G19 Update is out - Ugly

ksammut

Not good:

G19 Update

mkman123

thanks for the link, it was easy to read and understand. Things don't look good.

rgCoinGuy

"At the same time the supposed "official" statistics say we lost 216,000 jobs. [pdf] Unfortunately the household survey, in the same release, says something different. Their "official" numbers on the household survey say 466,000 fewer people were working, not 216,000. But it gets even worse than that when you dig into the actual data.

If you look on page 10 in the Household Survey you see the line "Employed." July to August that number declined not 216,000, not 466,000, but a staggering nine hundred and eighty-one thousand people."

mrearlygold

I especially like the way the present whitehouse scumbag has ripped us all off for money given to gm, who in turn has closed factories in the US and increased it's postion in China. This coming from this lowlife who also said he was going to punish companies for outsourcing.

I'm beyond wondering when people in this country will wake up and have gone into the "is it even possible for them to wake up" given the ignorance which prevails.

jmski52

I'm beyond wondering when people in this country will wake up and have gone into the "is it even possible for them to wake up" given the ignorance which prevails.

I've been wondering the same thing. I'm almost done reading "Atlas Shrugged" and that book is clearly written for our times. I'm thinking that Ayn Rand is onto something important.

cohodk

<< <i>Not good:

G19 Update >>



What is so wrong with households cleaning up their balance sheets. Thats all those charts show. Consumers are reducing their credit card balances. Thats a good thing.


The Social Security Trust Fund reported an August net deficit of $5.865 Billion. This is the largest monthly deficit in nineteen years

Could this just be that we have the largest unemployment in 19 years. Less people working means less social security taxes paid. Hence part of the deficit.


The consumer is not coming back any time soon

I was writing this back in Oct when the bottom fell out. This is nothing new. Markets now know this and are already looking past it. The formula to resolving a problem is understanding. We understand the problem and are now dealing with it. This will not be a snap back quick recovery. Look---the DOW is at 9600, if it appreciates by 8% a year--the multi generational average, it will take another 5 years for the DOW to hit a new high. That means 7 years of zero return and a very meager return over the pervious 14 years. This is not inconceivable and perhaps very likely. Thats what we should expect--15 years of zero invest return in stocks after an amazing 18 year run--1982-2000.

So, dont be amazed that the DOW is up nearly 50% from its low. It is still way off its highs and maybe another 1/2 decade or more from hitting a new high. Corporations and individuals are cleaning up their house. This will set up for another amazing run in equities.

ProofCollection

<< <i>What is so wrong with households cleaning up their balance sheets. Thats all those charts show. Consumers are reducing their credit card balances. Thats a good thing. >>



It is a good thing, long term. In the short term, it means people not spending. When consumption is 70% of the economy, this is extremly important as the US shifts to a what 50% consumption? Maybe lower?



<< <i>Could this just be that we have the largest unemployment in 19 years. Less people working means less social security taxes paid. Hence part of the deficit. >>



• A $787 billion “stimulus” package with little
effective stimulus, but lots of pork
• A $410 billion addition to the 2009 budget
• A $1.6 trillion deficit for 2009
• A $3.5 trillion budget proposal for 2010
• A $1 trillion health-care proposal
- The SS programs are now or are about to become inverted (pay out more than they take in), not even factoring in employment levels
- Plus the GAO is reporting an additional burden of $9T over the next 10 years.



<< <i>I was writing this back in Oct when the bottom fell out. This is nothing new. Markets now know this and are already looking past it. The formula to resolving a problem is understanding. We understand the problem and are now dealing with it. This will not be a snap back quick recovery. Look---the DOW is at 9600, if it appreciates by 8% a year--the multi generational average, it will take another 5 years for the DOW to hit a new high. That means 7 years of zero return and a very meager return over the pervious 14 years. This is not inconceivable and perhaps very likely. Thats what we should expect--15 years of zero invest return in stocks after an amazing 18 year run--1982-2000.

So, dont be amazed that the DOW is up nearly 50% from its low. It is still way off its highs and maybe another 1/2 decade or more from hitting a new high. Corporations and individuals are cleaning up their house. This will set up for another amazing run in equities. >>



You can understand the problem (lack of consumer spending) all you want. But what is going to replace all of the consumer spending that is lost or going to be lost? You can't have recovery until you replace consumer spending or recover consumer spending and that won't happen until people are employed. During and after WWII, the mechanism was the war and rebuilding after the war. After the 80's, it was the Internet and other technology advances (and America dominated this space, which it no longer does). You also won't have recovery until banks start lending and banks won't start lending until they stop losing money on bad loans and mortgages and get their reserve balances high enough.

The problem is that while we're waiting for whatever recovery to happen (whether fast or slow), deficits and deficit spending are increasing and at an almost exponential rate. The bank deathwatch list has grown from 117 to 416 in one year. The FDIC has only about 0.25% asset-to-coverage ratio - on over $4.5T in deposits. Bankruptcies and foreclosures are increasing, not decreasing. And now it's prime loans and mortgages, not just subprime... The fed itself owns $1.5T in trouble assets. Assuming only half of it gets wiped out that's still $750B.

ksammut

PC,

I agree with you and am afraid you are right on target.

cohodk

But what is going to replace all of the consumer spending that is lost or going to be lost

The answer is simple.....TIME. Thats all. I think the "spending going to be lost" is already behind us. I am not and never have said a recovery would be swift, and in fact I wrote almost exactly what you did a year ago. But that is past and a year ago didnt know if the system was going to fail or not. The G has proven that it will do whatever necessary to keep it from failing. So we no longer need to fear failure, but rather fear the unintended consequence of "doing whatever necessary."

The banks will start lending when consumers are credit worthy.

And the gold bugs should be rooting for a faster recovery. As a fast recovery will catch the Central Banks by surprise and they will be late in reigning in the excess liquidity. This will bring on inflation much sooner and stronger.

Losing 500 banks isnt really a big deal. We lost 1/3 of all banks during the Depression.


My point is that we have a pretty good grasp of what the problem is, and as such, we can manage it. Being afraid of the unknown is one thing, but being afraid of what you know is ignorance.

jmski52

My point is that we have a pretty good grasp of what the problem is, and as such, we can manage it. Being afraid of the unknown is one thing, but being afraid of what you know is ignorance.


cohodk, I respectfully submit to you that there is no good way to manage $1 Quadrillion+ in time bombs on the balance sheets of banks in addition to piling on tons of new debt obligations on top of the $trillions in unfunded liabilities - that is what becomes unmanageable. If it were manageable, it would have been addressed long before now.

The only way to get out of this hole is to stop spending beyond our means in the aggegate, and that is clearly not happening. You speak of a long, shallow recovery. If that is the case, the recovery will not compensate for the increases in debt. It will get worse until a defacto default occurs. Then, watch the finger-pointing!

cohodk

I agree with what you say. This will not be easy.

I do however believe the derivative problem is being addressed. One of the key qualities of derivatives is that they are largely based on time. As time goes by, these expire. So if no new contracts are written, the problem will be smaller over time.

TSHTF when LEH went under. This was unexpected and was not modeled. Hence the problem became bigger than anticipated. The G anticipated the next big problem with AIG and stepped in to prevent collapse. Yes, this is going to cost 100's of billions, but the alternative would have cost much more.

The unfunded liabilities can be managed through increased retirement age and increased taxes. Both of which will meet very strong resistance from J6P, as it very well should. But decreased(delayed) benefits and higher taxes are coming, so be prepared for it is a fear that is known, not unknown.

I wish information about the situations in Europe---Ireland, GB, Germany, Spain, Italy, some Eastern European, were easier for Americans to research. It would then become apparent that Europe has much more severe problems than the USA. All of this could be bullish for gold.

roadrunner

Newly created derivatives are starting to be addressed. But there is no reasonable way to go back and and address the $1.1 QUAD from the past. The bankers and govt know this. The "answer" so far has been to not use "mark to market. "

While >9,000 depression era banks did fail, we probably have no more than that many US banks total today. So the 1/3 comparision test may not be reasonable. Also factor in that the top 175 or so banks (2%) own more assets than approx 90% of ALL the smaller banks. I don't believe that big banks were that heavily weighted in the 1930's. The largest and most insolvent banks today don't even show up on the FDIC's hit list.

roadrunner

cohodk

The "old" derivatives will either expire or be paid out. Time will cure.

Leading up to the Depression there was a massive creation of banks. We went from like 8000 to 20,000 from 1925 to 1930, so of course 1000's should have failed. Back then, the big banks were strong and the small were weak. Today it is(was) the big banks that are(were) weak and the small are strong.

The big banks today will never show up on the FDIC list as they will always be solvent. The G has already demonstrated what they would do and they will do it again.

NumbersUsacom

G-19, read it, Thanks.

Hoisington managements 2nd quarter economic review echoed this same sentiment about 2 months back and thay have been spot on.

You can check it out at: www.hoisingtonmgt.com then click on economic review