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New Martenson Report Ready

Friday, October 3, 2008, 10:32 PM

Everything I have been writing, lecturing and making Crash Course
videos about is now upon us.  It is here, and it is now.  Here I stack
up the evidence that, so far, deflation is winning, which portends a
very different outcome from the inflationary event I have been largely
anticipating.

It's here and it's now 

Note: This report is currently for subscribers only. 

Blog

Bailout Bill Passes - Markets Plunge

Friday, October 3, 2008, 3:54 PM

Well, once again, an overwhelming majority of the American populace was overridden by the DC politicians.

The last time that happened didn't turn out so well, as I recall.  In fact, it is still not working out so well.  It's called Iraq.

At any rate, the full-court press to pass this thing was phenomenal to witness.

Quote:
WASHINGTON — The House of Representatives gave final approval on Friday to the $700 billion bailout for the financial system, reversing course to authorize what may be the most expensive government intervention in history.

At 1:21 p.m., applause and cheers echoed through the House chamber as the number of “aye” votes crossed the threshold needed for passage with just seconds remaining in the official 15-minute voting period. The vote was 263 to 171.

And in a sign of the urgency surrounding the package, Congressional staff rushed the newly printed legislation into a news conference where Democratic leaders gathered after the vote and Speaker Nancy Pelosi, Democrat of California, signed it, at exactly 2 p.m.

Earlier, Ms. Pelosi said the measure was essential to “begin to shape the financial stability of our country and the economic security of our people.”

Link (NYT)

Throughout the process, there was never any doubt in my mind that it would be passed.  I was a little bit surprised at the three-pager that Paulson tried to ram through, both for its brevity and for its blunt attempt to seize unlimited power.

» Read more

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Payrolls fall by 159,000 in September

Friday, October 3, 2008, 8:42 AM

While I consider the employment report to be among the Fuzziest of Numbers, I still look at it when it comes out (like it did this morning at 8:30 a.m.) because there is some value in the trend, even if the number itself is not worth much.

Plus, seeing the amount of fudging in the Birth-Death model is one of my favorite activities, because I think it provides insight into just how unreliable government statistical models really are.

Quote:
WASHINGTON (MarketWatch) - U.S. employment fell by 159,000 in September, the worst job losses since March 2003, the Labor Department reported Friday.

This would have, of course and as always, been even worse had the infamous Birth-Death model not inexplicably added 42,000 jobs to the count. » Read more

Blog

Joining forces with Chris

Thursday, October 2, 2008, 8:18 PM

Dear Chris Martenson fans,

I recently joined forces with Chris Martenson to help him continue publishing free educational information about the American economy on PeakProsperity.com. I’m writing today to introduce myself and to explain the role I’ll be playing, helping Chris grow the site and the video and live education programs.


Introduction

My name is Erik Townsend. I was an entrepreneur in the software industry, and was one of the lucky guys who got out in the late ‘90s when the getting was still good. Not having to work full-time isn’t as glamorous as it probably sounds. I’ve had the luxury of time to explore quite a few issues of concern to our nation, and Chris’ work stands out as the best example I’ve found of someone explaining complex issues in plain English so that anyone can learn about them.

When I discovered and watched the Crash Course a few months ago, only the first ¾ of the course was completed. I learned that Chris had been funding the site’s hosting and technical services expenses out of his own pocket. The revenue he was receiving from paid site subscriptions only partially defrayed his operating expenses.

Chris has a personal passion for making the message of the Crash Course free to everyone. In fact, he was so concerned about not being perceived as self-serving that he has resisted the temptation » Read more

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Credit Crisis Worsens

Thursday, October 2, 2008, 7:52 PM

While we all pay attention to the stock market and the failout, er, bailout bill and such, behind the scenes the credit markets are continuing to signal record levels of stress in the banking system.

First, the TED spread (definition here, worth your time if you are unfamiliar), a traditional measure of banking stress, hit another recent high today at 3.62 and closed the day at 3.61 - pretty much right at the high of the day.

A second measure of the reluctance of banks to lend to each other is the "Swap Spread," which hit a record today.  Not a 'recent record,' but a record.

Quote:
Oct. 2 (Bloomberg) -- The spread between the rate on a two-
year interest-rate swap and surged to a record
as money-market rates climbed and concern increased about the
success of a proposed U.S. financial-rescue package.

Together these measures tell us that banks are not lending to each other.  They don't trust each other.  When banks don't trust banks it is not a big stretch to conclude that they don't trust anybody else either.  This is a direct measure that the credit markets are in complete disarray.

A third measure is the London Interbank Offered Rate or LIBOR, which hit the second highest rate of the year today at 4.21%.

As reported today in CFO magazine:

Quote:
The recent rise in Libor rates is a dire warning to borrowers that
interest rates won't be dropping any time soon, according to a report
issued by Merrill Lynch.

Libor is the benchmark interest rate banks charge each other for short-term loans. The rate is based on what the world's most creditworthy banks charge each other, so it is a starting point for the interest rates lenders charge less creditworthy borrowers — such as corporations. The rise in Libor is worrisome, emphasizes Merrill, because the rate is used to set the terms for numerous financial transactions.

I recently wrote that September 19 would be remembered as the day that the markets changed forever.  We are only now finding out why the extraordinary steps of that week were taken:

Quote:
The credit crisis has played out in places most people cannot see.
It is banks refusing to lend to other banks - even though that is one
of the most essential functions of the banking system. It is a loss of
confidence in seemingly healthy institutions like Morgan Stanley and
Goldman - both of which reported profits, even as the pressure was
mounting. It is panicked hedge funds pulling out cash.

It is frightened big investors protecting themselves by buying
credit default swaps - a financial insurance policy against potential
bankruptcy - at prices 30 times what they normally would pay.

It was this 36-hour period two weeks ago - from the morning of Sept.
17 in New York and Washington, to the afternoon of Sept. 18 - that
spooked policy makers by opening fissures in the worldwide
financial system.

In their rush to do something, and do it fast, the Federal Reserve
chairman, Ben Bernanke, and the Treasury secretary, Henry Paulson Jr.,
concluded that the time had come to use the "break-the-glass" rescue
plan they had been developing.

In short, most of the direct market action that you and I can observe from out here in the cheap seats is only minimally telling the tale of just how profound this crisis really is.

$700 billion?  A meaningless amount, concocted in a moment of fear, that almost certainly has no bearing on the final amounts, whatever they may be.

Take care and be nimble. Things are shifting rapidly.

» Read more

Blog

The Crisis Explained

Thursday, October 2, 2008, 7:18 AM

A very nice analogy, found here:

Quote:
Analogies are never perfect, but here's one using horse racing. Don't expect a perfect correspondence to the banking situation, but I think it is close enough for government work.

Joe goes to the track and bets $2 on a horse.

Two guys standing nearby get into a discussion and Fred says to Sam, "I'll bet you $5 that Joe wins his bet."

Next to them are Bill and Bob. Bill says: "I'll bet you $10 that Fred welshes on his bet if he loses."

Next to them is Sally. Sally says: "For $3 I'll guarantee to Bill that if Bob fails to pay off, I'll make good on the bet."

Sally then goes to Mary and borrows the $7 needed in case she has to ever pay off and promises to pay back $8. She doesn't expect to ever have to pay since she believes Bob will always make good. So she expects to net $2 no matter what happens to Joe.

A quick calculation indicates that there is now 2+5+10+3+7 = $27 riding on the outcome of the horse race.

Question how much has been "invested" in the horse race?

Answer:

$50,000 by the owner of the horse who is expecting to recoup his investment from the winnings of the horse and other future deals. Everyone else is gambling, not investing.

The issue with the home market is that the only "investor" was the person who bought the home. All those engaged in the meaningless derivatives spun off from this are gambling. You can see how quickly the face value of all these side bets can exceed the underlying investment. Who is holding these side bets?  Not the homeowner. It is the people at the failing investment banks, hedge funds and similar enterprises. Notice that the bailout is being directed at them not the homeowners.

The real world is, of course, even more complicated. Over the last 30 years people have been allowed to place bets on everything starting with the value of stock averages. They might as well bet on the temperature in Newark at 8:00 AM.

So when you hear everybody saying this is a crisis caused by the housing collapse, be skeptical. We are in the midst of a classic pyramid or Ponzi scheme and there is no way out except for people to lose a lot of money. All that is different this time is that it is the taxpayers who are being asked for the cash.

» Read more

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National Debt Officially Over $10 Trillion

Wednesday, October 1, 2008, 4:34 PM

Well, we've finally done it.

The national debt, which stood at just $5.73 trillion when Bush took office in January of 2001, is now more than $10 trillion.

This is a stunning 75% increase just since the day Bush became the first President ever to forgo the traditional walk to the podium, preferring to ride in his armored car (perhaps the object-throwing crowds had something to do with that).

Think about this increase for a minute.

By the time Bush leaves, it could easily amount to a perfect doubling of the national debt in the span of only eight years.

To those who now want to rescue the credit markets so we can "get back to how things were" are failing to observe that "how things were" was, most recently, not at all how things used to be.

There's nothing to return to.  A nation that doubles its debts every eight years does not really exist.  It is an illusion built on borrowing. There's no way to "get back to that," because it was just a crazy party, thrown at great expense. But now the rugs are stained, the lamps are broken, and booze is all gone.

Here's what it looks like from a historical view.  Bush's legacy (which is really the legacy of everybody in DC; I do not mean to pick on him alone) is circled in a color I like to call "rug stain yellow."

All of these wild attempts to "stabilize the markets" with a big government borrowing binge are most certainly destined to be ill-fated.

The only realistic way out of this, from a banking system and government standpoint, is to print, print, print.

There is almost no doubt left in my mind that the printing process is either already humming along in the background, or soon to begin.

Oh, by the way?  My mother-in-law reports that today that she went to take cash out of the bank, but greeting her at the door was a hand-taped sign stating that customers are now limited to $1000 cash per day.

Gold and silver were hit again today in the lightly traded access (paper) markets, but good luck finding any physical to buy. It's not impossible, by any stretch, but it's a lot harder than it was last week, and that was harder than last month.  The trend tells the tale.

Congratulations, America, you are now officially a $10 trillion debtor nation. Break out the party hats.

» Read more

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New Martenson Report for Subscribers

Wednesday, October 1, 2008, 3:34 PM

In this report I review the recent data to conclude that a recession is
here right now.  Don't wait to hear this fact much later on the
news...it's time to start spending and behaving like we are at the
beginning of a pretty serious economic decline.

The Recession - It's Here And Now 

Note: This report is for subscribers only. 

» Read more

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Another mid-game SEC rule change

Tuesday, September 30, 2008, 5:09 PM

Every possible effort is being made to make our banks healthier.  And if that is not possible, then to at least make them appear healthier.  The SEC just passed a new rule with this second aim in mind.

And I'm not sure how much it is really going to do, since the rule change will allow companies to place higher values on stricken assets that have already been "marked down."  As I point out below, many companies have not yet done this, so how much of a gain will result is questionable.

» Read more

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Market pricing broken - no longer free, fair, or believable

Tuesday, September 30, 2008, 10:50 AM

While the actions of the SEC to suddenly change the rules mid-game were troubling, as were the recent Fed decisions to blatantly ignore its own charter, I am seeing something equally worrisome developing out there.

There is a breakdown between what the paper markets (futures, options, stocks, Foreign Exchange, etc) are saying is "the price" and what we are experiencing out in the real world.

Here's one example from the gas shortages plaguing the Southeast: » Read more