China Opens the Flood Gates for Gold and Silver

This article posted on the Motley Fool  by Christopher Barker talks about China's growing lack of faith in the U.S. dollar and believes that the U.S. has strong incentives devalue the dollar.  Chinese officials expressed concern over falling U.S. Treasury values, which will weigh heavily on their current holdings and may dissuade them from purchasing more.  China has taken actions to increase gold import/export activity and is extending credit to producers of bullion and for overseas acquisitions, which could be used to ensure a steady supply of gold to China.  This move should bode well for precious metals in the coming year.   [ read more... ]

Fun Facts About the Economy

Tracking figures from the US Debt clock we come up with the following figures in a 48 hour period:

• US National Debt grew by .04%
• Interest on Debt grew by .04% 
• Foreclosures increased by .016% ( or 163 )
• Bankruptcies increased by .022% (or 315 )
• Food Stamp Recipients increased by .046% or (14909) 
• M2 Money Supply Grew by .031% (or 2,719,532,493)
• Personal Savings decreased by a whopping -18.3% (or -602,954,220 )
• Credit Card Debt decreased by -.04%
• Consumer Credit decreased by -.02%

Although Consumer Credit and Credit Card Debt decreases (but may have something to do with the number of bankruptcies, consumers using savings to pay down debt or both, not sure on that one), the remaining figures do not bode well for our economy.  This was shocking the amount of change in just 48 hours.  For those that have not been to the US Debt Clock located at http://www.usdebtclock.org .  There you will see some other shocking figures that as of this writing we have 975,102 foreclosures in 2010 and 1,423,950 bankruptcies in 2010.

Unemployment for July

The July Unemployment numbers came out today at 8:30am EST and showed unemployment basically unchanged in both U3 (official unemployment rate) and U6 (real unemployment rate).  U3 is at 9.5% and U6 is sitting around 18.5%.  The labor force contracted for the 3rd month in a row, this month by 181k.  The number of employed contracted as well from the month prior, but do to equal contraction forces in the other numbers U3 and U6 remain unchanged.  Looking at this from a different angle, there are less employed people in the US than there was last month.  Another question that has to be asked, if the labor force is contracting by approximately .04% (or 623k) in the last 3 months, where are they going?  Attached is the chart and as usual the updated copy is at the bottom of the blog.

However when looking at Non-Farm Payrolls we see a contraction of 131k jobs, which is horrible.  What is Non-Farm Payrolls you may ask?  Non-Farm Payrolls is the change in the amount of people employed from the previous month, with the exception of the farming industry.  Here is the graph on how we are trending for the last year.

Exotic Deals Put Denver Schools Deeper in Debt

The New York Times released a story yesterday called "Exotic Deals Put Denver Schools Deeper in Debt".  This story describes how, in 2008, the Denver school district had a $400 million dollar gap in its pension fund and how they entered an highly complex deal with JP Morgan Chase to fill that gap.  Suffice it to say none of the board members understood the deal they were getting into and entered into an agreement lasting 30 year fixed rate.  To renegotiate the deal at a lower rate it would have to pay penalties and fees which were way beyond the school districts reach.  In two years there is still a gap $389 million even though 400 million had already been put into the fund in 2008.  I would start off by saying, why didn't the board get a financial consultant for a deal of this size?  Wouldn't that be standard fair for that kind of money?  If not, it should be.  Another think, most of the board didn't understand the investment vehicle they were getting into (reinforcing the reason for a financial consultant to assess risk).  As I once heard Warren Buffet say, if the deal is so complex you don't understand it, then don't get into it.    [ read more... ]

Mortgage Mess, Haven't We Learned Anything?

The Washington Independent released a story today on how Fannie Mae and State housing agencies are offering "little money down mortgages".  For as little as $1000.00 down you can obtain a mortgage through Fannie Mae or State Agencies.  But the deal doesn't stop there, it offers assistance if the homebuyer becomes unemployed, gets lowered fees and doesn't require them to pay for mortgage insurance.  Some states are requiring a 680 or better credit score, but rules vary by location.  What a deal, but who pays for these mortgages if they go into default?  Will the states that are already billions in debt for there 2010 budget cover those defaults?  Where is Fannie Mae getting their funds for defaults if they happen?  At $1000 or nothing down does the owner really even have any skin in the game if the mortgage goes underwater?  It seems like we played this game before.  In a post from August 4th called "Extened and Pretend" I covered an article by the Huffington Post outlining a default percentage of 40% for Home Mortgage Modification Program".  What makes this so different?  Is this an attempt to keep housing prices elevated, as more people are eligible to purchase?  Finally, what happened to ensuring sound fiscal policy, encouraging potential buyers to make better decisions, instead of encouraging them to simply buy what they cannot afford?  [ read more... ]

Unemployment Claims

Unemployment claims or initial claims measures the number of people who have filed for unemployment for the first time in the past week.  Generally considered a lagging indicator, it gives a picture of what could be coming for unemployment rates and can be an indicator of future consumer spend (which is already down).  Today, Unemployment claims where up by 19k from the previous week and above forecast by 23k.  Unemployment claims were 479k and was 460k the week prior.  It will be interesting to see how the markets digests this information as it has been out of wack with market fundamentals for a little while now. Currently the market is down slightly with the dow -34.00, which doesn't quite reflect the report.

Are you going to listen to them again?

The media, Bernanke and market pundants were wrong before, why would you listen to them now?  I have  heard from various people that the market is recoverying, these people listen to the main media and our leaders. I tend to weigh on the side of market fundamentals and what they tell me.  Summer time is always a shaky time historically, hence the old trading adage "trade till may then go away".  We most likely won't see anything of substance until September/October timeframe.  With the media hyping the economy again and our leaders saying we are on the road to recovery, I wanted to remind everybody of a few things from 2007.


Here is a video where Peter Schiff tried to warn people, but main market pundants laughed it off and said the economy was healthy and will be for the foreseeable future. I you listened to them, you lost.




These videos are posted as a reminder, that you can't always believe what your being told, you have to do some digging for yourself and decide if the economy looks healthy and why? Once you have an answer to that question, consult your investment advisor to find the best strategy that fits your beliefs.  Another note, some people think they have are back to even in their investment accounts from prior to the crash, problem is they are including their employer match over the past year and may be overlooking what they have contributed as well.  Be honest with yourself so you can create a decent strategy.   Having your head in the sand is a strategy, but not a good one.

State Aid Clears Senate

The state aid bill cleared the Senate today by a vote of 61-38.  The bill includes support for teachers jobs and medicaid support.  The bill allocates $26 billion dollars to states preventing the firing of 290,000 teachers, firefighters and police officers.  The House will return next week to vote on the bill.  I am definitely elated to see that we are trying to save jobs of those critical components of our community, it needed to be done.  However,  the states need to need to implement strict austerity measures to reign in their budgets.  In articles related to this, one of the reasons for its passage was so that states would not push the burden down to the local governments and obviously down to its citizens.  [ read more... ]

Extend and Pretend

An article out of the Huffington Post entitled "Extend and Pretend" discusses how the current administrations plan to combat the housing crisis has only extended the inevitable.  The effort created by the administration was to modify the terms of the loan in an effort to keep people in their homes.  This effort cost the tax payers 75 billion dollars, with 1.5 million people participating in the first year.  Of that 1.5 million 40% (or 600,000) have been kicked out of the program.  I have to imagine that by delaying these foreclosures, we succeeded in delaying the inevitable for the economy, only at a 75 billion dollar price tag.  [ read more... ]

Learning about Unemployment

With the unemployment rate data due out Friday at 8:30 am EST, I thought it fitting to discuss what goes into it.  The unemployment rate consists of two components, the size of the labor force and the number of unemployed actively looking for work.  This number is what is reported by BLS (Bureau of Labor Statistics).  To calculate this you take the unemployed number divided by the labor force to get the percentage.  Some argue that this is not an accurate measure of the unemployed cause it does not contain the following:

• Discouraged workers ( a worker who has given up looking for work, due to no possibilities)
• Marginally attached workers ( a worker looking for work, but has not looked for work recently)
• Part time workers who want full time work (self explanatory)

Adding these components into the mix is what is considered U6 unemployment, which I feel is a more accurate picture of unemployment.  I calculated both, with the help of my daughter Brittany ( who is working on a Business Major), which resulted in the graph below.  I will be keeping a graph of both figures at the bottom of  this blog post for your reference going forward.  Here is the graph currently (will be updated friday and appear at the bottom of the blog):

As you can see their is a large difference in the rate of U6 unemployment and what is reported by the BLS.  Shadowstats.com does a calculation of unemployment as well and they have current rate of inflation right around 22% which is approximately 4% above U6.  I don't know what that number is composed of, but is reported to be the most accurate.  

Personal Spending and Income Down

The Bureau of Economic Analysis released their report on Personal Spending and Income today showing that both were down in June from the prior month.  Personal income was down from the previous month due to decreases in Goods-producing industries, Manufacturing payrolls and Government wage and salary disbursements.  In the government sector some of this was a decrease in temporary Census 2010 workers.  Service-producing industries saw a slight increase from the prior month.  Personal spending was down and personal savings was slightly up (up 0.1%).   Even though we need to monitor this into the next month, it would seem people are reigning in their spending, which is never good for the economy.  [ read more... ]

Manipulating the Markets

There have been a lot of articles of late showing the manipulation of the stock market.  Karl Denninger has been actively watching this.  Here is the most recent video of Karl showing this manipulation.


In a prior video, July 5th, Denninger shows the activity in action, where you can see the orders hit the market, but get pulled back before they can be filled.  This caused prices to falsely adjust.  In another example of market manipulation, back in March of this year Zero Hedge and GATA put out an article about whistle blower Andrew Maguire, a London metals trader,  who walked the CFTC through the manipulation as it was occurring.  Maguire told the CFTC, back in November of 2009 what company was manipulating the market and when it would occur next.  Maguire provides 2 days notice to the CFTC on the next manipulation, during non-farm payrolls on February 5th, 2010 and then multiple times after.  The CFTC took no action on these forewarnings.  The actual articles referring to these events can be found at these URLs.

http://www.gata.org/node/8466
http://www.zerohedge.com/article/whistleblower-exposes-jp-morgans-silver-manipulation-scheme

In May of this year, the main media really started to recognize this manipulation in the markets.  So why can't we seem to get some real action out of the agencies responsible for policing these actions?  Why are  people saving for retirement in their IRA's, 401K's and investment accounts constantly getting looted?  This needs to gain more public outrage, as it is your money they are stealing.  Make no mistake they are stealing from you.  They have advantages in the market that we, as individual investors will never have (so much for level playing fields) and that is what is legal.  What is being pointed out here is illegal activity, which needs to be addressed first.  It makes it very hard for an individual investor (investor, not trader) to adjust his/her portfolio to be defensive against economic conditions with this kind of activity going on.

ISM Manufacturing PMI

The ISM Manufacturing supply was released today at 10am EST.  The ISM Manufacturing PMI measures the amount of manufacturing activity that occurred in the previous month.  This report is released monthly (first business day after the month ends).  This is important to traders and economists, becuase they view this as an indicator of economic health.  A measure above 50 indicates expansion and below 50 indicates a contraction.  This mornings numbers were forcast to be 54.2 and was actually 55.5, but down -0.7% from 56.2 in the previous month (obtained from www.forexfactory.com).    The Institute for Supply Management respondents where not very upbeat on the forecast going forward.  Respondents indicate backlogs dropping, sales down on new equipment orders and that retailers are still uneasy as they are unwilling to gamble on inventory.   One respondent (Fabricated metals products) responded positively saying July was their best month since October of 2008, but most respondents were negative.   New orders were down 5% from the previous month with inventories rising 4.4% which is not a good sign.  Oddly enough the market responded favorably to the report as it was above forecasts.  Summer months usually produce a volatile market, so trying to interpret the reaction is somewhat difficult and may very well be related to something else.  News on Yahoo said that the European markets were up based on the manufacturing data.  Our markets opened up ( aprox 150 pts when I looked) on higher volume and went higher after the ISM Manufacturing PMI on lighter volume.

I find it hard to take these numbers too seriously when it comes to the market as I am not sure of their accuracy, as I will discuss in a later blog related to CPI.  The important thing though is that others do take these indicators seriously and it does effect short term market moves.

As spending by wealthy weakens, so does the economy

Decreased spending by the wealthy is a sign that they are nervous in where the economy is headed.   The impact of this reigning in of spending will impact consumer goods, luxury retail and jobs to name a few.  With the wealthy holding back on spending, they are not making investments that would otherwise create jobs (by hiring) thereby growing the economy.  This is shows a definite lack of confidence in where our economy is heading.  [ read more... ]

Disturbing Trend Across America

There is a disturbing new trend growing across America.  This trend is the reduction of Police and fire department workers due to city and state Budget gaps.  Budget gaps affecting cities and states across America are forcing the layoffs of local police, state troopers and fireman.  They seem to be the easiest cuts to make by state and local lawmakers, but does it make sense?  I have to believe that there are other areas of loose spending that could be cut.  For example the city of Bell California was paying its local government workers outrageous salaries [read more ...].  That is not to say that every city/state overpays their workers, but is an example of places to look.  An example of why cities are being forced to reduce their public safety/emergency forces can be illustrated in this video:

Emergency Press Conference on Netwark Budget Gap


A few examples of these cuts can be found at the following links:

East St Louis cuts include almost a third of the police force [ read more... ]
Lynnwood eyes 'crippling' cuts to police force [ read more... ]
Will Thousands of Police Layoffs Unleash Chaos & Anarchy Across America [ read more... ]
Ohio official tells residents to 'Arm Themselves' amid police cuts [ read more... ]

This is only a small sample of articles on this issue, if you google "police force cuts" you will see many more articles for other cities.  This is a serious issue facing our nation and what is being done to address it?  This is just one of the big issues we face in this economic recession.  Unfortunately I do not have an answer to this problem for all cities and states as the conditions vary.  Each government body and its people need to seriously look at what is important and agree on what cuts need to take place, while still ensuring public safety.

Understanding the Financial Crisis Video

This is a great video that explains very simply a very large aspect of this current financial crisis.  As we are discovering, it is just a component of a larger picture though.  The government has been spending too much money for years which facilitated this issue as well.  We started this crisis over 20 years ago.  We just delayed what should have occurred back in 2000 by lowering interest rates to near zero and adding stimulus to jumpstart the economy.