It seems to be melting down: "U.S. Recession Worst Since Great Depression, Revised Data Show" is the title of Boomberg article at: http://www.bloomberg.com/apps/news?pid=20601087&sid=a5_5Vq2hV3EQ All trends are still down and accelerating downward, if compared to a year ago, not last month or quarter to avoid short term changes. For example: The quarterly GDP drop in 2Q08 was zero (unchanged GDP from 2Q07). Here is that trend for the last year (last four quarters, YoY.): 0, -1.9, -3.3, -3.9 Number of unemployed currently 6.5 million, keeps rising as does the rate of unemployment. Number of homes being foreclosed is steadily rising. Number of commercial properties being foreclosed is rising, but not steadily - it is starting to explode. Commercial properties vacancy rates are at all time high in commercial centers, like NYC. Number of bankruptcies, both individual and corporate is rising. (Some very big ones like GM & Chrysler) Value of dollar is dropping. US debt is dramatically increasing and will for years at greater than 1 trillion /year rate. {FED has more than doubled "assets" on its books in less than a year and lower their quality to now include corporate issues and even some "toxic trash"! These "assets" entered books as the dollars were pumped out.} Global trade is rapidly contracting, faster in percentage fall than even in the 1929 depression. (Current "Protectionism" is more via subsidies to local producers and "Buy local" programs in China and in US & EU like the "cash for trading in old cars." But old fashioned tariffs are still used. For example $0.54 on each gallon of tropical alcohol imported in additon to the large subsidies on both the corn and the dometic alcohol production from it. This increases Joe American's cost of food, cost of driving, and taxes so naturally he is less able to make his mortgage payments. - How dumb does it get? )
More recent changes on two points of post 141: "The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 {2010} for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. Property values have fallen 35 percent since peaking in October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year. While financial-market conditions “have improved considerably in recent months,” the markets for ABS and CMBS* “are still impaired and seem likely to remain so for some time,” the Fed and Treasury said. ..." FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=aNUlYQ.TIz2M Looks like the tax payers will be getting more assets worth less than we paid for them until mid 2010 at least. Enough "negative gain ïnvestments" will "melt down" any buyer, including the USA. --------- *ABS = Assets backed securities & CMBS = Commercial Mortgage Backed Securities.
The economy is a massive creature. Making any statement about it can lead to pages of details. If I say "Debt is bad," corporate employees of failed companies say, "Debt is not bad, it keeps this inefficient business running!" If I say "Helping everyone to maintain good health is very pro-life." You could say, "The quality of socialist health care systems isn't always the best." Gratitude is to be the most compatible attitude.
“… The world’s biggest bond fund, said the dollar will weaken as the U.S. pumps “massive” amounts of money into the economy. The dollar will drop the most against emerging-market counterparts, Curtis A. Mewbourne, a Pimco portfolio manager, wrote in a report on the company’s Web site. The greenback is losing its status as the world’s reserve currency, he said. “Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure,” FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=aLW8jvysIe5k “…The excess of expenditure over revenue for July climbed to $180.7 billion compared with a $102.8 billion gap in July 2008 as the government spent more than in any month in U.S. history, the Treasury said Aug. 12. Berkshire has been buying securities issued by governments outside the U.S. The company held about $11.1 billion in foreign government bonds in its insurance units as of June 30, compared with $9.6 billion three months earlier, Berkshire said in a regulatory filing on Aug. 7. The value of holdings in U.S. Treasuries and so-called government sponsored enterprises slipped 5.3 percent in the three months ended June 30 to about $2.5 billion. …” FROM: http://www.bloomberg.com/apps/news?pid=20601083&sid=ay3ayJvt3t3s Billy T comments: I.e. In less than 40 days, Warren Buffett’s Berkshire Hathaway fund has DECREASED holding of US Treasury paper by 5.3% (possibly more like 15%)* and INCREASED holdings of foreign bonds by 15.6% !!! Brazil has done the same in the last few months: I.e. dumped 25.5 Billion dollars of US Treasury bonds to reduce the dollar fraction of its reserves by 17%. Even Italian bonds look like a better deal to Brazil’s central bank now. The USA does not deserve its triple A credit rating – but probably will keep it for a year or two more – until one of the major agencies is taken to court by a big time loser in US Treasuries. That probably will be a large pension fund, which cannot pay its obligations to the pensioners, because of the losses.** There will be big loses by investors in US treasury paper when interest rates start to sharply rise in effort to control inflation. Because China can destroy the US economy (with ever decreasing self-inflicted pain as they buy real assets with their reserves, especially oil fields.) the US will (as recently announced) print more TIPs for China to buy and continue to finance the US deficits, at least for a few years more. --------------------- * I bet Warren's holding of TIPs have actually increased.*** If true, that would make the amount of regular bond dollars he has dumped even larger than 5.3%. His fund must file with SEC its holdings periodically (Quarterly. This bloomberg report, came from 30June09 filing.) but I am too lazy to get the change in Berkshire's TIP position. Perhaps someone good at searching the SEC will and see if my guess is correct. **Most will be able to pay their claims even if the dollar drops to only 10% of current value as pension firms are the main buyer of long term Treasuries, which will be paid. (US will never default, so long as there is paper and ink for printing presses.) They try to balance their obligations, fixed in dollars, to the maturing of the bonds they hold. I.e. they don’t give a dam if what you collect is only worth 10% of what you paid them. Some pension funds, especially those run by states for their employees, have been taking more risk as the state is hard pressed for revenue now. They, like their state, may go “belly up.” With their pension fund incomes, (payroll deductions from employees) States act much like the Federal Government does with Social Security fund tax deduction incomes - I.e. spend them now and hope to be able to pay claims later. ***May help explain the following: Vanguard Inflation-Protected Securities Fund Investor Shares, where part of my 403b tax deferred pension is, yesterday closed at $12.22/unit. Less than nine months ago (5Jan09, to be exact, when I bought some more) it was worth $11.33/unit. For years I have been tell via posts to buy stocks of Brazilian companies (via their ADRs if you have dollars) or if lacking the balls for that,**** at least put your dollars in TIPs, but via a tax deferred account, like an IRA so you do not pay taxes on "phantom income." (The annual appreciation, which is not paid until maturity but is annually taxed as if you got it.) **** Brazilian stocks are more volatile as when foreign investors cannot get needed loans from their bank they often pull money out of Brazil (and Mexican) stocks.
Last paragraph of speach Ben Bernanke is giving now at Jackson Hole, Wyo: "Although we have avoided the worst, difficult challenges still lie ahead. We must work together to build on the gains already made to secure a sustained economic recovery, as well as to build a new financial regulatory framework that will reflect the lessons of this crisis and prevent a recurrence of the events of the past two years. I hope and expect that, when we meet here a year from now, we will be able to claim substantial progress toward both those objectives." Read it all if you like (not anything on how FED will mop up the money it has printed when money velocity ceases to be near zero) at: http://www.federalreserve.gov/newsevents/speech/bernanke20090821a.htm
“... The question is not whether the dollar will weaken over time, but how it will weaken,” said El-Erian, a former deputy director of the International Monetary Fund, in an interview. “The real risk is that you will get a disorderly decline.” The greenback is threatened as net debt will increase to 56 percent of U.S. gross domestic product, the billionaire investor Warren Buffett wrote in a New York Times commentary this week. ..." From: http://www.bloomberg.com/apps/news?pid=20601087&sid=arogi_UcR0PQ Not news to me. A year before end of GWB's term as POTUS, I fore told his policies made a dollar collapse prior to Halloween 2014 inevitable with US and EU in deep depression, worse than 1929's - My only error thus far is that it seems to be coming sooner than that terminal date. I told you to get your money into a sound currency like the Brazilian Real, Norwegian Kroner, or at least into US TIPs.
I'm gonna take your advice man. Can you give some advice how to actually get into buying currency as an investment? Go to the bank and ask if they have a fund for that or something?
The easiest way for most is to buy stocks of Brazilian or Norwegian companies that have ADRs. (American Depository Receipts - Some big bank is holding the actual stocks and issues ownership papers that trades just like a stock). If you are in NYC, you can go to Bank of Brazil or a Norwegian bank and buy the currency, perhaps open a bank account, especially if you say you want to import items for resale, need a checking account etc.. (I am just guessing as I live in Brazil) Holding stock in a growing company is in the long run better than stuffing currency under your mattress and much more liquid if you do not visit the country. To find many ADRs, go here: http://www.adr.com/Home/Home.aspx (It is free.) Click on "I accept." Click on DR Search (Top left, just under big type J.P. Morgan) Then six tiny pages with blue tops will appear. Use only the page called "country" to select countries of interest to you. (use others later if you like.) If you find one you like, click on it and more detailed data will appear (at least for the major ones - I recommend you stick with them as if JP Morgan does not follow developments in a stock, neither should you. - Probably is thinly held and not very actively traded. Then when you know what you want to buy, call your broker and do it. Chile may be a good country to look at also. I own a gold producer in Peru (ADR is BVN & some of MEN which has joint operations with them in Peru) IMHO, Brazilian stocks are a little too high to buy now - when the crash comes many will get scared again and very stupidly run the "safety of the dollar" Soon they will learn that was a big mistake. Good luck. (I do not recommend stocks and if I told all which I hold that would appear self serving - promotion of the price.)
I-15, Friday. Highway, as always, is packed with cars going from LA area to Las Vegas. NASCAR races are packed with fans. And so on. It seems that larger chunk of of population is not touched by recession at all (I'm not among the lucky ones though).
Traffic was relatively light (still gridlock) in the Bay area for most of the last year. Lately the old franticness and congestion seems to returned. I think those who still have jobs have become bored with the recession and are starting to spend normally again which means the recession will start ending now. Of course spending normally in the USA means spending money with credit cards that people really should not be spending even if they have a job. Underlying fundamental problems with the US economy remain and and the US economy will continue to follow the same path to eventual economic disaster that the US economy has been on since 1973. But the disaster will be in the future and in the mean time get ready to party, it's spending time again.
Speaking of cars and traffic: “… many buyers traded in paid-off vehicles in return for new cars financed through loans. A survey of 1,000 Cash for Clunkers participants, conducted by CNW Research, an automotive research firm in Oregon, found that 17 percent had doubts about their vehicle purchase after taking on monthly car payments of $275 to $350 per month. dealers submitted 690,114 sales totaling $2.88 billion, bringing the program to a close under its $3 billion budget. …” FROM: http://www.businessweek.com/ap/financialnews/D9AAP9H80.htm Billy T comments: $4,173.20 was average gift from tax payers to the buyer, not counting the administrative cost and interest on the increase of US debt by $2.88 billion. That will make program cost about 6 billion or $20 for each American man woman & child. This buying is to a large extent borrowed from future car sales and reduces the purchases of other items now as the new cars owners go deeper into debt now. I.e. not much of a plus for the auto industries total sales on annual basics but a dip in TV, furniture etc, sales as car loans are paid.
The second shoe is starting to fall: “… The default rate on commercial mortgages held by U.S. banks more than doubled in the second quarter from a year earlier amid falling rents and occupancies for malls, office buildings and warehouses. Loans that were 90 days or more past due climbed to 2.88 percent of outstanding balances in the second quarter, from 1.18 percent a year earlier, ... Defaults increased from 2.25 percent in the first quarter. Banks held $1.087 trillion of commercial property loans in the quarter, up from $1.077 trillion in the previous three months. … Defaults are rising both for lenders who hold commercial mortgages and for bondholders in the $700 billion U.S. market for securities backed by commercial mortgages. The CMBS market accounts for about 22 percent of the nation’s $3.4 trillion in commercial real estate debt, according to the Real Estate Roundtable. Defaults and late payments on loans bundled into CMBS could surpass 7 percent by the end of this year, research firm Reis Inc. said on July 30. FROM: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a9FRZ6ipJB8Y It is little wonder that banks are failing faster than ever before (1930s a possible exception - I have no data for then.): Read all of post 137 at: http://www.sciforums.com/showpost.php?p=2350382&postcount=137
"... Americans' purchasing power has been battered by the 6.7 million jobs that have vanished since the recession began in December 2007. Companies also have cut costs by forcing workers to take unpaid days off or to work only part time. And some consumers have pared their spending because their pay hasn't kept pace with their expenses or because they're using more money to save or reduce debt. Personal incomes were unchanged in July, the Commerce Department said Friday. It was the eighth month out of the past 10 in which incomes have either fallen or failed to grow. ..." FROM: http://news.yahoo.com/s/ap/20090828/ap_on_bi_go_ec_fi/us_economy The official unemployment rate is now 9.7% but when the under employed and the too discouraged to even look of job are added to the official roles the rate is at least twice that. Even the official rate for teenages (not yet discouraged) is 23% and for men it is 10.1% (Finally women, under paid for the same job, are getting even - firms fire the more expensive labor first.)
But just as a matter of politics, would you say that this coming meltdown must be laid at the feet of Bush and the Republicans? Dems have fought Bush policies but were unable to prevent the inevitible catastrophe? And why not recommend gold?
I place a lot of the blame for the present (and yet worse to come) problems on GWB and Republican "trickle down" economic thinking which built the more modern factories in Asia, especially China, so older US factories could not compete, even if their workers received Chinese wages! Greenspan must also share the blame, and fortunately is getting it now. (surplus capital ALWAYS trickles down as investments but to place where the risk reward ratio is most favorable - that was China buy about a factor of 3 when their GDP vs. US's were compared back when GWB was giving tax relief to the already wealthy and real salary (purchasing power) of Joe American were falling. As for gold, even I am tempted now as I expect the purchasing power of an ounce of gold may recover to what it was back in early 1980s, but I tend to be a long term investors (as not much good at short term market timing.) so expect gold will continue its centuries old habit of losing purchasing power in the long run. Also as there are so many tons of it held in vaults that could be dumped I am scared of some of it coming out to the market. For example, the pound and England in general are in deep trouble - one way out - to restore the pound might be to sell 30 tons of gold, taking some of the printing press pounds out of circulation. Should a major block of vault gold come to market the price could easily drop below $500/ oz but if that does not happen, $1500 / oz is not an unrealistic possibility also in only a couple of years.
Central banks have far less gold to dump on the market than they used to, but this is another reason I prefer silver, which is depleted in its industrial applications.
I am nearly sure your "far less" is false. There is an agreement between the major government owners that limits the amount they can sell into the open market. England did sell its nearly limit a couple of years ago. So, yes there is slightly less gold in the vaults of the major governments now: BUT several of the Mid East oil suppliers have been ADDING gold to their reserves (like me fearing the collapse of the dollar). Even China has added small amounts of gold, purchased from the market, to its reserves, and much more, but how much more is a state secret, from domestic production. (Some well informed experts think China is now the world's largest producer of gold. - Mainly from a band of rich gold deposit near and along the Northern border with Russia.) -If that is correct and China has world's lowest production cost for new gold, that is a second "economic gun" China has aimed at the Western economies.* I.e. they may be able to drive price of gold down to $500/oz and yet make a profit selling more of it. No one knows their cost of production, but lack of strong environmental restraints and very cheap labor make it probably that it is much lower than S. Africa's gold from more than mile deep mines, some of which are now closed as they are not profitable with gold less than ~$1000/oz. I agree that sliver is probably the better choice in the precious metals market than gold (if neglecting less volume ones -that are less easy to sell) because Ag has real industrial (and medical) uses. Also the damage done to Ag by digital cameras is essentially over now. --------------------- *It is not yet in China's economic interest to fire either gun. China is rapidly trying to convert some of its treasury holding into real assets or at least not Treasury bonds (only buying shorter term Treasury notes) Even adding Euros, which I think will not help much as when dollar collapses so will the Euro, IMHO. China needs to convert into a domestic market economy** (not an export oriented one) before it is in China's interest to send the US and EU in deep, long lasting depression. (Reduce the US & EU buying of oil and minerals China needs to keep the cost down.) China may not need to ever fire either gun as GWB and Re[publican "trickle down" economic policy probably will make US and EU enter deep depression without any push from China - but if a push is needed, China can and will give it when China is ready. ** China is rapidly doing this: China is already the world's largest market for cars***,trains & busses, TVs, cell phones, computers, digital cameras, etc. steel, concrete, paint & glass, etc. World's largest maker of electric cars, solar cells, wind mills, smart power girds, large hydro-electric dams, etc. to "go green" rapidly. It upper middle class (define as having net worth of more than 10 million RNB or > 1.5 million dollars) is now 320,000 strong and the middle class has increasing purchasing power in their salaries and is still expanding in numbers. Summary - Soon China will not need to ship anything to Wal-Mart and that will add to US's problems via increased cost of living / inflation. - It does not look good for US and EU. - Remember to thank GWB and the Republicans who controlled US Congress, but NOT the Banking & Wall Street "fat cats" who paid for their election campaigns. - For more on this lack of control, even a lack of enforcing the laws, See: http://www.sciforums.com/showpost.php?p=2360246&postcount=4 *** "GM said yesterday its sales in China may rise more than 40 percent this year after sales more than doubled from a year earlier in August. Changan Ford Sales Co. also doubled sales last month after China cut vehicle taxes to spur demand. GM and its two Chinese ventures, both part-owned by SAIC, sold 152,365 vehicles last month. Full-year industrywide sales may climb as high as 12 million, {Us will be lucky to sell total of 10 million and most of the profit on them will go to Japan & S. Korea} the Detroit-based automaker said in an e-mailed statement. That’s 32 percent more than last year...." FROM: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aequztEsRUxY Note that even with the "cash for clunckers" program which probably mainly borrow from future sales, US cars sales are down YoY.
Clinton and most of the Democratic politicians went along with the trickle down program. The Democrats just talked more about helping poor kids go to college. Somebody forgot to tell the politicians and their Wall Street buddies that India and China have exponential growth in university grads and India and China won't be hiring American University grads to mange their companies and financial sectors and supply their engineering needs. It's only a matter of time before India and china take over more and more of the "good jobs" that are still left in the USA if the currency markets don't fix the underlying problem of Indian and Chinese workers at all skill levels being paid less for doing the same work that Americans do. There are 2 main problems threatening the future of the world economy. One is global warming and the other is the unsustainability of trading patterns based on the the overvaluing of first world currencies particularly the dollar. I don't think Peak oil is as serious a problem because there is so much waste of energy and there are many alternative sources of energy that will become viable.
I tend to agree with all of your post above. On "trickle down" I agree it can be great help - it is not by its nature, bad. For example, the post WWII GI education program is IMHO, one OF THE BEST investments the US government ever made - In large part responsible for the great technical advances the US made in the decade after those guys joined the labor force -The hippy movement ("tune in and drop out") that came a decade later - destroyed the US's ability to lead the world - Perhaps the hippies should have been drafted into some educational "boot camp"? Made to learn how to solve a differential equation, find the max of a function, and understand electro negativity etc. in chemistry etc. if they did not want to eat only bread and water for dinner. I have long supported free education for all who want to work hard and learn. I did at Cornell as I was badly prepared by public schools of West Virginia and in an especially rough experimental 5 year program. (Discontinued after a few groups went thru it, with about half transferring out to an easier regular four year program.) It meet all the requirement of BOTH the Liberal Arts college AND the engineering school. -About 155 credit hours in five years. One year there were five labs each week. Everything you can imagine from pouring iron into your "green sand molds" then next year, using your castings, making gears, large bolts with right and left-handed treaded ends and a hex central section,* etc. with the ever type of machine tool that exists. - That actual helped me later - I made everything my experimental Ph.D. needed -avoiding the shop delays most graduate students had to put up with as professors bumped their job further down the priority list. ------------ * Then still later discovering the stress / strain curve of it to rupture. Etc. Somewhere during the years my 28 tooth gear got lost.** I had one of the best educations ever offered in the US and never paid one cent for it. (A full "needs scholarship" as I was very poor.) My defects are mine alone. **There were a couple of girls in my class. One set the indexing milling machine up slightly wrong. - She made a 27.5 tooth gear.
