ZIRP: Our Future

Well folks, approval of the massive bailout plan wasn't enough to calm global markets, so it looks like the Fed will cut rates again - soon!

Based on Bernankes gloomy speech and the cratering of global markets today, the Chicago Board of Trade, futures market is indicating a 48% chance that the Fed will lower its Fed Funds Rate (FFR) to 1.5% from today's 2%; additionally the futures showed a greater chance (58%) that the rate will be cut 3/4% to 1.25%.

Note: This will likely be a nice positive for Gold, a negative for the US Dollar and highly inflationary for consumer wallets.

Anyway, if you can recall back to April of this year - when the market movers (due to rising inflation pressures, a slowdown in unemployment figures, a rising equity market and a less volatile credit market) were all talking in unison about a rate pause and likely future rate increases. I raised the BS Flag Immediately!

My Quote:

" I don't buy it, as there are still far too many uncertainties out there for the Fed. I expect a 25Bp cut this time around followed by another in June (or an emergency cut if warranted beforehand) and a 1.25% rate by the end of the year."

" We are nowhere near the end of this housing/credit/insolvency crisis and think ZIRP (Zero Interest Rate Policy) is not out of the question in our future. Each time a new crisis erupts, the fed will print/cut/inject in an effort to contain it, but will eventually run out of monetary ammunition... That's when the real hyperinflationary fireworks will begin."

Speaking of ZIRP:

Back in a November 2007 post Will the Fed Cut Rates again on December 11? I made fun of Paulson's "Strong Dollar Policy" and then got to the crux of the matter: The Fed and PPT would use EVERY tool/instrument at their disposal to fight off the deflationary impacts of the credit crisis and the banking/financial system implosions

My Quote:

" Ultimately, reduced credit leads to reduced money creation, which leads to reduced spending which leads to a deflationary environment - But have no fear, Ben and the Boyz are here."

Based on the comments Ben Bernanke made in his 2002 speech before the National Economists Club in Washington, D.C., Helicopter Ben made it clear the Fed would do everything in its powers to prevent deflation: Deflation: Making Sure "It" Doesn't Happen Here


So, what are the tools Ben feels the Fed should use to prevent deflation?

The Fed could cut rates to ZERO, while simultaneously they could print/inject massive amounts of fiat money into the system. See excerpts from the link below (Note: Emphasis is mine)

“ But suppose that, despite all precautions, deflation were to take hold in the U.S. economy and, moreover, that the Fed's policy instrument - the federal funds rate - were to fall to zero. What then? In the remainder of my talk I will discuss some possible options for stopping a deflation once it has gotten under way."

" Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

There you go, he said it - print more money to reduce its value and to generate more spending (sounds like a call for Hyperinflation)

“ Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior). Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys. "

"Alternatively, the Fed could find other ways of injecting money into the system--for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities. Each method of adding money to the economy has advantages and drawbacks, both technical and economic. One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.”

"Unlike some central banks, and barring changes to current law, the Fed is relatively restricted in its ability to buy private securities directly. However, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window".

"Therefore a second policy option, complementary to operating in the markets for Treasury and agency debt, would be for the Fed to offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral. For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral. Pursued aggressively, such a program could significantly reduce liquidity and term premiums on the assets used as collateral. Reductions in these premiums would lower the cost of capital both to banks and the nonbank private sector, over and above the beneficial effect already conferred by lower interest rates on government securities."

Closing:

Thus far, though out of order and minus ZIRP, Ben and the Boyz have used every single tool mentioned/outlined in that 2002 speech.

With another rate cut in the works and with financial system troubles mounting, my April 2008 call for a 1.25% FFR by end of year will likely come to fruition.

What then should we expect to see?

Well folks, when stuck with a measly 1.25% FFR going into next year, the fed will have very little ammunition left in his "bag-o-tricks" with which to fight the worsening battle, so ZIRP will be implemented in 2009 followed by a massive monetization program.

Bottom Line:

Massive Monetary Inflation (ZIRP + Monetization) coupled with Severe Asset Deflation (Credit Crisis + Collapsing asset values) and high unemployment = A HYPERINFLATIONARY DEPRESSION

Hope this is an easy enough concept for everyone to follow

Randy

The Federal Reserve and the Stock Market Meltdown

To most Americans, the Federal Reserve is just another name on their dollar bill. They don't know that this secretive private bank controls America's entire economic system. The Federal Reserve is no more federal than Federal Express. Created with no constitutional authority in 1913, the Fed prints money out of thin air and loans it to the U.S. treasury at interest. This can only lead to one outcome: debt. Currently, the Federal Reserve is printing billions of dollars to bail out Wall Street while destroying the middle class and the dollar. If our country wants a sound and transparent monetary system, we need to abolish the Federal Reserve and bring the power back to the American people.

Will the MASSIVE Gvt bailout plan work?

Our Global economy is currently teetering on the edge of a cliff - caused by a complete collapse of the American Debt bubble and unwinding of the global derivatives complex.

Had American financial policymakers allowed us to take our medicine earlier, we probably could have gotten through this mess, but Alan Greenspan and the Boyz instead decided to follow a consistent policy of delaying our day of reckoning. By lowering rates/increasing liquidity at any inkling of global economic stress (see some of the examples below), they merely covered up the economic problem of the day with more easy credit/debt - which successfully delayed, but significantly increased the size of the problem...

- US Stock Market Crash of 1987
- Japan's Economic Crash of 1990's
- LTCM Hedge Fund Collapse 1994
- Asian Currency Crisis 1997
- Russian Bond Default 1998
- NASDAQ Bubble/Bust

The latest example was the Housing Bubble

Most uninformed Americans actually think the housing bubble created all of our current economic ills, but what they don't realize is: the housing bubble was merely the delayed symptom of easy monetary policies and laxed lending standards - created in large part by Alan Greenspan and his cronies by not wanting to take the harsh economic medicine after the dot-com implosion and 9/11 crisis. Therefore, they delayed the much needed/necessary hardship by lowering/holding rates at 1% (40 year low) - providing the volatile fuel mixture used to inflate the housing bubble.

So, here we are today, sitting on the MASSIVE cumulative effect of all these corrective delays and the problems are GARGANTUAN.

Thus far, in an attempt to save our crumbling foundation of debt, Gvt financial experts (AKA: Plunge Protection Team) have tried three different mortgage work-out plans, pushed through a massive economic stimulus package and simultaneously resorted to a myriad of unprecedented Fed Reserve lending facilities. That wasn't enough, so Bear Stearns was bailed out with your taxpayer dollars, followed by Fannie Mae/Freddie Mac and most recently AIG. Each of these attempt to stop the systemic debt implosion has been more drastic than the previous and each attempt has failed.

It's now being said the proposed $700 Billion Bailout package (a new taxpayer funded Government structure used to buy up the bad debts of sinking US and International banks) will save the day.

So, will it work?

Before answering this question, ask yourself: How many times during this developing economic crisis have our appointed financial wizards told you the crisis is contained - and have they been right even once?

NOT!

Much to Greenspan's despair (because his legacy will now forever change) our inevitable day of reckoning has finally arrived! The problems we now have are far too big for any repair effort - Deleveraging of debt must happen and there is nothing, aside from delaying the inevitable, that Paulson, Bernanke, Cox, Lukken and the rest of this lying band of taxpayer pirates can do about it.

Our system is Hemorrhaging badly and the band aids will slow, but will not stop the massive bloodletting to come.

If you'd like to know more about how we got here and what our future is likely to hold - see link: US Economic Outlook 2008-11+

Lastly, we should never discount the negative implications these bailouts create for the US Dollar - as the World's Reserve: Dollar: Faltering Foundation of US Economic Strength

Regards

Randy

Lehman likely to be dead by Monday morning

Tonight, the Federal Reserve Bank of New York held an emergency meeting with top Washington policymakers and major financial institutions to discuss Lehman's future.

Attendees included Treasury Secretary Henry Paulson; Christopher Cox, chairman of the Securities and Exchange Commission; and Timothy Geithner, president of the Federal Reserve Bank of New York.


NYT: U.S. Gives Banks Urgent Warning to Solve Crisis Hat tip Justin

As Lehman Brothers teetered Friday evening, Federal Reserve officials summoned the heads of major Wall Street firms to a meeting in lower Manhattan and insisted they rescue of the stricken investment bank and develop plans to stabilize the financial markets.

Timothy F. Geithner, the president of the New York Federal Reserve, called a 6 p.m. meeting so that bank officials could review their financial exposures to Lehman Brothers and work out contingency plans over the possibility that the government would need to orchestrate an orderly liquidation of the firm on Monday, according to people briefed on the meeting.

Flanked by Treasury Secretary Henry M. Paulson Jr. and Christopher Cox, the chairman of the Securities and Exchange Commission, he gathered the executives in person to impress on them the need to work together to resolve the current crisis.

Mr. Geithner told the participants that an industry solution was needed, no matter what, and that it was not about any individual bank, according to two people briefed on the meeting but who did not attend. They said he told them that if the industry failed to solve the problem their individual banks might be next.

A spokesman for the New York Federal Reserve Bank in New York confirmed the meeting but declined to provide details on the discussions. The Wall Street executives included the following chief executives: Lloyd Blankfein of the Goldman Sachs Group, James Dimon of JPMorgan Chase, John Mack of Morgan Stanley, Vikram Pandit of Citigroup and John Thain of Merrill Lynch. Representatives from the Royal Bank of Scotland and the Bank of New York Mellon were also present. Lehman Brothers was noticeably absent from the talks.

The meeting was reminiscent of the circumstances that preceded the near-collapse 10 years go of Long Term Capital Management. At that time, William J. McDonough, then the president of the New York Fed, summoned the heads of big Wall Street banks to the Fed to stop the failure of L.T.C.M., a hedge fund firm that had made big bets on esoteric securities using borrowed money and which had already lost $4.5 billion.

The bankers ended up committing $3.65 billion to save L.T.C.M., though Bear Stearns, the hedge fund’s clearing broker, refused to contribute to the investment. Traders from the banks wound down the fund over time, averting what might have been big losses across the financial system. But the fallout from a failure of Lehman Brothers could be even more severe, given the firm’s much larger size and its entanglements with trading partners around the globe.

Policy makers fear its losses could ripple through the financial industry at a time when banks and securities firms are trying to overcome $500 billion in write-downs.

One observer briefed on the situation described the session as a “game of chicken” between the government and the heads of the major banks.

Bank of America and two British firms, Barclays and HSBC, have expressed interest in bidding for Lehman Brothers, according to people briefed on the situation. But they have indicated that their bids are contingent upon receiving support from the government, just as it did with the rescues of Bear Stearns, and the government-sponsored agencies, Fannie Mae and Freddie Mac.

But Mr. Paulson and Mr. Geithner made it clear to the company, its potential suitors and to the meeting participants on Friday that the government has no plans to put taxpayer money on the line. The government is deeply worried that its actions have created a moral hazard and the Federal Reserve does not want to reach deeper into its coffers. Instead, Mr. Paulson and Mr. Geithner insist that Wall Street needs to come up with an industry solution to try to stabilize Lehman Brothers and calm the markets.

Still, some of the other Wall Street banks, facing billions of dollars in losses themselves, have resisted this approach. They argue that Lehman Brothers overreached and brought its current troubles on itself. If there are no bidders for Lehman Brothers, these banks say they can collect their collateral and liquidate the troubled firm’s assets. In this high-stake game, they may also be trying to call the government’s bluff, knowing that if push came to shove, it would provide financial support.

Mr. Geithner, who led the session, firmly stood his ground. He told the banks that this was about fixing the system and preventing the crisis from worsening.

By the time Lehman’s shares went into a spiral this week, Fed and Treasury officials were convinced that Lehman posed far fewer real risks than Bear Stearns had back in March. The confidence by Washington officials stemmed from the fact that, after the Bear Stearns collapse, they obtained stronger regulatory powers that gave them the ability to peer into the activities and risk exposures of institutions on Wall Street.

Fed officials, for example, are now embedded at each of the big Wall Street investment banks and have at least some capacity gauge the firms’ exposure to hedge funds and other big players, as well as their positions in financial derivatives and other opaque markets. Fed and Treasury officials have also been taking the daily pulse of executives and traders on Wall Street for months, and much of that discussion has been about Lehman.

Officials detected a rising number of defections by Lehman’s institutional customers to other firms, but nothing near the panic that caused Wall Street executives to bombard Mr. Paulson with dire warnings about a Bear Stearns collapse in March.

Fed officials also saw few signs that fears about the future of the investment bank were spilling over to fears about its customers and trading partners.

And in practice, taxpayers could still end up on the hook for at least as much money as they were in the case of Bear Stearns. Lehman’s successor will still be able to borrow from the Fed’s new lending program for major investment banks, which the Fed created in response to the collapse of Bear Stearns in March. If Lehman were to borrow money and then default on its loans, the Fed’s losses would reduce the amount of money it turns over to the Treasury.

For political and economic reasons, both the Federal Reserve and the Treasury Department are loath to save financial institutions from their own folly.

But as the housing crisis has deepened, they have abandoned free-market orthodoxy, fearing that the collapse of institutions like Bear Stearns or either Fannie Mae or Freddie Mac could cripple the financial markets, and perhaps the economy itself.

One of the biggest differences between the challenge facing Lehman and the one that faced Bear Stearns is the availability of the Fed’s emergency lending program for investment banks.

When confidence evaporated in Bear, with major hedge funds pulling their prime brokerage accounts, Bear’s financing ran out almost overnight, creating a panic situation. Lehman has had the power to plug any cash shortfalls by borrowing from the Fed, though it has not actually borrowed any money from the program since March.

The Crash of 1929

Originally produced in the mid-1990s, this film remains the most authoritative account of the Crash of 1929, and includes rare testimony from the people who worked on Wall Street at the time

US Dollar Intervention

The Dollar made some gains along with equities yesterday, while commodities and metals fell.

So, can one now assume the dollar crisis is over? NOT a Chance!

Then why the uptick and how long should we expect it to last?

The strengthening dollar can likely be attributed to coordinated global dollar intervention by the central banks of the world -- to prevent a full-blown dollar rout and stave off rapidly spiraling inflationary pressures. Bernanke even stated such in his congressional testimony last week: "Dollar intervention may be justified in Disorderly Times."

In a nutshell: By supporting/manipulating the dollar, short traders are forced to cover, thus causing the dollar to rally and energy prices to fall. When used in conjunction with other instruments in the PPT arsenal (i.e. large gold and energy shorts) the effect can be pronounced.

Timesonline: Ben Bernanke highlights fight against inflation

The dollar rebounded from Tuesday's record lows as Mr Bernanke combined his own emphasis on the Fed's determination to rein-in inflation by again brandishing the threat that Washington could intervene to halt the slide in the US currency.

In a new signal of growing concern at the Fed that the dollar's rapid decline on foreign exchanges is stoking inflationary pressures by driving up America's import bills, Mr Bernanke fired a fresh warning at the markets, making clear that currency intervention remains a weapon at the disposal of the US central bank and Treasury.

“Market intervention is a policy that's been undertaken a few times. I think it's something that should be done only rarely, but there may be conditions in which markets are disorderly where some temporary action is justified,” he said.


Forbes: Time is now for intervention to prop dollar:

Intervention by the U.S. Federal Reserve, undertaken in concert with the European Central Bank and other global economic powers, could be an inflexion point for the dollar after its 6 year fall.

And with the falling dollar playing a substantial role in rising oil prices, official action to back the currency could provide relief for consumers and ease the pressure from inflation, both in the United States and globally.

It would also be a very useful and timely insurance policy against any run on the dollar should global holders of U.S. debt take fright at what may be a massive bill, and proportionally huge supply of new U.S. debt, to backstop Fannie and Freddie and sort out problems in U.S. real estate and banking.

"This is a situation crying out for intervention and leadership," said Nick Parsons, head of market strategy at nabCapital in London.

The Bush administration has long argued that the value of the dollar should be set in the free and unfettered market, though where exactly a free market can be found I am increasingly unclear.
The serial bailouts, first of Bear Stearns and now Fannie Mae and Freddie Mac, have robbed that argument of much of its moral and intellectual authority, though probably not all of its emotional appeal.

So, with that understood, how long should we expect the rally to last?

My bet is: we may see 74-75 as a rebound high for the US Dollar index, but the rally will probably end not later than August 5th... On that day, people will finally realize that Bernanke's hands are tied and can not/will not raise interest rates AT ANY TIME this year. Shortly thereafter, dollar selling will once again commence in earnest -- ultimately overtaking the efforts of our global central bank interventionists.

Bottom line: I still feel 70 will be taken out later this year.

US Dollar Index Daily Chart

US Dollar Index Weekly Chart

DOW COMMENTS

The DOW has rebounded nicely over the last week or so, but I now think it's time for another leg down. With Jobless Claims, Existing Home Sales, New Home Sales, Mich Sentiment and Durable Goods releases due later this week, I think it's likely we'll see a Friday closing number lower than today's 11,632.







Regards

Randy

Fannie and Freddy -- walking dead

I've been hammering Fannie and Freddy since my very first post in 2005 and have always suspected that they were merely walking dead, but the Gvt. couldn't allow the public to know this, so they propped up their carcass of a body just like the characters did their boss in "Weekend at Bernie's"

Well, it now looks like the cat is out of the bag, as former St. Louis Federal Reserve President William Poole said Freddie Mac and Fannie Mae are insolvent and that the government might need to step in to rescue the struggling lenders.

“Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,” Poole said Wednesday.

In other words, he believes they're virtually bankrupt!

Fannie, Freddie Tumble on Bailout Concern

July 10 (Bloomberg) -- Fannie Mae and Freddie Mac, the two biggest providers of financing for U.S. home loans, fell to the lowest levels in 17 years in New York trading after a former Federal Reserve president said the companies may need a government rescue.

Fannie Mae tumbled as much as 24 percent and Freddie Mac slumped as much as 34 percent in New York Stock Exchange composite trading after UBS AG analysts said in a report today that Freddie Mac's decline creates ``challenges'' for the company's plan to raise $5.5 billion

Chances are increasing that the U.S. will bail out Fannie Mae and Freddie Mac because they don't have enough capital to weather the worst housing slump since the Great Depression, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules. The fair value of Fannie Mae assets fell 66 percent to $12.2 billion, data provided by the Washington- based company show, and may be negative next quarter, Poole said.

The companies, created to boost homeownership and promote market stability, own or guarantee about half the $12 trillion in U.S. home loans outstanding. In addition to those obligations, Fannie Mae has $831 billion in company bonds outstanding, while Freddie Mac has $644 billion, according to Bloomberg data.

Government Ties

Congress created Freddie Mac and expanded Fannie Mae in 1970 to promote home buying in the U.S. The companies' charters give the Treasury the authority to buy as much as $2.25 billion in each of their securities in the event of possible default.

The government will likely be forced to take over the companies because of the mortgage meltdown, Poole said.

``We know in a crisis the Federal Reserve tap would be open,'' said Poole, now a senior fellow at the Cato Institute.

The bailout of Bear Stearns Cos. by JPMorgan Chase & Co., arranged by the Fed, demonstrates the government's unwillingness to allow ``large, systemically important'' financial institutions to fail, he said. Bear Stearns collapsed after customers fled amid speculation the company faced a cash shortage.

``I worry about those institutions,'' retired Richmond Fed President Alfred Broaddus said. ``They are huge. They dwarf the Bear Stearns issue. In the very worst case scenario, I don't know how you do it other than extend money and the public takes the loss.''

Bottom line:

This is huge folks! If Fannie and Freddy were allowed to fail (won't be allowed), we would quickly fall into an ECONOMIC DEPRESSION (i.e. lack of new home loan credit = lack of new money circulating, destruction of debt/bond/equity markets, a complete lack of home sales/swiftly building inventories, MANY times more home loan defaults than expected and an ABSOLUTE COLLAPSE IN HOME PRICES -- compounding several times over the current banking/financial system crisis and significant economic pains that we are now experiencing).

If the GVT indeed does bail them out (likely) expect a HYPERINFLATIONARY Spiral -- followed by a depression anyway. We're talking TRILLIONS of new dollars quickly added to a bloated fiat system that is already creating new money at a near 20% annual rate -- adding explosive fuel to a raging forest fire and increasing the velocity of US Dollar decline and ultimately Dollar hegemony collapse.

Once again, the Plunge Protection Team and Gvt are stuck between a rock and a hard-place, and the days of easy fixes have long since past... We should have taken our harsh medicine after the Dot.com crash, but the Maestro (Greenspan) wanted to leave his chair on a high note. Though honored, knighted and revered around the globe, Alan Greenspan (when history is written/analyzed) will likely go down as one of the WORST Fed Chairman EVER! I hope he can sleep well at night, knowing what he hath wrought.

As an aside: for those who don't understand the word hegemony (used above), I highly suggest you read a superb Ron Paul article written back in 2006: The End of Dollar Hegemony

All the best

Randy

The U.S. recession, the dollar, oil and IRAN

From Paris, Max Keiser, journalist and broadcaster speaks to Afshin Rattansi in Tehran.

Mr. Keiser absolutely nails the real issue that no one in America is talking about!

Could it be that the news we receive through our corporate owned media system is being controlled (not allowed to talk about this subject)? Hmmm...

DOW -- Trouble Ahead?

Last Dec/Jan the major US equity markets experienced significant sell offs, and the Dow nearly plunged through 11,600, but support was found, and for the next couple of months the DOW hovered slightly above the 12,000 range... Then came the month of March 08, when Bear Stearns was imploding and bad news started to pour in from every angle.

At that time, I knew the situation was grave and opined that the Plunge Protection Team (PPT) was wide awake at night, trying to find a solution -- otherwise the last leg of confidence in their "Goldilocks" economic charade would fail.

Here's my Sunday Evening, March 16th, 2008 post: Tumultuous Week Ahead

Lo and Behold, within hours of that post, opening markets around the globe began to tumble -- causing the PPT to panic and come out fighting (on a Sunday night)... With their big cannons and guns ablazing, it was announced the Fed would immediately:

Modify the Discount Window -- On March 16, 2008, the Fed further extended the term for borrowing to 90 days, and further reduced the spread to the target federal funds rate to 25 basis points.

Open the Primary Dealer Credit Facility -- The establishment of the PDCF was announced on March 16, 2008. The Board determined that unusual and exigent circumstances existed in financial markets, including a severe lack of liquidity that threatened to impair the functioning of a broad range of markets, and announced that the PDCF will be in place for at least six months and may be extended as conditions warrant.

These two new unparallelled additions would immediately join two other unprecedented actions taken earlier in the year:

- The Term Auction Facility (TAF) in Dec 07
- The Term Securities Lending Facility (TSLF) on March 11, 08

Within days, easy liquidity created through these four new monetary spigots started to calm markets, and as increasing gains were made many shills began to pronounce: "The Credit Crisis is Over".

Well, here we in June 08 and things aren't looking so well again...

With recent reports of:

- The biggest jobless increase in over two decades
- The largest housing bust since the Great Depression
- Oil/gas at an all-time high
- Contagion spreading across the banking sector (significant losses ahead)
- Recent MBIA and AMBAC downgrades

Last Friday's 400 point drop in the DOW should have been a wake-up call.

Let's look at a chart of the DOW:

Note: I'm not a chartist, but I do have a lot of common sense and believe that anyone can relate to/understand what I'm about to say.

Looking at the chart above, last Friday the DOW closed at 12,209. On the assumption more bad news will follow in the days/weeks ahead, where can one expect to see the next level of downside support and will we eventually break through it?

If you follow the chart over to March 2007, you will see that 11,939 is the next downside support level. If we break through there, it's quite likely we will also test the following downside support level-- found in Jan 08 at 11,634. Now, this 11,700-11,600 level will provide very strong downside resistance and the PPT will fight tooth and nail to prevent failure, but if we DO break through it -- look out below as automated sell signals kick in from around the Globe—potentially creating a selling panic/free-fall.

From there it's a 1,000 point drop to the next downside support level -- July 2006 @ 10,683.

Closing:

I don't expect to open in a free-fall tomorrow or the next day, but want you to be aware that we're only 300 points from breaking through key downside support levels. Once that happens (which I'm sure it will in the coming weeks) the next support level @ 11,700-11,600 becomes very vulnerable -- and if that one doesn't hold, expect all hell to break loose as the last leg of propped-up confidence in our economy gives way to unknown panic/crisis.

With that said, and expecting more bad news to roll in each and every day, I feel quite confident in stating that both of these downside support levels will eventually be broken (this year), but the real question ultimately relates to timing and the PPT -- What else do they have up their sleeves? No one yet knows, but expect a fight.

Best Regards

Randy

Economicrot.blogspot.com

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Goldilocks Economy - News Roundup

U.S. stocks rose the most in almost two months today, led by energy companies and retailers. I imaging the following issues weren't taken into consideration:

U.S. Mortgage Delinquencies, Foreclosures at Record

June 5 (Bloomberg) -- The number of Americans in danger of losing their homes to foreclosure rose to the highest in at least three decades during the first quarter as borrowers who fell behind on payments were unable to sell their homes.

The total inventory of homes in foreclosure increased to 2.47 percent and the delinquency rate, loans with one or more payments overdue, grew to 6.35 percent. All were the highest in a series that goes back to 1979, the Washington-based trade group said.

Equity in Americans’ homes falls to historic low

The equity Americans have in their most important asset — their homes — has dropped to its lowest level since the end of World War II.

Homeowners’ portion of equity slipped to 46.2 percent in the first quarter from a revised 47.5 percent in the previous quarter. That was the fifth quarter in a row below the 50 percent mark, the Federal Reserve said Thursday.

The total dollar value of equity also fell for the fourth straight quarter to $9.12 trillion from $9.52 trillion in the fourth quarter, while Americans’ total mortgage debt rose to $10.6 trillion from $10.53 trillion.

Experts expect equity to decline further as falling home prices erode the value of Americans’ largest asset, dragging more homeowners “upside down” on their mortgages.

At the end of March, nearly 8.5 million homeowners had negative or no equity in their homes, representing more than 16 percent of all homeowners with a mortgage, according to Moody’s Economy.com Chief Economist Mark Zandi. By June 2009, he estimates that will increase to 12.2 million, or almost one out of every four homeowners with a mortgage.

MBIA, Ambac, $1 Trillion of Debt, Lose S&P AAA Rating (Update3)

June 5 (Bloomberg) -- MBIA Inc. and Ambac Financial Group Inc., the world's largest bond insurers, had their AAA financial strength rankings cut by Standard & Poor's, taking with them the ratings on more than $1 trillion of securities they guaranteed.

The ratings were lowered two levels to AA, New York-based S&P said in a statement today. S&P said it would keep the ratings under review pending ``clarification of ultimate potential losses as well as future business prospects, the outcome of strategic business decisions, and potential regulatory developments.''

UBS Plans to Close Its Municipal Bond Business

UBS said Thursday it would close its municipal bond business after failing to find a buyer for what was the third-largest underwriter of American state and local government debt last year.

“UBS explored a number of alternatives to exit the institutional municipals business and determined that because of the complexities of selling the business in the current market and limited market capacity for a business of this size, a sale of the business was unlikely in the near term,” the company said in a statement.

Richmond Federal Reserve Bank President Jeffrey Lacker Says Fed Loans to Wall Street Risk More Crises

June 5 (Bloomberg) -- Richmond Federal Reserve Bank President Jeffrey Lacker, challenging Chairman Ben S. Bernanke's unprecedented actions to stem a financial panic, warned that lending to securities firms raises the risk of future tumult.

``The danger is that the effect of the recent credit extension on the incentives of financial-market participants might induce greater risk taking,'' Lacker said in a speech to the European Economics and Financial Centre in London. That ``in turn could give rise to more frequent crises,'' he said.

Lacker urged that the central bank now ``clearly'' set boundaries for its help to financial markets. In an interview yesterday on the themes of his speech, Lacker said even those new boundaries may not be believed by investors unless a financial firm fails ``in a costly way.''

The remarks are the strongest warning by an official about the consequences of the Fed's aid to securities dealers, the first lending to nonbanks since the Great Depression.

Federal Reserve Vice Chairman Donald Kohn Says Writedowns to Rise, Losses May Spread (Update3)

June 5 (Bloomberg) -- Federal Reserve officials expect some U.S. banks to report ``weak earnings'' and write down more assets while operating with insufficient reserves to cover bad loans, Vice Chairman Donald Kohn said.

The economic slump may increase problem loans for consumers, credit-card holders and corporations, Kohn testified today to the Senate Banking Committee. Banks ``must be prepared for the possibility'' that they may find it harder to borrow if financial-market turmoil continues or credit availability declines further, he said.

``We expect bank holding companies to continue to report weak earnings and further asset valuation writedowns,'' Kohn said during a hearing on the banking industry. Banks aren't increasing reserves enough to keep pace with losses, he said.

US banks fear $5 trillion balance impact

US banks fear accounting changes could impact lending as they force $5 trillion of assets back on to their balance sheets.

Analysts at Citigroup warn the planned tightening of accounting rules for off-balance sheet vehicles would force US banks to reconsider arrangements and could result in up to $5 trillion (₤2.5 trillion) of assets coming back on to their books.

‘We think it is very likely that these vehicles will come back on balance sheet.’ Birgit Specht, head of securitisation analysis at Citigroup, told Financial Times.

Ford Cutting Salaried Expenses By 15%; Delaying Merit Raises

DETROIT -(Dow Jones)- Ford Motor Co. (F) notified its U.S. salaried workers that it will trim expenses in its white-collar work force by 15% through layoffs, attrition and a hiring freeze on some open positions.

All moves, which will include trimming contract jobs, are slated to be completed by Aug. 1, Ford spokesman Mark Truby said Thursday. Truby also confirmed that merit raises for North American salaried workers, due to be paid in July, will be delayed until October. The auto maker will also suspend its U.S. tuition assistance program.

U.S. Auto Sales May Fall 1 Million in 2008, Ross Says (Update1)

June 5 (Bloomberg) -- U.S. auto sales may fall by 1 million vehicles this year and 350,000 more in 2009, said billionaire investor Wilbur Ross, who has been buying up suppliers of parts to the industry.

``The American consumer is tapped out and burned out,'' Ross said today in speech at the Ward's Auto Interior Show in Detroit. ``The pressure on consumers has been intensified by the loss of jobs and the high price of gas.''

Airlines Lose A Decade To Fuel

All airlines can do is cut, cut, cut. There is just no money left after dealing with increasingly rising fuel costs to continue at current levels.

"Based on a look at industry domestic capacity among legacy carriers, regional airlines, and low cost airlines, we expect 2009 domestic capacity will be in line with where it was in 1998 to 1999, essentially wiping out 10 years of growth for the legacy carriers," said McKenzie.

Summer airfares double, triple, quadruple

The law of supply and demand is kicking in for airline passengers this summer — and not in their favor.

Despite a string of price increases this year, demand for summer flights remains strong and the USA's big airlines are continuing to fill more than 80% of their seats.

This week, six Airlines (American, United, Delta, Northwest, Continental, US Airways) raised prices again for flights on many domestic routes where there's no non-stop competition from low-fare carriers. The result, says travel price guru Tom Parsons of BestFares.com, is that the cheapest tickets available on many routes in July are 100% to 300% higher than a year ago.

These are historic rates for fare increases, but even with that, airlines are failing to keep up with their rising fuel costs.

Americans' net worth took a dive in the first quarter

Yes, you have gotten poorer. And at an accelerated pace.

The net worth of U.S. households fell in the first quarter, the second straight decline, thanks to the double-whammy of sliding home values and the plunge in stock prices, the Federal Reserve said in a report today.

The central bank’s so-called flow of funds report estimated the net worth of American households at $55.97 trillion as of March 31, down $1.7 trillion from year-end. That was more than three times the $530-billion drop in the fourth quarter.

More Troubles for the US Dollar? : Trichet Says ECB May Consider Raising Rates in July

June 5 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said officials may raise interest rates next month to combat the fastest inflation in 16 years, sparking a surge in the euro and pushing bond yields to the highest level since 2001.

``It's not excluded that, after having carefully examined the situation, that we could decide to move our rates by a small amount at our next meeting,''

Not really important, but indicative of the times we live in, so I figured I'd post it anyway:

Boxer Holyfield Joins List of Celebrities Facing Foreclosure

June 5 (Bloomberg) -- Evander Holyfield, the former heavyweight boxing champion, faces losing his home to foreclosure, joining fellow athlete Jose Canseco and former ``Tonight Show'' sidekick Ed McMahon among celebrities struggling to pay mortgages.

Holyfield's estate in Fairburn, Georgia, will be put up for auction July 1 to repay a mortgage on the property with an original principal of $10 million, according to a legal notice published yesterday in the Fayette Daily News. Washington Mutual Inc., the biggest U.S. savings and loan, filed the notice, which identifies Holyfield as the property's owner.

Closing:

Very nice "Goldilocks Economy" rally in US Stocks today. Certainly hope all the bad news has been digested.

Regards

Randy

US Economic Outlook 2008-11+

All is not what it seems, and our US economic troubles are far from over!

Note: If it's hard to see/read the briefing below, please click on this link and view the updated briefing in full-screen

| View | Upload your own

Best regards

Randy

Glenn Beck: Cooked Books on Inflation Numbers

The real rate of inflation is a big unspoken Gvt lie, but the Gvt is in bed with the bankers and coorporations who grew up around us... We were warned however (below).

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation,(i.e., the "business cycle") the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered." Thomas Jefferson, President of the United States 1801-1809

"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain." Napoleon Bonaparte (1769-1821) French emperor

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford (1863-1947) Founder of Ford Motor Company

" The banker's credit money system is now everywhere as are their resultant unsustainable debts; and those who profit by that system, the bankers (and the corporations that grew up around them) now control the media, the political process, and the agencies charged with overseeing and regulating the economy - the US Federal Reserve Bank, the SEC, the US Treasury, and indeed the US government itself: the Presidency, the Congress, and the Supreme Court." Dr. Darryl Robert Schoon, Economist/Author

Watch Out Below!

Very good Forbes article confirming much of what I've been saying: "We ain't anywhere near done yet."

Watch Out Below

Oil prices continue to surge to new records. Gold prices climb. Stocks retreat in the U.S., Europe and Asia. The dollar goes south. Housing prices continue to fall. Consumer confidence erodes. The banking crisis has not hit bottom. Fed action is not enough. Congressional intervention is necessary.

So says Thomas J. Barrack Jr., chairman and chief executive officer of Colony Capital, a California-based hedge fund, in his April letter to Colony partners.

It may come as a shock--but Croesus believes we are only a third of the way through the credit crisis, and investors should get ready to experience more pain. As Barrack put it to Croesus quite directly this week: "The denial is beyond belief--at every level."

No one wants to deal with the losses on Alt A mortgages, which are greater than subprime. Or the prime mortgages which in total dollar terms represent twice as many dollars as subprime. What about the regional banks wasted by lousy real estate loans? Then there's the unwillingness of European banks to lend to each other, or the vast amount of assets running from troubled institutions like UBS, not to mention the Swiss investors demanding delivery of gold bullion rather than gold certificates. Still, the recession deniers are everywhere.

Croesus has some advice for everyone. Buy yourself two recently published books that will explain how we got to this fragile place and what public policy steps have to be taken to make sure the financial system doesn't still implode--on a step-by-step basis.

Charles Morris' The Trillion Dollar Meltdown, Easy Money, High Rollers, and the Great Credit Crash explains in clear narrative style how the credit bubble developed and had to burst. We owe a debt to Morris for underscoring how the power of vastly deregulated financial markets--and the development of mortgage-backed securities markets was eventually going to lead to the "great unwinding" that is only partly over. For all of you who have been bewildered by reading about CMOs, CDOs, CLOs and the other toxic waste of 21st century finance, here's your handbook to comprehend the fallout.

Morris makes sense of the process by which the stock market crash of 1987 and the failure of hedge fund Long Term Capital, cured by the easy money policies of Alan Greenspan, led eventually to excess leverage and massive losses in the financial system. Listen up. Morris' prickly definition of the so-called "Greenspan put" explains the mystique that kept the markets from massively tumbling--"No matter what goes wrong, the Fed will rescue you by creating enough cheap money to buy you out of your troubles."

Morris calls all this folderol "the last gaspings of the raw-market Chicago school brand of financial capitalism that moved into the vacuum created by the 1970s collapse of the Keynesian liberal paradigm."

And fabled investor/speculator George Soros has neatly carried this theme forward in his brilliant analysis of the crisis, which he warns everyone and everywhere is deepening into a more serious matter. Soros' The New Paradigm for Financial Markets, The Credit Crisis of 2008 and What It Means is a clever explanation of why "financial markets are always wrong."

Soros made his fortune by understanding how to take advantage of how markets overshoot on the upside and then on the downside. He goes short when we're in bubble mode, bidding shares or commodities to unrealistic prices. And he buys when prices are unrealistically low. Investors, Soros proves, "base their decisions on incomplete, biased and misconceived interpretations of reality, not on knowledge."

Under the new paradigm, investors will have to base their decisions on less leverage. In fact, Soros, like others, is calling for the regulation of limits on the use of leverage by investment banks and hedge funds. Come the revolution, Croesus thinks this will only happen on a voluntary basis. But Soros is adamant that "credit creation has to be a regulated business. The financial industry was allowed to get far too profitable and far too big." Avoiding asset bubbles should be a priority, Soros suggests.

Croesus scoffs at this nonsense as Wall Street's political power and influence in Washington is too strong. Even if Obama gets in the White House, his hedge fund buddies will tell him the score. Don't mess with Wall Street.

Be clear, though. The asset bubble that is still bursting will be severe enough to cause a serious recession, Soros believes. He is negative about the economy and the stock market. He has more vision and understanding than your run of the mill Wall Street expert who thinks every capital raising is the turning point for the market to improve.

You may find Soros' public policy solutions to be anathema. But you can learn one invaluable investment lesson from this book. He proves that "reflexivity" is an intellectual insight that can be a framework for successful investing. All you have to know is when prices get too high (out of whack with reality) or when they get too low (out of whack with reality). Reflevity signaled Soros when to sell the conglomerates in the late 60s, when to sell the REITs in the 1980s--because they got up to crazy unrealistic levels. Soros knows how to take advantage of the crowd's wishful thinking. And let him be a philosophe about it. Why not.

This super bubble took 25 years to develop, Soros writes. It can't be over in one year. Expect home prices to drop another 20%. Expect credit contraction to continue. Expect new bubbles to develop like in the commodity area. Soros wants to bet gold, oil and other commodities will fall in price. It's just that his "reflexivity" button hasn't lit up.

Regards
Randy

UPDATED: US Economic Outlook 2008 -2011+ Briefing

Recently, as part of a broad based financial education class for younger folks (in their 20's-30's), I was asked to provide an economic outlook assessment/briefing to help these young adults gain a better understanding of the very complex problems the US economy is dealing with -- both current and future.

Other people will provide generic information w/regard to: balancing a checkbook, living within your means, using credit wisely, investment options, compounding interest, etc... My main objective is: try to make a very complex issue (economic problems/future forecasting) easy to follow, so that these young people can make wiser decisions based upon the knowledge they have gained.

With that said, I have yet to give the actual briefing (it's scheduled for early June), so I thought I'd take advantage of the available time and ask some of you smart folks to review and provide feedback w/regard to content, complexities, general flow/digestibility, accuracy, missing content, etc...

Please remember -- this briefing was tailored for folks who know little about the history of money, the broader economy, inflation or the many issues in play. Additionally, I plan to expound upon many of the points made in the briefing (when presenting it).

Would really appreciate your comments/feedback.

NOTE: briefing updated based on reader feedback and 207 reads today -- very much appreciated!

The following topic's were added/corrected:
- 20% annual growth = 4 year doubling of money supply
- Short history on Federal Reserve
- US Dollar as World's Reserve Currency
- Oil/OPEC issues (imbedded w/Dollar and Current/future outlook)

US Economic Outlook Briefing (Use full-screen mode for best results)


Thanks in advance!

Randy

Oil, credit crisis & the wider economy

Alan Blinder, an economics professor at Princeton University and former Federal Reserve vice chairman, talks with Bloomberg's Kathleen Hays from Princeton, New Jersey, about the impact of record oil prices and home foreclosures on the U.S. economy, the outlook for growth and Federal Reserve monetary policy.

As a Fed insider Professor Blinder can't admit that we're actually in a recession, but he certainly admits we are dealing with major, major problems.

News of interest today

Irans yen for the euro

Iran, the worlds fourth largest oil producer, has reportedly shifted from the US dollar to euro and yen as currencies in which it will trade its crude produce.

This is seen as a major blow to the US dollar as a reserve currency.

Irans move may be determined partly because of its ongoing political stand-off with the US. However, that need not be the only consideration to have prompted Iran to shift to the euro and yen.

Many oil exporting nations, as indeed other emerging economies accumulating dollar reserves, have been worrying about the structural weaknesses in the US economy and the prospect of the dollars long-term decline.

A survey by the US treasury department measured foreign holdings of US securities as of June 30, 2007, to be $9,772 billion. This should easily cross $10 trillion this year, which is about 75% of the US GDP. Of this, $3,130 billion is held in US equities, $6,007 billion in US long-term debt securities, and $635 billion in US short-term debt securities.

Mind you, the outstanding foreign holdings in US securities are growing on an average at over 25% in recent years.

Emerging economies are beginning to feel uncomfortable about putting so much in US dollar-denominated assets year after year. Oil exporting countries themselves have about half a trillion dollars worth of US securities today. By designating future oil trading in euro and yen, Iran is clearly trying to diversify its assets by denominating them in currencies other than the dollar.

If other West Asian oil exporters were to do the same, the US or any other net oil importer, will be forced to buy euro and yen to purchase oil from the international market. The power of the US dollar as a reserve currency will certainly fall, to that extent. Indeed, nations holding US dollar assets will have to evolve new strategies to protect the value of their forex reserves as the axis of global economic power shifts rapidly. No one, including Americas arch rivals in the geo-strategic play, would want the dollar to suffer a precipitous decline as it would erode everyones asset value. But they must all prepare for a gradual decline, for sure.

(Note--for more info on Iran, Oil and the US Dollar see my other posts: IRANS Oil Bourse to Open, US Warns IRAN)


Consumer spending up mainly because of sharp price increases

Don't be fooled by a larger-than-expected increase in consumer spending. People aren't buying more — they're just paying more for what they buy.

That is raising doubts about whether the 130 million stimulus payments the government began sending out this week will be enough to lift consumers' sagging spirits.

The Commerce Department reported Thursday that consumer spending was up 0.4 percent, double the increase economists had forecast. However, once inflation was removed, spending edged up a much slower 0.1 percent.

The March reading was the fourth straight lackluster performance and did nothing to alleviate worries that consumer spending, which accounts for two-thirds of total economic activity, remains under severe strains, reflecting an economy beset by multiple problems.

Rising food costs, soaring energy prices and falling employment have pushed consumer confidence to its lowest levels in five years. Incomes in March rose a weak 0.3, but after removing inflation, after-tax incomes were flat.

The Bush administration is counting on its $168 billion stimulus program to give the economy enough of a lift to keep the country from slipping into a full-blown recession, but private economists are worried the boost could well be fleeting.

"Consumers are facing bad news on all fronts," said Nigel Gault, chief U.S. economist at Global Insight. "Any burst of spending based on the stimulus payments is likely to prove short-lived."

Sal Guatieri, senior economist at BMO Capital Markets, said economic growth could still turn negative this quarter even with the rebates. He cited a recent Associated Press-Ipsos poll that found only 19 percent of people plan to spend their rebates, with others surveyed preferring instead to use the $600 to $1,200 checks for the typical family to pay off bills or boost savings.


Home Depot Takes Wrecking Ball To Stores

The economy has been hurting since the subprime mortgages began their tumble toward foreclosure, taking anything housing related, especially home goods, along for the bumpy ride.

On Thursday, Home Depot announced that it was shutting down 15 of its underperforming flagship stores. The mercy killings are supposed to wrap up in the next few months with 1330 employees being axed or reassigned. Wall Street rallied after the tough love announcement.

In a bleeding real estate market and with new management at the helm, the Atlanta-based company has pulled back on expansion plans and is excising vestigial parts.

These tough calls weren't in the game plan a year and a half ago. In September 2007, it had been reported that Blake said he had no plans to make any broad-based job cuts or reduce the number of its core retail stores in the face of a persistent housing slump that wasn't expected to improve anytime soon.


Sun Micro turns in loss of $34 million

Sun Microsystems Inc. on Thursday said it swung to a fiscal third-quarter loss and that it will cut up to 2,500 jobs as the computer server and software company said "significant challenges" in the U.S. market contributed to its sales slipping from a year ago.

On a conference call to discuss the results Sun Chief Executive Jonathan Schwartz said the company was hampered by weakness in the U.S. economy that "presented Sun with significant challenges" and overwhelmed progress that Sun made in developing nations.


Auto Sales Remain Weak; Chrysler Posts 23% Drop

The U.S. auto industry's struggles continued in April as General Motors Corp. (GM) and Ford Motor Co. (F) and Chrysler LLC posted double-digit drops in U.S. light-vehicle sales despite having two extra selling days than a year earlier.

GM, hobbled by a strike at a major axle supplier, posted a 16% sales drop while Ford sales slid 12%. Chrysler reported a 23% decline. Japan's Toyota Motor Corp. (TM), thanks to Easter falling in March this year, managed to snap a four- month streak of weaker sales and post a 3.4% rise.

The gas-price spike combined with persistent economic turbulence had set the stage for April to be yet another tough month in what is expected to be the industry's toughest year in at least a decade.


Fed Discount-Window Lending to Banks Rises 8% to $11.6 Billion

May 1 (Bloomberg) -- The Federal Reserve's cash loans to commercial banks rose 8 percent in the past week, reflecting borrowers' continuing need for funds.

Loans to commercial banks through the traditional lending facility increased $857 million in the week ended yesterday to a daily average of $11.6 billion.

As of April 30, $17.8 billion of overnight loans through the primary-dealer program were outstanding with Wall Street firms, while commercial banks had $12 billion of discount-window loans, the Fed reported.

The Fed also reported that the M2 money supply rose by $27.9 billion in the week ended April 21. That left M2 growing at an annual rate of 6.7 percent for the past 52 weeks, above the target of 5 percent the Fed once set for maximum growth. The Fed no longer has a formal target.

The Fed reports two measures of the money supply each week. M1 includes all currency held by consumers and companies for spending, money held in checking accounts and travelers checks. M2, the more widely followed, adds savings and private holdings in money market mutual funds.
During the latest reporting week, M1 rose by $19.4 billion. Over the past 52 weeks, M1 declined 0.1 percent. The Fed no longer publishes figures for M3.


Airlines slow down flights to save on fuel

Drivers have long known that slowing down on the highway means getting more miles to the gallon. Now airlines are trying it, too — adding a few minutes to flights to save millions on fuel.

Southwest Airlines started flying slower about two months ago, and projects it will save $42 million in fuel this year by extending each flight by one to three minutes.

On one Northwest Airlines flight from Paris to Minneapolis earlier this week alone, flying slower saved 162 gallons of fuel, saving the airline $535. It added eight minutes to the flight, extending it to eight hours, 58 minutes.

Across the board, airlines are feeling the pain of higher energy prices. For jet fuel delivered at New York Harbor, the spot price — airlines pay it when they need more fuel than they've already locked down in a contract — has jumped 73 percent in the past year, to $3.54 a gallon, according to government data.

Airlines are trying other measures as well to deal with higher fuel costs, including raising fares, adding fuel surcharges to tickets and charging extra for a second checked bag rather than a third.

It's a tough time for the airline industry. Several smaller airlines have filed for bankruptcy protection in recent weeks, many citing high fuel costs. Fuel costs have also resulted in sharp first-quarter losses by some airlines.


Have a good evening

Randy

US warns Iran -- $10 Gas?

Back in February 08, I wrote: Iran’s Oil Bourse Set to Open this Sunday which explained how Iran's new Bourse was provoking future military action by posing a huge long-term threat to both the US Dollar & continued American global hegemony.

I warned that rhetoric w/regard to Iran would probably soon ratchet up again; a catalyst to military action would likely be found; and that bombs might be falling from the sky before November 08, as the Bush administration would not take lightly this deliberate slap in the face of US global economic power; nor did they trust leaving the problem for the the next regime.


Times Online today: US warns Iran of retaliation over Iraq action

America's top military officer has ratcheted up the pressure on Iran by issuing an unusual public warning that the Pentagon is planning for “potential military courses of action”. .”

Admiral Mike Mullen, chairman of the joint chiefs of staff, blamed the Iranian government and Quds force of the Iranian Revolutionary Guard for its “increasingly lethal and malign influence” in Iraq. He said conflict with Iran would be “extremely stressing” for America’s overstretched forces, but added: “It would be a mistake to think that we are out of combat capability.

Mullen said he was increasingly concerned about Iran’s growing involvement in supplying munitions and training to rebel Shi’ite militias and “killing American and coalition soldiers in Iraq”.

Speaking at a Pentagon news conference late on Friday, he said recent operations in the southern port city of Basra had revealed “just how much and how far Iran is reaching into Iraq to foment instability”. A Pentagon source said the admiral’s frankness was “extremely significant” and could pave the way for some form of attack on Iran. However, Mullen said: “The solution right now still lies in using other levers of national power, including diplomatic, financial and international pressure.”

Mullen’s tough rhetoric came shortly after General David Petraeus, the US commander in Iraq responsible for the troop surge, briefed Congress about the “nefarious activities” of the Quds force in stirring violence in Iraq. There were a total of 923 civilian deaths in Iraq last month, the highest number since August 2007.

“We should all watch Iranian actions closely in the weeks and months ahead, as they will show the kind of relationship that Iran wishes to have with its neighbour,” Petraeus said.

Petraeus was nominated last week to take over as commander of all US forces in the Middle East from Admiral William Fallon, who resigned in March after becoming an outspoken critic of American policy towards Iran.

My Thoughts:

As a USAF veteran, let me assure you that my following comments are not un-patriotic, but I can NOT buy into ANY of this administration's B.S. propaganda.

The whole middle east issue (Iraq, Iran, Afghanistan, you pick who may be next) is all about controlling Oil, maintaining US dollar hegemony and supporting massive contracts for companies like Haliburton -- to make Dick Cheney's rich friends richer.

Our troops are dying in a futile attempt to (1) save our dying currency (caused by excessive Gvt spending/debt and a Federal Reserve Banking system that has created one too many popping bubbles -- which has ultimately led to the present crashing financial/banking system that will require a hyperinflationary event to save it from a full-blown collapse) and (2) to control dwindling worldwide oil supplies.

Food for thought: The world can currently extract and bring to market ~ 87 Million Barrels of Oil per day (Mbpd) and we consume ~ 86Mbpd -- 40% of which comes from the Persian Gulf market and must traverse through the very narrow Strait of Hormuz (see picture below)... Note where Iran sits on this narrow Channel...

If we DO start dropping bombs on Iran, they will likely mine the Strait and/or sink a supertanker or two with missiles/etc -- locking up 40% of the world's oil supply. You think gas/oil prices are painful today? Better start preparing for $200+ barrel oil and $10+ gallon gas (if you can actually find it anywhere)

Regards

Randy

StopIranwar.com


Which City do we want to lose?

End of the road for FOMC rate cuts; Pause to come?

Consensus feels, due to rising inflation pressures, a slowdown in unemployment figures, a rising equity market and a less volatile credit market, that the FOMC may be towards the end of their rate cutting and many now feel a "pause" will be in order (either this time - April 30th or next - June 25th)


Dollar Rallies on Fed Rate Pause Speculations

The dollar rallied in NY trading Thursday following a WSJ report that the Federal Reserve may signal an interest-rate pause at the next FOMC meeting due to inflation concerns.

A Wall Street Journal report by Fed watcher Greg Ip said the Federal Reserve may cut the federal funds rate by 25 basis points next week and then keep the rate steady from there.


The Case For Dollar Strength?

The FOMC-There’s evidence that policy makers may want to pause now in order to give the actions they have already taken time to work their way into the system. Fed Governor Kevin Warsh said last week that as credit markets begin to operate more smoothly, more of the Fed’s interest-rate cuts will filter through to the economy. "The problems afflicting our financial markets are indeed long-in-the-making," he said. "Time is an essential tool of our policy response."

There have been some remarkable changes recently in how the market sees the FOMC members making policy changes at the April 29-30 meeting and beyond. Four weeks ago, traders saw a 72% chance for a 50 basis point move in April and a 28% chance for 25 basis points. Last week, traders began seeing no chance for a 50 basis point cut and now see an 18% chance the Fed will make no move at all (the rest of the bets are for a 25 basis point cut, which is the outcome that is most likely). What’s more, the chances of the Fed going below 2.0% on the overnight rate are decreasing rapidly-there currently is a 69% chance that the Fed will make no move at all at the June meeting. This doesn't mean the Fed is necessarily finished adjusting policy, but rather a that period to pause in order to assess the effectiveness of the policy changes that have already been made seems to be in order.


U.S. stocks set to face a sterner Fed

U.S. stocks will face renewed pressure next week, with investors facing not only another heavy week of earnings, but also key data that may confirm the U.S. economy is in recession and a Federal Reserve increasingly expected to pause its campaign to lower interest rates

Although many commentators are talking as if the Federal Reserve has already decided to cut interest rates by a quarter-point rate cut next week followed by a pause over the summer, there is a chance the Fed could instead decide to just pause right here, Fed watchers said



My thoughts:

I don't buy it, as there are still far too many uncertainties out there for the Fed. I expect a 25Bp cut this time around followed by another in June (or an emergency cut if warranted beforehand) and a 1.25% rate by the end of the year.

Certainly we may see a small dollar rally beforehand, but I expect the USDX to easily fall below 70 this year as the fed continues to add fuel (liquidity) to the raging economic fire.

We are nowhere near the end of this housing/credit/insolvency crisis and think ZIRP (Zero Interest Rate Policy) is not out of the question in our future. Each time a new crisis erupts, the fed will print/cut/inject in an effort to contain it, but will eventually run out of monetary ammunition... That's when the real hyperinflationary fireworks will begin.

Again, we're no where close to the end of this financial crisis: Will the Fed Cut Rates again? ; Ushering In a New Economic Era

Regards
Randy

Ron Paul interview on state of the US economy

A superb/fascinating one-on-one interview with Presidential candidate, Congressman Ron Paul.

Perhaps the last honest politician in Washington, Congressman Paul speaks candidly about the Federal Reserve System, our system of easy credit/debt, inflation, falling dollar, gold/silver, poor foreign policy, entitlements, taxes, the US Constitution and the economic collapse that will likely soon follow...

Bottom Line: The poor state of our economy, the falling dollar and our corrupt system bodes quite poorly for our future.

Clips 1-3 below mainly discuss the issues mentioned above;

Clips 4 & 5 cover Ron Paul's Presidential campaign, biased media coverage, freedom & liberty, etc.

Enjoy!


Part 1



Part 2



Part 3



Part 4



Part 5

FIAT EMPIRE - Why the Federal Reserve Violates the U.S. Constitution

One of the finest videos I've seen on the Federal Reserve Banking System. This clip runs about 50 minutes long, but I guarantee it will be well worth your time. I plan to leave this post towards the top for a couple of weeks. Really hope you take the time to watch. (NOTE: Click Start twice and give it a few seconds to load)

Find out why some feel the Federal Reserve's practices are a violation of the U.S. Constitution and others feel it's simply "a bunch of organized crooks." Discover why experts agree the Fed is a banking cartel that benefits mainly bankers and their corporate clients as well as a Congress that would rather increase the National Debt to over $9 trillion than raise taxes. Find out how the corporate media facilitates the partnership between the Fed and Congress and why it fails to disclose what's going on. Lastly, find out how the Federal Reserve-member banks are owned and controlled by an elite group of insiders.