More Trader Tracks Predictions For 2009 - Series #3
Our new president was inaugurated and we wish him well for the sake of our nation and others throughout the world. We do not want to be cynical but must be realistic. We think this year will be the worst one of this longer recession-depression cycle and our new leader, we suspect is going to take a merciless pounding from a heap of troubles domestically first and foreign later.
Thankfully, the spending of TARP #2 and whatever billions-trillions are added for emphasis, should give us the Obama Market Bounce lasting perhaps 90 days or so. While this economics plan has no chance in our view, the herd psychology of markets should give us a nice relief rally almost across the board. The dollar is flat to down on the intermediate cycle and bonds are the same. We forecast the balance of our favorites to rally along with shares in both the mainstream and precious metals.
However, with spring flowers in April we are expecting a quintuple smash of:
- Wave one of commercial real estate foreclosures and loan failures. Some of the biggest of the big buildings will be foreclosed and those planned but not built will never see daylight. Meanwhile, vacancies skyrocket while budgets are busted with dropping rents. One analyst estimated the New York City Financial district buildings will see 66% occupancies with breakeven budgets being much higher. You will see some major shopping malls shut down.
- The second wave of residential foreclosures and loan failures arrives dragging down all real estate values both commercial and residential. They will sink like a rock in over-built states and within those regions previously hit the worst. This is related to the next mortgage failure cycle. Some of those formerly upscale, McMansion subdivisions will turn into ghost towns.
- Wave one of auto loan failures containing billions in bank, credit union and auto finance company loans will smash credit markets. The reaction will be stunning and probably stop most vehicle lending temporarily for weeks paralyzing automakers and those lenders still doing car and truck loans.
- Wave one of several future waves of credit card failures estimated at $40 billion by bank credit analysts will be an April smash.Normally card failures are in the 1-2% range annually. This larger event opens doors for a historic new number of non-payers and delinquents. This cycle is mostly job loss related but most of it is due to overspending by cardholders.
- Wave one of the CDS Credit Default Swaps will hit markets like a Tsunami.These failures will be so overpowering, those in charge will be stunned and flabbergasted by the numbers. The figures are so large we cannot even imagine the amounts. One analyst said it was estimated between $500 and $750 Trillion dollars! There is no margin or deposit money on these trades.
Most See A Crisis Of Liquidity. We See A Crisis Of Insolvency.
Here is the difference: For those in a crisis of liquidity they have a temporary shortage of liquid cash but do have a positive balance sheet with a viable longer term business plan. Insolvency is something entirely different. Those personally or corporately insolvent have BOTH a shortage of cash but worst of all do not have a reasonable and viable plan to grow themselves out of trouble. No matter how many billions are tossed to those insolvents, they will crash anyway while taking billions in TARP and replacement cash down the tubes with them.
An excellent example is the American auto industry. Even with enough cash to get by for say three years, the overwhelming debts and their wacko budgets eliminate any hope of recovery. The automakers are insolvent. When compared with their European and Asian competition, the Big Three continue to operate on the old paradigm with overly generous benefits, wages and perks. Further, the work ethic in America is not the same as with most other auto manufacturers.
There are exceptions of course but the money deck is stacked against the Big Three even having any chance. In addition to out of kilter budgets, the Big Three has an extremely heavy load of legacy costs related to retirees. The Asian companies do not have this burden for the most part. The Big Three are paying big bucks for many more retired workers related to pensions and health care.
A comparison might be the U.S. Social Security system. We already have too many retired folks collecting benefits compared to those working and making contributions. This relationship is going the wrong way very quickly. Real worker contributions are NOT keeping-up with payment demands and further, those worker contributions are deposited to the U.S. Treasury General Fund where they are open to abusive spending for other things. Those contributions should be in a segregated fund and not commingled. We suggest that when the younger workers catch on they will rebel against this idea thinking they are tired of feeding the oldsters and not keeping enough set aside for them selves.
Other Events Dragging Down World Economies
World trade is in a state of collapse as seen in tumbling Asian manufacturing and export numbers along with ships parked to the extent global docks are nearly silent. Historically when this happens, nations turn inward to save themselves. Asia will stop buying and investing in our crappy paper meaning the U.S. is no longer financed. Further, trade wars and protectionism will appear to protect internal and domestic economies. Nasty tariffs are born and international trade anger rises. Mutual cooperation so necessary to move all the global goods goes very bad.
Unemployment is rising swiftly throughout the world. In the U.S. we see 500,000 jobs per month going down the drain. Those are the losses reported. We would strongly suggest the actual monthly loss is near 1,000,000 per month. If this is true, America will shed 12mm jobs this year as our new administration proudly announces they will create 2-4mm new ones. They will be going backwards at the rate of nearly -80%, which is astounding. Worse yet, any new ones will be make-work government jobs creating a further drain on the treasury. We see next to nothing for new private employment.
Obviously with all the joblessness, bills are not paid relative to autos, housing, miscellaneous loans, education, health care, travel, taxes, entertainment, etc. Lost jobs create a cascade of failures across the entire spending-investment spectrum. Further, when fear sets in as in today’s situation, those still working stop spending. Spending losses encourage a Catch-22 and the whole cycle-episode feeds on itself in a downward spiral.
While we remain in a primary deflation mode world-wide, we think inflation followed by hyperinflation is very real and possible in later 2009. The Federal Reserve and U.S. Treasury are just about at the end of their rope. They are out of rate cut running-room and those moves are mostly ineffectual now anyway. All they have left is a phony game of printing dollars and bonds while moving them around in a circle within our country. Foreign USA paper buyers take less and less at new auctions. We know they are dumping dollars and other papers assets at a furious pace paying bills and investing in honest-to-goodness hard goods with real value. Watch out for big time inflation in the second half of 2009.
As we write this on January 20th, England’s Pound Sterling is taking a historic dive as their central bank has been printing recklessly to fund illiquid-insolvent disasters. One analyst expects the Pound to fail and this monetary crisis to go into a Trustee Receivership with the IMF and Euroland authorities in charge.
We’ve been saying for months the monster U.S. bond short just ahead will be the mother of all bubbles. Others agree and we see more and more discussion relative to this topic. Timing is difficult but more than one analyst suggests using the ETF’s for trading this longer term event.
One top analyst from Canada suggests this current economic cycle might resemble the 1873-1896 depression in the U.S. Maybe, but with think its more like 1929-1939 as today is 1938-1939 with stronger negatives. After 1939 only war got the global system on track again. Expect a repeat.
Remember Sir Alan delayed the 2000 event with low interest and free housing money. He has only delayed the inevitable disaster giving it a bunch more nasty power. The overshoot on the downside is already crazy and we have long, long way to go headed down to the lower than low finish line.
Towns, Cities, States And Municipalities Losing Tax Income
Pensioners are a dominant investor group in municipal bonds for retirement income. Real estate taxes are the primary driver of cash-in for these groups. With tax values sinking and taxpayers defaulting, your local township, village, county or city is not receiving enough income to pay bond interest. We think there is a distinct possibility California goes bankrupt!!
We see a series of rolling defaults. Look at California. The announced they will be mailing income tax refunds late as they are broke. Further, some creditors are either getting or, about to get payments from the State of California in IOU’s. This state is $40 Billion short on their budget and realistically have no way to escape. Their lender of last resort will be Uncle Sam. This means other states that behave themselves and pay their bills will have their residents tapped to cover California messes.
In Michigan, the Cities of Highland Park and Flint went broke and Lansing (our capitol) and Detroit are next. We cannot imagine what life will be like in Wayne and Oakland counties in Southeastern, Michigan when our Big Three disappear in bankruptcy. Hundreds of thousands of high pay jobs will vanish-suppliers and associated employment constitute thousands more lost forever.
It has been said that whenever a nation’s debts exceed GDP by over +6%, there is no recovery. The U.S. crossed that threshold last year and is headed for +10% on debts over GDP. There is no turning back and the recovery could be a decade or more away. We are going broke nationally for certain.
Being Poor Is A Hardship. Being Poor In The Middle Of Social Violence Is Untenable.
The U.S. has resources to provide enough food and shelter for the poor, and newly jobless with little strain. They won’t do it because the government is always a reactor not an initiator in solving problems. This means there is a social upheaval ahead worse than ten Katrina’s. The sad part is it could be avoided if the authorities would just get busy and get the aid out and delivered. They won’t because they are too stupid and disorganized. Watch the fallout from this mess!!
Families, singles, children, and pensioners are going hungry for lack of adequate nourishment many times trading food money for utilities or rent; not being able to afford all necessities. Here we sit with millions of vacate homes and more coming yet we lack adequate housing for the poor.
The food banks are overrun with demands while millions of others throw food in the garbage. The food situation is one of transport and distribution rather than a lack. Governments are not even close to being prepared for the crushing demands of the cold and hungry we see in 2009-2012. Then, to make it all worse, when the US weather warms-up and gets hotter this summer, heat drives out the jobless and they go hunting on the streets. They will be on the prowl for free food, food to steal and committing crimes for other necessary goods they cannot afford.
The terrible, old Los Angeles and Detroit riots and those of other larger urban areas will re-set new records for fires, destruction and mayhem. People read of the billions stolen by crooked bankers and their sleazy associates and anger is swiftly rising. We have no idea how crazy wild this can get but in our view meeting violence with more violence is not the answer. For those with limited resources it’s simply better to just get out of the way. For those with money and an obviously good lifestyle in the city, we expect you will be a daily robbery target. Better think about it.
Back in the 1930’s depression, our population simply suffered in silence. While I suppose there was some crime, it was modest compared to what we see on the 2009 horizon. In this spoiled generation of me first-you last, there will be no time for suffering in silence. When an unemployed father needs milk for crying babies, he will get a weapon and go get the milk and food.
We get second-hand reports of huge gangs in South Central L.A., and Chicago on both the north and south sides and others. California gangs are reported to outnumber the police 3 to 1 and worst of all they have automatic and heavy weapons. This is not going to be pretty.
Even in the rural parts of the country, there are steady reports of thieves stealing farm equipment, robbing houses and taking fuel. Unattended property is a target. We think living in a small quiet town with good neighbors, being non-descript and blending in will provide a better life. If you can’t move, better make provision for a spot to land if your neighborhood goes bad overnight.
Another ugly part of depression life is a clash of cultures and religions. The have nots will turn on the haves perceiving them to be part of the reason the poor are poor. Obviously this is ridiculous but that is an easy perception to embrace. Look for new nastiness among those cultures most prone to argue and pick-on each other and targets generally having a good life style with plenty of money.
A new mindset is necessary to curtail higher, former lifestyles. I have friends who spend like they did ten years ago but do not have ten years’ ago resources. Inflation is insidious. It grinds away on your income with no raises or increases being few and far between. It grinds away with taxes, as cost increases constantly slide higher at a gradual but relentless pace. It takes away little pleasures like eating out more often or taking nice vacations. It tightens the belts of kids in high school who want more expensive stuff while school systems offer less and charge more. It bites on us with repairs and on things that break too often and cost too much. Once tiny, annual fees like a dog license or, auto registration keep going higher and higher.
If most people took a real hard look at income and spending I think they would make tighter budgets, curtail old pleasures and get rough with letting a nickel go out the door. Most keep on keeping on, doing the same old stuff relative to spending and wonder why they are broke. Americans probably have the worst savings record in the world. They always spend far beyond their means, for the most part; living from check-to-check. I see it in Michigan in upscale neighborhoods where thirty somethings living in McMansions have a husband-wife income of $250-$300,000, being basically broke. They have multiple leased cars and trucks, a house payment that would choke a horse and plenty of extras including private clubs, special training, fancy vacations, private schools, and overdone holidays. Watch how this comes to a screeching halt!
The chickens (vultures) are coming home to roost. Bye-Bye $150,000 per year auto engineer’s salaries, and here comes rising taxes as our esteemed governor takes more and spends more even in these distressed times. She thinks your earned money is her money. She never had a real job or met a payroll in her life. Let them eat cake she says; all is well. Watch where that goes. Taxpayer revolts are born of situations like this one.
I’ve got some bad news for her. The tax income is skidding, big painful state lay-offs are just ahead and when schools begin to close, homeowners send in house keys to the bank and leave our state. There is going to be lots of jingle mail sent to the bankers this spring. Mark my words it’s going to be beyond ugly. Maybe Michigan will revert to the forest emulating Detroit where wildlife abounds and not the kind you think either.
The USA War Machine Will Shrink.
We Can’t Pay For It And Most Americans Are Tired Of Feeding Defense Companies To Manufacture Stuff That’s Blown-Up And Wrecked.
Global economic calamities redistribute national power. The survivors have independent energy sources or, they steal it from others. The Middle Eastern struggles with Israel and the Arabs will continue we think until it heaven forbid goes nuclear. NATO is going weaker in Europe as Putin closes in for the kill. South America has several newly-bent left-leaning commie countries courtesy of Hugo Chavez. His antics in his country and with neighbors, and Cuba and Mexico tell us this dude is on a rampage to spread big trouble right at the door-step of America in Mexico.
We sincerely hope our new president is a tough guy with the bad guys. They will lend no quarter and are simply lying back in the weeds to take control by force. We suggest if the truth be known, Mexico is far out on the stability ledge as we speak. Our border guards and even the U.S.’s Border States’ National Guard are no match for those criminals in Northern and Central Mexico. New reports tell us they caused more deaths in Mexico last year than were counted in Iraq. This is very serious, indeed.
New Currencies, Bretton Woods And T-Bonds
Our New York global trading and investment banks will require constant infusions of new cash to stay afloat. The TARP funding and still more to come is tossing cash into a bottomless pit. One of the world’s bigger banks is going to fail this year and it will be a disaster.
Next, one of the larger insurance companies will go bankrupt and create another shock to the core of our system and that of the world. This insurance company crash will be matched by a monster blue chip American company failing and shocking Wall Street.
The U.S. Bond bubble is the mother of all bubbles and has tragic consequences for the entire world. These markets are 70 times larger than the shares markets and form the lifeblood of capital for global finance. When this one breaks, the reverberations slam the world’s financial systems to the bone.
The old Bretton Woods system of having our USA dollar as the backbone of the world’s currency system could break down. The Asians and those in the Middle East are already forming new currency and trade platforms based upon brand new trading ideas. The U.S. Dollar is headed to .4600 on our forecasts; roughly a -50% haircut. We are all entering a brand new world. The old world is a goner and those who cannot change will wither and fail.
Get with a new program and be busy moving in the right direction. The time is now and the time is short. We think after May, 2009, several chances to implant new trades, investment ideas, personal events and other things will be too late.
Imposition of government capital controls can impede moving your business, cash, funds, and retirement in or, out of the U.S. It might be very expensive and difficult; or impossible.
Survivors and Those Who Win Buy Gold And Silver
We think the secret to getting through this is to hunker down, eliminate debts, keep a low profile, trade in gold and silver shares during this first quarter along with futures, and then adjust in April when stocks sell off. Gold topped out near $850 years ago right where our price is today. We forecast 80% of the gold upside is still ahead in these markets. Silver is behind gold for now but will catch-up. They never trade like twins most of the time. We think the worst silver could do is $50; but expect much higher prices.
We look forward with anticipation to some great fun in these markets. If you are not in a position now, hurry-up and get it done. The door is open for all the shares’ markets including our precious metals. Futures traders in gold and silver have been trading this past week in large size. It seems the new trend is established and our long awaited rallies are underway.
In Trader Tracks, we provide weekly guidance and extra e-mail alerts to report our best new trades and offer suggestions for trade management. Visit our website at webeatthestreet.com for more information on our spectacular futures and commodities trading record.
Whatever you do, make a concerted effort to stay with our trend and hang onto your core holdings of favorite shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan.
Recent news says you cannot find any coins or, others. We see delays and back-orders but some dealers have goods in hand right now. Go shopping. Should you have difficulty buying physical metals, we suggest placing an order and being patient. Big traders are always ready to buy the dips and normally never sell their gold and silver. You would be amazed how quickly your physical gold and silver will accumulate using this strategy.
Editor Trader Tracks Newsletter
& The Rog Blog at webeatthestreet.com
Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares, futures and commodities trading with specifics for individual trades. See webeatthestreet.com for more information
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