Daily Digest

Daily Digest - August 16

Sunday, August 16, 2009, 9:37 AM
  • Buckle Up!
  • Broke: Chicago City Government Closed For Business On Monday
  • Martin Armstrong - Cycles and Pattern Projections..(WhitePaper on page)
  • Gerald Celente - The 2nd American Revolution...(Video on page)
  • Jingle Mail Comes to Hotels now...
  • Julian Week #26 Bank Failures 73-77
  • One Of Three Down; Is The FDIC Still Solvent?
  • SEVERELY Delinquent Loans Crippling U.S. Banks
  • Colonial Bank Fails, Biggest Since WaMu
  •  Financial Sense News Hour Saturday August 15th (Audio)
  • ICN, Video (H/T iDoctor)
  • Swine Flue 25 Deaths from Vaccine

Economy

Buckle Up!

[Many charts and white paper on page]

To Quote John Kenneth Galbraith, “The majority is always wrong.” Right now the majority believe we are exiting the crisis. They are just plain old fashioned WRONG – again.

To prove my point, I’m going to show you the week in charts courtesy of the St. Louis Fed. This week, however, I’m issuing a WARNING. The evidence in these charts points to the beginning of a DEFLATIONARY SPIRAL. The PPI data comes out next week and will be a key piece of evidence in this regard. The results of a deflationary spiral will be UGLY if entered. You will see another round of deleveraging to go with locked credit markets. Equities will get hammered and the real cleansing of the economy will accelerate. This process will be PAINFUL but necessary to end the malinvestment. It will be the phase where more businesses who were hanging on HOPING for recovery will simply run out of cashflow to maintain operations. The same thing is necessary to cleanse a way over-bloated government and military.

The fallout will affect everyone. These charts are HISTORIC, they are NOT indicative of a short recession. As you view these charts, pay attention to the negative trends and look at them from a historic perspective. Many market callers are looking for immediate inflation due to the money pumping. I challenge them to point out inflation anywhere in these charts besides the money aggregates, which, by the way, are not growing at the rate they were. Those who look solely at the money aggregates are not seeing the destruction of credit which is very real and has hobbled the consumer. Never ending growth was a fantasy and is over for the time being, there is simply too much debt/credit in the system.

Broke: Chicago City Government Closed For Business On Monday

The City of Chicago will basically be closed for business on Aug. 17, a reduced-service day in which most city employees are off without pay, according to a release from the Office of Budget and Management. City Hall, public libraries, health clinics and most city offices will be closed.

Emergency service providers including police, firefighters and paramedics will be working at full strength, but most services not directly related to public safety, including street sweeping, will not be provided, the release said.

Martin Armstrong - Cycles and Pattern Projections..(WhitePaper on page)

Gerald Celente - The 2nd American Revolution...(Video on page)

Jingle Mail Comes to Hotels now...

What is striking about the current trend is that several of the companies forfeiting hotels are publicly traded.“ (emphasis added)

This is completely unsurprising . . .

Julian Week #26 Bank Failures 73-77

One Of Three Down; Is The FDIC Still Solvent?

Colonial, Alabama’s second-largest bank, is being closed by regulators today, the person said, becoming the largest U.S. bank failure of 2009 after an expansion into Florida saddled the lender with more than $1.7 billion in soured real-estate loans.

The FDIC usually waits until the close of business Friday; they must have had a slight problem with withdrawals......

Left unsaid is what's going to happen to the FDIC's deposit insurance fund on this one - my guess is that it will be ugly, as these guys were up to their necks in Florida on development projects that went bad. The "value" of that paper may be very close to zero; if the FDIC avoids doing one of their 40% loss deals I will be quite surprised.

A 40% loss on this one would, if my math is right, kill the rest of their insurance fund plus quite a bit and put the FDIC in the position of immediately needing to go hit up Treasury for more money.

That ought to be good for confidence, right?

SEVERELY Delinquent Loans Crippling U.S. Banks

However, data released in a Bloomberg article today indicates that the number of delinquent loans is literally only half the story here. I was flabbergasted to read that the average length of delinquency on these loans – for the entire U.S. financial sector – was 90 days.
As a matter of basic statistical analysis, the vast majority of non-performing loans should be delinquent only 30-60 days – for two reasons. First, in an environment even remotely close to normal, many of the borrowers who get behind on their payments catch up on their payments before ever becoming 90 days delinquent. Secondly, as loans get more than 60 days overdue (especially with credit card and consumer debt), we would normally expect banks to begin writing off/writing down these loans – and then referring these debts to collection agencies, or seizing collateral (depending on the type of loan).

The fact that the average length of delinquency for all bank loans is 90 days tells us two things. First, this number shows that once U.S. borrowers get behind on their payments in the current economic collapse, only a relatively small percentage are ever able to catch up on their payments.

Secondly, despite the fact that the banks can obviously see this drastic change in borrower-behavior, they are refusing to write off/write down vast number of loans where they already know they will never get fully paid.

Colonial Bank Fails, Biggest Since WaMu

Check out the footnotes to Regions Financial Corp.’s latest quarterly report, and you’ll see a remarkable disclosure. There, in an easy-to-read chart, the company divulged that the loans on its books as of June 30 were worth $22.8 billion less than what its balance sheet said. The Birmingham, Alabama-based bank’s shareholder equity, by comparison, was just $18.7 billion.

So, if it weren’t for the inflated loan values, Regions’ equity would be less than zero. Meanwhile, the government continues to classify Regions as “well capitalized.”

Financial Sense News Hour Saturday August 15th (Audio, Haven't listned yet but Shiff is on the show)

ICN, Video (H/T iDoctor)

Swine Flue 25 Deaths from Vaccine

17 Comments

idoctor's picture
idoctor
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Re: Daily Digest - August 16

Jim Rogers 8-11-09

Rogers on China Bubble

 

 

 

 

idoctor's picture
idoctor
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Re: Daily Digest - August 16

Davos thanks for all the links as always you are appreciated. Interesting differences like always on inflation vs deflation. Which one is it now?

Nathan's Economic Edge:

That’s a pretty clear picture to me, one of DEFLATION at work. It is accelerating, not decelerating. That is a HUGE divergence from what’s occurring in the equity markets and from what you hear on television from the supposed experts.

I think we are on the precipice of a self-reinforcing deflationary spiral. The data is historic. The disconnect between the data and perception is historic. The Fed is attempting to do a magic trick by printing their way out of debt – it’s a trick that has NEVER worked throughout the history of mankind and will not work to create real growth now.

Then I listened to all of Jim Puplava's Financial Sense News Hour Saturday August 15th (Audio, Haven't listened yet but Shiff is on the show) & he believes in inflation with the market hitting 11,000 to 12,000.

It seems like a mixed bag of tricks all the way around to me LOL. My simple view is we are still losing jobs & with that people lose more houses & the spiral down continues at least til we find that bottom. Most people don't have savings & solely rely on what is in their house & their income from work(IMO). All the Feds money just can't seem to put Humpty Dumpty back together again...at least for the near term. The shipping index was so bad also.

Until we have meaningful high paying jobs how is this fixed?? Where are good paying jobs going to come from... I guess Govt expanding? A jobless recovery......what the heck kind of recovery is that??? Have to tune into old walstreetpro2 to see what he has to say LOL.

 

Well after a 50% rise in the market off the lows I couldn't take it anymore. I went short last Thursday...we shall see. If it doesn't workout I can always find something in my garage to beat on LOL.

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pwoody82
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Re: Daily Digest - August 16

Peter Schiff was on the Financial Sense News Hour this week (8-15). However, the moderator spent much of the time talking to him about his reasons for running for the U.S. Senate against Chris Dodd (Mass). Schiff says that he is the only one running that does not want the job and wants to see if he can bring another voice of reason into the Senate. I think he would be a great Senator and have contributed to his exploratory committee. If he decides not to run, current contributions will be returned.

He has collected about 800k in the last three weeks and wants to get to over a million for the primary campaign. If he gets the Republican nomination, he estimates he will need 15-20 million to defeat Dodd. I think he wants to stay mainly with conservative contributors. See www.schiffforsenate.com.

I have found the FSNH very informative although I do not always listed to all three hours of it.

http://www.financialsense.com/index.html

http://www.europac.net/

Davos's picture
Davos
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Re: Daily Digest - August 16
idoctor wrote:

Davos thanks for all the links as always you are appreciated. Interesting differences like always on inflation vs deflation. Which one is it now?

Nathan's Economic Edge:

That’s a pretty clear picture to me, one of DEFLATION at work. It is accelerating, not decelerating. That is a HUGE divergence from what’s occurring in the equity markets and from what you hear on television from the supposed experts.

I think we are on the precipice of a self-reinforcing deflationary spiral. The data is historic. The disconnect between the data and perception is historic. The Fed is attempting to do a magic trick by printing their way out of debt – it’s a trick that has NEVER worked throughout the history of mankind and will not work to create real growth now.

Then I listened to all of Jim Puplava's Financial Sense News Hour Saturday August 15th (Audio, Haven't listened yet but Shiff is on the show) & he believes in inflation with the market hitting 11,000 to 12,000.

It seems like a mixed bag of tricks all the way around to me LOL. My simple view is we are still losing jobs & with that people lose more houses & the spiral down continues at least til we find that bottom. Most people don't have savings & solely rely on what is in their house & their income from work(IMO). All the Feds money just can't seem to put Humpty Dumpty back together again...at least for the near term. The shipping index was so bad also.

Until we have meaningful high paying jobs how is this fixed?? Where are good paying jobs going to come from... I guess Govt expanding? A jobless recovery......what the heck kind of recovery is that??? Have to tune into old walstreetpro2 to see what he has to say LOL.

 

Well after a 50% rise in the market off the lows I couldn't take it anymore. I went short last Thursday...we shall see. If it doesn't workout I can always find something in my garage to beat on LOL.

Hello iDoctor:

Funny, I was cutting the lawn listening to Jim Puplava today, and I didn't have a chance to listen to part 1 or 2 - just 3a and most of 3b. Jim brought up a good point: Inflation is visible in food, fuel and the goods consumers need day in and day out. I think that will add to the downward spiral as they will have less money to buy other goods or save for a home.

Having said that I do see what Nate is driving at. I think that the CPI chart is shocking but, I'd like to see it before they back out the things we can't - food and gas. Agh, the Nixon era government. Back out gas and food.

My take is we will have asset deflation vis-a-vis the destruction of wealth that Soros says this is a period of, and that Minsky defines with reference to Ponzi Credit and debt destruction. To me, the market, houses and big ticket items are assets, food and gas isn't.

I can't fathom Soros's call or Jim's comments about the S&P going up and money flowing somewhere, the lawn mower is old and loud but I think he said that Rogers is in on the S&P going long. They are smarter than I so the few bucks I have in puts against it will likely have been a bad ticket at Bellmont.

Maybe we can do a duo in the garage with baseball bats and old computers. Give that other guy a run for his money.

I can't even bring myself to say the phrase 'jobless recovery', I'm with you, I don't think there is such a thing.

That's my simplistic take.

No jobs/No Home ATM's to tap = 70% of the economy is or will be wiped out. Jingle keys and foreclosures just wiped out a bunch of home the pool of qualified home buyers, they now have dinged credit scores. Folks who got exotic loans to qualify probably won't be stepping up to the plate. The inventory to qualified buyers will drive homes so far south that I'm glad I'm not a builder any longer. They can say all they want about government stepping in but the bottom line is I see IOU's in California, Chicago is closing shop on Mondays, Michigan is bulldozing cities and I seriously doubt they will be able to hold the 30% of GDP let alone increase it. The postal service is welching on it's pensions or its health care or both.

I feel that businesses are sucking wind and will continue to suck wind. The numbers can't be conned (for too much longer) and the market will tank.

The dollar is the joker in the deck. If the market goes first Ben will have less money to print. If, on the other hand, the dollar goes first then I think the inflation/deflation debate will end quickly with hyper inflation. Last week I heard the devaluation word over and over, this week I heard 'happens suddenly' over and over.

I do know the banks know how ugly it is again. If they close first the dollar and the market will go at the same time when they try tossing money at the banks again. That'll be quite a show.

Oh well, the like my Dad's gambling addicted attorney would say, lets go to Bellmont early and watch the warm ups, you can always spot the lame ones then. To me they are all lame. The dollar should be put down and so should the market and the banks.

It's post time and after watching them warm up I'm not even sure they will make it to the gate for the gun. Good luck with your bet.

Take care

 

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America Is Looking Rather Pathetic To The World

From the Canadian blog The Automatic Earth

Real men pay their debts and move on

What happened to all that courage America was supposedly built upon? Can't even face yourselves anymore? When businesses fail, you close the doors, it happens all the time, what's the big deal all of a sudden? You’re broke, as a nation, as individuals, very broke, awfully terribly broke. Deal with it like real men do. Real men pay their debts and move on. They don't play Mr. Big off their children's piggy banks. It's a matter of honor. Quit lying to yourself, quit whining, get over it and get to work. I'd say, the sooner the better. You're in for troubled times no matter what, that much is cast in stone. 

Might as well do it with your heads held up high. 

Even the Canadians are talking trash! Makes you so proud to be an American

Davos's picture
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Re: Daily Digest - August 16

Hello Pwoody82:

Thanks for the cliff notes.

He has collected about 800k in the last three weeks and wants to get to over a million for the primary campaign. If he gets the Republican nomination, he estimates he will need 15-20 million to defeat Dodd.

I wonder what one has to do to raise that much or to run. 15-20 million? Wow. What has happened to our country and it really makes me wonder why it costs so much to run. I should follow politics as closely as I do the economy but I don't. I wonder if anyone has gotten elected through a grass routes non corporate sponsored race.

Take care

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Re: Daily Digest - August 16

Hey Davos-

   Nice job on the articles and videos.  Thanks!

   You know, it seemed like things had plateaued for a while.  But now I get the sense we may be edging towards the next leg down; a "calm before the storm" kind of thing.  Anyone else sensing this?  Then again, maybe it's just re-newed anxiety after reading some of the articles above!:)

Davos's picture
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Re: Daily Digest - August 16
pinecarr wrote:

Hey Davos-

   Nice job on the articles and videos.  Thanks!

   You know, it seemed like things had plateaued for a while.  But now I get the sense we may be edging towards the next leg down; a "calm before the storm" kind of thing.  Anyone else sensing this?  Then again, maybe it's just re-newed anxiety after reading some of the articles above!:)

Hello PineCarr:

Pleasure to contribute to the fine site Chris did and this fine community.

Same impression. This is the first time I have ever not seen eye to eye with what Soros says and Roberts (though not sure I heard Jim Puplava say Roberts). I'm likely wrong, these two are like fortune tellers!

I think the banks will go by the fall. If the market doesn't go first, it is - in my opinion - going to be game over.

Take care

idoctor's picture
idoctor
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Re: Daily Digest - August 16

You know, it seemed like things had plateaued for a while.  But now I get the sense we may be edging towards the next leg down; a "calm before the storm" kind of thing.  Anyone else sensing this?  Then again, maybe it's just re-newed anxiety after reading some of the articles above!:)

Maybe we are in the eye of the storm.....feels like it to me....but I am no economist.....not that it would make any difference LOL.

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Re: Daily Digest - August 16
idoctor wrote:

...but I am no economist.

Me either, but then again, all but a dozen missed the biggest storm of the century and aren't appending the depression is beginning to the recession is over.

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Re: America Is Looking Rather Pathetic To The World

http://feedproxy.google.com/~r/NakedCapitalism/~3/uUUDgpSZ3Dw/guest-post...

Dr. C.M. reference.

Good read!  Don't forget pension funds in the deflation model!  They're tied heavily into CDS's and CDO's which are tied to toxic assets that have not been taken off of the banks books per Elizabeth Warren. 

I voted for Kodos!!

idoctor's picture
idoctor
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Re: Daily Digest - August 16


“Don't let the press confuse you,” Cramer said. “We are almost at Dow 9,400 because things are better than you think, and still improving by the day.”

Hum.......???

http://www.cnbc.com/id/32404887

Markets Will 'Abruptly' Drop 25-50%: Strategist

 http://www.cnbc.com/id/32417835

Davos's picture
Davos
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Re: Daily Digest - August 16

Good watch

idoctor's picture
idoctor
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Re: Daily Digest - August 16

China to Buy $2 Billion Worth of US Mortgages

http://www.cnbc.com/id/32443645

Looks like a very bad day in the markets today. China down almost 6%........WOW!

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Re: Daily Digest - August 16

We have a bill in the Minnesota House and Senate that would disable the deflation trap and would be a first great step to economic stability in the USA.  It would also help to halt price inflation and restore the purchasing power of the dollar.

It's called The Minnesota Transportation Act.

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Re: Daily Digest - August 16

On deflation and real estate....

I'd like to know what people think about RE prices. We all know that for years, RE prices have gotten ahead of the fundamentals - the current housing stock cost much more to buy than people's income permits given long standing prudent computations.

Every time I drive/bike around the countryside, I look at all the new developments of grand homes. Homes that a decade ago, only millionaires would be buying but now every working Joe/Jane thinks they deserve to live in a castle. Even in depressed areas I see these. What I do not see are developments of sensibly sized, affordable, energy efficient homes.

For years, I've watched this trend with concern. This housing market must collapse - much more than it has. When people get back to buying sensibly priced homes, they're going to have to buy homes in the $150k-$300k range. The destruction of wealth and financial ruin of everybody who has bought in the last 15 years is going to be ugly.

I know this isn't news to people here. but I'm interested in more discussion on this topic. Is there any sustainable option that permits these $500k-$1m homes to keep selling? I don't see it. The income demographics just aren't there. $1m -> $500k -> $300k is the only way I can see prices going in all but the most desirable areas. The implications of this alone, without the rest of the events in the CC, are terrifying...this really does look like the beginning of the end.

 

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tedsan
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Re: Daily Digest - August 16

Replying to my own post.

Immediately after posting, I went to search for some info on home prices and came upon this report from 2005.

 http://www.huduser.org/publications/affhsg/RecentHousePrice.html

 

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