Doomsday Scenario for U.S. Economy?

[CPA2]

**Broken Bank Stocks a Canary in the Market Coal Mine? **by Mike Larson

If there’s one sector of the stock market that trades like death warmed over, it’s the financials. Bank stocks simply can’t get out of their way these days.

Take the KBW Bank Index (BKX) of 24 leading U.S. banks. You can see in this chart that it plunged in April and May, and it hasn’t been able to get off the mat since. In fact, just this week, it’s collapsing to fresh, multi-month lows.

Why should you care?

Because the banks are a canary in the coal mine for the broader stock market! The BKX topped out in February 2007 … foretelling the collapse in the Dow and S&P 500 that began several months later. And I believe we’re going to see something similar happen again.

So what’s eating the banks? Plenty!

**Falling Loan Demand and Mounting Loan Losses Hammering the Banks! **

Let’s start with the home mortgage market …

Housing starts are stagnating in the 550,000 range, while building permits just slumped to a 15-month low. The National Association of Home Builders’ confidence index dropped to 13 in August, a 17-month low. And the Mortgage Bankers Association’s purchase loan index is hovering around the worst levels since 1997.

That pretty much means the home mortgage business is dead in the water.

Meanwhile, commercial real estate loans are a lead anchor around the industry’s neck …

Commercial lenders are getting stuck with distressed properties at an alarming rate.

Charge offs of souring commercial real estate loans surged 155 percent in the first quarter, according to the FDIC. A stunning 17 percent of construction and development loans were noncurrent at large banks, more than double the level a year earlier.

What about commercial and industrial loans, the bread and butter business loans that banks make? There’s just no demand! Companies simply don’t want to borrow.

The just-released Senior Loan Officer Opinion Survey from the Federal Reserve showed that demand for C&I loans shrank at small banks for a record 16th quarter in a row! Demand has dropped at medium- and large-sized banks in every quarter but two over the past four years.

And then there’s consumer credit: Credit cards, auto loans, and the like. It shrank 1.5 percent in the second quarter, bringing the cumulative decline to 6.5 percent since late 2008. Credit card debt alone has plunged to the lowest level in almost five years!

Slumping demand and souring loans have caused hundreds of bank failures over the past couple of years. And the problem is just getting worse …

The FDIC now has 775 “problem” institutions on its watch list. That’s more than double the 305 institutions the FDIC was closely watching a year earlier. Those banks have a whopping $431 billion in assets combined.

Margin Shrinkage Making a Bad Banking Problem Even Worse

Then there’s the issue of collapsing net interest margins, or “NIMs.” Banks make a sizable chunk of their income by borrowing at lower, short-term interest rates and lending or investing at higher, long-term interest rates.

When the spread between short and long rates is wide and rising, it’s like manna from heaven. Banks can coin money. But when it’s narrow and falling, it’s the kiss of death. The profit margin on each dollar lent or invested can collapse.

One rough spread gauge I monitor is the difference in yield between the 2-year Treasury Note and the 10-year Treasury Note.

And as you can see in the chart below, that spread has plunged from 291 basis points in February to just 210 basis points now. That’s the lowest in more than a year. It’s going to put serious margin pressure on a sector that’s already getting hammered by rising losses and shrinking demand.

**My advice? **

**Get the heck out of any financial stocks you may own! And get out of other sectors vulnerable to a renewed financial and real estate slump, including REITs. **

Until next time,

Mike

 

[Sailor_Kenshin]

Gold isn’t safe.

Land isn’t safe.

What Caesar wants he will take from you whether you like it or not, by force or by stealth.

Thinking otherwise is leading people astray.

 

[edwest2]

Nobody Knows What’s Going ON!

We’re All Doomed!

Cut it out already. I heard the same nonsense before Y2K. Companies that specialized in “disaster” supplies were offering package deals on food and other stuff that would keep fo a year or two on the radio. For a low, low, high price, you could buy enough for a family of four. But the clock was ticking! Buy now! Before… it’s… too… late…

On Y2K, while I sat in a home in Dearborn, the lights flickered once. That Was Y2K!

God bless,
Ed

 

[Ridgerunner]

Nobody Knows What’s Going ON!

We’re All Doomed!

Cut it out already. I heard the same nonsense before Y2K. Companies that specialized in “disaster” supplies were offering package deals on food and other stuff that would keep fo a year or two on the radio. For a low, low, high price, you could buy enough for a family of four. But the clock was ticking! Buy now! Before… it’s… too… late…

On Y2K, while I sat in a home in Dearborn, the lights flickered once. That Was Y2K!

God bless,
Ed

My lights didn’t even flicker. But then, I live in the Ozarks and perhaps the electricity hadn’t heard of Y2K. I did open a bottle of champagne, as is my wont on New Years, and the grandkids set off fireworks saved for that purpose from the Fourth of July. (Clever kids, those. Ever see a floral shell’s reflection on snow, or that of a “fountain”? Incomparable!)

 

[stinkcat_14]

Nobody Knows What’s Going ON!

We’re All Doomed!

Cut it out already. I heard the same nonsense before Y2K. Companies that specialized in “disaster” supplies were offering package deals on food and other stuff that would keep fo a year or two on the radio. For a low, low, high price, you could buy enough for a family of four. But the clock was ticking! Buy now! Before… it’s… too… late…

On Y2K, while I sat in a home in Dearborn, the lights flickered once. That Was Y2K!

God bless,
Ed

As Ridgerunner said in a previous post, these alarmist claims were very popular during the late 1970’s. That was around the time Howard Ruff wrote: “How to prosper during the coming bad years”. I see that he has an updated edition now for the 21st century. Some people I guess know no shame.

 

[Ridgerunner]

If there’s one sector of the stock market that trades like death warmed over, it’s the financials. Bank stocks simply can’t get out of their way these days.

Take the KBW Bank Index (BKX) of 24 leading U.S. banks. You can see in this chart that it plunged in April and May, and it hasn’t been able to get off the mat since. In fact, just this week, it’s collapsing to fresh, multi-month lows.

Why should you care?

Because the banks are a canary in the coal mine for the broader stock market! The BKX topped out in February 2007 … foretelling the collapse in the Dow and S&P 500 that began several months later. And I believe we’re going to see something similar happen again.

Oh no! Back in 2009, I bought some bank stock at $9, and now it’s $22! Its tangible equity is about half again what’s required by regulators, it’s profitable and it pays a 3% dividend! Stupid me!!!

 

[CPA2]

Deflation Is Often Easier
Disguised Than Inflation

The reason: Once again, because the world is no longer on a gold
standard, and instead, the world’s monetary system is nothing more than a
set of paper currencies floating amongst and against each other …
With no standard measure of value to truly benchmark their values, save
one … the now freely floating price of gold.

That’s why I so often measure asset classes and values in terms of the
price of gold: It is the only way to truly understand what’s happening with
asset values and inflation and deflation.

And the reality is, because of the world’s existing monetary system,
deflation is often easier to disguise than inflation.

At the heart of the matter is the difference between the nominal value of
an asset, and its real value.

You see, when the world was on a gold standard, there was never any
discussion in the markets of the terms nominal versus real. They were one
and the same.

They were defined in terms of the price of gold. One dollar in 1930 would
buy you roughly 1/20th of an ounce of gold. In 1933, roughly 1/3rd of an
ounce, and in 1971, 1/40th of an ounce of gold.

So even though throughout that entire period there was still some
inflation — your dollars bought you less and less gold — you always knew
what the real value of your money was.

It’s entirely different today. **You have no idea what your money is worth
when you simply look at the nominal quoted values of assets. **Your money is
effectively lost at sea and subject to nothing more than government whims
about how much money will be printed, what your leaders’ fiscal policies are,
and what other investors around the world think of your money (and your
government).

That’s why I consider it absolutely essential — more than ever — that
you look at the differences between nominal and real values. When you do,
it will open your eyes, and you will see the world in an entirely different
way./B]

 

[Sailor_Kenshin]

Nobody Knows What’s Going ON!

We’re All Doomed!

Cut it out already. I heard the same nonsense before Y2K. Companies that specialized in “disaster” supplies were offering package deals on food and other stuff that would keep fo a year or two on the radio. For a low, low, high price, you could buy enough for a family of four. But the clock was ticking! Buy now! Before… it’s… too… late…

On Y2K, while I sat in a home in Dearborn, the lights flickered once. That Was Y2K!

God bless,
Ed

Lol… we’re still using up the computer paper from back then…

 

[CPA2]

The concept of “RISK” will be redefined by global investors. The new definition of risk will be: Holding cash in U.S. dollars.

by Larry Edelson

Why? Because in 2010, savvy investors all over the world will begin to
realize what I’ve said all along: That U.S. dollars are now high-risk
investments.

Further, in the forecasts I made in late 2009, I introduced a new concept,
which I called the “mass monetization of assets” … a new phenomenon I
said we would witness, whereby assets of many shades and colors become
— functionally and structurally — substitutes for the dollar, substitutes for
the traditional role money plays as a store of value.

So investors will start shifting their investments and wealth into any type
of asset that can appreciate in value as the dollar falls.

That would be the inevitable result of the Fed’s efforts to flood the
economy with devalued money, and the flip side of the global trend to
eventually abandon the dollar as a major reserve currency.

At the top of the list, naturally, I said gold would benefit the most. Next
on the list would be oil and other tangible assets that act as contra-dollar
investments, including silver, copper and other commodities.

I also said that it would not be just tangible assets that would benefit,
but also paper assets that provide a stake in those tangibles, including
eventually common stocks!

The key, I said, was that global investors would go on the prowl for
any other assets that could replace the U.S. dollar as a store of value,
any asset that could act as an alternative form of money for their wealth.

The list would eventually also include blue-chip multinational companies
with solid assets and businesses such as GE, IBM, Coke, Pepsi and others.

 

[edwest2]

I guess I’ll just convert my dollars to Deutschmarks or Yuan.

Psst… forget about doomsday.

God bless,
Ed

 

[CPA2]

I guess I’ll just convert my dollars to Deutschmarks or Yuan.

Psst… forget about doomsday.

God bless,
Ed

All currencies in the world are FIAT currencies. All currencies are tied to nothing. Additionally, the U.S. government is debasing the dollar.

It is like all of the ships in the deep blue sea do not have anchors. Government monopoly money is tied to nothing. The only real money is gold, just like it was 5,000 years ago. Additionally, gold will still be here long after the dollar is a faint memory.

All of the old rules do not apply. If you do not listen, as my grandmother would say, then you have to feel.

People may be optimistic or pessimistic about the dollar. That should not bother you. Just try to be realistic. Only hope comes from God, not from the socialist monetary policies of governments.

 

[CPA2]

U.S. Recovery: R.I.P. What to do now …
by Martin D. Weiss, Ph.D.

If you’ve been unsure about which way to turn, the latest events should have cleared up any lingering doubts.

Until a short while ago, although most Americans sensed — intuitively or personally — that something was amiss, they couldn’t be sure.

We had a semblance of recovery in the U.S. economy. The stock market was going up. And the Washington PR machine was working overtime to persuade us that “everything’s OK.”

So I can understand how this dichotomy — between what you feel and what they’re saying — could have created some confusion.

Now, however, that uncertainty is over, done, finished.

Heck, even during the recent “recovery” phase, we knew that the economy was running on just two cylinders: Government stimulus and some manufacturing. But now, those two are ALSO grinding to a halt:

First, consider manufacturing: The Philadelphia Fed’s manufacturing index just plunged 7.7 percent! That’s not just a slowdown in production growth. For the first time in more than a year, U.S. factory output is actually shrinking!

Second, government stimulus: Federal money is running out, and no more stimulus is forthcoming. Meanwhile, cities and states are swimming in so much red ink, many are shutting down schools, fire stations and entire police divisions.

The laid off workers are in shock. They thought their government jobs were secure. They never dreamed they’d find themselves on the unemployment lines.

Most economists are equally shocked. They had no clue that unemployment would surge at this stage in the “recovery.”

Case in point: Last week, among the 42 economists surveyed by Bloomberg, not ONE predicted a large increase in new claims for jobless benefits. In fact, week after week, most of the “experts” have been putting out projections that the new claims were about to decline.

Instead, just the opposite has been happening! And last week, jobless claims surged again — this time to 500,000, the worst in nine months.

In other words, in addition to the millions of unemployed that have STILL not found jobs — even a year or more after the last big dip in the economy — a whole NEW crop of laid off workers are now flooding the government’s unemployment offices.

Those same economists also said personal bankruptcies were going to go down. Wrong again! Bankruptcies are now surging by as much as 9 percent every three months. That’s an annualized increase of 36 percent per year!

In fact, the last time we saw a plague of bankruptcies this big was in 2005 when hundreds of thousands hurriedly filed before the new, stricter bankruptcy laws went into effect.

What to Do Now

First, move most of your money to safe, short-term cash parking places. Yes, I know — the yields stink. But in a sinking economy, the return OF your money is far more important than the return ON your money.

Second, don’t assume that every bank is safe or that the government can fully bail you out no matter how many banks may fail. Do business strictly with banks that have the resources to survive bad times even without government aid.

For our latest free list of the nation’s banks with the strongest (and weakest) Weiss ratings, click here.

Good luck and God bless!

Martin

 

[stinkcat_14]

All currencies in the world are FIAT currencies. All currencies are tied to nothing. Additionally, the U.S. government is debasing the dollar.

The real question is if fiat money is so bad, why haven’t the economies of the world collapsed 50 years ago. The reason fiat money has been around for so long is that on average it works better than the alternatives, and those alternatives include demanding payment only in gold.

It is like all of the ships in the deep blue sea do not have anchors. Government monopoly money is tied to nothing.

If such a system is truly anchorless, why didn’t the system collapse decades ago.

The only real money is gold, just like it was 5,000 years ago.

Says who? Who is the arbiter of what money is? If people accept paper dollars as payment who are you to tell them that what they are accepting is not money?

Additionally, gold will still be here long after the dollar is a faint memory.

And of course, so will all the assets that those dollars purchased. So while the dollar may or may not be here in the future, if it goes away the economy will adjust.

All of the old rules do not apply. If you do not listen, as my grandmother would say, then you have to see.

The last time I heard that was in 1999 from a history professor talking about the valuation of tech stocks. If that wasn’t a sign of a bubble, I don’t know what is.

People may be optimistic or pessimistic about the dollar. That should not bother you. Just try to be realistic. Only hope comes from God, not from the socialist monetary policies of governments.

And hope doesn’t come from gold either. Gold is not guaranteed to go up. People were saying the same things you were in the late 1970’s and we all know what happened to gold prices back then. Are you going to tell us when gold prices are going to fall, because we know that they surely will fall.

 

[Sailor_Kenshin]

Still seems like you’re personally trying to sell us something.

 

[CPA2]

Still seems like you’re personally trying to sell us something.

I am trying to sell the idea that the dollar is not a reliable measuring stick. The dollar is not tied to anything of value! However, gold is still money for most people in other countries, and it is a reliable yard stick. This is a difficult sell for Americans. We have not had the bad experiences with government money that other countries have had, until now.

Wake up and smell the coffee. If you understand that the old rules are no longer working, do what you can to financially protect yourself. Do not rely on government issued money that is not tied to anything of value.

I do not profit from my warnings and those of experts like Martin Weiss, etc. It is also no skin off my nose if you do not listen to me and Martin Weiss, etc. If you do not listen, you will have to feel. Experience teaches the painful consequences first, and then the lesson that you will always remember.

 

[stinkcat_14]

I am trying to sell the idea that the dollar is not a reliable measuring stick.

Interestingly, the people with the most skin in the game disagree with you. For example, apple computer is holding around $46 billion in cash, you gotta wonder why they are not holding gold. Is it because they are stupid? And what about the Chinese who are buying our bonds, if the dollar is going down the toilet, why would anyone want to hold dollar denominated assets, in particular billions of dollars worth of them? But, you expect us to ignore all that in favor of your opinion?

The dollar is not tied to anything of value! However, gold is still money for most people in other countries, and it is a reliable yard stick. This is a difficult sell for Americans. We have not had the bad experiences with government money that other countries have had, until now.

Can you cite some data that most people in other countries use gold for money? I do know that the dollar is used quite frequently in countries with less stable currencies.

Wake up and smell the coffee. If you understand that the old rules are no longer working, do what you can to financially protect yourself. Do not rely on government issued money that is not tied to anything of value.

In other words, we should put our money in gold that offers no source of income and goes down as often as it goes up.

I do not profit from my warnings and those of experts like Martin Weiss, etc.

Just what is it that makes Marty an expert? Doesn’t he have a Ph.D in anthropology? What makes you think he knows anything about economics?

It is also no skin off my nose if you do not listen to me and Martin Weiss, etc. If you do not listen, you will have to feel. Experience teaches the painful consequences first, and then the lesson that you will always remember.

Many people who invested in gold in the early 80s experienced painful consequences.

 

[CPA2]

Interestingly, the people with the most skin in the game disagree with you. For example, apple computer is holding around $46 billion in cash, you gotta wonder why they are not holding gold. Is it because they are stupid? And what about the Chinese who are buying our bonds, if the dollar is going down the toilet, why would anyone want to hold dollar denominated assets, in particular billions of dollars worth of them? But, you expect us to ignore all that in favor of your opinion?

Can you cite some data that most people in other countries use gold for money? I do know that the dollar is used quite frequently in countries with less stable currencies.

In other words, we should put our money in gold that offers no source of income and goes down as often as it goes up.

Just what is it that makes Marty an expert? Doesn’t he have a Ph.D in anthropology? What makes you think he knows anything about economics?

Many people who invested in gold in the early 80s experienced painful consequences.

I have been watching the destruction of the Almighty Dollar for forty years. I am sorry that it is not going fast enough for you. It has taken a long time to destroy something that once was the Almighty Dollar.

The price of gold is shouting that the dollar, and all fiat currencies, are at the end of an era. I am sorry for you that you cannot wrap your mind around that fact. I tried.

Even the mighty Mississippi river sometimes heads north. The dollar is no exception. There have been many dollar rallies since 1970.

My economics book in 1968, which was written by Paul Samuelson, said that we did not have to worry about debt because we owed it to ourselves. Yeah, right! The fate of the U.S. dollar is now firmly in the hands of foreigners, especially Communist China.

My personal prediction since 1970, a prediction that I never read about, still stands: The United States will become a third world country overnight when foreigners decide that they no longer want the U.S. dollar as the reserve currency of the world!

I think that there are only two types of investments. There are investments in financial assets like stocks and bonds AND there are investments in real assets like metals, soybeans, etc. Both types of investments have their day. Usually when one goes up the other one goes down. Additionally, in order to be truly diversified you have to be flexible enough to be open to both types of investments.

The only clock that is broken is the U.S. dollar. **The U.S. government has not given us honest money. ** Remember, only the government can cause inflation. I had an inkling of what was to come in 1970. Before I left Switzerland in January 1971 I converted $10 of American money into Swiss francs. I still have those Swiss francs and they are worth a lot more than $10!

I have been predicting that the dollar would go bankrupt since I graduated from college in 1970. I mentioned that to someone one time and he got very angry! I even mentioned the bankruptcy of the dollar in the economic classes that I taught at a Community College.

It has taken a very long time to destroy the almighty dollar. The process started with the creation of the Federal Reserve in 1913. I do not know if this recent credit crisis will precipitate the dollar’s total collapse, but we continue to move in that direction.

 

[edwest2]

All that’s being sold here is fear and doubt.

Pray.

God bless,
Ed

 

[timotheos]

I honestly don’t really know anything about the economy. I don’t know anything about money either. That might be why I never seem to have any around.

I do know a little something about work though, and I will probably keep doing it whether paychecks keep coming in or not. And I know the Lord is not my financial advisor, he is my shepherd. So I will work and pray.

 

[CPA2]

All that’s being sold here is fear and doubt.

Pray.

God bless,
Ed

Fear and doubt are appropriate for secularists, especially socialist governments, that are trying to build a world without God. Failure, even failure of the dollar and the world’s monetary system, is the fruit of their labor.

There should be no fear or doubt, only hope, for those who believe in Jesus.