Tuesday, December 4, 2012

The Economy Is Weaker Than Government Reports Show

Someone is going find out sooner or later that what they thought they were going to get, they're not going to get - Eric Sprott in reference to the massive and accelerating deficit in U.S. Government entitlement promises.
It's interesting to note that the above quote from Eric Sprott can also be applied to everyone invested in the various forms of paper gold/silver and who tragically believe that the custodian of the trusts and exchanges (Comex, LBMA) actually have the gold/silver in the amounts represented by the paper securities outstanding.

In fact, to tie that into my subject title, one could say that Americans are not getting the economy that the Government, and the Wall Street charlatans who own the Government, is representing through fraudulent, Orwellian data reporting.  But let's take a look under the hood...

I want to start off with a study reported yesterday that showed the net worth of American households hit a 43-year low:  "The median net worth of American households has dropped to a 43-year low as the lower and middle classes appear poorer and less stable than they have been since 1969"  LINK  You can read through the details and needless to say - so I'll say it anyway - I'm sure that news report failed to make most mainstream media outlets.

I'm sorry, but there's just no way in hell that the housing market can possibly recover with that fact about household net worth being the case.  I've been threatening a big update post on the housing market, and it will happen soon, but not only does that net worth report contradict the view popularly promoted by the mainstream that housing values are climbing again, but if the average American household net worth is declining, it would be impossible to forecast anything but a lot more downside for the housing market.  More later on that topic...

Yesterday the ISM manufacturing report was released.  It came in at 49.5, well below the 51.4 reading expected and the 51.7 reading and was the lowest reading since July 2009.  Note that when the index is below 50 it indicates economic contraction.  The actual production aspect of that number is skewed higher by the prices subcomponent, which was 55.

On Friday the Chicago Purchasing Managers index came in at 50.4, a slight miss of the expected 50.5.  HOWEVER, to sub-component readings make this report somewhat disastrous.  The prices paid index jumped up to 65 and the new orders index plunged to 45.3, the lowest reading since June 2009.  Both the ISM and the Chicago PMI reports reinforce the view that the economy is slipping into an inflationary recession mode.

Last week also the Government released its durable goods order report for October.  While it showed that  the September to October level was flat (unchanged), the revision for the September report was revised lower.  If you look at the numbers on a quarterly basis for 2012, they show quarter-to-quarter contraction for the first three quarters of 2012, before and after inflation is factored in.  This means that unit orders have been in decline for all of 2012, despite the bright picture of the economy being promoted in the mainstream media. 

Please note that durable goods are the "stuff" people buy to use in their homes that are supposed to last a long time.  If housing really is what it is supposed to be then the durable goods order metric should be increasing, not in decline.

One last note, the Treasury will hit the debt ceiling limit at it's bi-monthly bond auction next week.  Even assuming that Geithner once again taps into the various custodial pools of capital like Federal pension money and social security in order to keep the Government funded until Congress gets around to raising the debt ceiling limit again, it's very safe to assume that the Fed will have to significantly expand its money printing program in order to help fund the new flood of Government debt without driving up interest rates. 

Higher interest rates would be the final death nail in our system at this point...Needless to say, so once again I'll say it, this current manipulated price correction in the precious metals market is purely a paper-driven wash, rinse, repeat event.  Everyone who "gets it" should not be intimidated by price action and should take advantage of accumulating this with both hands.

17 comments:

  1. Dave, of all the bloggers I read, your blogs are the most insightful!

    Josh

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    1. Thanks for the feedback - appreciate it!

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  2. Good post, Dave.

    Your coverage of the housing market reminded me of this interview of Fabian Calvo on USAWatchDog.com I watched this morning.

    http://www.youtube.com/watch?feature=player_embedded&v=uMpaaGr6YBs

    Was quite interesting. The amount of spin and manipulation of numbers going on is almost unbelievable.

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    1. LOL. I have that saved as a source for my eventual blog post on housing

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  3. Thanks Dave, unfortunately (or fortunately), we have been given the opportunity over the past 18 months to "buy with both hands"...when will this ever end...

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    1. If 18 months is your measuring stick, then you should just hand your money over to Wall Street and let them wreck it for you.

      If you study the cycles of this gold bull market, you'll see it moves in 18-24 month cycles. Some worse than others on the downside, but always climbing to a new high after unloading all of the weak hands.

      At the top of the "cycle" before this latest one, gold peaked at $1030 and silver at $21. Look where gold/silver are right now and we're likely at the bottom of the current cycle. You got anything else in your investment portfolio that's done better than gold/silver have from peak to current bottom (70% for gold and 62% for silver)? LOL Peak to peak it was 90% for gold and 238% for silver ($1900 and $50)

      The Govs/CB's globally do not have Plan B to save the system. Plan B is doing what China/India/Russia etc are doing, which is to keep accumulating gold/silver regardless of the price.

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    2. Dave I am adding WS in the next day or so. I liked their 43-101. Decent IRR not as high as ANV's projects but it is a way to diversify. I have enough ANV, ATN and AUQ and one you may not like, HL, to sell a bit of each to add WS.

      Thank you for bringing WS to the table. I would not be surprised to see HL take it out at some point BWDIK.

      Have you guessed at cash flow?

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    3. Have not guessed at CF. With WS, take a 1/2 a position and wait. They are probably going to have to raise money in the next 3 months or so. We sold down 1/2 our position to either buy if/when a deal announced and the stock gets hit - like they always do when they have to sell stock - or play the actual deal if it makes sense vs. buying the stock.

      I love HL. It's one of only two HUI stocks we own right now (GOLD is the other).

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  4. Yamarone - The Collapse Is Getting Even Worse



    Rich is a good friend (part of our occasional dining group) and a treasure trove of anecdotal insights and comments of CEOs and CFOs around the country. Their companies range from the local to the multi-national. Rich compiles the Bloomberg Orange Book monthly, reflecting the economy through those quotes and comments. He has a grueling speaking schedule as Kate drew out in the interview. Here's a bit that made me wince:



    The fiscal cliff actually doesn't seem to be all that problematic. What is problematic is just that the economy is slowing and people are not coming to stores. The small retailers are saying customers are not coming into the stores. They don't have good traffic and they're losing a lot of sales to the internet.



    The other thing that is actually quite disturbing is that – if I go give a speech to 400 or 500 people in a specific city, for instance a Chamber event, and it's a doom and gloom speech because I am a very big bear on the economy now – this is what has been happening: Some people will always come up and say, "Hey, you know, I agreed with this, I disagreed with that." But lately they've been adding, "But you're 100% right, this economy is much weaker than anybody in the press is letting you know or leading you to believe." And out of an audience of 400, I have recently been getting 25 to 40 people coming up to me after the event saying things like, "I didn't raise my hand because we're at an event where my competitors are sitting across the table from me and I didn't want to advertise this, but I'm folding my business after Christmas. My name is on top of the 100-year-old, four generation family business, or a 75-year-old, third-generation business, and I have to shut the doors. But I don't want to do it before Christmas because then I have to answer all these questions and I'm going to be an embarrassment to my family." That's a very powerful statement.



    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/12/4_Yamarone_-_The_Collapse_Is_Getting_Even_Worse.html

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  5. Then we look into the role of Senator Feinstein’s husband Richard Blum, the head of the world’s largest commercial real estate company, who has an exclusive contract with the U.S. Postal Service to list and sell its valuable and historic public property as the Congress deliberately bankrupts the Post Office in the name free enterprise. U.C. Berkeley professor of Geography, Gray Brechin joins us to discuss the theft of our national heritage which the press is ignoring while only reporting that the Postal Service is in default, but not why, and who is profiting from its deliberate destruction.

    http://ianmasters.com/sites/default/files/mp3/bbriefing_2012_12_04b_gray%20brechin.mp3

    http://ianmasters.com/


    Even if you think the post office is wasteful this is screwed up...

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  6. For Greece, Oligarchs Remain Obstacle to Growth

    ATHENS — A dynamic entrepreneur, Lavrentis Lavrentiadis seemed to represent a promising new era for Greece. He dazzled the country’s traditionally insular business world by spinning together a multibillion-dollar empire just a few years after inheriting a small family firm at 18. Seeking acceptance in elite circles, he gave lavishly to charities and cultivated ties to the leading political parties.

    But as Greece’s economy soured in recent years, his fortunes sagged and he began embezzling money from a bank he controlled, prosecutors say.

    http://www.nytimes.com/2012/12/06/world/europe/oligarchs-play-a-role-in-greeces-economic-troubles.html?

    Sounds like?????????????????????

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  7. Jon Corzine snapped skulking the streets of Long Island, has kept low profile since MF Global's collapse


    The former Democratic governor of New Jersey has been out of the public eye for the most part since his brokerage firm imploded last year.

    The 65-year-old millionaire had his hands in his jeans pockets and wore a Colorado Rockies baseball cap during a walk around the tony town.

    Read more: http://www.nydailynews.com/news/politics/nj-gov-jon-corzine-snapped-skulking-article-1.1212235#ixzz2EDv9hLbC



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  8. The unregulated multi-trillion dollar derivatives market exceeds global GDP and poses a clear danger to the global economy, Chris Whalen, Senior Managing Director at Tangent Capital Partners, and Barry Ritholtz, CEO at Fusion IQ, tell Bloomberg Law’s Lee Pacchia.

    “The fix is very simple,” says Ritholtz, “repeal the Commodities Futures Modernization Act and suddenly this becomes like every other financial instrument.”

    Whalen notes that the financial industry is reluctant to change the way derivatives are managed because they generate large returns at a time when banks are less profitable than before. “The super normal returns that they earn from derivatives subsidize the rest of the business,” he says.

    One way or the other, Ritholtz and Whalen believe the financial industry needs to get used to the idea of making less money.

    http://www.ritholtz.com/blog/2012/12/ritholtz-dot-com-bonus-envy-stymies-wall-st-reform/?



    Bombshell: Deutsche Bank Hid $12 Billion In Losses To Avoid A Government Bail-Out

    Forget the perfectly anticipated Greek (selective) default. This is the real deal. The FT just released a blockbuster that Europe's most important and significant bank, Deutsche Bank, hid $12 billion in losses during the financial crisis, helping the bank avoid a government bail-out, according to three former bank employees who filed complaints to US regulators.
    All three allege that if Deutsche had accounted properly for its positions – worth $130bn on a notional level – its capital would have fallen to dangerous levels during the financial crisis and it might have required a government bail-out to survive.
    Instead, they allege, the bank’s traders – with the knowledge of senior executives – avoided recording “mark-to-market”, or paper, losses during the unprecedented turmoil in credit markets in 2007-2009.

    Two of the former employees allege that Deutsche mismarked the value of insurance provided in 2009 by Warren Buffett’s Berkshire Hathaway on some of the positions. The existence of these arrangements has not been previously disclosed.

    http://www.zerohedge.com/news/2012-12-05/bombshell-deutsche-bank-hid-12-billion-losses-avoid-government-bail-out

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  9. Another Goldman Creature Given Vital Government Post


    But Mark Carney is no Elliott Ness, brought in from the outside to clean the streets of Chicago. Instead, he's another Geithner-esque character who will almost certainly prefer a hands-off regulatory approach, and seems to view the power of the government and the central bank as being necessary mainly to help bolster public confidence in the banking system. He'll likely be another central banker in the mold of Ben Bernanke, who's used endless rivers of cheap loans and money-printing programs like Quantitative Easing to keep floating corrupt banks all night long, for as long as they want to keep playing the roulette table. Here's the Guardian's prediction with regard to Carney:

    He and many others in central bank circles know that most of the Britain's banks are very highly leveraged. That without the support of the Bank of England's quantitative easing programme, and its very low lending rates – all effectively backed by British taxpayers – Britain's banks would effectively be insolvent.

    And so Carney will continue with quantitative easing – which has provided British banks with the liquidity needed to indulge in speculative activity both at home and abroad, speculative activity that bears a scary resemblance to that undertaken before the crisis.

    What the banking system really needs is a guy who will step in and force bankers to go back to being boring, risk-averse drips who lend businesses money to buy new equipment or fleets of trucks or whatever. What we have instead are coked-up wannabe big shots straight out of Boiler Room who are washing Mexican drug money and laundering Middle Eastern cash and playing around with wild price-fixing schemes – pretty much everything you can think of that isn't quietly counting beans and helping grow the economy.


    Read more: http://www.rollingstone.com/politics/blogs/taibblog/another-goldman-creature-given-vital-government-post-20121206#ixzz2EIoWffEy

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  10. So higher than expected new jobs-- surprise, surprise! All those jobs in hospitality and retail-- losses for construction and manufacturing. Somehow that says that things are improving? Last 2 reports revised down and another 350,000 drop out of the workforce. My question is: when the BLS revises past months down why don't they revise employment rate down to reflect those changes? hmmmm?
    Here in Canada things are only slightly more rosy. We are back to pre-meltdown employment but a lot of people with big mortgages traded their good manufacturing job for one at 7-11, Walmart, Starbucks, et al. Times are tough and people are scraping by and I suspect there is still some real estate bubble popping to come. I've had to reinvent my business just to stay afloat.

    Justin from Canada

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    1. I think there were a couple "telling" aspects of this report:

      1) the significant downward revision in Oct's # - 33,000 jobs went "POOF" with the stroke of pen

      2) as you point out the preponderance of temporary, low paying jobs mostly seasonal and nature and are supposed to be "seasonally adjusted"

      3) most important, the fact that results were "qualified" by stating that the sampling in the hurricane affected areas was supposedly not affected, which means that it was

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