Surviving the Crash

by jim goulding

  Introduction

This page is a continuation of my predictions page but I'll be posting things for you to use as a guide for surviving the crash of our economy. The postings, here, are from a private online bboard I run. I'm simply posting what I've posted there, here, on my web site.

 

Click here for my Google Reader shared news stories

 

Last update 11/23/2014
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    08-21-2008: Option ARM resets + Death Spiral Financing

    08-22-2008: 3-Web Sites for keeping up on the Credit Crisis

    08-25-2008: The LIBOR: The Credit Crisis in Real Time

    08-27-2008: Things are not getting better they are getting worse

    08-28-2008: How far can Housing Prices Fall?

    09-03-2008: Peak Spending and the Dow

    09-09-2008: Retail Sellers haven't entered the market yet

    09-10-2008: Freddie and Fannie Mae are Nationalized

    09-11-2008: What are the Credit Default Swaps Telling Me?

    09-16-2008: Tipping Point Day

    10-07-2008: Well, that was fun…NOT!

    10-08-2008: Welcome to the Fourth Turning

    10-17-2008: Market Update

    10-20-2008: Templates; Looking for a Guide to the Credit Crisis

    10-21-2008: The Millennials Save the World (again)

    10-21-2008: Two great web sites

    10-23-2008: Gold

    11-05-2008: Some Direction for Stocks etal, After the Election

    11-12-2008: There’s good and bad. I’ll begin with the bad

   11-13-2008: Repatriation & Paulson  

   11-14-2008: New Currency  

    11-17-2008: What to Expect

    12-10-2008: When will Recession End?

    12-11-2008: Bonds; The Shot Across the Bow

    12-12-2008: Level 3 Assets; How it all Started & They're doing it again  

    12-12-2008: Links, 2008 Credit Crash

    01-23-2009: Well that wasn’t smart; Geithner & Obama tell China to eff-off

    02-03-2009: Let's Get International

    03-23-2009: Update

    02-08-2010: Interview with George Ure from UrbanSurvival.com

    10-22-2010: What does China's Export Stoppage of Rare Earth Metals Mean for US Industry?

 


  10-22-2010: What does China's Export Stoppage of Rare Earth Metals Mean for US Industry?

 

Which industries will it affect? 

 

I'll list the rare earth metal in bold and the industry it affects underneath it. (Source Wikipedia)

 

Lanthanum(III) oxide

  • optical glasses
  • an ingredient for the manufacture of piezoelectric and thermoelectric materials.
  • Automobile exhaust-gas converters contai
  • X-ray imaging intensifying screens, phophors as well as dielectric and conductive ceramics.
  • oxidative coupling of methane
  • spray pyrolysis. 

 

Cerium

  • A major technological application for Cerium(III) oxide is a catalytic converter
  • Diesel fuels.
  • Another important use of the cerium oxide is a hydrocarbon catalyst in self cleaning oven
  • petroleum cracking catalyst in petroleum refining
  • precision polishing of optical components
  • manufacture of glass,
  • used in incandescent gas mantles,.
  • stainless steel.
  • permanent magnets
  • tungsten electrodes for gas tungsten arc welding.
  • Cerium is used incarbon-arc lighting, especially in the motion picture industry
  • used to oxidatively etch electronic components…

 

Neodymium(III) oxide

  • Neodymium(III) oxide is used to dope glass, including sunglasses, make solid-state lasers, and to color glasses and enamels[3].

 

Praseodymium(III) oxide

  • used as a dielectric in combination withsilicon
  • welding goggles
  • color glass and ceramics yellow

 

Samarium(III) oxide

  • used in optical and infrared absorbing glass to absorbinfrared radiation.
  • used as a neutron absorber in control rods for nuclear power reactors.
  • Another use involves preparation of other samarium salts

 

 

 

 02-08-2010

 In February 2010, I was Interviewed By George Ure, the brilliant writer who runs Urbansurvival.com and Peoplenomics.com

Here is the interview in its entirety. George's questions are in Arial blue, and my answers are in Times New Roman black.

 

Life After Trading?

A good friend of mine was recently let go at a major trading operation in Chicago where he was supervising a group of bond traders.  I had a chance to pick his brain a bit about what's "out there" and, since he's got an excellent handle on generational turnings (after Strauss & Howe) what he sees on the road ahead is useful.  Following the interview, be sure and flip over to this week's ChartPack where the 'end of the world' is slowly resolving into view...

 

A Chat with Jim Goulding

I'd like to begin by asking you at the macro level: Have we arrived at a point where normal human trading activity has become superfluous; in other words have we reached the point where machine trading is taking over the entire industry?

 

            How can a human compete with Goldman Sachs front running orders? When I was in the trading pit, people went to jail for this! I was there, in 1988, when the FBI infiltrated the pits and prosecuted people for the same things Goldman is doing now. (http://www.allbusiness.com/specialty-businesses/110748-1.html)  

 

            Hell, they’re still doing it now: (http://chicago.fbi.gov/dojpressrel/pressrel09/cg040109.htm ) But not to the big boys!  Just the ones who don’t have any muscle on K Street in Washington.

            (http://www.zerohedge.com/article/goldman-admits-frontrunning-clients-through-its-prop-des)

 

                The damage has been done already. The big brokerage houses decimated the part of the trading industry that did everything out in the open. That’s why they called it Open-Out-Cry! Everyone could see you and knew what you were doing in the trading pits. If you were to go back and look at every charge the FBI brought against the traders in the CBOT, you’d realize that they were bullshit. Oh, yes, some traders did break the rules and they ruined those people’s lives for very small infractions. However, no one who was a big trader went down because there weren’t big trader’s front running orders. Why weren’t they? Because it was illegal and the trading pit is completely transparent. The dark pools and trading exchanges the big brokerage houses use and own are unfair and they aren’t transparent. Why-oh-why would anyone use them?

 

            Bottom line: Laws have to change in Washington that will get the big brokerage houses out of the “we can own an exchange” business or computers will take over. I believe that the laws will change. In the writings of Strauss and Howe, they state that the old ways of doing business will change for good, in 4th Turnings (Winter). Therefore, I believe the trader will make a come back. It won’t happen quickly and there’s already been an enormous amount of damage done already.

 

I've noticed as a smalltime trader for my own account only, there seems to be a distinct move afoot on the part of market making entities to eliminate some of the most useful psychological indicators which small traders have traditionally used. I put in this category the Federal Reserve M3 right, along with the NYSE program trading statistics.

 

As you know, program trading statistics started being phased out when program trading volume began constituting nearly 3/4 of stock market volume. The NYSE then began reporting only one side of these traits in an effort to understate the impact of program trading. However, when even that failed, the program trading numbers became wildly deemphasized.

               

                This article speaks volumes to what you’re talking about, George:  NYSE program trading statistics

 

Now that you -- a top notch Bond trader and trading instructor in Chicago -- have been let go, and given the fact that most trading outfits are only interested in higher rate quantitative analysis geek's who can squeeze a fraction of a cent off the smallest of repeatable trance, are we to infer that machine replacement of humans in the loop is presently upon the markets?

 

                Yes, you should infer that the computers are taking over. And…have taken over. However, as I wrote above, the trader will make a come back.

 

You and I have both done it from in this amount of research into the economics of long wave. I think we agree that working in a second depression, and I'd further speculate that while neither of us claims to have particularly precision insight, in general we are nowhere near the bottom just yet. Given this, and the possibility that humans as trading platforms are becoming obsolete, do you and I need to write the definitive book on the obsolescence of humans as traders?

 

                There’s definitely a book to be written here George. Now, if we can just find a $100k advance!

 

Now let's talk about risk: what do you think the right risk allocations are? As you know, in my weekend reports I have disclosed that my allocation is approximately 1/3 real estate, one third precious metals, and one third cash and treasuries. At least that's the ideal position I would like to be in. As a practical matter my precious metals holdings are smaller, my real estate and hard goods holdings are larger, and can a person ever have enough cash on hand or treasuries?

 

                I love your holdings. I actually like the USD too. One aspect that everyone misses in a crisis like the one we are experiencing today is the deflationary effect is very good for our currency. Many millionaires were created in the 30s and they didn’t do a thing. They simply held on to their cash. Joe Kennedy increased his worth 7 fold between 1929 and 1935. All that he did was hold his cash. Why? Because in deflationary times, cash today is worth more tomorrow. That’s the opposite of what you and I grew up with. It’s unheard of!! We are used to inflation, not deflation. So, cash is good. I don’t care how many dollars they print, as long as the USD is the world currency and we have the biggest navy, the point is moot. USD rules. Wanna get away from a currency, dump the British Pound! Yikes.

 

            Real estate? I like YOUR real estate. However, there’s not much to like around this country. I did a study on the housing market in 2002 and put it on my web site, http://www.jamesgoulding.com/predictions.htm#Housing . I still believe it’s very relevant. We haven’t hit bottom in that market yet.

 

            Its mind-boggling hearing people say they are looking to take advantage of the fall in housing prices. Oh…please…don’t. We still have at least 20% - 40% more to go in many areas. Unless you’re getting a rock bottom fantastic deal, then back away. The numbers you’re seeing in the press are not the real deal. If you’d like to see the actual numbers, read www.doctorhousingbubble.com . He’s the man.

 

            One other thing on housing. The GSE’s, Freddie and Fannie, may not be buying mortgages or lending like they used to, however, the FHA is spending huge amounts of money. The FHA is simply lending like there’s no tomorrow. This is one reason why the housing prices have held up. Not to mention the Fed buying all the crap MBSs.

  

A lot of so-called investment gurus have been telling their clients for some period of time that the right place to be is either foreign stocks, or in bonds, or buying a rental houses right and left, or any number of other strategies such as leveraged bonds, leveraged stocks, and a multiplicity of other concepts. Do you as a trader see anything near a sure bet that will allow present-day small investors to have at least some confidence that the purchasing power of their investment will be maintained over a long period of time? If so, what might that strategy be?

 

            No. There’s no safe answer. It’s all a risk. However, if you put a gun to my head I’d bet on several things. Gold, Silver, abandoned industrial parks, industrial parks where small entrepreneurs can rent a nice small warehouse, water, short-term treasuries, the Aussie, New Zealand and Canadian dollars, Turkey and Korea. Stay away from the PELL countries (Poland, Estonia, Latvia, and Lithuania).

 

Here are some brief explanations why:

1.      Gold and Silver can’t hold debt. They can’t accumulate any debt whatsoever. All paper currency is Debt and we are in a debt crisis. Metals are a no-brainer.

2.      Abandon industrial parks, industrial parks where small entrepreneurs can rent a nice small warehouse.  Any administration trying to pull-out of a credit crisis will devalue their currency as quickly as possible so they can export goods and services. Therefore, selling merchandise to other countries becomes a valuable commodity. Our country's factories were decimated over the last 40 years. That’s going to change with the dollar staying low. Furthermore, there’s a new revolution in small manufacturing. The best info you can read and get a quick understanding what it’s about, is in the last issue of WIRED magazine. http://www.wired.com/magazine/2010/01/ff_newrevolution/

3.      Water. Pay very close attention to companies buying water rights and get on board with them. It’s a huge issue that’s flying under the radar.

4.      Short-term treasuries. On November 4th, 2009, the Treasury department said it was extending duration out the curve from about 4.9 to 7 years (approx). Meaning, they’re selling MORE longer-dated maturities and LESS shorter-dated maturities. They do this so they can pass the buck down the road to the next generation. Buy 2 and 3yr treasuries.

5.      The Aussie, New Zealand and Canadian dollars. No brainer. These are the ‘young’ commodity producing countries. They have lots of natural resources and most of the G-20 want them. 

6.      South Korea. They’re slowly taking over where Japan left off in the late 80s. They just keep making better and better products.

7.      The “PELL” countries (Poland, Estonia, Latvia, Lithuania). The world geographical chess game will turn towards these countries. Look at a world map. Russia lost a lot when they lost control of Poland, Estonia, Latvia, and Lithuania. Most importantly, they lost major access to the Baltic Sea and their ports. Remember, whoever has the biggest navy controls the world currency (among other things). I encourage you to read the first 50 pages of The Next 100 Years. (http://www.stratfor.com/next100years ). There will be battles for these countries. Wars.

      Turkey is one of the very few countries in Asia that isn’t land-locked. Their real estate is golden. This is the riskiest bet of all. But, if you can get on board, Turkey should prosper. Again, look at the world map. Their access to water is undeniable. If they could just get their political crap in order!

 

 Now let's talk about bonds specifically: we have three possibilities before us, why is that deflation is already here as evidenced by the Fed G. 19 report while the second possibility is that inflation is here as evidenced by the most recent trip to the grocery store. The third alternative is that we are in a worst of all worlds position where we are experiencing deflation on the one hand in personal assets, but inflation on the other when we get to the area of personal necessary expenditures. Care to give us any guidance?

 

            I’m in the deflation camp. Strauss and Howe’s work shows this era to be deflationary and I haven’t seen anything that shows we won’t repeat it (deflation) again. The problem is, "in what products will deflation occur?" You can look at it the same way when you’re trying to pick which asset will increase in price the most. However, this time we’re trying to pick which asset won’t fall the most. None of us are used to that. It’s completely foreign to us.

           

            Bonds actually perform well in deflationary times. Like I wrote above, 2 and 3yr bonds should do fine. I think 10s and 30s have a bit of a yield-rise coming, as the US Treasury increases supply. But, it won’t be that big of a rise. 5 yr treasuries are fine too.

 

            Generation Xers are a bunch of cheap folks (I’m one of them). They’ll continue to shop for the cheapest price and force companies to lower prices or they’re out of business. Period. GenX’s problem isn’t that they spend money on themselves; it’s that they spend it on their kids, the Millennials. Once GenX reels-in their spending on their kids (and they are beginning too), it’s going to get ugly.

 

            Everyday-prices in most areas are coming down and that will continue. That’s my call and I’m sticking to it!

 

With regard to your book Winter is Coming, could you enumerate some of the factors that lead to your conclusion that the absolute bottom of our current economic depression could be as late as 2014 or maybe 2015?

           

            I went back in time and looked at how society acted during a credit crisis, like this one. However, I used generational theory and that states that different things happen when generational archetypes are lined-up in a specific way. You can see a visual of that here: http://www.jamesgoulding.com/GenerationsII.htm .

 

            I wrote a chapter called the Line-Up, in Winter is Coming, specifically about this scenario. Looking back at the other Winter era’s, it seems like we go through a period of disbelief that the event is really happening. As a society we can’t believe it. How could this be, we say?. Of course it will be different this time around, we say! Well…it’s not. It never is. Then things appear to get a bit better and we think it’s over. People get complacent and angry (like now), then the economy slides down…slowly…slowly…and…we can’t believe that it’s happening again! It’s almost as if we go through Elizabeth Kubler Ross’s 5-stages of dying.  

 

            I go back and read the papers from the 1930s. The daily papers. They’re so similar to today’s papers. We’re in the anger stage. I just don’t see this credit crisis playing out much differently than the 30s as far as time goes (length of the crisis).

 

            In the 30s they hit bottom in 1933, then almost took that bottom out again in 1937. Most politicians and scholars think we are repeating 1936 right now. I’d say they’re in denial! We haven’t had our 1933 yet. I’d say it’ll come around late 2012-2013. The crisis happened about 18 months before I thought it would, when I was writing Winter is Coming. So, that should move the bottom up to about 2012-2013.

 

As you know, and as you and I have often spoken, one of the keys to economic recovery is new technology. Unfortunately new technology must have an appropriate expression as a consumer good. I've been telling readers for a long time I don't see any new breakthrough products coming out. Apple putting a new brand of lipstick on the net book ain't gonna cut it in my view. As a scholar of Strauss and Howe do you believe that we lack the kind of fundamental technological breaks that will spur a recovery and this is one reason we seem destined to replay the Great Depression?

 

                I like Harry Dent’s work on invention cycles. If you believe his work then we aren’t going to see any innovations for a long time. Like, 40 years. The Boomers (b1946-1960) are the inventing archetype. They brought the computer and internet to the masses. The Xers (b1961-1981) advanced the Boomers invention in many areas. The Millennials (b1982-2003) use them to bring society together and the Homeland generation (b2004-20??) will enhance the Boomers inventions.

 

            What will bring us out of this economic depression is the Millennials turning away from the individual ways of the boomers and turning to the job of bringing the USA together as a society; like the GI’s did with they’re great societal reconstruction projects, (roads, civic buildings, space program). WWII brought the USA closer together. That’s a fact. It didn’t happen all at once, but it happened over the course of the war. I just hope we don’t repeat that this time around. I don’t think we will.

 

In a similar vein, Robert Ely wrote in his book hard times the way in, the way out, that the real cause of the first Great Depression was industrialization of agriculture. And in his book he points out that due to farm mechanization, more than 7,000,000 acres of former rangeland required to raise draft animals, became unnecessary due to high tech. This caused farmers to plant excessive crops which in turn drove down prices, and the result was the collapse of commodity pricing which led to the first Great Depression.

               

            I disagree with his reasoning for the depression. I wrote a paper on the agriculture revolution of the 1920s. Part of the collapse of Agri prices were absolutely due to the mechanization, however, WWI had a lot to do with the collapse. Prices came down hard in 1921 and never recovered.

 

Would you agree, or disagree, that our second depression which seems now to be dawning, and I'd argue accelerated by the planned obsolescence of human traders, is being driven by a similar human replacement regimen? I refer specifically to the obsolescence of human effort brought about writing advanced of silken ships and software, which I view as more impacting in many ways then was the arrival of gasoline powered tractors on American farms in the 1920s.

 

            It’s so similar isn’t it! We’re always trying to raise production, which means, get a robot to do the human job.

 

I don't know about you Jim, but I have a hell of a time telling my children what they should be doing in the fields of education and career planning in order to avoid extremes in the economy. The best I've been able to do, is a son who's in EMT, and two daughters -- one in the grocery business since people have a habit of eating, and the other working for the state of Washington in their unemployment offices.

 

Any ideas what we should be telling our kids now based on your experiences over the last week where you've come had on into human obsolescence issues? Or, am I seeing this entirely too negatively?

 

                I don’t think you’re being negative. There’s a lot to be negative about. Hell, I’m Irish and I’m always looking for the next potato famine. As far as our kids, I think they’re going to do what they want to do whether we tell them to or not. The Millennial generation’s archetype is Civic/Hero. Society will reward them throughout their lives. We’ve done it since they were born and we will continue that practice into their old age. Just like the GIs were taken care of, the Mills will be too.

 

            I call the Mills the Teflon Generation because they don’t internalize the world issues like boomers and Xers do. They are completely different. They see the world as a society, not individuals. Boomers can’t even comprehend the word Civic, let alone hero. And, Xers? We all hate ourselves and think all the problems in the world are our fault. We are looking to the Mills to save us.

 

If I am, please forgive me, but in the urban survival reports where I write about the new dark ages and the happily ever after land for corporate owners where human labor isn't needed and machines produce all profits...

 

If you were to summarize your present outlook for the American economy, what would it be?

 

            The economy will shrink again. It has too. The last ten years were built on a house of cards (pun intended). We didn’t create anything. We need to rebuild our infrastructure with durable products that last 100s of years. Better concrete would be a start (hey how about using volcanic ash instead of sand!) That’ll happen. We will lose more jobs. Whole industries will collapse. Newspapers and magazines? Bye. We can’t afford them anymore. It’s too cheap to put them on a Kindle.

 

            Everyone will get local because they’ll have no choice. They’ll turn towards community and civic projects. They’ll drive less, therefore walk more, therefore, mom and pop shops make a comeback; in a very big way. It’s all about community. The economy in America is turning inward. We will export, and repatriate money. We will build more fences on our borders and racism will come alive again. It’s already happening. Today’s Muslims are yesterday’s Russians. It's sad but the GIs are a very racist generation. So will the Millennials.

 

            We’ve made a pass through an 80-year economic window. Everything has changed. Soon, the Xers will be burnt-out by their task master do-nothing Boomer bosses and the Millennials will take note. The Mills will work less-harder than their boomer and Xer parents. And if you’d like to see productivity dive, wait until the Homeland generation starts getting into he work force in the 2020s.

 

If you could live anywhere in the world, and do anything on earth in order to make a living for yourself and your family now, where would it be, and what would it be?

 

I’d live right here in the Midwest. Write books. Draw cartoon pictures for sick children in hospitals.

 

Not everyone's got a clear a vision of what's ahead as Jim Goulding  and a some time spent on his web site: www.jamesgoulding.com  seems like a worthwhile way to do a little 'brain feeding'.

 

 

 

 

 

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  03-23-2009: Update

 

I haven’t been writing much this year because there’s simply nothing to write about. Everything appears to be going the way it should. We are in Winter.
 

From an economic perspective the past cycles are repeating. The elite are raiding the system. They devalue assets while they hold cash. Then, they buy assets for pennies on the dollar. They did it in the 1600s and they’re doing it now.
 

Nothing shocks me. For instance, the much-written-about bonuses. It’s typical of a boomer archetype to do this and typical of the press to report the unimportant. The bonuses aren’t the problem, the system is the problem. That system will not get fixed, as history has shown.

I admit the one feeling I consistently have to deal with is helplessness. Watching the boomers do this is very hard. Yet, Strauss and Howe told us to expect it. I knew it was coming but living through it is difficult. From watching millions put out of work for the benefit of the few, to devaluation; it’s wrong and I know-not how the people executing this sleep at night. Yet, they do.
 

I’ve spent most of the last three months reading stories (you can see many of the pertinent ones here: http://www.google.com/reader/shared/17346443862498828151 ) digesting and trying to come up with a direction the market will move. The DOW and S&P are happy at the moment. They’ll rally (go up) to 9300 over the next couple of months. They’re so oversold it’s ridiculous. I’d look for the public to breath a collective sigh of relief that the worst is behind us as we rally…believe me it is not. The worst is NOT over. Not even close.
 

To understand how the public will behave when the market (stocks) heads higher, we only need to look to the price of gasoline, and what occurred over the last year. When gas went up to 3.90 – 4.50 a gallon society pulled back and came up with alternatives. They vowed to change forever. Granted, we have made some changes but as gas fell we increased our driving miles dramatically. In essence, we collectively believe(d) that the worst is behind in gas prices. Our old behavior showed up as soon as prices dropped. That kind of behavior will show up again as the stock market goes higher. Personally, I’d use any rally in the stock market as a gift. I’d take advantage of that gift and get out, not in.
 

Things will be getting ‘financially happy’ over the next few months. Enjoy it but don’t buy into it, this is far from over.

Take care,

Jim Goulding

 

 

 

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 02-03-2009: Let's Get International

 

A friend turned me on to a great book. I read it over the weekend and find the information in it invaluable.

The Next 100 Years: A Forecast for the 21st Century, by George Friedman.

http://www.amazon.com/Next-100-Years-Forecast-Century/dp/038551705X

The first 40 pages give an outline of the international hot-spots for 2010. Then, 2020. If you put the book down after that you'd be OK. The rest is an in-depth look at the outline and some very very detailed predictions.

I've used Strauss and Howe's Generational and Turnings theory to help identify where we are headed in the US. However, I was lost internationally. Friedman does a good job explaining why we invaded IRAQ and Afghanistan and continue to run subversive operations around the world. Not to mention what other countries are running the same types of operations around the world, and why.

Take care,
Jim Goulding

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01-23-2009: Well that wasn’t smart; Geithner & Obama tell China to eff-off

 

    On 12/11/2008 I wrote about the Bond market and the shot-across-the-bow. That posting was about the most serious threat to the economy that we will face in the next few years, and that is the rollover of our bond/note debt ,plus the issuance of our new debt.

 

Well, yesterday the Obama administration sent a brand-new message to China about exactly what they think of their Central Banks handling of China’s currency.  That message was in the form of a statement from the Treasury elect, Tim Geithner. He said, “…China is manipulating its currency.” 

 

Holy shit.

 

Since proclaiming this (which we all know is true) the treasury market has gotten hammered hard. Furthermore, we (the USA) have refunding coming up in a week, then another sale next month to the tune of about 100 Billion. Guess who is one of the biggest buyers and owner of US Treasuries? China. Who have we counted on to buy our debt over and over again for the last 20 years? China.

 

Put all arguments about what China’s currency manipulation has done to the manufacturing industry and export industry in this country. Forget about applauding Obama for finally speaking the truth…whatever. That’s not the point of this post. The point is there are going to be very real consequences from speed of the new policy. Already we are receiving rhetoric from China about the statement and we are seeing heavy selling from China this morning in the treasury market.

 

We, as a country, will find other buyers of our currency (bonds) in the future.  Namely, you and I. Since our economy is flipping back to a ‘savers’ economy, you and I will eventually pick up the slack. However, we need buyers now. We are selling massive quantities of debt to “bail us out “. The Washington people’s plan is to sell debt to “bail us out”. That’s what they are doing; right or wrong. So, you probably shouldn’t tell one of your best customers to eff-off.

 

China spent 40 billion dollars on the Olympics, knowing they were going to take a financial-bath and incur the wrath of their people because of the inconveniences forced upon them (like firing millions of factory workers to stop the pollution). However, they went ahead with all their plans so they’d “save-face “ in the world.  So they’d not look bad, in front of the world. How do you think they’re going to react to a statement like Mr. Geithner’s? Not so good.

 

This story is all over the place this morning. The MSM has picked it up in a big way and that’s going to piss-off China.

Below are some estimates of holdings of foreign entities of US debt. I took them from a WSJ article, written by Bob Davis, on November 3rd, 2008, titled, “U.S. Depends Less on China – Well, At Least a Little Less”.  The list gives a good view of the size of the money we are talking about.

 

October, 2008
Marketable treasuries — $5.66 trillion
Foreign central bank holdings — $2.12 trillion
China — $750 billion
Japan –$595 billion
Oil Exporters — $190 billion
Brazil – $140 billion

[end]

 

Generational theory states that we are moving towards protectionism. That’s what Obama did yesterday. However, the speed at which he did it was way too fast. It wasn’t a shot-across-the-bow, it was a direct hit.

Also, we knew Obama was going to do something to turn us, as a nation, towards protectionism because of the people on his advisory staff and the people he’s hiring. For instance, Larry Summers, the incoming National Economic Council director and Obama’s top economic adviser during the campaign is quoted in the same article I mentioned above:

 

“Harvard economist Lawrence Summers calls economic relations between Washington and Beijing the “financial balance of terror.”

 

That quote was there for a purpose. It told us what Obama was going to do if he won. But the speed at which he did it was not good.

We know we are headed to repatriation, rebuilding our export business, and all the other things generational theory tells us. However, it must be done at a slower pace.
 

The conclusion that can be reached, about the new President’s actions, are that we are going to suffer very quickly unless he has some back-door-plan about whose going to buy our debt over the coming months. If he doesn’t, layoffs will accelerate. The recession will accelerate.
 

Take care,

Jim Goulding

01/23/2009

 

 

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12-12-2008: Links, 2008 Credit Crash

Blame

ACORN - NOT

Blackout

CJR The Press and Phil Gramm

Death Spiral Financing at Citigroup, Merrill Lynch, WaMu

Did Joseph Wharton Cause The US Financial Meltdown - Tim Hartnett - Mises Institute

Goldman Sachs Urged Bets Against California Bonds It Helped Sell - ProPublica

How Transit Agencies Got Caught in AIG’s Collapse - ProPublica

What Went Wrong - washingtonpost.com

Misc

Coming Soon The $600 Trillion Derivatives Emergency Meeting - Seeking Alpha

Econbrowser Back to the Great Depression Debates

FT.com / Capital Markets - German bond sale struggles to hit target

subprime works - Google Docs

Money

Out of Thin Air How Money is Really Made LiveScience

Stats

Bailout Bucks to Banks - ProPublica

Citi (C) Bailout: Once Again, Taxpayers Hosed

FDIC: FDIC Loss Sharing Proposal to Promote Affordable Loan Modifications

Is the Fed's $800 Billion Plan Cause for Concern? - BusinessWeek

Map: Show Me the TARP Money - ProPublica

The Bank Implode-O-Meter - Your play-by-play for the end game of modern banking.

Timeline

Credit Crisis Timeline#Timeline

Where Credit Is Due A Timeline of the Mortgage Crisis

Where are we headed

Econbrowser Fiscal Implications of the Candidates' Plans

Europe on the brink of currency crisis meltdown - Telegraph

New monetary system on the horizon – Gold headed to the moon | Money and Markets: Free Investment Email Newsletter

No Deflation, Maybe Worse - Print Version

The global currency crisis is still to come

The Real Great Depression (Panic of 1873)

Resources

Dr. Housing Bubble Blog

Warning

Banks Move More Assets Into "Make-Believe" Category

 

 

 

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 12-12-2008: Level 3 Assets; How it all Started & They're doing it again  

 
On August 9th, 2007 the financial crisis started (people began to take the financial situation seriously) because BNP Paribas couldn't fairly price 'certain assets' so BNP stopped withdrawals from 3 funds.[ http://www.bloomberg.com/apps/news?pid=20601087&sid=ayOiMpIOavzw&refer=home ]


When the bank bailout program was passed, the one thing smart people wanted was a change to the cause of the problem, "LEVEL 3 ASSETS" .That didn't come to fruition. The same rules are in place. Therefore, the banks are doing it again. Meaning, they're putting massive amounts of money back into Level 3 Assets.
 

Let us all remember we must pay attention to what the powers-that-be say and what they do. What they do will ultimately affect all of us.
 

The following is a story explaining what the banks are currently doing concerning Level 3 Assets.

http://clusterstock.alleyinsider.com/2008/12/banks-move-more-assets-into-make-believe-category


Sorry to be the bearer of continued doom-n-gloom.
 

Take care,

Jim

 

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 12-11-2008: Bonds; The Shot Across the Bow  

 

It’s all about rollover. Can the US “Rollover” its debt? Will we be able to issue 2 trillion of debt next year? Let’s look at a market that is rated higher (safer) than the US Treasury Market. That would be the German Bond Market. Currently the German 5yr CDS’ are trading at 48. They are the safest bonds on the planet. The USA’s 5 yr CDS’ are trading 67.

 

With that information let’s take a look at what happened yesterday at a German Government Bond Auction, from the Financial Times (FT.COM).

German bond sale struggles to hit target

By David Oakley

Published: December 10 2008 18:11 | Last updated: December 10 2008 18:11

Investors shunned one of the most liquid and safest assets in the world on Wednesday as a German bond auction came close to failing in a warning sign for governments attempting to raise record amounts of debt to boost their slowing economies.

The auction of two-year bonds saw only just enough bids to meet the €7bn ($9bn) the government wanted to raise. This was almost unheard of before this year as investors typically clamor to buy these securities.

 

“This is a sign that demand among investors is already waning for government bonds because of the huge supply.” [….]

http://www.ft.com/cms/s/0/458a5ca6-c6e1-11dd-97a5-000077b07658.html?nclick_check=1

______________  

 

Holy sh** !!

 

There are no better adjectives. That bond sale was a warning. It was a shot across the bow. If that auction failed the current bond bubble we are in would have burst very quickly.

 

Everyone is piling money into what is being perceived as a safe-haven market, the US Government Treasuries. Why would they do this? Because the perception is they are safe. They are rock-solid. No-way-no-how those bonds are going to default! Buy ‘em!.

 

The federal debt of the US went up 39% in the 3rd quarter, 2008. The most ever. We’ll break that record this quarter. The treasury was able to sell the debt because there was a need. However, the treasury will have to resell (rollover) the debt at a later date, when it comes due. They resell debt all the time. It’s nothing new, however, we’ll hit a ‘tipping point’ and when we do it will get ugly very quickly. Granted, we’ll survive, but the pain we’ll endure from the tipping point to survival will….well…suck.

 

The treasury just keeps piling on more debt. They’re doing it exponentially.
 


 

Since Bush II took office, we’ve gone from 5.7t to 10t debt. That’s exponential growth. Reagan was no better.

 

The bottom line:

We, as a nation, are on track for a major financial disaster. Way-way worse than we are experiencing right now. I think you’d all agree that things are very bad right now. Imagine it worse. We’re headed there.

 

The German debt sale mentioned above almost failed. They are the safest bonds in the world by the CDS market’s standards. I ask you this: what happens when the US Treasury has a debt sale and it fails?

 

Yesterday, out-of-the-blue comes the most outlandish thing yet; the Federal Reserve floated the idea of selling their own debt to securitize their ballooning balance sheet.

Seriously, I kid you not. This should have been front page news.

 

Dr. Ben Bernanke, the Chairman of the Federal Reserve, is leading us out of what is described as the greatest financial crisis since the great depression. He’s the man and the man just floated an idea that would take confidence away from the US Dollar. Massive confidence; the confidence of the people who buy our debt. After all, the dollars in your pocket are backed-buy one thing and one thing only, confidence. How dumb was that idea and how confident are you that Dr Bernanke can lead us out of an epidemic financial crisis and not to a pandemic crisis? I have none.

 

Let us say that our currency is CORN and not the US Dollar. We grow the corn around the USA and use it as currency around the world. Let’s call it US Treasury CORN and make it the world reserve CORN currency. The Federal Reserve CORN Board (FRCB) makes sure that we have full employment and not too much or to little CORN (call it CORN inflation/deflation).

 

Suddenly, the US experiences an economic crisis and confidence is shaky. However, the leader of the FRCB has a doctorate in finance and completed his thesis on the previous biggest economic melt-down since the country was founded. He creates a zillion alphabet agencies to buy up bad US Treasury CORN loans, nationalizes the CORN-banking system and really tries to make things better (keep confidence in the US CORN high).

 

He states that the only way out is to grow more US Treasury CORN. People in the US and the buyers of CORN (our debt) know things will get bad but they all keep the faith. Heck, he’s got a PhD in CORN economics.

 

Then, out of nowhere, he decides to grow his own CORN and compete with the US Treasury CORN. He wants to plant his own CORN and call it the US FEDERAL RESERVE CORN CURRENCY, thereby increasing the CORN crop and diluting the US CORN currency as a whole. The buyers of US Treasury CORN currency begin to hold back purchases because there’s so much of it.  Plus, they begin to notice that they have their own CORN and that CORN really needs investment…but not with your CORN.

 

Guess what? We need people to buy US Treasury CORN. We need them to buy it until we can produce more CORN than we spend. Currently we are years always from doing that. To keep us afloat economically, we must sell CORN. Not US FEDERAL RESERVE CORN. We need to sell US Treasury CORN. What Dr. Bernanke did was moronic. Only time will tell just how moronic the move was.

 

So, where do we put out money? Will the treasury return our money when an auction fails? Can they pay the interest on the outstanding debt of 10t?

 

The definition of the US actually being bankrupt is when we can’t pay the interest on the outstanding debt. If we fail to sell our treasury bonds we are bankrupt. That will cause a flight-to-safety away from all-things US DOLLAR. And, a flight-to-quality to Swiss francs, Euros, Yen, Commodities, Gold.

 

I wish I had the answer to the question, ‘what happens when the world reserve currency collapses?’

 

Take care,

Jim Goulding

 

 

 

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12-10-2008: When will Recession End?

 

There's a great article, written by "Michael Dueker [who] is a senior portfolio strategist at Russell Investments and formerly was an assistant vice president in the Research Department at the Federal Reserve Bank of St. Louis." The article is posted on econobrowser.com, http://www.econbrowser.com/archives/2008/12/predicting_the_1.html. 

 

I'll simply post a chart from the article because it says it all. I like to pay attention to forecasters that have forecasted things in the past that have come to fruition. Furthermore, Mr Dueker uses out-of-sample (OOS) forecasting methods. In the trading industry, when we test trading systems they are tested against OOS data. If they aren't, they're no good. OOS shows the sign of a responsible forecaster. Something this world is desperately in need of. 


 

Take care,

Jim Goulding
 

 

 

 

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 11-17-2008: What to Expect

 

I took Strauss and Howe's explanations about what happens during each Turning. 

 

I hope it helps.
 

http://www.jamesgoulding.com/generations.htm#What_Happens_during_a_Turning

Take care,

Jim Goulding

 

 

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 11-14-2008: New Currency  

 

I've written about the abandonment of the US Dollar and it's conversion into the AMERO (the North American Monetary Union), before. 

It's an idea that isn't radical when you consider the Dollar is only worth 4 cents of it's original 1913 value. At 1-cent it would have to be abandon. Believe me, many smart people know that abandoning it would solve all our debt problems because our debt wouldn't exist anymore. However, it's not that simple.
 

The Central Banking system is not going away. They're to big, and too powerful. But dealing with massive deflation is the one thing a Central Bank can't deal with. So....is it time to switch currencies or...devalue it? Or, hyper inflate it? What is the answer?
 


 

Here's an article about what might be our future. It's brilliant. It explains so many questions Iike the ones above. I mean, really, how do you abandon 11 trillion dollars of debt and not invite an invasion by your biggest debt holder? 

 

This article suggests, just devalue EVERYTHING!
 

 

http://www.moneyandmarkets.com/the-g-20s-secret-debt-solution-27996


 

Take care,

Jim Goulding

11/14/2008

 

 

 

 

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 11-13-2008: Repatriation & Paulson  

 

Repatriation & Paulson

 

Repatriation

One of the hallmarks of a Winter crisis is repatriation. From an economic perspective this means that countries begin to lend less to other countries and in some cases they stop all together. Why would this be bad? To finance our national debt we sell US Treasuries to other nations. Forget about the stock market, it’s simply a psychological barometer. The true measure of financial stability is having the ability sell treasury bonds/notes. If that system falters, everything falters. The treasury market is where I’ve been for the last 28 years. We have not seen any cracks in the system. That’s the good news. (How’s that Mark!?)

 

What have I been seeing concerning repatriation? Some countries are starting to repatriate or showing sign that they will begin. The first sign is a strengthening of the US Dollar. That’s good in the short-run, but terrible long term.  

 

 

The point is that when things get difficult countries tend to help themselves, not others. They ‘repatriate’.

 

If you want to see who owns America, you can click this link http://www.ustreas.gov/tic/shc2007r.pdf , then go to table 19 (page27). Yikes.

 

What could those countries do with our debt? There are really two choices, buy more, or, sell what they have. If they sell, that’s not good. However, there’s a third alternative and that’s do nothing at all which is bad too. Because, we need to roll our debt over…a lot.

 

Here’s a picture of what needs to be rolled over. 

 

Let’s just look at the biggest blue line. Its 1.7 trillion dollars in debt. That debt will come due next year and all has to be resold (rolled over). That’s on top of the 1 trillion dollar projected deficit, for 2009. We, as a country will have to sell debt (T-bills, T-notes, bonds) to make up that deficit. That’s 2.7 Trillion in debt that we must issue to stay a viable economy, in 2009. Repatriation of money doesn’t work well with the kind of debt issuance we need to sell, in 2009.

 

The issuance is done in the form of Treasury Auctions. There are many of them now. All kinds of maturities and coupons. In the chart above you can see the total number of issues: 251. All of them must be rolled over.

 

Let’s see another problem with debt and rolling it over and how repatriation comes into play. European firms have 586 b in debt they need to sell through 2011. And, 40% of it will come due next year. These are corporations who do the same thing as the US Treasury. They sell debt, then, try to roll it over again and again. That’s why Bear Stearns went under; they could no longer sell their overnight debt. Most of the Euro debt is in telecommunications, utilities, and healthcare. Plus the famous ‘Other’ category.

 

What’s most likely going to happen, with that debt, is that they sell it at higher costs and earn less money. Moreover, the governments that these countries are incorporated in will be pressured to buy those companies stocks or bonds (bail-outs). The point being, they’ll spend less on US Debt. That’s repatriation.

 

When the cracks get wider in the debt market, I’ll let you know.

 

Paulson

Secretary Paulson made a major mistake yesterday that will most likely send stocks down into year end. Things were at least looking up before yesterday, he put the kibosh on any kind of sustained rally.

 

The reason that investors liked the 700b bail-out was because the US Treasury was creating a ‘fence’ if you will, around the toxic mortgage assets. Yesterday, Paulson took the fence down. Forget about where he’s refocusing. That doesn’t matter because all trust in Paulson has been lost. Furthermore, he’s yet to have put an Inspector General in charge of the plan and is overdue with his reports to Congress, by a month. Both are in the original agreement and he is now in violation of both. Congress is mad, so are the people in the US.

 

The stock market can’t withstand that flip-flop. It went down 400 points yesterday and can’t hold a 200 point gain today; as I write it’s down 65. Remember, the DOW is America’s psyche.

 

Sorry for all the bad news. However, that’s what’s going on at the moment.

 

Take care,

Jim

 

 

 

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 11-12-2008: There’s good and bad. I’ll begin with the bad

 

Employment

Things aren’t getting better. There’s nothing good happening in any of the economic numbers. For instance, unemployment. We’ve moved very quickly from 4.4% low at the end of 2007 to last months high of 6.5%. That’s and astronomical amount of jobs lost in such a short period of time.

 

                                                                                                                                                                                                                    Most economists are stating that unemployment will rise to 8% by April 2009. When 9/11 occurred, we all understood there’d be job losses. There was a reason for the upturn in unemployment. We knew we’d heal and get those jobs back. This time around many of us can’t see a reason for the uptick in job losses except for moronic bank lending. That fact makes things much worse. Much more difficult to swallow.

 

What else do we have…

 

  • GM has enough money until March 2009. They’re burning about 2b a month.
  • Ford has enough until April
  • There’s 2.5 million jobs tied to the car industry.
  • If GM is allowed to fail they’ll cut half their work force.
  • Here’s the kicker, if they survive with a loan, they’ll cut a third of their work force. Remember, when Chrysler got their 1b loan in the mid ‘80s? They cut a 1/3 of their work force. What if the DEMS make it explicit, in the loan, that GM/FORD can’t cut jobs? That’s simply stupid. This country did the same thing in the 1930s. Hoover called all the big industry heads to the White House and told them to not cut wages. Then, told them not to cut jobs. That action simply prolonged the inevitable and made the depression worse. Bottom line? It’s a disaster waiting to happen no matter how you slice it.  
  • Every time the auto industry cuts a job someone else’s will lose theirs.
  • The US was able to recovery from cuts like this before because of the tech industry. That’s doesn’t hold true anymore. The tech industry is cutting jobs, not hiring.
  • 2.3 Million People have lost their jobs in the last 12 months.

 

Banks

Banks aren’t lending the money they’ve been given from the Bailout. So far there’s been 290 billion of the 700 b bailout given. The first installment of the 700 b was 350 b. There’s only 60 billion left of that 350 b. The next 350 b will not come until the next administration. If it does come before then, I really do not think it matters due the way they’ve spent the first 350 b. We, as a country, have zero confidence in Congress.

 

The following illustration shows where most of the money went, from the 350 b. The top 4 recipients have taken the money and stored it away. Pretty much lending it back to the fed at a rate of 1%. That’s a lot better than what they were getting which was heavy losses.

 

What were the banks gifts to you and me?  An increase in fees. Big increases. It was a lead story in the WSJ today. I also know because my wife and I got hit with these increases from CITIBANK.

And lets not forget yesterday’s stunning news: American Express, whom isn’t in trouble at all, decided it wanted to be a bank, so they can get some of the TARP money. Presto chango! As of today, they’re a bank and will get 3 Billion of our money.

 

The point is the bailout wasn’t about you and me. It never was. Regardless whether you believe that or not, we need only look at what the actions have been of the US Treasury, Congress and the Banks. And…if you are thinking that the Fannie & Freddie announcement to help home owners is going to save us (or even help) think again. It’s not. Not the latest one or the earlier one.   http://www.doctorhousingbubble.com/fannie-mae-and-freddie-mac-gear-up-to-bailout-california-new-housing-and-economic-and-stabilization-act-mini-for-california-lenders-450-billion-in-alt-a-and-sub-prime-loans-still-active-in-state/

 

For that matter, you can read more on the above web site and you’ll see that the DR does a great job at  pointing out exactly why none of the ‘Bail-out-the-consumer-acts’ will help.

 

What about Citi’s moratorium on foreclosures?  It benefits CITI, period. Not you or I.

 

Here’s another of his articles that has been dead-on:

http://www.google.com/reader/view/user/-/state/com.google/reading-list#stream/feed%2Fhttp%3A%2F%2Fwww.doctorhousingbubble.com%2Ffeed%2F

 

By the way, if you subscribe to the DR’s RSS (or any RSS) and use Google reader, Google reader stores all the articles in one place so you can read them at leisure. That way you’re not clicking around his site. Blogs are notoriously un-navigate able. I love Google reader.

 

Back to the point. The bailout was not about us. One of the things they were trying to accomplish with the 700b bailout was to slow the crash down. They knew (or they’re really really stupid) that the crash was inevitable, but it was coming too fast. It worked. However, now we get to feel the pain very slowly.

 

Again we only need to see the action of the government and the banks to understand if WE are being helped (money into the hands of the many) or the elite are being helped (money into the hands of the few). Congress ended their last session with the biggest give away in the history of the country per capita, to big business. However, when it came time to vote for the extension of unemployment claims it was shot down. It didn’t even make it to a vote. Approximately 1 Million people were/will be affected before year-end because of that no-vote. Again, what were their actions? Forget the rhetoric.

 

________________________________

Let’s look at something we can use.

 

Here’s a snippet from the last unemployment data.

The only sectors that added jobs are highlighted below.

 

 

ESTABLISHMENT DATA          Employment                       
 Nonfarm employment.......| -240 
  Goods-producing (1)....| -132 
    Construction ........| -49 
    Manufacturing .......| -90 
  Service-providing (1)..| -108 
      Retail trade (2)...| -38 
    Professional and     |               
      business services .| -45 
    Education and health |                
      services ..........|  21 
    Leisure and          |             
      hospitality .......| -16 
    Government ..........|  23 
 

Interesting. There’s a tool here. What I see, looking at these numbers, is most certainly a sick economy. However, if we’re to survive, then, we have to look at where jobs are being added and where jobs are being cut the least.  For example, if you are someone who sells your services to small businesses then you might want to know what sector is doing well and what sector isn’t.

 

Moreover, we should ask, what industries are the Obama administration going to cater too? Look at the last post I did. Look the stock recommendations. What industries are those stocks in? What industries are NOT being recommended? You can use that information no matter what business you’re in.

 

For instance, if I’m a small business consultant, say accounting, in Elmhurst, IL, I can go to city-data.com and plug in the zip, 60126. There I can see all the information for that zip code. And, I mean everything. They don’t miss a thing.

 

There’s a category titled “Top industries in this zip code by the number of employees in 2005”

 

The listing is three years lagging but the info should be pretty close to todays. Should you be soliciting in this area?

 

Here’s what it said about health services: Health Care and Social Assistance: Offices of Physicians (except Mental Health Specialists) (50-99: 1, 20-49: 8, 10-19: 14, 5-9: 11, 1-4: 36)

 

There’s a big duh! This is a great area to solicit for an industry that isn’t going-down as rapidly as the rest of the economy.

 

What if you’re a financial consultant? What zip codes should you search in? The ones that have the industries that aren’t tanking. Or…tanking less.

 

Gotta go, take care,

Jim Goulding

11/12/2008

 

PS. the following hit my mail box a few minutes after i posted. It speaks to what they are saying and what they are doing: 

 

OCC Responds on Credit Card Proposal

WASHINGTON — "The Office of the Comptroller of the Currency responded today to a request that it approve a new workout program for troubled credit card borrowers. In its response, the agency noted that while the OCC strongly encourages national banks to work with distressed borrowers, the agency cannot approve a plan that defers the timely recognition of losses, since that would compromise the transparency and integrity of a bank’s financial reports and could lead to a loss of public confidence in the banking system."

_____

 

Yes there are irresponsible borrowers, we know that. But the money we are talking about is fractional compared to the what the banks have sucked us dry for...over 1.5 trillion. What were many consumers putting on those credit cards? With the US dollar worth 20% less than it was in the year 2000 and wages lower than they were in that year, many of them were putting on the basics. Very sad.
 

 

 

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11-05-2008: Some Direction for Stocks etal, After the Election

 

 

What sectors will benefit in stock world? What stocks will benefit? What will the new administration do in the coming months concerning the economy, taxes, healthcare etal?

 

This paper tries to answer some of those questions. I’ve gathered some ideas from several sources to see what they are thinking. Here’s what they’re saying today, the day after the election:

 

Dennis Gartman wrote:

Buy infrastructure stocks and companies that make things “that hurt if dropped on your foot”. He’s buying dividend paying stocks, like, Steel, and Arch Coal, or Cleveland Cliffs, and/or Freeport McMoran. (Why hasn’t this guy been offered hedge fund money? He’s up 1.6% this year compared to the S&P 500, down 34 %!)

 

He mentions trends towards less free markets, bigger government, higher taxes, more regulation, rising influence of trade unions, intrusive government and protectionism. So, any stocks that lean that way will be beneficial. (On a side note, Strauss and Howe, in their 1997 book, The Fourth Turning, predicted everything that Gartman mentioned.)

 

Watch for an economic summit to be convened immediately. There, Obama will call for proposals on the economic issues facing us today.

 

Buy steel stocks, stone, machinery, cement…infrastructure.

 

RBS’ David Ader says:

  • Obama is
    • ‘indifferent to bearish for bonds’
    • Neutral stocks, however the simple change of regimes will restore some confidence. So, it’s ‘semi-bullish short-term.
    • Overseas stocks more bullish, hence strong for dollar
    • Traditions don’t hold this time around, like, Republicans’ are bullish stocks and Dems' are bearish stocks.

 

[ From the WSJ. I highlighted buys in blue and sells in red.]

 

Caterpillar, WellPoint May Win, Delta, Pfizer Lose Under Obama

2008-11-05 04:13:00.250 GMT, By Lorraine Woellert

     Nov. 5 (Bloomberg) -- Health insurers UnitedHealth Group Inc. and WellPoint Inc. may be winners in the Barack Obama administration. Drugmaker Pfizer Inc. may not be.

     The president-elect's pledge to spend on roads and bridges probably will help Caterpillar Inc., and delivering on his promise to ``fast track'' money to automakers would come none too soon for General Motors Corp. and Ford Motor Co.

     Delta Air Lines Co. and other airlines may face higher labor costs, and new regulations may rein in Internet service providers such as Comcast Corp. A drop in oil prices may let Exxon Mobil Corp. escape a windfall profits tax, at least in the early months of Obama's presidency.

 

                     Nuclear Waste

 

·          The president-elect has expressed concerns about nuclear waste,

 

                    Roads and Bridges

 

·          Obama may put spending on roads and bridges near the top of his economic agenda.

 

                    Infrastructure Bank

 

·          Obama in February proposed a so-called infrastructure bank, supplementing the highway fund, to invest $60 billion over 10 years.

 

   Defense

 

·          U.S. defense companies including Lockheed Martin Corp. and Northrop Grumman Corp. have benefited from a 70 percent increase in defense spending since 2000 because of war costs and expenditures on new weapons. They expect the trend to continue under Obama.

 

Shipbuilding (Defense)

 

·          In addition, U.S. military shipbuilding ``is on a course that's not to be changed,'' Nicholas Chabraja, chief executive officer of General Dynamics Corp., said on an Oct. 22 conference call. ``You're going to have a Democratic Congress no matter which party occupies Pennsylvania Avenue, and that Congress is dead set on improving the number of ships in the fleet.''

 


 

Media Companies

 

·          Obama has sought to reverse last year's FCC ruling that makes it easier for companies such as Gannett Co. and Tribune Co. to own daily newspapers and nearby TV and radio stations in the 20 largest U.S. markets. A resolution co-sponsored by Obama and 26 other senators failed to clear Congress.

 

Antitrust Enforcement

 

·          Obama ``strongly supports'' the principle of network neutrality, according to a policy statement posted on his Web site. He has said letting Internet providers, including cable companies such as Comcast Corp., charge fees that give some Web sites or applications priority over others ``would threaten innovation, the open tradition and architecture of the Internet, and competition.''

·          Obama also promises to ``reinvigorate'' antitrust enforcement. In contrast to the Bush administration, an Obama presidency would view media mergers ``very skeptically,'' Gigi Sohn, president of Public Knowledge, a Washington-based public interest group, said in an interview.

·          Obama pledged to make the research and development tax credit permanent and said he will double budgets for scientific research over the next decade. “The most important issue that needs to be addressed, and has unfortunately been neglected for a very long time, is the funding of research in the physical sciences,'' said George Scalise, president of the Semiconductor Industry Association in San Jose, California, whose members include Intel Corp. and Advanced Micro Devices Inc. ``We would like to see that be the No. 1 priority.''

 

Regulating the Web

·          On the Internet, Obama backs ``network-neutrality'' rules, which would prevent Web operators from giving preferential treatment to some companies' content and services.

·          Companies opposed to net neutrality, such as AT&T Inc. and Verizon Communications Inc., would have benefited from a McCain administration, Paul Glenchur, an analyst with the Stanford Group Co. in Washington, said in a Bloomberg Television interview.

·          `Regulating the Internet has really horrendous implications,'' Sprint Nextel Corp. Chief Executive Officer Dan Hesse said after a speech in Washington on Oct. 24. Sprint, based in Overland Park, Kansas, is the third-biggest U.S. wireless carrier. ``Probably the thing that scares the industry the most about a Democratic administration is regulating the one real shining star that's really working really well, and that's the Internet.''

·          Consolidation in the telecommunications industry will also probably slow under an Obama administration, Glenchur said.

 

[--With reporting by Daniel Whitten, Aliza Marcus, Todd Shields, Angela Greiling Keane, Molly Peterson, John Hughes and Gopal Ratnam in Washington, Rachel Layne in Boston, Courtney Dentch in New York, Ian King in San Francisco and Alex Ortolani in Detroit. Editors: Joe Winski, Elizabeth Wollman]

 

 

Democrat Gains in Congress Clear Way for Party Agenda (Update1)

2008-11-05 11:43:50.250 GMT

By Laura Litvan

     Nov. 5 (Bloomberg) -- Democrats in Congress plan to use their election gains to push for an economic stimulus measure, expanded health-care for children and funding for stem-cell research -- and then follow President-elect Barack Obama's lead.

.... Democratic leaders in both chambers plan to curb troop levels in Iraq, while making clear that they will first test their increased power on domestic issues.

 

.... The party also will move to add 4 million children to a U.S. health-care program and to approve legislation allowing federal funding of embryonic stem-cell research.

 

.... Congressional leaders will act on middle-class and small- business tax cuts, while allowing the Obama administration to take the lead on the timing, Hoyer said.

 

....Even as they failed to win enough seats to get the full 60 seats, Democrats are still likely to have a broad impact on policy with the help of just a few moderate Republicans, such as Susan Collins and Olympia Snowe of Maine.

 

.... On financial services, Democrats vow a broad rewrite of the rules governing banking and investment firms following the collapse of the mortgage market. ``I think they're going to make a major effort to streamline oversight of the financial services industry -- banks, savings, and loans, credit unions, thrifts, insurance companies,'' said Ethan Siegal, president of the Washington Exchange, which tracks Washington policy for institutional investors. Meanwhile, analysts said some of the Democrat-backed ideas that failed to make it into this year's $700 billion financial bailout legislation are likely to be revived. That includes a measure that lets judges modify mortgages in bankruptcy court to save homeowners from foreclosure, and ``say on pay'' legislation that would give shareholders a proxy vote on executive pay.

 

.... The slowing economy is likely to push some bigger-ticket issues into 2010, according to analysts and congressional aides. An overhaul of health-care policy to curb the number of uninsured is unlikely to occur in 2009, as is climate-change legislation designed to cut so-called ``greenhouse gas'' emissions.

 

.... A plan to boost taxes on managers of hedge funds and private-equity firms could re-emerge, analysts said. “It's a $25 billion money-raiser,'' said Anne Mathias, director of policy research at the Stanford Group in Washington.

  

Thank you,

Jim Goulding

 

 

 

 

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10-23-2008: Gold

 

Q: How does buying gold work? 

A: Great question. We’ve been disscussing this at work. We investigated Kitco.com.Their prices are here: https://online.kitco.com/selling/index.html

How it works is here: https://online.kitco.com/sellprice/Ordr_Faq.htm

 

They seem to be the easiest to deal with. You can buy as little as a gram. My take is that you buy X amount and that entitles you to a certificate that shows you own X amount and it’s deposited in X location with all the other ‘owners’.

 

If you want the acutal bullion (taking physical delivery) you pay a shipping and stamping fee. I encourage you to read the FAQ before you buy.  

 

Q:Do I get a certificate or something saying  I own 6 contracts worth of gold?  Or, does my account just show I own 6 contracts of gold just like I would own 100 shares of a mutual fund. How does that work exactly?  I mean, if I just get a certificate or something, where does the gold actually reside?  It is a claim on an  amount of gold held somewhere in the world?

 

A: I think I answered most of thes questions above and what I didn’t you can find on Kitco’s site. From what I understand they are well trusted and highly regarded, for whatever that’s worth these-days.    

 

Q:What is the name of the contract I would buy.  I'm not looking to own any futures, just the real gold contact. Say like owning an actual US Treasury note cash contract.  Not the futures contract.

 

A: Owning a real treasury note contract would not really be a good thing nor would the gold futures contract. They all have carrying costs. For instance the margin. So, I don’t think this is a great idea. Although you could own one mini-futures on NYMEX and take delivery which is 50 ounces. The delivery would take place to a vault somewhere in the US. Then you’d pay storage fees. You’d have to delivery the cash to nymex,of, 50 times purchase price.  So, if you bough one contract of gold at 700 you’d deliver 50*$700=$35,000. See www.nymex.com.

 

The biggest issue for owning gold right now is that people see a price on the TV or a newspaper of where gold closed that day and expect to get that price or slightly above that price. That’s not the way it works. For instance I’m staring at unleaded gasoline futures right now and they’re trading 1.53 a gallon. Add in the assorted taxes, say, 50 cents, and the gas price at your corner gas station should be 1.53+.50 = 2.03. However, we all know it’s not. That’s because there’s a huge opaque type market inbetween the futures contract and the actual cash delivery markets.

 

For gold, everyone wants it now. Well, not everyone, but enough people woke up to the fact that gold is and will be a valuable commodity  in this crash. So, buying physical gold is hard. Dealers know that you want it and they are charging you more. Call it gouging call it supply and demand...whatever. It is what it is.

 

If you want to buy an ounce of silver now, expect to pay double the price you see in the futures markets.

 

Anyone have any resources, they’d be greatly appreciatted. Opinons too.

 

Take care,

Jim Goulding

Thursday, October 23, 2008

 

 

 

 

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 10-21-2008: Two great web sites  

 
Here's two very valuable links. The first, you can look at deliquency rates for bank credt cards and mortgages to the county level. Drilling down to your county gives you a great snap-shot of the financial health of your county. I'm of the belief that focusing locally on your state, country, town is the way to go in a Fourth Turning.

 

Here's the link to that site, with a brief explanation.

"The Federal Reserve Bank of New York announced on Tuesday the availability of dynamic maps and data that show the rate of bank credit card delinquencies and mortgage delinquencies by county across the United States during the first quarter of 2008. These new measures complement the nonprime mortgage information released periodically since last March by providing a more comprehensive view of regional credit conditions."  http://data.newyorkfed.org/creditconditionsmap/

 

Here's another great site for looking at your town/zip code. http://www.city-data.com/ 

Just enter your town or zip and you will be taken to a site that gives the statistics about everything and anything about that area.

 

Take Care,

Jim

 

 

 

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10-21-2008: The Millennials Save the World (again)

 

Who is going to get us out of the current economic (and forthcoming) problem? The Millennial Generation will. Here’s the theory: From 1433-2003, Strauss & Howe categorized all the generations and found a cycle. The cycle is that we repeat the same types (archetype) of generations every 80 or so years.

 

Example:

The Millennial generation was b1982-2003. Their archetype is Hero/Civic.

The GI generation was b1901-1924. Their archetype is Hero/Civic.

The same.

 

Here’s a picture of all the generations S&H categorized. I’ve colored the similar ones the same color. Do you see the cycle?

 

 

GENERATION

Birth Years

Archetype

Arthurian

1433-1460

Hero-Civic

Humanist

1460-1482

Artist-Adaptive

Reformation

1483-1511

Prophet-Idealist

Reprisal

1512-1540

Nomad-Reactive

Elizabethan

1541-1565

Hero-Civic

Parliamentary

1566-1587

Artist-Adaptive

Puritan

1588-1617

Prophet-Idealist

Cavalier

1618-1647

Nomad-Reactive

Glorious

1648-1673

Hero-Civic

Enlightenment

1674-1700

Artist-Adaptive

Awakening

1701-1723

Prophet-Idealist

Liberty

1724-1741

Nomad-Reactive

Republican

1742-1766

Hero-Civic

Compromise

1767-1791

Artist-Adaptive

Transcendental

1792-1821

Prophet-Idealist

Gilded

1822-1842

Nomad-Reactive

Progressive

1843-1859

Artist-Adaptive

Missionary

1860-1882

Prophet-Idealist

Lost

1883-1900

Nomad-Reactive

G.I.

1901-1924

Hero-Civic

Silent

1925-1942

Artist-Adaptive

Boom

1943-1960

Prophet-Idealist

Thirteenth

1961-1981

Nomad-Reactive

Millennial

1982-2003?

Hero-Civic

Homeland

2004?-2024?

Artist-Adaptive

 

The yellow generations are the ones who pull us out of the crap that the orange generations get us into. How do we know that the millennial generation turned out to be a Hero/Civic archetype? Because most everything S&H predicted about them in their 1991, 1997, and 2000 books came true. How did they know that?

Here is another cycle in pictures. It’s called the Line-Up. Every time the 4 generations line up in the same age location, all hell breaks loose.

 

I’ll give you two examples. Here’s the American Revolution:

Revolutionary Cycle

[note: In the beginning of this cycle, the reactive-nomad generation took up all of the midlife and elderhood age location. This was the Cavalier generation, b1618-1647. The Puritan generation (b1588-1617) had mostly died off by the time 1704 came around.]

 

Revolutionary Cycle

1704 (1st T)

1727 (2nd T)

1746 (3rd T)

1773 (4th T)

Elderhood 63-83

Reactive-Nomad

Reactive-Nomad

Civic-Hero

Adaptive-Artist

Midlife 42-62

Reactive-Nomad

Civic-Hero

Adaptive-Artist

Idealist-Prophet

Rising Adult 21-41

Civic-Hero

Adaptive-Artist

Idealist-Prophet

Reactive-Nomad

Youth 0-20

Adaptive-Artist

Idealist-Prophet

Reactive-Nomad

Civic-Hero

 

Look at the far right box, on the top. It says “1773 (4th T)” [4th T stands for Fourth Turning]. See how the colors go down from purple, orange, blue, and yellow in that row? Keep that in mind.

 

The next cycle is the “Crisis Era/Winter/Fourth Turning” before the revolutionary war.
 

Colonial Cycle (Summer Cycle)

[note: In the beginning of this cycle, the reactive-nomad generation took up all of the midlife and elderhood age location. This was the Reprisal generation, b1512-1540.]

 

Colonial Cycle

1594 (1st T)

1621 (2nd T)

1649 (3rd T)

1675 (4th T)

Elderhood 63-83

Reactive-Nomad

Reactive-Nomad

Civic-Hero

Adaptive-Artist

Midlife 42-62

Reactive-Nomad

Civic-Hero

Adaptive-Artist

Idealist-Prophet

Rising Adult 21-41

Civic-Hero

Adaptive-Artist

Idealist-Prophet

Reactive-Nomad

Youth 0-20

Adaptive-Artist

Idealist-Prophet

Reactive-Nomad

Civic-Hero

 

Again, look at the far right box on the top and look at the colors going down that row. They’re exactly the same as the Revolutionary War. The Crisis Era in 1675 was the Glorious Revolution.

 

Next let’s take a look at how things look today.


 

Here’s a picture of the current cycle.

The Millennial Cycle (Summer Cycle)

 

Cycle = Millennial

1946 (1st T)

1964 (2nd T)

1984 (3rd T)

2009?(4th T)

Elderhood 63-83

Missionary (64-86)

Lost (63-81)

GI (60-83)

Silent (67-84)

Midlife 42-62

Lost (46-63)

GI (40-63)

Silent (42-59)

Boom (49-66 )

Rising Adult 21-41

GI (22-45)

Silent (22-39)

 Boom (24-41)

Gen-X (28-48  )

Youth 0-20

Silent (4-21)

Boom (4-21)

Gen-X ( 3-23 )

  Millennials (6?- 27)

 

 

Look the top right hand corner again. Oops. Same thing. We are repeating the same thing over and over. Every time line up like we are today, the crap hits the fan. I created the graphs above in 2003.

 

You can see all the cycles here: http://www.jamesgoulding.com/GenerationsII.htm

 

Let’s take a look at what S&H say about the Millennials (Mills) in their 2000 book Millennials Rising. (Ralph this is a must for you because they’re your audience! However, your audience is a changing. The new generation looks like the Homeland Babies. I think they began being born in 2004. They are similar to the Silent Generation, therefore, they’ll be even better behaved than the Mills socially.)

 

“When today’s teens and kids come fully of age, assuming they follow history’s usual generational rhythms, they will solve problems Gen-Xers couldn’t by fashioning a new sense of community out of ‘90s-style individualism. They will correct what they will perceive to be the mistakes (and compensate for the flaws) of Boomers, by placing positivism over negativism, trust over cynicism, science over spiritualism, team over self, duties over rights, honor over feeling, action over words. In doing so they will fill the role vacated by the G.I.s.”

 

That paragraph is a template to the future. It tells you exactly how the Mills will behave. And that behavior will be the opposite of what we are used to.

 

Let’s go back the Millennials Rising and see what else they have to say about the Mills.

 

“The decade is the oh-ohs. The generation is the Millennials. When the two come together, the young people of America will dazzle the nation much as the Boomers did in the ‘60s, though to very different effect.

 

“…Few American have ever seen so many young people with such an appetite for achievement. Indeed, older generations are so accustomed to worrying about kids who accomplish too little that they might not know what to do with the kids who accomplish too much.

 

“….During the Great Depression, older people felt increasingly powerless about what they personally could do about the many problems of the nation and the world, but increasingly hopeful about what younger people might someday do.

 

“…Boomers and Gen Xers realize that neither of their generations is likely to be remembered as a generation of heroes. Perhaps, however, both can someday be remembered as the leaders, educators, and parents who shaped a generation of heroes.”

-end-

 

I jokingly call the Mills the Teflon generation. Nothing seems to faze them. I watch my nieces and nephews, and the young kids at work who are completely separate from the same problems Xers and Boomers have. They see the world very differently and have a completely different set of problems. This is very comforting to me. I’m sure it felt the same for the Lost generation when they were seeing the young GIs, back in the late ‘20s.

 

When we call the Millennials to do something they will do it. They’ve been training for it their entire collective lives. What that something is, I don’t know. Hopefully it won’t be anything similar to WWII. I don’t think it will. The intensity of this cycle should be less severe than the prior Winter, 1929-1945. If you go to this web link you can see the work I did on the intensity of the cycles,

http://www.jamesgoulding.com/GenerationsII.htm

 

What this paper is about is hope. There is a great hope out there. That hope is the Millennial Generation.

 

Take care,

Jim Goulding

 

 

 

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 10-20-2008: Templates; Looking for a Guide to the Credit Crisis

 

This page is for loading papers that might guide us through the maze of information regarding a roadmap for the next few years.

 

I’ve loaded 2 papers that I think are pertinent to what might transpire in the coming years. The first is titled “The depression of 1929 is the wrong model for the current economic crisis.doc” You can click the title to read it or I’ve loaded it in the “Files” section.

 

The second title is “No Deflation, Maybe Worse”. Click the title and you’ll be taken to the web site where it was found.

 

The reason I believe these two docs are important is that they steer us away from the idea that the current credit crisis is similar to the 1930s. It’s not. The crash in the 30s was not a credit crisis. Ben Bernanke behaving like this is the 1930s because he’s a scholar of the depression (he wrote his dissertation on the 1930s). Bernanke is enacting a ZIRP policy (Zero Interest Rate Policy). The opposite of the 1930s. Let’s just hope he realizes that back then the US dollar was pegged to gold until sometime 1934. Un-pegging the dollar was one of the prescription to get out of the 1930s mess. Today, it’s different. We aren’t pegged to anything.

 

If you have a paper you’d like to link or upload that fits the Template guide, post it here. All are welcome and I guarantee all will be read.

 

Thank you

Jim Goulding

 

 

 

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 10-17-2008: Market Update

 

I know I promised an article on the Millennial Generation and how they were going to save us (down the road). However, I haven’t been able to keep up because the market and all the developing stories are non-stop. I’ll try to get it written this weekend. I wanted to give an update on the markets and what is transpiring, before I left for the weekend.

 

The current problem is a very old problem that’s existed since we started trading money in the 11th century. That is, the people with the money won’t lend it. If they do lend it the cost is too high to borrow. There are a few indicators we can watch to tell if they are lending again.

 

  1. The 1 month LIBOR rate
    1. http://www.bloomberg.com/apps/quote?ticker=US0001M%3AIND
    2. You want to see the line go down, not up.
  2. I’m not a fan of the 3 month LIBOR rate at this time of year, for reasons that are too complicated to explain. I’d watch the one-month.
  3. The 2-year swap spread
    1. http://www.bloomberg.com/apps/quote?ticker=USSP2%3AIND
    2. Again, we want the line to go down. Way down.

 When these numbers go lower, banks are lending again. That’s a good thing.

 

We are in a time of revaluation and a major turning in the markets. Similar too many eras in the past. This week was about two camps beginning to take shape. The first is the camp that says we are going into a major economic meltdown and we’re going to crash further. The second camp says we will have a ‘Lost’ decade similar to Japan, in the 1990s followed by another slow but growing decade like Japan, in the 00s.

 

In the short term (6 months) the markets want:

  1. Details of the bailout plan (810 billion plan recently passed)
  2. Transparency in the markets. No more ‘Over-the-Counter’ crap like the Credit Default Swap market.

 

The Dow is going to probably make one more low this year, taking out the 7800 level. We should see more ‘throwing in the towel’ by retail traders (you and I) and hedge funds as they go belly-up. The market may not take-out the 2002 low of around 7200 this year. It may take a major catastrophe to do that before the end of the year, like an earthquake in the US, or terrorist attack here, etc. We will have huge rallies like we had Monday (+983) that make everyone think things are ok again. They’re not.

 

The more I’ve been reading the more I’m convinced this is not going to be an all-out deflationary recession/depression. Things are pointing to an 1871/1873 economic problem and a mixture of what Japan went through the last twenty years. I have more to read before I can come to any conclusion.

 

Take care,

Jim Goulding

 

 

 

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 10-08-2008: Welcome to the Fourth Turning

 

I’m still looking for a spark so the history books can ‘mark’ the date of the end of Fall and the beginning of Winter (Fourth Turning).

 

I encourage you to read up on what Winter is. Here are some links.

http://www.jamesgoulding.com/generations.htm#Turnings

http://www.jamesgoulding.com/generations.htm#Turnings_Explanation

http://www.jamesgoulding.com/generations.htm#What_Happens_during_a_Turning

http://www.jamesgoulding.com/generations.htm#4th_Turning_(Crisis_Cycle)

http://www.jamesgoulding.com/generations.htm#Characteristics_of_Turnings

http://www.jamesgoulding.com/generations.htm#Color_Code_Key

 

Buy the book The Fourth Turning by Strauss and Howe.

You can get it used for 10$.

http://www.amazon.com/Fourth-Turning-Str-William/dp/0767900464/ref=pd_bxgy_b_img_b

 

All S&H books are listed on my site.

Scroll down a bit when you get there.

http://www.jamesgoulding.com/generations.htm#Web_Page_Navigation_Area

 

Why do I recommend their books? Because they predicted much of what you and I are experiencing right now [2008] and they did it...11 years ago.

 

Take care

Jim Goulding

 

 

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 10-07-2008: Well, that was fun…NOT!

 

 

I'm in awe of the rapid decline of this economy. It wasn't supposed to happen this way. So...that must be where the saying, "History doesn't repeat but it rhymes", comes from. May I offer a generation-X saying that will put this entire thing into perspective? "WHATEVER!" There, I said it.

 

Back to the drawing board as far as the DOW is concerned. I really need to get some time to put two thoughts together. I’ve spent the last 6-weeks reacting to everything in the news. Allow me to explain.

 

That’s what we do on our trading floor. We react to news, technical’s, whatever, and try and make money by taking risks in the market and provide liquidity to others who need to hedge their risk. I sit in front of 8 computer screens taking in information from live markets like treasuries, oil, S&Ps, and gold. Not graphs, those are on different screens. These are live markets with the volume and prices that you can trade on. Other screens carry two news services, CNBC, instant messaging, email, and a partridge…well you get the idea. This stuff runs all at once and I must decide what’s important to release to the traders that instant, or save it for later, should I send it by email, IM, or just yell it out! It’s exhausting when the markets are breaking down.

 

I’ll be able to get some thoughts together by the end of the week and post…something.

The last post I made about taking some money out of the ATM still stands. Things are winding down but it ain’t over yet. I’ll try and post tomorrow.

 

Take care,

Jim Goulding

 

 

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 09-16-2008: Tipping Point Day

 

Today the Fed meets. Today is a tipping point. With the collapse of Lehman and the imminent collapse of AIG, it’s up to the FOMC to give us some breathing room. That will come in the form of a 50 basis point rate cut in the overnight lending rate.

 

It the FOMC doesn’t cut rate by at least 25 basis points, from 2.00 to 1.75 the stock market will keep heading lower and jobs will continued to be lost.

 

Here’s what Goldman Sachs had to say about today: “If the committee does decide to ease, a rate cut of 50 basis points (bp) is much more likely than 25.”

 

If the fed cuts by 50 it will give us some breathing room to sort out the unwinding of Lehman and AIG which hold a combined 1.6 Trillion in assets.

 

Lastly, I can't tell you how big the fall of AIG would be to the economy. They are literally too big to fail. They touch everyone in the US in ways that I can't even begin to describe.

 

I’ll try to post more over the next few day but am trying to stay away do to the high emotions in the market (and me).

 

Thanks,

Jim   

 

 

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9-11-2008: What are the Credit Default Swaps Telling Me?

 

Once again I’m pointing you towards the Credit Default Swap market (CDS). This market is also called the ‘credit’ market or the ‘debt’ market. These are two of the names you may hear this market called.

 

This market knows long before the stock market, that there is a problem. Below are a couple of charts showing a simple picture of the situation with Washington Mutual (WM) and Lehman Brothers (LEH).

 

Here’s WaMu’s chart. It shows the ‘swap curve’ from today, 1 week ago, and 3 months ago. We will look at the 5 yr Term at about the middle of the chart. The orange dot is approximately at 400, the blue line is about 1400 and the red line 2250. What this tells us is the cost to insure the bonds Washington Mutual has sold to its inventors is skyrocketing. 

 

The numbers mean the following: It costs approximately 2.2 million to insure 10 million in WM bonds a year for the next five years. One-week ago, the cost was 1.4 million, and three-months ago it was 400,000. The move is astronomical. The credit market is screaming at investors to get out.

 


 

Let’s look at Lehman Brothers CDS’. Again, we’ll look at the 5yr Term. One-week ago it cost about 375,000 a year for 5-years on 10 million in bonds. Today, it costs just about 577,000. The price to insure LEH bonds has gone up 64% in a week.

 

 

You can list Credit Default Swaps out by sector. For instance I have a sheet of paper in front of me that shows the yearly cost, over 5-years to insure 10 million of the bonds of:

Lehman – 577,000 a year for 5 years

Merrill – 330,000

Morgan Stanley – 220,000

Goldman – 175,000

Citigroup – 174,000

JP Morgan – 126,000

Credit Suisse – 82,000

 

This helps because it creates a frame of reference for you. It also tells us who might be next on the list to have problems. That would be Merrill.

 

Thank you,

Jim Goulding

September 11th, 2008

 

 

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09-10-2008: Freddie and Fannie Mae are Nationalized

 

I can’t stress the magnitude of what the nationalization of Freddie and Fannie mean to our economy. What just happened to our national debt is unprecedented. Basically our liability as citizens of the United States just doubled.

 

You and I are on the hook for 4.5 trillion in debt that was already on the government books in the form of the national deficit. Freddie and Fannie’s combined debt is 5.2 trillion. And…no one is saying anything about this in the main-stream-media (MSM). Don’t expect to see anything soon either. We are officially in the economy of “there isn’t a problem until there is one” (thanks Dr. Housing Bubble).

 

That’s one reason why this board is here. It’s here because you won’t find the bad economic news that will affect us in the MSM.

 

There are many regional banks that own Freddie and Fannie stock. That stock is now worth nothing. Those banks have to raise capital to cover their losses or go-under.

(http://bankimplode.com/ )

 

The point is, investors are losing faith and faith is what our economy is built on. Faith is what our currency is built on. Faith is what sold our debt securities to China, Japan, the UK, and countless other countries over the last 20 years.

 

The nationalization of Freddie and Fannie Mae is not something that is positive for the economy, as the press would have you believe. It is a warning that all the debt is being pushed on the people of the US and they can only handle so much debt before it implodes.

 

Thank you,

Jim Goulding

September 10, 2008

 

PS, Washington Mutual is getting killed in the market today. I wouldn’t have a penny in that bank. They have too much in Options Arm Mortgages (52 billion) that will never get paid.

 

 

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 09-09-2008: Retail Sellers haven't entered the market yet

 

We talked at our morning meeting today, at work, about the fact that the retail sellers hadn't really entered the market in droves. The DOW was at around 9200/9300 before the open. We thought that if they wacked it again today as they did, retail sellers would begin to take notice. Retail sellers are Joe-average (you and I). They'll get home from work tonight and see the DOW closed on it's low, 1000 points lower than yesterday. They will begin to call their brokers and tell them to sell...with much anger in their voices. 

 

This is a classic set up. Lower lows bring....lower lows. We got some of that today. Sure, there were many retail sellers in today getting out of the market. The short-sellers were back too. However, as I've stated before, short seller help the market in many ways. As they come back and begin to trade again, they'll actually cause big rallies in the market. They're aren't fully back in though. But, we'll begin to get bigger bounces (prices going up) on the breaks (prices going down). 

 

Tomorrow is a shortened day and the volume will be thin. We could easily drop 1500 points. The target right now, that everyone on the street (trader's in the industry) are looking at are the 2002 lows of 7100+. Any rise in prices is going to meet massive selling because so many people want out. 


 

Look for the FED to guarantee interbank lending.  That's the one-trick this thing needs. If they do that, we'll rally back to 10,000. Really. 

 

Take care everyone, and hang-in there,

 Jim Goulding

October 09, 2008

 

 

 

 

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 09-03-2008: Peak Spending and the Dow

 

HS Dent has a simple theory. He believes that consumer spending rules all. I agree. I’ve been studying Dent for a decade. He’s the economist that introduced me to Strauss and Howe (S&H). Many of you know I believe S&H theories more than any other. My book, Winter is Coming, covers their theories and some of my own interpretations of their theories. My generation's page, on my web site, goes into great detail about “S&H’s” theories, in pictures.

 

However, today I’m writing about consumer spending and HS Dent’s theories. Dent says we spend money in an easily tracked way, throughout our life time. Two large benchmarks are 26 and 46 yrs old. We buy our first home at 26 and trade up when we are 46. I used these two benchmarks to complete a housing study in 2002. That study correctly predicted the downturn in the housing market. So, Dent’s theory is solid. (I used a 43 year lag in that study. A full explanation why is included in the study).

 

Dent’s theories also have a downside as many theories do. He’s missed market calls. So have I.

Personally, I don’t like his short-term calls because he always gives three scenarios, Up, down, or sideways, with one of them the most likely scenario. However, if you stay on top of him, his calls are ok. He’s a good economist when all is taken into account.

 

If we look at his peak spending theory and chart it against the Dow Jones Industrial Average (DJIA or Dow) adjusted for inflation, it speaks volumes for the end of an era. Here’s the chart with an explanation to follow.

The chart shows two series. The first is Immigration + Births. The second is the Dow.

Regarding the first series: The series is a proxy for consumer spending. The formula is live births + immigration with both lagged to project spending over a lifetime.

 

Average immigration is about 30 yrs of age. Now I just have to line up the data, in excel, and lag the births and immigration.

 

I lag births 46 years and immigration 16 years (30 + 16 = 46). Why 46?

 

That’s the age Dent states that we hit peak spending, in our lifetime. Then we begin to slow our spending habits. The numbers on the right side of the chart above are for the Dow. I can’t stress enough that it really doesn’t matter what the scale is on the right side for the Dow. For instance, Dent has a classic chart that shows population + immigration vs. the Dow adjusted for inflation (with a log scale for the Dow).

 

Here it is:

 

 

 

 

That’s where I got the idea for the chart I produced. Dent used his chart to project Dow 35,000. And you were wondering where I came up with my prediction of Dow 35k!? Now you know. There were some other factors as well, but I liked his particular theory the most.

 

The numbers (scale) on the right of Dent’s chart are different than the chart I produced above. However, the shapes of the curves are the same and that’s what’s important! Here’s my chart again:

 

 

 

 

 

The only difference between Dent’s chart and my chart is the Dow scale on the right-side of the chart. I am not using a log scale. However, I could, easily insert one as I’ve done below:

 

 

And if I used a log scale on the population too, it would look like the following:

 

 

Like I wrote above, it doesn’t matter what the scales are; the shape of the curves are what we want to look at. The curves follow each other so-well I don’t have to run a regression analysis (causation of correlation or R2). I can tell by looking at the chart that consumer spending and the price of the Dow are correlated with causation.

 

What strikes me as extremely prominent is the peak of consumer spending (the pink line). That peak is marked on the chart in 2008. Kind of right-in-line with the American consumer spending less and less, at this moment in time (today is 9/3/2008).

 

So, what does this mean? It brings up the question, “should I sell the Dow?”

 

I’ll stick with what I wrote on 07/07/2008, on my predictions page.

 

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 08-28-2008: How far can Housing Prices Fall?

 

I've uploaded a research paper written by William O'Donnell, of UBS. It's excellent. If you'd like to get a grasp on how much farther the housing rates can fall please read it. I've titled the paper "Housing, (UBS, how far will prices fall, 8-2008).pdf.

 

Thanks,

Jim Goulding

 

 

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 08-27-2008: Things are not getting better they are getting worse

Things are not getting better they are getting worse. The amount of money that will be needed by the FDIC, the corporate world, Freddie Mac, and Fannie Mae (the GSEs) is staggering. If we simply look at the GSEs and their increase in borrowing costs over the next 5-weeks, it takes your breath away.

 

Below, I’ve posted an article from Bloomberg, written on 08/20/2008. However, I’ll briefly post a quote from another Bloomberg article written yesterday about the corporate market.

 

“Banks, securities firms and lenders have a record $871 billion of bonds maturing through 2009, according to JPMorgan Chase & Co., just as yields are at their most punitive compared with Treasuries. The increase in yields may cost them as much as $23 billion more in annual interest versus a year ago based on Merrill Lynch index data.” [end]

 

The rollover of the debt isn’t anything new. It’s the cost of the debt that is new. Things aren’t hitting bottom folks, they’re still going down.

 

The information released by the FDIC on 08/26/2008 was not good. 117 banks are now on their watch list compared to 90, in March. I've uploaded their PowerPoint presentation for you to look at.

  

 Fannie, Freddie Bailout May Hinge on $223 Billion Debt Rollover By Dawn Kopecki

 

Thank you,

Jim Goulding

 

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 08-25-2008: The LIBOR: The Credit Crisis in Real Time  The

 

Here are some highlights from an article off of Bloomberg, posted today, August 25th, 2008. It highlights what the credit markets are going to be paying to finance positions at the end of 2008. In the financial industry we look to these numbers to see how the credit market is doing. Meaning, are the banks outside the US lending to each other, via the LIBOR rate? Our benchmark for the end of 2008 is the end of 2007 because the lending levels got very high last year. Before that, the benchmark was Y2K or December, 1999. Read on

 

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     ``These problems going into year-end are likely to be worse this time round because of the amount banks have to refinance in December,'' Thomson said, citing a figure of $88 billion. ``The suspicion is that banks are still hiding losses. The banking system relies on trust and at the minute there quite simply isn't any.''

 

                           Rate Spreads

 

     Banks are charging each other a premium of 77 basis points over what traders predict the Federal Reserve's daily effective federal funds rate will average over the next three months to lend cash. The spread is up from about 24 basis points in January, and may widen to 85 basis points, or 0.85 percentage point, by mid-December, prices in the forwards market show.

     Former Fed Chairman Alan Greenspan said in June that this spread, which is the difference between the three-month London interbank offered rate for dollars and the overnight indexed swap rate, should serve as a measure for telling when markets have returned to normal.

 

     A narrowing to 25 basis points in the so-called Libor-OIS spread would be viewed as a positive, he said. Forward markets signal that won't happen until sometime after June 2010. The premium averaged 11 basis points, or 0.11 percentage point, in the 10 years prior to August 2007.

 

[Editors: Dave Liedtka, Robert Burgess.  David Liedtka at +1-212-617-8988 or dliedtka@bloomberg.net

Reported by Liz Capo McCormick in New York at +1-212-617-7416 or Emccormick7@bloomberg.net;

Gavin Finch in London at +44-20-7073-3627 or gfinch@bloomberg.net ]

FULL ARTICLE

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Below, is graph of the spread they are talking about above in the Bloomberg article. The right-hand scale is in percentage. The 3 month LIBOR is trading 2.810 and the 3 month OIS is trading 2.035. The difference between the spread, today, is 77.5 basis points (2.81-2.035 = 77.5). The 3-month LIBOR is the rate which banks charge each other to borrow money for three months. The higher it goes the more expensive it is for a bank to borrow money.

 

OIS stands for Overnight Index Swap. The OIS is what banks are charging each other in the US to borrow money. What’s the difference between the two rate? Why is one higher than the other? Look at the end of the article for further explanation.

 

Both are priced in US Dollars.

 

Why are the two borrowing rates so far apart? They can be viewed as a credit spread. The OIS represents banks that have access to the Federal Reserve Discount Window and the LIBOR represents a rate that doesn’t have access.

 

The banks in the US that use that rate have access to the Federal Reserve Discount Window. Therefore they are thought to be a better risk than the banks that do not. Specifically, those that are trading the LIBOR that do not have access to the Federal Reserve Discount Window (banks outside the US). 

 

The wider this spread gets, the worse it is for the economy because it means the banks aren’t going to lend to businesses or consumers. Or, their lending will slow significantly.

 

Take care,

Jim Goulding

jgoulding@ghco.com

jimndi@ameritech.net

 

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 8-22-2008: 3-Web Sites for keeping up on the Credit Crisis

 

So much information. So little time.  I have been bookmaking web sites since the year 2000. As of this writing I have 2,300+ sites in 9 master folders and 477 sub folders. Following the credit crisis is not easy. It can be very depressing. However, I’d rather be prepared. I’d also like to pass along the sites I’ve discovered that I believe report more truth about what’s going on than you’ll find in the mainstream.

 

Here are the sites I like, for watching and learning about the credit crisis:

 

Great stats and all in one place, for you.

http://bankimplode.com/

 

Urban Survival is a daily blog.

http://www.urbansurvival.com/week.htm

 

Can’t say enough about this site. I’ve learned so much by reading it.

http://www.doctorhousingbubble.com/

 

Lastly, RSS feeds are getting easier to use. If you go to Google.com and sign up for their ‘Reader’, you can have an RSS feed up and running very easily. That way you can know when your favorite web sites update. Check it out.

 

That’s enough for now; I don’t want to overwhelm folks.

 

Take care,

Jim

 

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  8-21-2008 : Option ARM resets + Death Spiral Financing  

 

The next problem that the media isn't talking about is the OPTIONS ARM resets. This was brought to my attention through the great web site, doctorhousingbubble.com. You can view his article about the resets at the following link http://www.doctorhousingbubble.com/stage-two-of-the-mortgage-collapse-500-billion-in-pay-option-arms-meet-the-piper-in-2008-with-60-percent-being-in-california/

 

There's another problem too. It's called Death Spiral Financing. You can read about it at The Market Oracle's site

http://www.marketoracle.co.uk/Article5579.html

 

Thanks,

Jim Goulding

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