Thursday, May 13, 2010

Year To Date Performance Awards

Year to date performance chart for every major asset:

(Through May 13, 2010)

The Winner: Palladium

The Loser: Sugar

Wednesday, May 12, 2010

California Taking Position

Congratulations to California, the newest addition this week to the top ten most likely to fail government list. (First time on the top ten for Cali) Their default probability is now at 20%, which is something to keep an eye on if you hold municipal bonds in your 401k. (Hint: If you have a bond fund, you do)

From Bloomberg today:

California Governor Arnold Schwarzenegger will seek “terrible cuts” to eliminate an $18.6 billion budget deficit facing the most-populous U.S. state through June 2011, his spokesman said.

“We can’t get through this deficit without very terrible cuts,” Schwarzenegger spokesman Aaron McLear told reporters in Sacramento. “We don’t believe that raising taxes right now is the right thing to do.”

We have our very own Greece right here on the shores of America.  Unfortunately the size of California's debt burden is far greater than that of Greece.

First Look: Home Buyers Without Tax Credits

Last week we got our first look at the residential housing market without the home buyer tax credit.

Mortgage applications plunged by 9.5% last week, and home prices have continued their steady trend downward.

Buyers utilizing the tax credit will now understand that the program was a benefit to sellers, not buyers, as home prices will correct down without the artificial price increase.

The following chart shows the monthly home price % rise and fall since 2005.  Home prices began rising again last May through September only to roll over and began falling every month since.

As I've spoken about repeatedly, there is an approaching foreclosure nightmare.  At the end of 2009, 14% of all loans were in some stage of foreclosure seen in the chart below.

Most of these loans are in the delinquent stage meaning banks have not filed for foreclosure and are just letting homeowners live for free in order to avoid losses.

Every month more and more of this ocean of inventory will continue to hit the market.  The following shows the number of new foreclosure filings every month.

Fortunately for America our housing market has now been nationalized so we no longer worry about home prices falling.  The cost is now paid for by all.  Together.  As of last month 96.5% of all loans originated are backed by the American tax payer through the FHA, Fannie, and Freddie.  The percentage of government loans is the green line in the chart below:

Every month these giants report massive losses that are paid for with our tax receipts.

Fortunately, adding massive losses to a government balance sheet that is already insolvent is no problem since governments never have debt problems right?

Oh wait, didn't I hear about some problems overseas with a country when the market lost faith in their ability to pay their deficit?

But that could never happen here in America.

How is America doing?  Let's take a look at April's balance sheet from the Federal Government:

April's tax deficit of $83 billion was the highest April deficit on record.

Income was $245.3 billion, 8% below the total recorded last April.

Spending was $328.0 billion, up 14% year-over-year.

A year ago in April the deficit was $20.9 billion.

Income: tax receipts down 7.9% YoY, Individual Income Tax down 21.5% YoY

Spending: Total spending up 14.2%, National defense up 17%, Medicare up 39.4%, Social Security up 4.2% and General Government up 5.6%.

Income collapsing.  Spending surging.

Buy your gold and say your prayers.  The final collapse is approaching fast.

Tuesday, May 11, 2010

Gold At Record Highs

In response to the Federal Reserve's swap arrangement back in place with the European Central Bank, the precious metals markets have seen an explosion upward bringing gold back in range of the all time record highs.

The swap arrangement in simple terms means that the Federal Reserve will be printing an enormous amount of paper currency and sending it to the European Central Bank.  The ECB in return will send back euro's.  They do this because dollars are needed overseas for banking transactions when there is stress in the system.  There are estimates that this new swap arrangement could increase the balance sheet of the Federal Reserve by $500 billion or more. (Massive money printing)

This week in the NY Post they discussed how JP Morgan is now officially being investigated for manipulation in the precious metals markets; specifically silver.  With the spotlight now on the firm it will be far more difficult for them to artificially suppress the price downward.

With their artificial shorts out of the market, it could bring fireworks to the silver market as we move forward.

That being said, the Daily Investor Sentiment survey as of Monday night read 95% bullish for the gold market.  This type of extreme reading usually means a pull back is close.

Any pull back at this point in the metals markets is truly a gift and should be looked at as a tremendous opportunity to add to positions.

Monday, May 10, 2010

Euro Zone Goes Nuclear

Today we received word that in the early hours of Monday morning the Euro Zone has put together a nuclear bail out package worth $1 trillion.

In addition to the bail out package, the central banks have agreed it is time to begin quantitative easing.  This is a fancy term for central banks printing money and buying government bonds.

This is a very important moment and a game changer.  The $1 trillion bail out is certainly not enough to solve the debt problems of the Euro Zone, but it provides the "shock and awe" title that will look beautiful on the Monday morning papers. It also has taken the stock market up over 400 points before the opening bell.

However, the use of quantitative easing has now set the stage for what is to come.  Central banks have an unlimited amount of money that they can print to purchase bonds.  This means the bail out is not priced at $1 trillion, which is a ridiculous amount to begin with, but it is now priced at an infinite amount of paper bills that can and will be created.

I explained in detail many weeks ago when the Greek crisis broke out why this would be the final outcome.

No one fails.

Central banks will use an unlimited amount of money to try and paper over the problems.

The size and speed of the bail out package now puts the coming price of gold at astronomical levels.  It also ensures that the global economy will feel the absolute most amount of pain with this horrifying decision.

The middle class will soon be something read in the history books.  It will be the ultra rich and the poor, as the purchasing power of paper currencies will be transferred to those who are buying tangible investments today.

The tic flows continue to show the majority of Americans putting their money into paper investments such as bonds.  The coming slaughter in the bond market will be the final nail in the coffin for any hopes of the baby boomer generation's retirement plans.

Look for much, much, more volatility ahead.  We are in uncharted territory now, and the global leaders appear to be making the worst possible decision every step of the way.

Dylan Ratigan: The Crash

Days after the crash heard round the world, people are still looking for reasons for the sell off.

Dylan Ratigan takes some time to try and help explain how our financial system is a large house of cards, and the computer systems running high frequency trading make another crash not only possible, but likely.