Struggling and Faltering to Manage Economic Recovery

June 30 2010

No Austerity, full steam ahead, Faltering markets, threats to social stability, Europe struggling with PIIGS, No end in California, economic disasters in the making, an oil soaked letter in Louisiana, consumer spending is uninspiring

Last week the Dow fell 2.9%; S&P 3.6%; the Russell 2000 3.3% and the Nasdaq 100 fell 3.9%. These numbers should make for a lower opening on Monday. Banks fell 1.7%; broker/dealers 2.2%; cyclicals 3.5%; transports 4.3%; consumers 4.1%; utilities 4.3%; high tech 4.6%; semis 5.2%; Internets 4.2% and biotechs 1.7%. Gold was unchanged; the HUI fell 0.2% and the USDX fell 0.4% to 85.32.

Two-year T-bills fell 8 bps to 0.61%; the 10-year notes fell 11 bps 3.11% and the 10-year German bund fell 12 bps to 2.61%.

The Freddie Mac fixed rate 30-year mortgage fell 6 bps to 4.69%, the lowest rate since 1971. The 15’s fell 7 bps to 4.13%. The one-year ARMs fell 5 bps to 3.77% and the 30-year jumbos fell 6 bps to 5.52%.

Fed credit rose $6.3 billion, up $108 billion YTD, or 10.1% and 16.6% YOY. Fed foreign holdings of Treasuries and Agency debt rose $10.1 billion to a new record of $3.090 trillion. Custody holdings for foreign central banks increased $135 billion YTD, or 9.5% annualized and YOY $326 billion, or 11.8%.

M2, narrow, money supply fell $37.5 billion to $8.564 trillion. It increased $52 billion YTD and YOY 1.4%.

Total money market fund assets rose $12 billion to $2.818 trillion. YTD they have fallen $476 billion, a one-year decline of $891 billion, or 24%.

The Fed Chairman Ben Bernanke tells us the American recovery is struggling because of European austerity. Does he really expect us to believe that? There is no question austerity in Europe will lead to a deflationary depression. Unemployment will rise quickly, which means major cuts in government spending and lessened revenues. Beside the public those affected the most will be towns, cities and states, many of which are on the edge of insolvency surprisingly even in Germany. The PIIGS unbelievably say their instability and debt is the result of the deflationary economic policies of the richer euro zone members. Germans and others are saving, agreeing to low salaries, producing more and not increasing debt. On the other hand the PIIGS and others were headed in the other direction. This is why the euro is doomed. After destroying their economies with one interest rate fits all, they are quick to blame others. Then again the bankers should never made the loans they did either. The result is deflationary depression, which is just getting underway. It is proper for Europe to use austerity, but it is a big mistake to raise taxes. That leaves little for the populace to spend to keep the economy going.

The US is determined to take the opposite tack. No austerity and full steam ahead. This in spite of the fact that the economy is faltering, especially in real estate, both residential and commercial. It is so bad that they have obscure government agencies buying mortgages. These new buyers plus Fannie, Freddie, Ginnie and FHA have been buying 95% of mortgages. Without massive stimulus and or Fed monetary expansion we will definitely see negative GDP growth in the last quarter of 2010. The indicators are in place and the tell tail signs of retrenchment abound. Wall Street is about to give up the ghost and see a test of the March 2009 lows. We are sure there will be rallies as the Fed unleashes trillions more in money and credit that as well will produce much higher inflation. This could produce $5,000 or more gold and a 5,000-point Dow.

As you are now well aware Fannie and Freddie are going to punish people who have stopped paying their mortgages, who can pay them, and who are paying other bills instead. This leaves lenders with foreclosures and much more inventory than they ever imagined. This additional problem will bring on the double dip that Wall Street and Washington so fear. As a result of this and other failures we are about to experience the worst economic collapse sine 1348. The stock market is topping out readying itself for its most disastrous fall in history. The fall will be followed by years of depression, all of which has been deliberately created to bring the world economically and financially to its knees in an attempt to bring about world government by Illuminists. Some market analysts understand where the market is headed, but most who do understand, write and talk about the mundane observable trappings and not what the situation is really all about. We have several analysts talking about a market collapse. They do not talk about the real forces behind our misfortune. We recently watched an interview of a man who wrote about the Bush family. His only admission was that they were players in the game controlled by other forces, which he refused to mention. He wouldn’t say what they were up to and who they were. This shows you how terrified writers are who are confronted by the power of the Illuminists.

There are always these lone voices in the wilderness, which at best – some 15% of the populace – listens too. You had better listen this time because it could well cost you not only your assets, but your life, especially when another war is being prepared for you to engage in. Nothing is really as it seems to be and there are no coincidences. You are about to enter a world of chaos from which few will survive unscathed. A world of no banks, no public facilities, no food and rampaging gangs of desperate people. Unemployment of 50% and little law and order. Violence will be rife. This is not a pretty picture, but we have spared you the details. The world had better wake up fast so they’ll be prepared to deal with what is to come. If you were not aware of it the dark side really exists. We also want to remind you that for more than 20 years we have been almost totally right, and we have made some stupendous calls.

We are now entering the next to last phase of our journey. The wanton creation of wealth, inflation and perhaps hyperinflation, which will rob you of your assets. A stealth attack on what you have left by the people who control your government. Such monetary creation is the only way these people can keep the game going. They know it won’t last, but they proceed anyway. For awhile they’ll keep the multitudes at bay with extended unemployment and food stamps, but that will fade in time for lack of financial control, as the system begins to break down.

You already see all fiat currencies under fire, as is sovereign debt. Can it get any worse? Of course it can, and it will. Implosion is the word everyone is going to discover and understand. An event that cannot be hidden by zero interest rates and endless supplies of money and credit. That word implosion will describe what will happen as a result in the machinations of the Federal Reserve.

Now that you have seen a glimpse of your future we will move on to the deteriorating world that we now live in.

CNBC and the mainline media tells us all is well irrespective of a failing recovery, climbing unemployment, which has just recently been assisted by trillions of dollars in stimulus. The question is what comes next? More of the same, of course. There is no other avenue to pursue even though Mr. Bernanke knows such stimulus is not going to get the desired results. These players behind the scenes know history. They know what we know. They depend on 98% of the people not discovering what they and we know, and that is where this is all headed. The important people in Wall Street, banking, insurance and in transnational corporations know, but they are not about to tell you. The market doesn’t like what it sees, but it knows it cannot do much about it.

Americans are fighting back as millions have not made mortgage payments for a year and are living for free in their homes. As an antidote Washington is now considering charging them rent, something they should have done four years ago. If you add in the disaster that is commercial real estate, personal and corporate debt, and sovereign debt, you have an insolvable problem that can only end in great grief. The choice to expose Greece’s weaknesses from behind the scenes looks to be a fatal mistake. The elitists never envisioned the firestorm that the exposure has led too. Greece is about to explode, not because of the reduced socialist benefits, but because the people are finally realizing that they and others have been taken for a ride by the bankers and others behind the scenes and from within their own government. Discovery by the Greek people and others is not something the illuminists expected. They now are forced again to expedite their programs - when they have to do that they make mistakes, often-big mistakes, which gives us pursuers an advantage we could never hoped to have had. After their latest mistakes the bankers are scrambling to preserve the current system. It is not to be. There are far to many who now know what they are up too.

Europe is still struggling in an attempt to bailout the PIIGS, which if they take the loans they will live in financial bondage and depression for the next 30 years. We told the Greek people in a TV documentary last week to default, leave the euro, create the new drachma, lower taxes, make sure the rich pay their taxes, cut expenses in government by 30% and do not under any circumstances sell off any Greet assets, such as islands and utilities to foreign Illuminists for 20 cents on the dollar. The bankers created the money they lent out of thin air, so why should they be repaid. In addition they knew the risks and should have never made the loans in the fist place. The Illuminist-Bilderberg PM should be impeached for trying to destroy the country.

There is talk of a new northern euro to replace the current unit. Such a unit would need gold backing. Germany asked for the return of their gold from the US about a year ago. As far as we know they haven’t received it. The question then is, how do they back such a currency? France has sufficient gold, but they are in serious economic and financial trouble. We don’t think a northern euro is viable. Denmark is mentioned as a partner, a country that twice has rejected the euro. They also have serious problems. If the 5 PIIGS default how much bad debt will these nations be stuck with - $1 trillion or $2 trillion? That certainly is a salient factor in any new currency decision, and it is very possible default could become reality. Deficit reduction and austerity are not solutions without tax cuts. That is unless you want years and years of recession/depression. The public has to have money to spend to keep economies going. That isn’t a purge, but it is as close as you are going to get for the present.
Just headlines: "the audit board violates constitution, Supreme Court finds." As Reuters explains: "At stake in the case is how corporate America is audited and a key provision of the Sarbanes-Oxley corporate reform law adopted in 2002 in response to the Enron and WorldCom accounting scandals. If the Supreme Court strikes down the board, the ruling will put pressure on Congress to revisit the law, opening it up for potential changes in the reporting duties of companies." Then again, who even pretends we have remotely credible filings anymore? With FASB indefinitely locked in the basement and companies allowed to report their numbers on a mark-to-unicorn basis, it is all lies anyway.

Legislation to overhaul financial regulation will help curb risk-taking and boost capital buffers. What it won’t do is fundamentally reshape Wall Street’s biggest banks or prevent another crisis, analysts said. A deal reached by members of a House and Senate conference early this morning diluted provisions from the tougher Senate bill, limiting rather than prohibiting the ability of federally insured banks to trade derivatives and invest in hedge funds or private equity funds. Banks ‘dodged a bullet,’ said Raj Date, executive director for Cambridge Winter Inc.’s center for financial institutions policy. The overhaul, which still requires approval from the full Congress, won’t shrink banks deemed ‘too big to fail,’ leaving largely intact a U.S. financial industry dominated by six companies with a combined $9.4 trillion of assets. The changes also do little to solve the danger posed by leveraged companies reliant on fickle markets for funding, which can evaporate in a panic like the one that spread in late 2008.

Fannie Mae will temporarily deny new loans to borrowers who deliberately default and walk away from their homes. Borrowers who have the means to make mortgage payments and don’t work with lenders to restructure loans will be banned from obtaining new mortgages backed by Fannie Mae for seven years from the date of foreclosure, the company said. Fannie Mae, along Freddie Mac, own or guarantee more than half of the $10.7 trillion U.S. mortgage market.

Californians don’t see much evidence that the worst economic contraction since the Great Depression is coming to an end. Unemployment was 12.4% in May. Lawmakers gridlocked over how to close a $19 billion budget gap are weighing the termination of the main welfare program for 1.3 million poor families or borrowing more than $9 billion in the bond market. Far from rebounding, the Golden State, with a $1.8 trillion economy that’s larger than Russia’s, is sinking deeper into its financial funk. And it’s not alone. Even as the U.S. appears to be on the mend finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities. ‘States are going to have to cut back spending and raise taxes the same way Greece and Spain are,’ says Dean Baker, co- director of the Center for Economic and Policy Research.

May personal income rose 0.4%, the PCE price deflator rose 1.9% and April personal income was revised to 0.5% from 0.4%. Spending rose 0.2%, real disposable income rose 0.5% and savings rose to 4%.

The Chicago Fed Activity Index was 0.21, down from April’s 0.25 and way down from 0.32 expert estimates.

The June Dollar Fed Manufacturing Index was minus 4%, down from May’s 2.9% and a 3.2% expert estimate.

The Friday Night FDIC Follies made a repeat when three more banks closed to total 86 YTD. We could get close to 100 by the end of the year.

Fannie Mae and Freddie Mac, the housing-finance companies supported by U.S. taxpayers, should take advantage of demand for government-backed mortgage debt and sell their holdings, according to Pacific Investment Management Co.

“Since the government’s going to want to unwind them at some point anyway, why not do it at the best levels ever?â€