Daily Digest

Daily Digest - June 20

Saturday, June 20, 2009, 9:40 AM
  • Southern Europe (Repost)
  • British Airways asks staff to work for free
  • U.S. likely to lose AAA rating: Prechter
  • Tuesday, June 16, 2009
  • $13.9 Trillion Total Maximum Government Support Announced
  • JPMorgan Analysts Predict 60% House Price Decline for High End
  • Lots of People Didn't Get the Memo
  • Shadow Inventory, Jim the Realtor (Video)
  • Didn't even hit the barn (Chart, Forecasted Unemployment Rate)
  • Financial News Coverage (Video)

Economy

Southern Europe (Repost)

Ladies and gentlemen, Hugh is describing a return to something like the global crunch conditions of September and October with the epicenter moving from New York to Barcelona.

If he is right and Latvia becomes the trigger event for a cascade that swamps not just Baltic backwaters but Greece and Spain...Iceland's GDP was $12bn. Latvia's GDP is around $36bn. Greek GDP is $350bn. Spanish GDP is $1.4tn. That is a completely different ballgame, and the global exposure to problems of this scale is likely to be made blindingly obvious from the get-go.

And of course any threat of a run on national-level "massive external financing requirements" leads one's thoughts directly to the United States, which remains as ever extremely reliant on foreign-sourced funding for its banking system.

British Airways asks staff to work for free

British Airways has asked its 40,000 staff to work without pay for up to a month as the ailing airline seeks to cut costs.

The group, which made a record £401 million loss in 2008 amid surging fuel prices and a collapse in premium-fare passengers, is seeking to reduce costs dramatically and has already offered staff unpaid leave or a reduction in hours.

Willie Walsh, BA’s chief executive, has now gone a step further by asking staff to volunteer for between one and four weeks of unpaid work in what he says is a “fight for survival.”

Mr. Walsh, who said last week that he would work for free in July, has set a deadline of June 24 for employees to volunteer for unpaid work. He said that the salary deductions would be spread over three to six months wherever possible

U.S. likely to lose AAA rating: Prechter

NEW YORK (Reuters) - Technical analyst Robert Prechter on Monday said he sees the United States losing its top AAA credit rating by the end of 2010, as he stuck by a deeply bearish outlook on the U.S. economy and stock market.

Prechter, known for predicting the 1987 stock market crash, joins a growing coterie of market heavyweights in forecasting the United States will lose its top credit rating as the government issues trillions of dollars in debt to fund efforts to bail out the economy.

Fears about the long-term vulnerability of the prized U.S. credit rating came to the fore after Standard & Poor's in May lowered its outlook on Britain, threatening the UK's top AAA rating. That move raised fears that the United States could face a similar risk, with the hefty amounts of government debt issued in both countries to pay for financial rescues causing budget deficits to swell.

Prechter, speaking at the Reuters Investment Outlook Summit in New York, said he sees investors' confidence in an economic rebound fading, a trend that will drag the S&P 500 stock index .SPX well below the March 6 intraday low of 666.79 by the end of this year or early next.

"There will be a leg down in stock prices, and it will affect all other areas," including corporate bonds and commodities, said Prechter, who is executive officer at research company Elliott Wave International, based in Gainesville, Georgia.

Prechter, who is known for his bearish views, has repeatedly forecast a steep decline in stocks this year, even as the stock market has rebounded from 12-year lows set in March as optimism about an economic recovery has risen.

Despite the government and Federal Reserve's massive rescues for financial companies and securities markets, Prechter expects credit markets to clam up again as they did in the first phase of the global financial crisis and for the U.S. economy to sink into a depression.

Although U.S. banks' recently passed government "stress tests" that assessed the adequacy of their capital levels to absorb losses and have been able to raise some capital in debt and equity markets, "the banking sector is in severe trouble," as more loans turn bad, he said.

The economy "is obviously heading toward a depression," despite the government's efforts to dodge one, said Prechter.

Federal Reserve Chairman Ben Bernanke has not averted a re-run of the 1930s Great Depression, even though investors are becoming firmly convinced that the Fed has avoided disaster and that the economy has hit bottom.

"It's the next leg down (in stocks) that will make it clear that these things are not true," Prechter said.

 Tuesday, June 16, 2009, Lehman Redux?

The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy -- the state of California.

$13.9 Trillion Total Maximum Government Support Announced (Tabel)

JPMorgan Analysts Predict 60% House Price Decline for High End

Peak-to-trough declines in excess of 60 percent (compared to 40 percent nationally).

Lots of People Didn't Get the Memo

Today's news cycle is anything to go by, it looks like lots of people didn't get the memo telling them we're on the road to recovery (a technical snafu, perhaps?).

Shadow Inventory, Jim the Realtor (Video)

Didn't even hit the barn (Chart, Forecasted Unemployment Rate)

Financial News Coverage (Video)

16 Comments

joekiwi's picture
joekiwi
Status: Member (Offline)
Joined: May 26 2009
Posts: 1
Re: Daily Digest - June 20

I am quite concerned about the US economy and where it is heading.  On a recent visit, as I drove down the road in Tucson AZ, I couldn't help but notice all the stores that just provide a service that is a luxury and not a neccessity... and how bad it could get as unemployment grows and consumer spending declines. 

To protect myself and my assests I'm looking at buying some silver buillon...  Is this preferable to gold or maybe something else?

 

kemosavvy's picture
kemosavvy
Status: Martenson Brigade Member (Offline)
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Posts: 254
Re: Daily Digest - June 20

joekiwi, welcome to the site,

tucson has alot more problems than service oriented strip malls, i was there last year mountain biking on a trail called 'fantasy island' and after the ride our tour guide was commenting on the water situation in tucson and how every drop of water comes in from the Colorado River. tucson needs to import everything they use and the population has exploded.

Too many people moved in during the boom years and elaborate pipelines were built to irrigate the population, but no one really has given much concern to the fact that they built a system that would deplete their resources faster than they could be replensished.

suffice to say that the demand of water is outstripping supply by a greater and greater amount every year and the situation is.... like everything else nowadays... unsustainable.

the tour guide of ours made it very clear that he was making arangements to live elsewhere and everyone was just now starting to wake up to the reality. this was last year.

steve

FireJack's picture
FireJack
Status: Silver Member (Offline)
Joined: Feb 8 2009
Posts: 156
Re: Daily Digest - June 20

Funny thing about California is that after they make all those desperate cuts, there going to have to make more.

 

Okay so reading through the toronto star today and I see this in the business section:

Recession to dog state until 2010, experts say

some exerts:

"the state is in a deeper and more profound recession than it has seen since the Great Depression, dragged down by sluggish construction activity."

Aha it was the construction industry that caused it all.

"Feeling gloomy about the economy, U.S. consumers stopped spending too.

But that's created a pent-up demand for products such as electronics that consumers have been waiting to buy until they feel more optimistic, Adibi said."

 

This is what their telling people in major newspapers and I can't believe it's what their trying to convince people of. It just really annoyed me when I read that article today and I'm finding myself less and less interested in what newspapers say these days.

Brandon's picture
Brandon
Status: Martenson Brigade Member (Offline)
Joined: Oct 6 2008
Posts: 144
Re: Daily Digest - June 20

Hi joekiwi.

You may have already found it, but Chris wrote a "Buying gold and silver" article, listed under the "Take Action" tab.  It doesn't dive really deep into gold VS. silver necessarily, but does have a good basis from which to build upon when weighing the pros/cons, as well as his recommendations.

http://www.peakprosperity.com/buying_gold

Welcome to the site!

-Brandon

LogansRun's picture
LogansRun
Status: Diamond Member (Offline)
Joined: Mar 18 2009
Posts: 1443
Re: Daily Digest - June 20

joekiwi,

Silver is at a historically better price than gold right now.  At a 65.5/1 ratio it's a very good buy (silver).  Historically speaking, silver has been at a 16/1 ratio for hundreds of years until just recently (1981 i think).  The issue with Silver is that you need more storage space than gold.  At 65/1 ratio you're talking about 20+lbs or silver for 10 oz of gold.  That's a difference! 

If you're going to do it check out the perth mint NZ and Aust.  Make sure you take delivery though...don't leave it there.

fujisan's picture
fujisan
Status: Gold Member (Offline)
Joined: Nov 5 2008
Posts: 296
Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - June 20

I'll post this again on the 24th's blog.

When I started this hobby of following the economy I never would have suspected that marshmellows could have anything to do with success and the economy. 'Hoooocouldanode'?

  Joachim de Posada says, Don’t eat the marshmallow yet (TED Video)

Ability to delay gratficiation, years later how are we doing?

jlshen2000's picture
jlshen2000
Status: Member (Offline)
Joined: Feb 23 2009
Posts: 12
Re: Daily Digest - June 20

With regards to the article

U.S. likely to lose AAA rating: Prechter

Any sane person with basic math skills knows that US does NOT deserve an AAA rating. Quantitative easing is a kind of default. Why would we still need/trust S&P, Fitch or Moody's?

 

I am a chemist. I recall to have read something like the following in the front page of a chemistry book:

 

"Common sense is not so common"---Voltaire.

 

Indeed we as a nation don't have common sense anymore. Nothing is more important than common sense. We can not think independently anymore, we need dictators like Obama/S&P tell us what to do. What happened in the past year or 10 years is not enough. We should be mislead even more by the government and the rating agencies.

jlshen2000's picture
jlshen2000
Status: Member (Offline)
Joined: Feb 23 2009
Posts: 12
Re: Daily Digest - June 20

joekiwi,

 

The best way to buy PM is to buy from apmex.com if you live in US. Silver is better for most people. If case of hyperinflation, we can trade 1-oz silver coins/bars for some bread. Silver has more potential to appreciate compared to gold. Gold is more likely to be confiscated than gold.

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Ordering a Pizza in the Future

Hilarious!

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Daily Digest - June 20
LogansRun wrote:

joekiwi,

Silver is at a historically better price than gold right now.  At a 65.5/1 ratio it's a very good buy (silver).  Historically speaking, silver has been at a 16/1 ratio for hundreds of years until just recently (1981 i think).  The issue with Silver is that you need more storage space than gold.  At 65/1 ratio you're talking about 20+lbs or silver for 10 oz of gold.  That's a difference! 

If you're going to do it check out the perth mint NZ and Aust.  Make sure you take delivery though...don't leave it there.

Hi LogansRun,

It seems to me that the gold/silver ratio is increasing again. During the crash of 08 it reached a level of 80/1 and recently moved down to 61/1 and has now reversed. Some astute market commentators believe it will approach 80 again this fall, and are shorting silver at this point. If their predictions pan out, it might be better to wait on a higher ratio to buy silver. What do you think?

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3125
Re: Daily Digest - June 20

joekiwi

There is also the question of your tolerance for volatility.  Silver tends to be more volatile than gold.  OTOH, silver has an extra benefit that it is commonly used in industrial application, and therefore will be more subject to shortages in the future if you're buying long term.

VeganDB12's picture
VeganDB12
Status: Platinum Member (Offline)
Joined: Jul 18 2008
Posts: 731
Re: Ordering a Pizza in the Future

JAG

This is great.

If we get a computerized federal medical record system though, this is what we have to look forward to IMO.

Worth fighting against as the video recommends.

Happy Father's Day to All

Denise

LogansRun's picture
LogansRun
Status: Diamond Member (Offline)
Joined: Mar 18 2009
Posts: 1443
Re: Daily Digest - June 20

JAG,

I'm probably not one to ask on that as I buy PM's no matter what the price.  I take 15% of my earnings every month and buy some of both.  Depending upon price I may buy more of one than the other but it all equals out eventually. 

But, if you want my opinion......I think it could go up in ratio very easily.  Anything over 60/1 is a good buy IMO.  If it does go to 80/1 then I would imagine it will go past to 85/1 due to market shorts.  This is all paper pricing though as you can't find silver for less than $17oz on smaller amounts most places.  Amex is probably the best place to buy smaller amounts at close to spot.  If you're willing to buy more than 500oz then you can find quite a few places.  I prefer Coloradogold.com and usagold.com as their pricing seems pretty good and their customer service is great.  Amex.com is easy as they will take a personal check.  Usagold.com will actually take a credit card which was amusing to me....I got sky miles for buying gold....yeah!

The market right now is so manipulated though that trying to pick a movement is tough.  Again, if you want to buy and you're buying physical for the right reasons (safety) then price only matters in that you want to buy more PM's with less monopoly money.

kemosavvy's picture
kemosavvy
Status: Martenson Brigade Member (Offline)
Joined: Oct 13 2008
Posts: 254
Re: Daily Digest - June 20

One thing I haven't seen considered on this site and in this thread is the production price of these metals.

When I talked to Loren Howe on a recent podcast he mentioned that gold was well above it's cost of mining (i think it's about $400/oz) whereas palladium production costs are around $200/oz. Therefore palladium would be a better buy since it is less likely to dip dramatically lower than $200, whereas gold could have a dramatic fall in price. I see palladium as more calming to my stomach than gold at these prices.

Steve

LogansRun's picture
LogansRun
Status: Diamond Member (Offline)
Joined: Mar 18 2009
Posts: 1443
Re: Daily Digest - June 20

The difference between Palladium and Gold/Silver is that Palladium has never been used as a form of "money".  That's a big deal as many won't know that it's a PM if we're in a situation of massive stress/social upheaval.  I own all so I'm not saying Palladium isn't a good buy right now.  But in all reality, Palladium is a good PM when things are running well.  It's only use is in industry and its history is only industrial as well.  Gold/Silver have the history of being worth something at all times.  Now if you're expecting a full recovery Palladium is a great buy right now.  If you're trying to protect wealth, Palladium isn't it IMO.

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