I mentioned in an earlier Post that this year is the end of the Government Bailouts! You know why? Because it is coming down to either the Banks, GE and AIG go under or the Federal Government goes under! It is coming to that.
The Big Banks, those that are too big to fail hold about $200 Trillion in Toxic Derivatives, CMO's CDO's and CDS's. Last time I looked, they were estimated to be worth anywhere from 50% down to 5% of the value noted on the bank's balance sheets. There is simply not enough money in the world to keep these cash sucking vampire zombies and their blood thirsty management afloat, period.
Look at this. I fully expect the employment numbers to be released on Friday to be north of 700,000, maybe not when they are released, but perhaps when they are "revised" next month when even worse figures will make them look not so bad.
It is official, the stock market has now lost 50% of its value since 10 '07 meaning that 10-12 years worth of accumulated wealth, over 5 Trillions in asset values have been destroyed.
Where will the Dow end up? I predicted in Oct Nov when it was about 10,000 that it would hit 5000 in the next 6 months, and it looks right on target. After that? Below 3,000 is likely. Why?
Corporate profits, the driver of stock prices are down 61% that is the biggest drop in 141 years and they are going lower. Assisting will be a default rate of at least 10% in corporate bonds which will ripple through the bank's asset valuations.
They say that 1 in 5 mortgaged homes is underwater, the owners owe more than the property is worth with prices down about 30% since the peak and since there was only a 25% equity cushion to begin with... With prices slated to go down another 15% this year, that will mean between 25 and 30% of mortgaged homes will be underwater. What was that sound? Jingle Mail, the sound of keys being mailed to the banks! They won't have to bother to foreclose.
10% of mortgages are delinquent, about 4x normal.
Let's see, total consumer debt is is closing in on 350% of GDP, and that GDP is an inflated number! We'll see a record level of credit card defaults as the debt bloated consumers flatulate their way back to normal debt and spending levels.
Where does that leave you, and me? Relying on the Internet to generate cash flow. This is the only out for the Middle Class to become the Internet Class. High paying jobs, like Master's degrees will be nostalgic relics of a time long ago before this century is out.
The only train out of here? Not the feeble pokes the Obama team is making at the problems, with Rush and the Kno Nothings cowering them into feebility.
Precious metals will be the only antidote to the Ultimate Solution to the problem, probably though in Obama's first term, will be precious metals as they have always been in times of chaos and hyper inflation.
Stay tuned as I fleshout these options.
Showing posts with label unemployment. Show all posts
Showing posts with label unemployment. Show all posts
Wednesday, March 4, 2009
Friday, December 5, 2008
Stag/Deflation?
This is a term coined by one my gurus, Dr Rubini, of NYU. What it describes is a nightmare scenario of a Stagnant economy caused by lack of demand. It is inherently different from its similar sounding cousin, StagFlation, which is a Stagnant economy caused by an intemperate increase in the money supply.
We are probably hip deep in StagDeflation right now. Unemployment is ballooning (533,000 lost jobs last month, November, 2008) because business is stagnant due to lack of demand. Imported cars are piling up on the docks because dealers will not accept them because no one is buying them.
High unemployment leads to less demand, which leads to more unemployment, which leads to less demand...You see the problem.
In deflation, the value of everything goes down due to lack of demand. Look at oil prices, which are poised to go below $40/barrel in the next few days. Look at gold and silver, down approx 30 and 40%, respectively in the last 6 months.
The value of the stock market has plummeted 40% this year as well.
Of course the banks and financial institutions are being battered by the drop in their capital due to the loss of value of their reserves, mainly their investments in real estate derivatives. This situation is forcing them to curtail lending which again hits demand, denying credit to businesses and individuals, depressing consumption further.
The only thing going up in this environment is the lowly dollar, since the supply i8s contracting, the very opposite of what happens in an inflation.
During this period of Stagflation and collapse of the banks and financial institutions, your best money strategy is to get out of your investments and into cash, since "things" are losing value and dollars are gaining value.
You will have a great opportunity to buy back your financial assets and real estate at the bottom of the StagDeflation cycle at pennies on the dollar!
However, with banks failing on a weekly basis and hundreds of them in danger of collapse, you want to keep your money in Treasury Only money market funds. FDIC insurance is for suckers! The fund does not begin to have anything approaching enough capital to guarantee anything like the amount of losses they are likely to face if even a fraction of the banks on the Bad list fail.
Treasury only money market funds can act as both business and personal checking accounts as well as money market funds. Your money cannot be safer. The government has Never defaulted on Treasuries, not in the Civil War, not in the First Depression, not in WW2.
Now, the answer to Deflation, is Inflation, printing money and pumping it into the economy, as the government is doing to recapitalize the banks as well as to jump start consumer spending. There is usually a lag of about a year between the growth of the money supply and the onset of inflationary prices.
As gold and silver prices will rocket upward as inflation sets in and their prices are depressed now, you will want to convert some of those Fat dollars to gold and silver now. You have about a year before their prices will start excellerating at which time the dollar will drop like a stone.
Recommendation: Sell deflating financial investments, real estate. Hoard cash, invest 20% in gold, silver: http://SilverSnowball.com/964
We are probably hip deep in StagDeflation right now. Unemployment is ballooning (533,000 lost jobs last month, November, 2008) because business is stagnant due to lack of demand. Imported cars are piling up on the docks because dealers will not accept them because no one is buying them.
High unemployment leads to less demand, which leads to more unemployment, which leads to less demand...You see the problem.
In deflation, the value of everything goes down due to lack of demand. Look at oil prices, which are poised to go below $40/barrel in the next few days. Look at gold and silver, down approx 30 and 40%, respectively in the last 6 months.
The value of the stock market has plummeted 40% this year as well.
Of course the banks and financial institutions are being battered by the drop in their capital due to the loss of value of their reserves, mainly their investments in real estate derivatives. This situation is forcing them to curtail lending which again hits demand, denying credit to businesses and individuals, depressing consumption further.
The only thing going up in this environment is the lowly dollar, since the supply i8s contracting, the very opposite of what happens in an inflation.
During this period of Stagflation and collapse of the banks and financial institutions, your best money strategy is to get out of your investments and into cash, since "things" are losing value and dollars are gaining value.
You will have a great opportunity to buy back your financial assets and real estate at the bottom of the StagDeflation cycle at pennies on the dollar!
However, with banks failing on a weekly basis and hundreds of them in danger of collapse, you want to keep your money in Treasury Only money market funds. FDIC insurance is for suckers! The fund does not begin to have anything approaching enough capital to guarantee anything like the amount of losses they are likely to face if even a fraction of the banks on the Bad list fail.
Treasury only money market funds can act as both business and personal checking accounts as well as money market funds. Your money cannot be safer. The government has Never defaulted on Treasuries, not in the Civil War, not in the First Depression, not in WW2.
Now, the answer to Deflation, is Inflation, printing money and pumping it into the economy, as the government is doing to recapitalize the banks as well as to jump start consumer spending. There is usually a lag of about a year between the growth of the money supply and the onset of inflationary prices.
As gold and silver prices will rocket upward as inflation sets in and their prices are depressed now, you will want to convert some of those Fat dollars to gold and silver now. You have about a year before their prices will start excellerating at which time the dollar will drop like a stone.
Recommendation: Sell deflating financial investments, real estate. Hoard cash, invest 20% in gold, silver: http://SilverSnowball.com/964
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