Food Stamp Usage Hits Fresh Record

As you can see, QE2 has really "helped, not."  Wake-up America.  Our current fiscal and monetary polices are not working.  Please do yourself a favor and read "The Forgotten Depression of 1920" for the fiscal and monetary polices that we should be implementing.

Are You Ready?

Mark Mobius , executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved. 

I believe it is coming sooner, not later, than most investors expect.  That is why it is referred to as a crisis or "Black Swan." 

Thank You, U.S. Armed Forces!

Fixing Social Security (Karl Denninger)

Social Security can be fixed, in part, by indexing or moving the retirement age upward.  If we move it to 70, for example, it makes a significance difference.  Currently, the full retirement age is 67 for someone born in 1960 or later.  Life expectancy in the U.S. is approximately 78 years, or 11 years post-retirement.  If we raise the age to 69, then we cut that to 9 years, which reduces cost by about 18%.  It's not enough, but it would help.  Un-capping wages would also help.  We could also means test Social Security, paying it only to people with a net worth of under $1 million.  This would not save a large amount of money as most "Baby Boomers" are pretty broke (in debt up to their eyeballs), but it would help.  Of course, Medicare is an even larger problem.  However, that is for a future post.

Auto Bailouts Left Behind Crash Victims

I will never buy a GM or Chrysler vehicle unless they make good on their legal liabilities.  It is shameful that this bankruptcy, unlike a "normal" bankruptcy, can purge legal liabilities amounting to $42.6 billion to some 31,598 claimants.  Oh, not all was lost, especially if you are the UAW.  You came out smelling like a rose!

Source: Wall Street Journal 

 

QE3: Inevitable

On Monday, the "Chicago Fed National Activity Index" fell to –0.45 in April from +0.32 in March.  It's three-month moving average is now below its "trend" line, negative values indicate below average economic growth.  (By the way, this is a weighted average index that uses 85 indicators to measure overall national economic activity.)  Today, durable goods were as follows: -3.6% on expectations of -2.5%.  Therefore, prepare for QE3!

How is That Progression on Deflation Doing?

Let me count the ways:

1. Real estate prices continue to find new nadirs.  (In other words, now is not the time to buy that house!)
2. Our government is flat broke, which of course does not come as a surprise to anyone who is still breathing.
3. Greece, Ireland, and Spain are probably only months away from declaring bankruptcy, which of course means the complete deleveraging or should I say complete repudiation of their debts.
4. EU is in complete disarray.  
5. There is almost no business lending by the banks, unless you consider that hedge funds are able to borrow all they want to make speculative purchases like LinkedIn. 
6. QE 2 is ending at the in of June, which should make things real interesting until we get QE 3, 4, 5, 6, and 7.  (Anything to try to support the price level of financial assets, which of course will end very badly.)

Credit Default Swap (CDS): Educational Refresher

A credit default swap (CDS) is often referred to as a form of insurance that protects a lender if a borrower of capital defaults on a loan.  When a lender purchases a CDS from an insurance company, the liability of the loan becomes a credit that may be swapped for cash upon the loan defaulting.  The difference between a traditional insurance policy and a CDS is that anyone can purchase one, even those who have no direct interest in the loan being repaid.  This type of investor is commonly referred to as a speculator.  If the borrower defaults on the loan, not only does the lender receive payment by the insurance company, the speculator receives money as well.  In contrast, the only way for a speculator to profit is if the borrower defaults.  Only then will the speculator receive credit that, in turn, can be swapped for a cash payment from the insurance company.  CDS purchased by a speculator is often referred to as a "bet to fail," because it is betting on a borrower to default on a loan. (Wikipedia)

You may check out the daily price changes (basis points) and spreads at S&P CDS Indices.

Follow-up on the Next QE

As indicated in my post of Tuesday, May 17, I firmly believe some form of additional quantitative easing is right around the quarter.  The only question is by how much?  I believe I have found the rationale that the Fed will use; and that is Japan.  The balance sheet of the Bank of Japan equals about 30% of Japanese GDP.  If the Fed would likewise, it could conduct an additional $1.8 trillion worth of quantitative easing.  Why?  There has been no economic recovery.  There has been no improvement in the unemployment rate.  Today, the Philly Fed, which was expected to rise from the April number of 18.5 to 20, instead collapsed to 3.9! This compares to the March level of over 43.  In other words, we have a foreshadowing of an economic depression.

Get Ready for QE3

Get ready for QE3, or whatever the Fed (Bernanke) is going to call it.  (I believe it will be referred to something other than QE3 because of the underlying negative connotation of QE1 and QE2.)  QE2 ends on June 30, and the equity and metal markets are already going through withdrawal symptoms induced by the upcoming lack of liquidity.

My sussing for the next QE is based on the following facts and statements:

1. On May 12, Alan Blinder, Princeton economist and former Fed Vice Chairman, stated, "more monetary easing is necessary.”
2. On May 13, Goldman's Sven Jari Stehn in a paper titled "Fiscal Adjustment without Fed Easing: A Tall Order" in which he states that the only thing that can prevent an economic contraction in the next two years will be more monetary easing.
3. Today, May 17, data for housing starts and permits were abysmal.  Starts came at 523,000 on expectations of 569,000, down from revised 585,000 previously. Permits were also ugly, missing expectations by a comparable account, printing at 551.000, with consensus of 590,000.  Probably the most interesting number was the number of houses under construction, which hit a fresh all time low on an annual, seasonally adjusted basis, or 418,000.

There you have it.  With economic and financial weaknesses across the board and statements by Goldman Sachs and ex-Fed personnel, I would say another form of QE is on the horizon.  And, when the announcement is made, that may just be the time to invest again in equities and precious metals.

S&P 500 "EMA Strategy" Update for May 13, 2011

Only in California can a "Lifegurard" Make in Excess of $100,000

High pay and benefits for lifeguards in Newport Beach, CA is the latest example of frustrating levels of compensation for public employees. More than half the city’s full-time lifeguards are paid a salary of over $100,000 and all but one of them collect more than $100,000 in total compensation including benefits. 

No, I am not kidding.  Once again, I am not that creative to make stuff like this up!  By the way, I am signing up for swimming lessons tomorrow.  Then, hopefully, I can get my lifeguard certificate; and then off to sunny California.

Source: Orange County Register

April Jobs and Unemployment

The BLS reported that the economy added 244,000 jobs.  Wow!  Great number until you do a little math.  Like, exclude the 62,000 from McDonalds and the Birth/Death Rate Adjustment of 175,000, which is totally a blue-sky number.  Thus, according to the math, we added, in real paying jobs, only 7,000, not 244,000!  Oh, the unemployment rate is back up to 9%.  Also, the Labor Participation Rate is at a 25-year low of 64.2% for the third straight month. 

Pick Your Poison

While the White House claims its budget plan will cut $4.2 trillion in spending, and the Republicans claim a $5.8 trillion reduction, neither proposal cuts anything from the national debt.  In fact, both plans increase it from $14.3 trillion to at least $23 trillion by 2021, some 10 years from now, or the national debt will grow at a 4.87% compounded growth rate.  With such a growth rate, the national debt will double from $14.3 trillion in 14 years!  This is not acceptable.  Both parties still do not get it. 

Commodities Take Out Support As Deflation, Economic Slowdown Fears Surge

The "deflationary wave" is taking hold.  Just what the Fed needs in order to get QE3 approval.  Will QE3 happen?  I am in the camp that says it will.  The Fed will do whatever it takes stop deflation, which is exactly what it should not do.  All markets must be cleansed in order for "REAL" economic growth to occur.  The only way that is going to happen is to allow all those toxic assets to be cleansed from the system!

One in Seven Individuals in U.S. Receive Food Stamps

A very interesting, or should I say disheartening, map depicts the status of individuals on food stamps by state.  By the way, Missouri has approximately one in six on food stamps.  Click-on map for the details.