US MARKETS

Last January we predicted that there would be another stimulus program this year. Congress has already passed legislation to continue unemployment benefits, which the Senate will approve as well. Those out of work cannot survive without such assistance, as our transnational conglomerates continue to send our jobs to foreign lands. The question is will the unemployed, as a result, receive benefits indefinitely, as these elitist corporations park their profits in tax havens tax-free?

There is nothing to stop these events because the public doesn’t understand what is going on and Congress answers only to campaign contributions and the call of re-election. The biggest insult is to expect Americans to believe unemployment is 10% under U3, never bothering to mention U6, which is 17.3% and climbing. Of course there will be more stimulus and Fed monetization of Treasury debt. They know if it is not forthcoming the economic and financial system will collapse. Can you imagine what would happen to the mortgage securities market if the Fed stops buying that toxic waste, or if Fannie Mae, Freddie Mac, Ginny Mae and the FHA stop buying subprime and ALT-A type mortgages? The stock market has slowly moved higher as the insiders in the market, who know what is going on, perceive what is in store for 2010. As far as the Fed is concerned they have to continue doing what they have been doing. The purchase of Treasuries, Agencies and toxic waste has to continue as we long ago pointed out. There isn’t enough dollars floating around the world to absorb this debt. That is why the Fed has to continue to create money out of thin air. They may have cut back on M3, but the money spigot hasn’t been turned off and won’t be eliminated. All this money freed up by Fed purchases of Agencies and toxic waste allows banks, Wall Street, insurance companies and corporate America to buy Treasuries to keep the scam going, as Mr. Ponzi said. Incidentally, when my mother grew up she lived across the street from Mr. Ponzi.

We forecast this two years ago while most economists were sleeping. This past year the Fed bought 80% of new government debt or $1.2 trillion worth as foreigners bought only $300 billion worth. To think this program will end is pure folly. There will be no one to buy the debt, which grows larger with each minute. Deficits will run more than $1.5 trillion a year as far as the eye can see. Revenues continue to fall and spending to rise. Foreigners are dumping dollars not accumulating them. Worse yet many other nations have similar problems. They have to raise money as well. Who will accommodate them? We are talking $10 trillion alone for the G20 countries, some of which are on the edge of bankruptcy. Then again where will the money come from to bail out the likes of California, New York, New Jersey, Florida, Nevada, Arizona, etc.? There just isn’t enough money to go around. The Fed has to increase printing money and issuing credit; there is no other choice short of economic collapse. The price to be paid for this Keynesian profligacy is hyperinflation and you can be sure it is already in the money pipeline.

Some, if not most of the experts, see downdrafts and discipline ahead, which is wishful thinking. The choice in today’s bond market is which purchase will do you the least harm? Will money shift out of corporates into Munis and Treasuries? We do not think so. Would you buy bonds from a bankrupt in a depression in a growing inflationary atmosphere? Of course not. Leverage is in vogue again. Banks are fulfilling the needs of hedge-funds and they are engaged on their own as well. This while they have reduced lending by almost 20% to business and individuals. The banks, hedgies, Wall Street, insurance companies are back doing the same speculative things that they did to cause the current crisis, which is far from over. Why do you think the market, junk bonds and commodities have been as strong as they have been? Why do you think there is a dollar carry trade and why the dollar cannot get out of its own way? Anyone who believes this will end up in a voluntary deflationary spiral, a suicide pact, is mistaken. Central banks and money centers will be dragged kicking and screaming to the moment of justice. Just wait until the public finally understands what they have been up too.

If the dollar is doomed to depreciate what is the alternative? It can’t be the euro with the problems in Greece, Spain, Ireland, Portugal and Italy. You could gravitate to the rising Canadian dollar, the Swiss franc, the Australian dollar or the Norwegian korona. You could gain 30% or more versus the US dollar over the next few years. As we pointed out in the gold section in a recent issue all major currencies have lost big over the past ten years versus gold. As you saw in the last issue central banks are buying gold and are no longer selling gold. Doesn’t that somehow ring a bell? They have gone from selling 500 tons a year in Europe to being buyers. Is this not a major change? We say it is. All the gold is no longer coming to market. Even India bought 200 tons from the IMF, or at least they say they did. Anyone in gold and silver related assets over the past ten years, as our subscribers have been, know what it is like not to lose ground against currencies and to retain their purchasing power. Where else would you go if you have any knowledge of economics and history? Markets and bonds may have risen, but they are losers to the depreciation of currencies. Gold is up over 200% versus those currencies.

Central banks are forced to make the same mistakes that they made several years ago. That is lending to those who would leverage their bets. They themselves have also been in the same process for the past six months and they are lending more than 40 times their asset and deposit base. You can be assured they will create another credit crisis bigger than the most recent debacle. That will result in many years of very painful de-leveraging and a major economic and financial collapse. During such corrections the availability of finance and credit retracts, and when available becomes more costly. As we have seen over the past two years personal use of credit declines, default increase and so does personal savings. The longer government and the central bank interfere in the economy the worse the situation will be and the longer the recovery will be. In the meantime our government deficit increases as it fights a two-front war with no end in sight. Even with stimulus 2010 is going to be a very difficult year.

The BLS, the Labor Department, said the CPI rose 0.1% in December after rising 0.4% in November.

Industrial production rose 0.6% and capacity utilization was 72%.

The January Empire Manufacturing was 15.92.

The January preliminary University of Michigan Confidence Index was 72.8, a lot below the experts 74.0%.

FDIC Chairwomen, Sheila Bair says the Fed could have prevented the financial crisis in front of the Financial Crisis Inquiry Commission.

Capital One Financial Corp.’s US credit card charge-offs rose to 10.14% in December from 9.60% in December. Accounts at least 30-days delinquent, an indictor of future loan losses, fell to 5.78% from 5.87%. Auto loan charge-offs rose to 5.68% from 3.67% and the delinquency rate rose 10.3% from 9.57%.

International credit card charge-offs rose to 9.58% to 9.50%, as delinquencies fell for a second straight month to 6.55% from 6.60%.

Last week the Dow was almost unchanged, as the S&P declined 0.8%; the Russell 2000 fell 1.0% and the Nasdaq 100 fell 1.5%. Banks fell 0.7%; broker/dealers fell 1.6%; cyclicals fell 1.8%; transports fell 1.0%; consumers rose 0.3% and utilities gained 0.8%. The high techs fell 1.2%; semis fell 6.3%; Internets fell 6.3%, and biotechs rose 0.9%. Gold bullion fell $7.00; the HUI fell 5.12% and as you saw above the USDX fell 0.4% to 77.15%.

The 2-year T-bills fell 11 bps to 0.77%. The 10’s fell 16 bps to 3.68%, as the 10-year German bund fell 12 bps to 3.26%.

The Freddie Mac 30-year fixed rate mortgage fell 3 bps to 5.06%. The 15’s fell 5 bps to 4.45% and one-year ARMs rose 8 bps to 4.31%. The 30-year fixed jumbos fell 6 bps to 6.02%.

Federal Reserve credit increased $9.3 billion last week as Fed credit showed no change. Year-on-year it is up $156.5 billion. Fed holdings of Treasury and Agency debt fell $10.9 billion to $2.951 trillion. Custody holdings for foreign central banks has expanded $423 billion, or 16.7% yoy.

M2, narrow, money supply dropped $46.5 billion to $8.367 trillion; it was up 1.9% yoy.

Total money market fund assets fell $21.7 billion to $3.286 trillion; it has declined 16.2% yoy.

          High-yield bond issuance is poised this year to surpass the record-breaking levels of 2009 according to CreditSights Inc.  New issues may reach $120 billion with the refinancing of maturities through 2014 alone and $150 billion is ‘easily achievable’ in a small asset-allocation shift analyst Chris Taggert wrote.

          Senate Banking Committee Chairman Christopher Dodd is considering scrapping the idea of creating a Consumer Financial Protection Agency an initiative at the heart of the White House’s proposal to revamp financial-sector regulations.  The Connecticut Democrat has discussed the possibility of abandoning the push for a new agency during negotiations with key Senate Republicans as a way to secure a bipartisan deal on the legislation, these people said.

          The Federal Reserve’s blowout 2009 profit is no reason to cheer. Rather, it is a reminder of the dangers inherent in the extraordinary policies the central bank has pursued during the credit crunch.  Last year, the Fed earned $52.1 billion, with most of that income coming from interest payments on bonds that it bought during the year. Anyone with access to printing presses could have racked up similar gains.

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WEDNESDAY, JANUARY 20, 2010

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-- Posted Wednesday, 20 January 2010 | Digg This Article