Tuesday, December 30, 2008

Open Forum

Feel free to post up your thoughts, hyperlinks, hold a discussion, etc here.

Bankruptcy filings on the rise again

Back in Jan 2006 I posted an article discussing the Nov 2005 change to US Bankruptcy law and highlighted the fact that over 2,000,000 people rushed to file prior to implementation of this much tougher law: Link: Bankruptcy Stampede

Well, the tougher law succeded in its intended effects and the numbers were dramatically down in 2006 and 2007 (see first chart below), but the severe 2008 economic downturn has caused the numbers to slowly spike upwards again - over 1M in 2008.

In 2009, I expect this current downturn to turn into an economic depression, and with much tighter credit conditions, rising unemployment numbers, increasing foreclosures, credit card/auto defaults, etc, we'll likely see > 1.7M new filings in 2009 and by 2010 new records will be made.

Note where the preponderance of these new bankruptcy filings are coming from (second chart) - yup, the housing bubble areas - the first areas to feel the economic downturn, but these areas are merely the first wave (the catalyst if you will) to a growing nationwide economic tsunami that will hit us all in 2009.


73,000 retailers to to close in first 1/2 of 2009

For those of you who don't know, consumer spending makes up roughly 70 pct of the US economy, yet many consumers have been pulling back due to job insecurities, declining credit lines, falling wealth effect (caused by falling home values/cratering retirement plans) and overall general unease about the future. The end result of this pull back: Significantly declining retail sales - leading to numerous store bankruptcies and closings.

Dec. 29 (Bloomberg) (Article snippets below)

U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.

Retailers may close 73,000 stores in the first half of 2009, according to the International Council of Shopping Centers. Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations.

“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview. “There are a number that are real causes for concern.”

The ICSC predicts, using U.S. Bureau of Labor Statistics data, that 148,000 stores will shut down in 2008. That would be the largest number since 151,000 closings in 2001, during the last recession, according to ICSC Chief Economist Michael Niemira. The total number of retail establishments will decline by about 3 percent this year, also taking into account locations that were opened, he said. The U.S. had 1.11 million retail locations in 2002.

Another 73,000 locations may shut their doors in the first part of 2009, Niemira said.

My closing thoughts:

These store closings will create a self-perpetuating feedback loop - wherein more people will get laid off, which will lead to less consumer spending, increased foreclosures and credit card delinquencies, tighter credit conditions/less available credit - leading to more store closings, etc...

Monday, December 29, 2008

Peter Schiff:12-29-08

Part 1

CNBC: The New Year And New Optimism

Part 2

CNBC: Run On The Dollar?

Thoughts to ponder regarding the current Israel/Gaza confrontation

Israel's End Game

Does the Gaza offensive signal that the Israeli government has decided to embark on the end game? The scale of the effort—a massive aerial assault, with Israeli tanks massing along Gaza's border in evident preparation for a ground-assault—certainly suggests that. What does the "end game" mean? I quote a longtime senior Israeli defense adviser: A military effort to crush Palestinian resistance for a generation.

The great Athenian historian Thucydides, writing almost 2500 years ago, concluded that one reason a nation goes to war is a perception of waning power: act now because the future looks worse than the present. The scale of the assault on Gaza suggests that the Olmert government is validating Thucydides' analysis: embarking on the end game to crush Hamas before it gets stronger, and Israel's position gets weaker. As Thucydides also observed, though, nations taking this gamble tend to be poor judges of what the consequences will be.

Israel says Gaza assault 'war to the bitter end'

Israel obliterated symbols of Hamas power on the third day of what the defense minister described Monday as a "war to the bitter end," striking next to the Hamas premier's home, and devastating a security compound and a university building.

The three-day death toll rose to at least 315 by Monday morning, with some 1,400 wounded. Israel launched its campaign, the deadliest against Palestinians in decades, on Saturday in retaliation for rocket fire aimed at civilians in southern Israeli towns.

Since then, the number of Israeli troops on the Gaza border has doubled and the Cabinet approved the call-up of 6,500 reserve soldiers.

Ehud Barak, the Israeli defense minister, told parliament Israel was not fighting the residents of Gaza. "But we have a war to the bitter end against Hamas and its branches," he said. Barak said the goal is to deal Hamas a "severe blow" and that the operation would be "widened and deepened as needed."

Israel's intense bombings — more than 300 airstrikes since midday Saturday — reduced dozens of buildings to rubble. The military said naval vessels also bombarded targets from the sea.

Sunday, December 28, 2008

Baltic Dry Index Plunges 93% since June 08

So what is the BDI?

Baltic Dry Index

The Baltic Dry Index is a daily average of prices to ship raw materials. It represents the cost paid by an end user to have a shipping company transport raw materials across seas on the Baltic Exchange, the global marketplace for brokering shipping contracts.

This BDI is one of the purest leading indicators of economic activity. It measures the demand to move raw materials and precursors to production. Consumer spending and other economic indicators are backward looking, meaning they examine what has already occurred. The BDI offers a real time glimpse at global raw material and infrastructure demand. This could also be gleaned from looking at commodity prices, but there are substitution effects and futures contracts that make it difficult to interpret the impact of commodity price fluctuations.

Unlike stock and commodities markets, the Baltic Dry Index is totally devoid of speculative players. The trading is limited only to the member companies, and the only relevant parties securing contracts are those who have actual cargo to move and those who have the ships to move it.

Click tabs below for alternative BDI monthly/yearly perspectives:

Good 8 minute video on BDI Plunge:

So what does all this mean for you and your family?

Comments below extracted from this link

Raw materials are not being shipped. This means metal,lumber,grain etc....
Without the raw materials, factories will not be able to make finished goods.
This means no factory jobs and no goods for store shelves.
No goods mean nothing to transport.
Nothing to transport means no trucking/rail shipments
No shipments mean transport companies go bankrupt.
This means there may be no one to ship the vital supplies (food,medicine,gasoline)

Forget the stock market it's like a body that doesn't know its dead yet.....

Bottom Line:

Might be prudent to stock up that empty pantry - while you still can!

The World's Biggest Ponzi Scheme

Good read over at Jerry's Blog: Eye-On-Washington

Las Vegas Nevada: December 2008 Economic Snapshot

Unemployment hits 25-year high

New jobs coming to Wynn Encore and CityCenter are sorely needed in Nevada, where the unemployment rate hit 8 percent in November, the highest level since February 1984, the Nevada Department of Employment, Training and Rehabilitation reported Friday.

The Strip resorts are hiring some 17,000 people, little consolation for the 111,700 unemployed Nevadans in today's economy.

Slowdown offers Nevada a chance to look inward, plan for long term

That big sigh you hear is Nevada catching its breath.

After an unprecedented 20-year-plus run, the state has recorded its slowest growth rate since 1967.

For decades, Nevada’s revenue has flowed from the tourism-dependent gaming industry and consumption-based taxes, such as sales, tying the state directly to the national economy. The state has no personal or corporate income tax.

Moreover, much of government fiscal health has been tied to continued growth. New growth was required to pay for the needs created by yesterday’s growth, including schools, roads and health care. This resembled a Ponzi scheme, in which there is a ceaseless need for new investors to pay off the old investors. Without growth, there are no new investors.

As UNLV economist Keith Schwer put it: “When the business cycle turns down, the public sector ends up in chaos.”

Nevada now faces a budget deficit of more than $1 billion over the next two budget years, and Gov. Jim Gibbons, vowing not to raise taxes or levy new ones, has indicated state government may have to cut as much as 34 percent of its budget. Lost in the debate is this sobering assessment from economists and analysts: Southern Nevada’s days of frenzied growth are likely gone, never to return.

Nevada historian Michael Green said Las Vegas should take the time to redefine itself. Indeed, some policymakers, such as Commissioner Chris Giunchigliani, said such an assessment is long overdue.

“We should have been planning to prevent the bust,” Giunchigliani said. “But we treated gaming as if it were infallible. We bought the line that growth pays for growth — and growth absolutely does not pay for growth. We should start that conversation about doing things differently.”

At the top of the list, she said, should be economic diversification

My 2 cents: Uhm, shouldn't this have been obvious to our economic "experts" years ago - when something could have been done about it? I was predicting it would be a major looming problem back in 2006 - in some of my very first writings: The Las Vegas gravy train has ended

Las Vegas economy may get a hangover from high living

Analysts say hotel-casinos won't recover quickly from a downturn this time. Tourists and locals alike say the Strip has become too high-end for them.

Gaming revenue on the Strip fell 25.8% in October compared with a year earlier. “People might want luxury, but are they willing to pay for it?” asks one economist.

Las Vegas has staked its future on 320-thread-count linens, 2,200-square-foot suites, filet mignon, Chanel, seaweed wraps and $5,000 bets on slot machines. The latest batch of mega-resorts revels in luxury. Thrift mostly vanished with showgirls and the Rat Pack.

Now some observers are wondering whether that was a wise bet.

Analysts say Las Vegas Boulevard, now pocked with empty lots and stalled construction projects, should bounce back once the credit crisis wanes and tourists feel confident enough to splurge on vacations. But although previous downturns passed as quickly as a thunderstorm, economists expect this squall to linger through 2009, push Clark County's unemployment rate as high as 10%, and wipe out casino projects.

Tourism is Nevada's primary breadwinner, and the Strip, with more than $6.8 billion in gaming revenue last year, is the biggest cash machine of all. How its high-end image plays to tourists during and after the recession will affect the entire state.

"People might want luxury, but are they willing to pay for it?" said Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas. "We might have missed our brand."

"If casinos want people back, they need to offer value," said one letter to the Review-Journal. "If they balk at the idea of $3 beers, cheaper food and fewer shakedowns, then perhaps they can try paying their debtors with a mountain of their own folly."

Las Vegas feels the pinch as the party ends in America

The young woman behind the roulette wheel stifled a yawn as she tried to converse with the drunken, middle-aged man who was her lone customer.

The slot machines were quiet, and rock music boomed louder than necessary in the half-empty bar.

It could have been a scene from any casino on a dirt road in an unforgiving stretch of desert, but this was, in fact, the Hard Rock Hotel, one of the premier gambling and party destinations in America.

Welcome to Las Vegas at the turn of 2008 – possibly the most depressing and alarming year in the hard-living city's short history.

A town that was once considered recession-proof, as people continued gambling and drinking away their sorrows during the bad times, is proving to be anything but.

Until now, gaming revenues in Las Vegas have dropped significantly only once since 1970, and that was in the aftermath of 9/11.

In October this year they dropped a staggering 25.5 per cent. And across Nevada, revenues tumbled 22.3 per cent the same month, the largest single monthly drop in state history and the 10th straight month gaming revenues had fallen. Visitor numbers to Las Vegas dropped 10 per cent last month compared to the previous year – and those that are visiting are thought to be spending less than in previous years.

Norm Clarke, who as the city's leading gossip columnist has witnessed Vegas ride out previous tough times is downbeat about the current climate. "It's pretty grim right now," he said. "You drive up and down the strip and see all this construction, but you know that a lot of it has been put on hold."

A total of 54 Sin City construction projects have reportedly been cancelled or put on hold as funding has dried up, with one of the most noticeable being the suspension of work on the Echelon Resort, a $4 billion luxury complex that was supposed to replace the Stardust Hotel but the future of which is now in doubt.

Many who once viewed Sin City as an invincible boomtown, which would party on through any storm, are quickly revising those opinions.

Indeed one of the saddest aspects of the current downturn can be seen in the Vegas strip clubs and lap-dancing bars, which according to reports have seen a sharp rise in the number of girls trying to make a living by exposing their bodies.

Shai Cohen, the marketing manager at the "world's largest" gentleman's club, Sapphire, said he has seen a remarkable increase in the number of girls working as lapdancers in Vegas. "We used to get between 250 and 300 girls turning up here to work on weekends," said Mr Cohen. "Now we are getting between 350 and 400. This started happening in the last six months or so."

Economy Blamed For Rising Violence

According to an official with the Metro Police Department, domestic violence-related homicides in 2008 have surpassed last year's total. There have been 43 domestic violence-related homicides so far this year compared to 27 in 2007.

According to the Las Vegas "Review Journal," Julia Proctor, the executive director of the Henderson SAFE House, is seeing evidence of a link between difficult economic times and a rise in domestic violence. SAFE House conducts a court-ordered program that teaches people convicted of domestic violence how to deal with stress and anger. For the first time since 2003 that program has a four-week waiting list.

Moving on to the brighter side of things - home prices are becoming more affordable

Las Vegas home prices drop to August 2003 levels

The price of existing homes sold in Las Vegas in November plummeted to their lowest level since August 2003 and the new-home and condominium market continued its dismal performance, according to statistics released by SalesTraq.

The median price of the 2,737 existing homes sold in November was $170,500, a decline of $9,500 from October. The November prices are 33 percent below the same month a year ago.

The reason for the decline was the continued impact of foreclosure homes. Some 62 percent of the existing home closings were bank-owned with a median closing price of $160,000. The other 38 percent of closings had a median price of $198,000.

Foreclosures and need for cash force dramatic price cuts - Builders below $100 a square foot

The competition from foreclosures continues to force Las Vegas homebuilders to cut prices and build smaller, more affordable homes and in some cases not build any.

“This is the worst financial situation we have been in since the Depression, and what builders have begun to do is recognize the world is changing around them, and price is a reflection of that knowledge,” said Steve Bottfeld, executive vice president of Marketing Solutions. “This is a big reality check. This is the beginning of a major change in the kind of product developed in the Las Vegas market.”

Eighteen builders have more than 100 models priced under $100 per square foot, said Larry Murphy, president of SalesTraq, which tracks the Las Vegas housing market. The price per square foot of new homes sold through October was $126.01 — a 30 percent decline from $180.17 in 2007. That’s the lowest since $109.33 per square foot in 2003.

SalesTraq released a list that shows KB Home, for example, offering a model in the Providence master-planned community in northwest Las Vegas for $75 a square foot.

In October the median price of a new home sold was $245,781, a 31 percent decline from the market’s high of $355,435 in April 2007, according to Sales-Traq.

Homebuilders are responding to market conditions, Bottfeld said. Homes are getting smaller, going from about 2,100 square feet to 1,600 to 1,800 square feet and within reach of the median income.

Bottfeld estimates homes costing $100 a square foot or less will constitute 20 percent to 25 percent of the market within a year, compared with about 7.5 percent now as estimated by SalesTraq.

The reason builders are willing to go so low is to make money to pay suppliers and employees and pay down debt, Bottfeld said.

Pardee Homes Division President Klif Andrews said builders aren’t making money selling at such low prices, but acknowledged it’s about cash flow to return to the parent company.

“You may have developments where they invested dollars in finished lots and have standing inventory they are trying to sell down,” Andrews said. “We have already spent a fair amount of money, and we are trying to recoup cash. At this time, cash is so critical.”

Breaking even and maintaining current operations is the goal of builders today, Andrews said. Pardee has 90 employees in Las Vegas today compared with nearly 300 two years ago.

Don DelGiorno, division president of KB Home, said the builder’s price reductions are driven by supply and demand. Buyers aren’t being drawn by incentives and granite countertops, and KB’s average prices are $90 to $95 per square foot.

“You can’t fool the consumer,” DelGiorno said. “Especially with the way prices have dropped and uncertainty with employment.”

Tom McCormick, president of Astoria Homes, said that if builders want to sell homes, they have had little choice but to lower prices to match the competition.

Astoria has no homes priced under $100 a square foot at this time, but McCormick said the builder is getting close. Competition from foreclosures is driving the market.

“We are going to have to lower as the market makes us go,” McCormick said.

Murphy said the average price of foreclosure sales in October was $99 per square foot, making many new homes more than competitive.

“We are matching the prices of the resale segment driven by foreclosures,” Andrews said. “It will probably surprise most home shoppers that new homes are competitive with foreclosures. They have a warranty, and they aren’t in a neighborhood with other foreclosures, but we struggle to get that message out.”

Andrews said he doesn’t know how much lower prices can go. That will vary by product and location, but he added he’s not seeing as many price reductions today as he was six months ago.

“It seems a lot more stable now,” Andrews said. “The biggest price correction seems to have already happened.”

DelGiorno said he thinks prices are close to the bottom, but he said he thought the same thing six months ago, and prices have come down.

My thoughts on when we'll see the bottom: Las Vegas homes for $60 a Square Foot?

Best Regards


Saturday, December 27, 2008

1/3 of Banks Will Disappear Next Year

Financial analyst Ralph Silva of TowerGroup told CNBC on Wednesday (24 Dec) that he expects no less than one third of banks to fail in 2009 and that anything up to a thousand could collapse if they don’t merge.

Silva said that only five or six global banks have enough funds to survive comfortably throughout 2009.

“The rest of the banks, and that means a thousand other banks, don’t have enough money to get themselves through 2009,” added Silva.

“In 2009 we’re gonna see one third of the banks in the G8 countries disappear, either being merged, forced or not forced, or completely disappearing,” said Silva.

6 minute CNBC video interview below:

Friday, December 26, 2008

Total Car Market Collapse

Fed Becoming Lender of Last Resort

Bloomberg interview with Merrill Lynch Chief Economist David Rosenberg on recession, ZIRP, fiscal packages and the Fed Becoming lender of last resort for broader economy

Thursday, December 25, 2008

Wednesday, December 24, 2008

New Open Forum

Feel free to post up your links, comments, hold a discussion etc.

After todays rate cut, I couldn't help but to post this great cartoon.

With ZIRP now in place, Debt Monetization is all that is left in the Fed's "Bag-o-tricks"... See link for more On ZIRP - Our Future


Deflation or Hyperinflation?

Excellent read on the topic over at FOFOA'a Blog:

Deflation or Hyperinflation?

U.S. debt approaches insolvency

From AsiaNews - Snippets Below

In the United States, the danger of debt insolvency is growing, putting at risk the currency reserves of foreign countries, China chief among them. According to new figures published by Bloomberg in recent days.

The American government has employed a total of 8.549 trillion dollars to stop the financial crisis. This means a total of about 24-25.4 trillion dollars of direct or indirect public debt weighing on American taxpayers.

In 2007, public debt in the United States was 10.6 trillion dollars, compared to a GDP of 13.811 trillion dollars. Public debt in 2007 was therefore 76.75% of GDP. In just one year, direct and indirect public debt have grown to more than 100% of GDP, reaching 176.9% to 184.2%. These percentages exclude the debt guaranteed by policies underwritten by AIG, also nationalized, and liabilities for health spending (Medicaid and Medicare) and pensions (Social Security).

In 2007, 61.82% of America's public debt was held by foreign investors, most of them Asian. So the U.S. public debt held by nonresident foreigners is equal to about 109.39% (113.86%) of GDP.

In the early months of next year, when the official data are published, the United States will run a serious risk of insolvency. This would involve, in the first place, a valuation crisis for the dollar.

After this, the United States could face a social crisis like that in Argentina in 2001. A crisis in U.S. public debt would likely have a severe impact on the Asian countries that are the main exporters to the United States, China first among them.

LINK: U.S. debt approaches insolvency; Chinese currency reserves at risk

Marc Faber: 2009 to Be `Catastrophic' for Global Economy

Excellent interview where Farber illustrates his firm grasp of the dire economic situation we're in. First 4 minutes of the first video provides the best Macro-economic perspective, followed by a discussion of individual sectors, countries, etc in the later segments.

Part 1

Part 2

Tuesday, December 23, 2008

Articles of interest

Returned home late tonight and don't have much time to post, but would like to share a couple of links with you... Feel free to just scan through the lower ones, but I highly suggest you read the entire Karl Denninger post (1st below).

1) Karl Denninger Must Read: To Our Government: You Must Act Now please be sure to read the article at the embedded link internal to Karl's post

2) When will the government's long and costly bailout of the deeply distressed insurance giant AIG be over? Don't expect it to be anytime soon. - AIG's rescue has a long way to go

3) Even a federal bailout could not save three of the last remaining plants in the United States still making sport utility vehicles - It’s the End of the Line for S.U.V.’s

4) Home sales declined dramatically last month and housing prices posted their sharpest decline in four decades as a rapidly slowing economy discouraged many potential buyers from tip-toeing into the market - November Home Sales Fell Faster Than Expected

5) The US economy shrank in the third quarter, official data confirmed Tuesday, as the IMF's top economist warned of a second Great Depression offering no respite from relentless gloom ahead of Christmas - US economy shrinks as IMF warns of Great Depression

6) Dour data expected on Christmas Eve dampens the holiday spirit. U.S. economic reports are likely to be downbeat tomorrow, with data on durable goods (fall of 3% expected) and weekly unemployment claims of 558,000expected - Santa Likely To Skip Wall Street

In closing, allow me to share with you a very old, yet quite fitting quote for today's economy:

The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance. -- Cicero , 55 BC



Monday, December 22, 2008

Economic Tsunami of 2009

Before you ask" "why should I give any credence to this article?" Please take a couple of minutes to read my 2008 assessment - written in Dec 07: Ushering a new Economic Era.

Though I hope that I'm wrong in my bleak 2009 outlook below, these are my expectations as I see things today. Ultimately, the data (12 months from now) should tell us whether or not I was close.

Economic Tsunami of 2009

The US is still in the early stages of a growing global economic crisis, combined with a tectonic monetary transformation, yet many Americans are merely in a daze and struck with surreal disbelief - like a group of tourists wandering the beach in Phuket, Thailand after the waters receded... This awe inspiring event has never been seen before and most are oblivious to the fact that this is just the breathtaking precursor to a disastrous outcome, so the ignorant masses stay put - trying to grasp the unreal - incognizant of the devastating consequences of their inaction...

The waters started receding in 2008 and as the year comes to a close, the tide is now fully pulled out to sea... 2009 however will likely cause mother nature to reverse these forces quickly, and the first wave of this massive economic tsunami, building on the horizon for over a year now, will finally come crashing ashore with quite destructive results.

My personal 2009 expectations:

- US Job Market to get much worse and will be the "hot topic" discussed in the mainstream media; The BLS officially published and severely understated U-3 unemployment rate will easily cross the 10% threshold in 2009. (link to the real US unemployment picture)

- Housing market will continue to crater while prices fall unabated - due to increasing unemployment, resetting ARMs, inability to refinance, and more people (who CAN afford their mortgage) merely "walking away" - out of disgust/exasperation that banks refuse to work with them (the responsible borrowers/homeowners) while they continue to reward the irresponsible. Home sales however, may likely start to pick up, as those who 1) have a job and 2) can qualify, take advantage of lower mortgage rates and homes become more affordable - but the number of new buyers will significantly lag behind the pervasive increase in foreclosure rates, so home inventories will continue to build while prices fall.

- Bailouts Galore; we're already $8.6 Trillion into this bailout mess (link to 2008 bailout figure)), so what's several more trillion in unpayable (aside from inflation erosion) taxayer dollars? I anticipate we will see bailouts for California, Michigan and others; more money for AIG, the Bond market, Infrastructure improvements, additional stimulus checks for the masses, etc. link to the money hole

- DOW to test the 6,000 range; though we will see a few nice bear-market rallies before and after, the 6,000 range will likely be tested - but don't think this will be the "ultimate low", as that should come later. link to DOW, where's the floor?

- US Dollar to fall to lowest levels in history; with all the new bailouts and increasing debt levels of the US Gvt, the dollar will lose its prestige as a global monetary safe haven and will ultimately test the 65 level (and possibly lower) on the US Dollar Index - sparking a new round of consumer inflation for the masses. The US dollar won't lose its reserve currency status in 2009, but it will in due time. link to Dollar: faltering foundation of US economic strength

- Treasury bubble pops - a flight to safety ensued in late 2008 and Treasuries were the vehicle used. High demand caused rates to fall while face values rose. When the Treasury bubble bursts in 2009, traders will be crushed as rates rise and face values fall. As this happens, the buying price of the bond drops and thus, traders will have to sell currently owned bonds for less than what was paid.

- Derivatives unwind; over a quadrillion (a thousand trillion) dollars in derivatives existed at the height of this economic bubble - part of the reason for our "slowed and controlled" economic implosion. Our monetary masters (AKA: The Plunge Protection Team - PPT) have thrown everything - including the kitchen sink, at our banks, markets and economy - to prevent a massive unwind of this monsterous derivatives complex. From what I understand, much of the froth in these notional derivatives have already expired/bled off, yet we are still stuck with about $700 Trillion outstanding. If the PPT can keep our house of cards afloat for another 18-24 months, these too will expire and the biggest threat to our global economy will have blown over, but I think we're going to see some fireworks first. If AIG, Fannie/Freddie, GM, Citigroup or a big someone else implodes, they will likely set of a chain of cascading counterparty derivative dominoes - insurance bets that can't be paid, but that which are needed to pay off other counterparties, who in-turn, can no longer pay off others, etc.

- Complete US Banking System Nationalization and/or Banking System "Holiday" (shutdown); hundreds of new bank failures will likely lead to public panic, banking runs and gvt imposed withdrawl limits; which will ultimately lead to nationalization and/or a banking system holiday. If a holiday IS imposed, ATM machines, banks and electronic commerce will be shut down across the nation (as the government tries to figure out what to do). People will grow anxious as their credit/debit cards don't work and they're unable to buy food, gas - anything. It may be wise to keep some cash under the matress (just in case). link to banking system shutdown?

- Gold crosses through $1,200 on it's way to meet its 2010 or 2011, one-to-one ratio with the DOW.

- US Economic Depression is declared; it took a year of looking at backwards data for the "experts" to finally declare that we've been in a recession the whole time - a year now! If we experience just four more months of the same, it will be an economic downturn and predicament not seen since The Great Depression. Well folks, the ingredients are already baked into the cake...


Ultimately, 2009 will be quite bad as that first tsunami wave crashes ashore, but it's only the first of many and once the waves end, we've still got flooding, carnage, destruction and cleanup to deal with. Let's just hope that these events don't lead to a complete breakdown in society. link to Social Implications of a Significant Economic Downturn

Best Regards


Sunday, December 21, 2008

Great Depression plus hyperinflation

Terry Coxon, Senior Economist with Casey Research: Hyper inflation will soon replace deflation on consumer goods while the asset class continues down.