Bankruptcy Soars while Chinese Stock up on Gold

Treasuries were the worst performing sovereign debt market in 2009 as the U.S. sold $2.1 trillion of notes and bonds to fund extraordinary efforts to bolster the economy and financial markets.

             Investors in U.S. debt lost 3.5 percent on average through Dec. 30, according to Bank of America Merrill Lynch indexes, the biggest annual slide since at least 1978. The 10-year Treasury yield reached its highest level in six months yesterday before a Labor Department report next week forecast to show payrolls were unchanged in December after the U.S. economy lost jobs in every month since January 2008.

We find it comical that the Fed says it is going to wind down the control bank’s purchases of toxic mortgage securities in March and a day later says they may continue them. The excuse is they are concerned that the housing market may collapse without their assistance and 30-year fixed rate mortgage might rise to 6-1/4%. Not to mention staggering real unemployment, which stands at 22.5%.

December Challenger job cuts were at the lowest level in two years. Employers announced 45,094-planned job cuts in December, the fewest since 12/07. That was a 73% decline year-on-year.

Monster Worldwide’s barometer of online employment said its index fell to 115 in December from 119 in November, the lowest in five months.

Incidentally, there are now more government employees than goods-producing workers in the US.

For the week of January 6th, commercial paper fell by $94.2 billion to $1,076 trillion, which is substantial.

We find it of great interest that Timmy, the dwarf, Geithner, removed the bailout limitations on Fannie and Freddie on Christmas Eve, when no one was around to see the news on the major media. This is what you could expect from a habitual tax cheat and a crook.

Worse yet, as head of the NY Fed he pressured AIG to violate SEC laws by instructing them to withhold from the public details of a $200 billion taxpayer bailout of AIG. We paid these bankers 100% on the dollar for worthless paper. The dwarf should be thrown out of his job immediately and be tried for tax fraud.

In case you missed it, Barney Frank found Geithner and the Fed’s actions troubling. This proves again Washington is a criminal enterprise and a den of thieves. Where does it end? We will tell you if we can’t clear out Congress we are doomed. 

FED POLICY MAKERS SAW COMMERCIAL REAL ESTATE `DETERIORATING’ *A FEW FOMC MEMBERS SAID MORE STIMULUS `MIGHT BECOME DESIRABLE’ *FED POLICY MAKERS SAW GROWTH STRENGTHENING OVER NEXT TWO YEARS  

*FOMC MEMBERS SAW NEED TO WATCH IMPACT OF DOLLAR ON INFLATION *SOME ON FOMC SAID WIND-DOWN OF MBS PURCHASES MAY HURT HOUSING *FED POLICY MAKERS AGREED ON NO CHANGE TO ASSET PURCHASE PLANS 

*FOMC MEMBERS SAW NEED TO WATCH IMPACT OF DOLLAR ON INFLATION*FOMC MEMBERS PREDICTED UNEMPLOYMENT TO BE HIGH FOR `SOME TIME’ 

*FOMC MEMBERS SAW ASSET VALUES NOT OUT OF LINE WITH FUNDAMENTALS 

*FED POLICY MAKERS SAW SECURITIZATION MARKETS `IMPAIRED’ 

*FOMC MEMBERS PREDICTED `RATHER SLOW’ RISE IN OUTPUT, EMPLOYMENT 

*FOMC MEMBERS PREDICTED `SUBDUED INFLATION’ FOR THIS YEAR

*FED POLICY MAKERS PREDICTED `MODERATE GROWTH’ IN 2010 *FOMC MEMBERS SAW ECONOMIC GROWTH 

STRENGTHENING IN 4TH QUARTER

*ONE FOMC MEMBER THOUGHT ASSET PURCHASES COULD BE SCALED BACK 

*A FEW FOMC MEMBERS SAID MORE STIMULUS `MIGHT BECOME DESIRABLE’ 

       Either the Fed is engaged in a policy of ‘good cop/bad copping’ the markets or there is confusion if not internecine fighting about Fed policy and economic expectation. Just a couple days ago, Bill Gross stated that the Fed would renew MBS monetization later this year.   Then a Fed official and the 12/16 FOMC minutes said the same thing.  It’s almost as if Gross has a direct pipeline to the Fed!

We always warn that investors and traders should heed Fed action and not its rhetoric.  Our view is the Fed is removing juice but in order to keep the patrons and lemmings from a panic run to the exits, they periodically send out officials to spew ‘more juice’ talk.

        The Institute for Supply Management’s nonmanufacturing index doesn’t get as much attention as its manufacturing index, which helped drive Monday’s rally. But it should. 

       As part of the Barney Frank proposed Manager’s Amendment, which will accompany HR4173, the “Wall Street Reform and Consumer Protection Act of 2009″, are three little-noticed rules that, if adopted, will make shorting stocks if not impossible, then extremely problematic and difficult. It is obvious why these rules would end up in an amendment: the outcry from retail and institutional traders would have been huge had these proposals made the full text of the proper Bill, and into the full view of the Mainstream Media. So why bother with these – simple. As everyone is aware, Ponzi schemes only work when constantly growing, as otherwise they blow up, implode under their own weight, once price discovery is attempted by all.

       The US is pursuing a policy similar to what the French pursued after its Mississippi Bubble burst – protect the aristocracy but crack down on the masses.  We all know what eventuated.  

  Tax collections nationwide declined by 10.9 percent during the third quarter of 2009, the third consecutive quarter during which tax revenues fell by double-digit percentages, according to the latest report from the Rockefeller Institute of Government.

        For the fourth quarter of 2009, early data showed continuing declines, although the negative trend of the past year appeared to be moderating.

       During the third quarter of 2009, personal income tax revenues for the states declined by 11.8 percent, when compared with the same period a year earlier. Personal income taxes represent one of the three major sources of revenue for the states. The other two, sales taxes and corporate income taxes, fell by 8.9 percent and 22.6 percent, respectively. 

       Yet US bean counters produced wonderful retail sales, income and GDP data for Q3; and US corporations reported ‘great’ earnings on cost cutting…Good thing US corporation are allowed to run two sets of books – one for taxes and one for the public. 

          Rents fall 0.7 percent in the fourth quarter. 

        The Exhaustion Rate of unemployment benefits as of November 30, 2009 is 53.78%, another new high. 

For the week ended 12/19 10.42 million Americans are receiving unemployment benefits.   5.44m in ‘extended claims’ (week ended 12.19); and 4.981m of ‘continuing claims’. 

         Hoenig Says Fed Should Eventually Lift Main Rate to 3.5%-4.5%   Federal Reserve Bank of Kansas City President Thomas Hoenig said the central bank should move “sooner rather than later” to reduce stimulus, with a goal of eventually boosting the benchmark interest rate to “probably between 3.5 and 4.5 percent.”  

       “The process of returning policy to a more balanced weighing of short-run and longer-run economic and financial goals should occur sooner rather than later,” Hoenig, who votes on monetary policy decisions this year, said today in a speech in Kansas City.  

       “Maintaining excessively low interest rates for a lengthy period runs the risk of creating new kinds of asset misallocations, more volatile and higher long-run inflation, and more unemployment — not today, perhaps, but in the medium- and longer-run.”… 

          U.S. investors oppose federal initiatives that would force them to give up control over their 401(k) accounts, the Investment Company Institute said.

           Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing a steady payment for life, according to an institute-funded report today.

“Households’ views on policy changes revealed a preference to preserve retirement account features and flexibility,” the institute, which represents the mutual-fund industry, said in the report.

           The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.

          The institute’s member companies manage $11.6 trillion of assets in mutual funds, including employer-sponsored 401(k) accounts. Some lawmakers have questioned the public-policy value of the tax benefits for people investing in retirement accounts, the ICI said in a report today.

           The average 401(k) fund balance dropped 31 percent to $47,500 at the end of March 2009 from $69,200 at the end of 2007, according to a Fidelity Investments review of 11 million accounts it manages. The Standard & Poor’s 500 Index tumbled 46 percent in that period. The average balance of the Fidelity accounts recovered to $60,700 as of last Sept. 30 as the stock market rebounded.

We wonder if the public realizes that all the bad debt bought up by the Fed, more than $2 trillion, will in part eventually have to be assumed by the taxpayer. Some realize the problem, and they seem to be in denial, the rest simply don’t understand. In time the gravity of the situation will become reality. The present economic buoyancy is mainly based on inventory recapitalization and accumulation, but the underlying demand has to appear and with unemployment hovering around 23% how can policymakers believe that a recovery can carry through? The bullet should have been bitten 2-1/2 years ago and the system purged. The longer they wait to solve this painful problem the worse it is going to be. As quantitative easing and higher interest rates take their toll do these elitist have the fortitude to carry their program through? We dispute that they do. The distortions are going to be deep and large, particularly in both residential and commercial real estate. The later actions will bring the US and world economy into total deflationary economic and financial depression. These ideas are considered heretical but then again this publication is usually correct, and those who disagree are more often than not in denial. Unfortunately the experts, who are usually wrong, believe we are delusional, when in fact it is they who refuse to recognize the truth, and it is they and those they council who pay the price. These are the same people who believe the people at the Fed and others are blameless in this catastrophe. 

The Fed, as we have in the past, pointed out intercedes into and manipulates markets. The two markets within their historic purview have been currencies and the Treasury market. It is our opinion that in regard to the ten-year Treasury note the Fed’s efforts have reduced yields by ½%, or 50 bps, and perhaps more. Their affect on agencies such as Fannie Mae, Freddie Mac, Ginnie Mae, FHA and collateralized debt obligations has been greater by some 1% plus. The Fed purchases are presently estimated to be in the vicinity of $1 trillion or about 2/3’s of existing issues in mid-range yields. One of the big questions is who were the sellers and what were the prices paid by the Fed. They have thus far refused to release this information. The Fed has recently said they will start to slowly sell these securities. The question is at what price? The Fed may have relieved the holders, mostly banks, of the MBS, but at what price? This is simply another taxpayer bailout of the people who caused the problem in the first place. As a result the public is furious and they have sternly passed their anger on to their representatives in Congress, who were responsible for massive support of Ron Paul’s HR1207 and the bill to audit and investigate the Fed. This and the health care legislation will see many Democrats not returning to Congress next year. The public mistrusts the Fed now more than the IRS.

Even if the Fed does not raise interest rates soon the market will do it for them, and that looks like it is in progress. We see a 5%, 10-year T-note by year end, and a 6-1/4%, 30-year fixed rate mortgage. Some believe this will strengthen the dollar, hence the recent rally led by Goldman Sachs, which looks like it has failed at least for now, and a peaking in gold prices. There is no trust left in the Fed or the dollar and no confidence for the future and that is why dollar rallies born by the Fed won’t sustain. The same lack of confidence is reflected in gold prices. A small upward move in interest rates is not going to deter the rally in gold. Interest rates would have to move to 8% to become a factor in gold prices. The flight to quality is too strong for rates to overcome and at the same time higher rates are not going to have any lasting affect on the value of the dollar. That is reflected in the fall of dollar forex reserves by foreign central banks over the past six months. They fell from 64.5% to 61.8% – enough said.

We would like to believe those figures, but government’s lie so much today we have to take them with a grain of salt. Current economic figures in the US economy are all skewered. The inventory liquidation has been furious and is probably over. This has not been much of a recovery considering the massive amount of liquidity stuffed into the financial system. That said we find it difficult to see how anyone can believe that improvement can be greater than what we have already seen. We believe the employment improvement in December and again in January will be fed by retail job gains and the employment of census takers. Those events have already been discounted. We are looking forward to the February figures that will be adjusted by 885,000 phantom jobs created by the birth/death ratio. In reality that figure should be 1.7 million. Just to show you how thick the propaganda is December figures showed a loss of jobs, yet some economists said they were unchanged.

Fourth quarter GDP will probably officially be about 3.2%; the real numbers will be more like 2%.

We stand frozen as the Treasury and the Fed, instead of cutting spending and liquidity, continue to increase it. GMAC has received more taxpayer largess in the billions of course – corporatist fascism marches on. Our latest Christmas present was the perpetual funding of Fannie Mae and Freddie Mac by our Treasury. Once additionally funded those funds will clean up the rest of the CDOs in the market and bail the Fed out of the toxic waste it has been accumulating. Thus far that is about $1.2 trillion. That leaves $600 to $800 billion to go. This should swell taxpayer debt by another $3 trillion. This move is in anticipation of higher interest rates during the year. Not many people are going to qualify for loans at 6-1/4% to 6-1/2%. It looks like the Fed will continue to buy toxic waste and then roll it over to the Treasury. That will enable the Fed to make more loans they shouldn’t be making to the residential real estate market. That will lead to ever more inflation.

The elitists continue to play their game not believing that anyone understands what they are up too. Each day they delay the inevitable as more of the world public awakens via newsletters, talk radio and the Internet. The average American and those of other nations have seen their home slip away, their retirement lost and their net worth destroyed. Their jobs, now some nine million in the US, have been shipped to foreign lands by transnational conglomerates run by Illuminists, under the guise of free trade, globalization and offshoring and outsourcing. This as taxes rise along with inflation squeezing them even further. They see their markets manipulated by their government. They see the banks, Wall Street and insurance being bailed out and a bone being thrown to the public. Is it any wonder the public is disgusted.

     How will India’s reluctance to continue its gold buying spree affect the global bullion market? This is the question haunting many analysts across the globe as the world’s numero uno consumer of gold, India, posts a huge fall in gold imports in 

2009. 

        But, the ray of hope for the bullion market is that China has fast emerged as the leader in gold buying. In fact, in 2009 China has pipped India to the post in gold purchases. 

Chinese New Year gold rush has already begun, and robust demand looks likely to continue through 2010. So, in the coming years, analysts will be watching China, instead of India, to make their decisions on investments in gold. 

       China’s gold purchases have grown 10% from 2008’s record in volume terms, rising 26% by value to equal $13.5 billion or more. 

       On recent trends, that would equate to more than 2% of China’s famously massive household savings (up from 1% ten years ago) and account for almost one ounce in every eight sold worldwide. 

According to GFMS, physical gold purchases by mainland Chinese households in 2009 was already running 19% ahead of India’s private demand for Q1-Q3. 

       Given China’s continued economic growth private gold consumption in Q4 most likely remained very robust. Whereas India’s private gold off-take during October December continued to shrink in the face of record-high prices.