game of falsification has been going on since 1980. As usual we were treated to more downward revisions, which totaled 154,000. October’s decline of 320,000 increased to 423,000 and November’s total of 533,000 rose to 584,000. That is a total job loss of 678,000. For the year of 2008 “official” net job losses were 2.6 million, which we estimate to be well over 4 million. Incidentally, that is the highest since 1945. These bogus figures are the result of birth/death modeling, which is simply a government tool to make the numbers whatever the government wants them to be. Over 6 million jobs have been lost in the past eight years in great part due to free trade, globalization, offshoring and outsourcing. In December another 149,000 manufacturing jobs were lost. The only way this can be reversed is by Congress implementing tariffs on goods and services. If we do not have such legislation, America cannot survive as a first-class nation.

          Other employment areas hit hard were trade, utilities, transportation and professional and business services. The additions were 45,000 in the health care industry, which will help increase costs and 7,000 government jobs.

We ask, how long can state, county, city and local governments continue to hire when half the states are broke?

In the pursuit of employment and stability the Obama New Deal will end up just as unsuccessful as FDR’s was. Controlled planning similar to that of Soviet or Fascist models didn’t work in the 1930s in America and they won’t work now. Nationalization and cartelization didn’t work then and won’t work now. Economic growth from 1933 to 1939 went nowhere. Per capita GDP was lower in 1939 than it was in 1929. Unemployment in 1939 was 17.2%, which was higher than in 1931. Today U6 official unemployment is 13.5% and long-term unemployment is 17-1/2%. This was despite 100% increases in monetary expansion. Taxes had been tripled. Employing people became more expensive due to unions and national income guarantees. This kind of formula inhibits growth. There were make-work projects - not projects that created permanent jobs. Laws were passed that inhibited small and medium-sized companies from competing. Those who dissented were pursued by government. This went on straight through World War II. FDR’s economic and financial policies simply didn’t work and when the elitists saw that they had FDR lead us into war. Just read John T. Flynn’s book, “The Roosevelt Myth.”

What you saw in the 1930s and what you will see over the next several years is a power grab by elitist sources behind government. You will see depression, hyperinflation and another contrived war.

Those who tell you that liquidation of assets offer you a fantastic buying opportunity are either dumb or they are deceiving you. We see no immediate chance of deflation getting an upper hand, although in time it will. The Fed has expanded its balance sheet to $1.2 trillion. Reserve balances are at $600 billion. Over the past month bank reserves are up over $300 billion. This is immediately monetized. This is money created out of thin air.

The insiders who want a show of inflation are still frightened by deflation and well they should be. Their long-term inflation in the end will destroy them.

The real estate markets throughout the world will struggle to find a bottom for sometime to come. The world’s biggest market is southern California, a region covered in distressed properties. The inventory overhang is monumental. The mantra of the region that real estate never goes down is dead. The psychology has been broken and may never prevail again. The good years were great. Where could you buy a home for 20% down for $35,000 and 20 years later sell a home for $1 million? That happened to many others, and us but that game has come to an end. The resetting of billions of dollars in Option ARMs, pick-and-pay loans have begun to hit the upper end of the market in full force. The forced sale of these homes will devastate an already crippled market. As California goes so goes the nation.

Currently more than 50% of sales to mostly speculators are distress sales. The affects of SB1137, which delays the foreclosure process, will see its effects vastly dissipate very shortly. It will end up like all price controls causing more harm than good. This reality will send prices exceedingly lower. Bottom line is this market should be reached in 2011 or 2012, if the state and federal governments do not interfere. If they do it could last longer. Not only are ARMs resetting but also unemployment is spiking upward, the state is bankrupt, inventory continues to rise as well as foreclosures and the economy is falling apart.

Sixty percent of Option ARM loans are upside down and a majority of them are in California. Unless you come up with the cash difference between equity and the loan you are not getting refinanced. The economy the way it is will make it very difficult for many people to re-qualify. In fact, more than 50% won’t re-qualify.

It’s not that politicians do not get it. It is because the bankers, Wall Street and transnational corporations control the politicians with campaign donations and a bevy of other illegal perks. Politicians do as they are told and that is approving things such as TARP to enrich the rich.

S&P Case Shiller sees Southern California home prices off 24.9% in 2009 and 5.1% in 2010; a net 50% drop is seen and perhaps as much as 70% from the peak prices. That puts the $550,000 home at $275,000 or $165,000.

It is no wonder that observers of the economic and financial scene are concerned when the net worth of US households fell by $2.8 trillion in the third quarter alone and by $7 trillion in 2008. This is the worst adjustment since the 1930s. As we are seeing the net result is the public is finally reducing debt. Unfortunately, the reduction in credit deflates the quantity of money in circulation and forces the Fed to print even more money. In the third quarter mortgage and consumer credit together fell $117.4 billion yoy.

Now we have interest rates at zero as the Fed pushes on a string, and they are blindly followed by every major nation, all of which are waiting to get buried. Wait until you see the dislocation when the Fed attempts to borrow $2 trillion in 2009. In 2008, in real estate, stocks and commodities worldwide, $70 trillion has been lost. These events have put the smell of panic in the air, both by individuals and corporations of government, all of which as yet have not totally grasped the gravity and seriousness of their problems.

As we have often said since June 2002, the Fed is in a box and they cannot get out without allowing the system to be purged. Barron’s is right, US Treasuries are a bubble and they will in time collapse taking yields considerably higher. Investors are about to find out that there is no safety in US Treasuries. Before the year is out these higher yields will force the stock market lower as well as real estate and other yield bearing entities. As this transpires taxes will rise as government extortion continues apace and inflation will rage.

...

GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS

2009 is going to be a giant year for gold. Physical off-take is enormous and rising. The Perth Mint saw a 194% rise in the final quarter of 2008 yoy. The mint is working around the clock six-days a week. They have had to suspend sales except for the 1-ounce Kangaroo.

Citigroup and Morgan Chase are talking in terms of $2,000 gold and Merrill says $1,150 by June. These are anti-gold forces. The momentum move is into physical and not into futures and ETFs.

America’s malfeasance and corruption will drive the dollar lower versus other major currencies and much lower versus silver and gold as stagflation takes hold.

We have said the 9/30/09 fiscal deficit will range from $1.3 to $2 trillion and those kind of numbers will be with us as far as the eye can see, we are told by President-Elect Obama.

Gold is strong and getting stronger. It has outperformed all other assets except the US dollar and US Treasuries. Barron’s says Treasuries are in a bubble and we say the dollar is in a bubble. Do not forget gold has risen nine years in a row. That is a real bull market. We are nowhere near the end of that bull market. We wouldn’t touch Treasuries with a barge pole. It is very significant that the market and commodities got hit hard during de-leveraging but gold took minor losses. As we have seen recently some of the public worldwide is dumping their domestic currencies in a flight to gold and silver. People are looking for insurance and away from fiat currencies.

…

In 2008 gold outperformed every major market index. Gold did better than the US market by 38%; Canada by 35%; Brazil 40%; London 31%; Germany 39%; France 41%; Russia 68%; India 53%; Indonesia 50%; Hong Kong 48%; China 64%; Australia 42% and Japan 40%.

When compared to major currencies gold outperformed the US dollar by 5%; the Canadian dollar by 31%; Brazil 38%; England 45%; Germany by 9%; France 9%; Russia 25%; India 28%; Indonesia 21%; Hong Kong 4% and Australia 33%. Gold fell 2% versus the Chinese yuan and 17% versus the Japanese yen. 99% of the time in 2008 it was better to be in gold.

As of January 6, 2009, SPDR (GLD), the largest gold ETF added 7.37 tons of gold to be net long 787.6 tons. Barclay’s Comex gold trust (AU) added 0.75 to net 67.52 tons.

Barclay’s silver shares trust (SLV) added 270.49 tons to hit a new record 7,063.48 tons of silver.

The January 6th COT report of large commercial gold net short positions showed a 6,709-contract increase from 142,773 to 149,482 contracts. Over the past four weeks these commercials increased their short positions by a net 54,610 contracts or by a large 57.6%. The basic underlying long-term short position is 95,000. Open interest increased 59,390 or 22.8%. Obviously these biggest shorts are looking for lower gold prices. This short addition was put on just prior to annual rebalancing of several widely held commodity indexes. The pros obviously knew that the gold ratio would be reduced. Thus, they were trading on inside information.

Large silver shorts only increased shorts by 676 to 30,920, as there was no substantial change in the silver ratio in the index. It should be noted that two large US banks hold 98% of the silver shorts and have not increased their short positions. It could be silver is ready to move versus this position. Due to the monopoly sanctioned by the CFTC many players have moved to other venues. Talk about blatant concentration. Comex is being used to lay off derivatives positions for JP Morgan Chase and HSBC. There is no free market and that is why players have gone to ETF’s shares and the physical markets. Until there are strict and equal position limits for all participants long and short, that is, until the playing field is level, few will play the Comex game in silver and gold. It is perverse, it is immoral, criminal and something has to be done or no one will play the game.

We ask how can major premiums persist for six months in physical gold and silver assets, as supply remains very limited and the futures prices fall at the same time? It is impossible unless our government is rigging the market. Today’s government corruption is as bad as it gets.

In spite of all this gold and silver will move relentlessly higher as they have over the past 8-1/2 years. Sooner or later these crooks will lose. Besides where else can you go with your investible funds? The market is headed much lower as is real estate; commodities face recession and less demand and now the bond market is a bubble. There is only one place left and that is gold and silver assets.

...

THE INTERNATIONAL FORECASTER

Wednesday, January 14, 2009

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-- Posted Wednesday, 14 January 2009 | Digg This Article