more articles by

Roger Wiegand


Click to enlarge Click to enlarge

 

Clubbed Med

By Roger Wiegand      Printer Friendly Version
Jun 20 2008 2:58PM

www.webeatthestreet.com

Club Med Nations Were Transformed into Clubbed Med First. Others in the region could follow, moving into the same fiscal swamp.

We continue to look in vain for anything that might provide positive energy for these markets. In our view there is only a large continuous popping sound of bubbles exploding as they careen and sink into each other to vanish. Media varmints who’s employment is contingent upon keeping the farce in play have done yeoman’s work spouting farcical truisms prolonging the agony while soothing Sheeple to endure their final market slaughter. Talking heads have the audacity to claim no recession is in sight. Naturally, this virtual nonsense prevails as media continue to use fictional stats from Washington and New York. They can’t use actual numbers or their whole economic world as we know it simply ends.

Wealthy pro traders are certain as to the outcome and charts tell us they’ve been frantically unloading stuff into each artificially imposed rally. They seem to escape with profits intact or, at least are mostly made whole. The public meanwhile can only sit by helplessly watching pensions, savings, and hard-earned investments evaporate before their eyes. The Federal Reserve and those derivative hungry global banks are one and the same. These financial sharks swim in the same pool not eating each other but the Sheeple. Mutual funds provide them with fresh meat to be sheared. Next these victims, including millions in the U.S, shall visit a replication of Europe’s worst socialism and all of its ills. Our concern is not survival of a recession-depression but the survival of liberty and freedom.

Watch Spain, Italy, and others from southern Europe’s Club Med nations transformed into Clubbed Med.

Spain is in collapse instigated primarily by a USA housing derivatives debacle fresh off the boat from New York not too long ago. Further, Spain built their own real estate bubble as did others besides the USA. Spain sold their central bank gold twice, but not by choice. Initially, this safety valve removed some heat but has not prevented a disaster. Reports we’ve seen shows Italy might be next and the U.K. is out on the edge as well. We are unclear of conditions in France but know that they are flat out dangerous. Germany seems to be in the best shape in Europe but also faces problems as their customers slow down buying.

Readers should keep in mind these events are thankfully not simultaneous. It’s bad enough to understand what’s ahead within these global markets let alone have them all sink at once. This is a rolling crash that can take months, or years to complete.

In our view, we see parts of Europe sinking first as in Spain, and Italy. Germany should hold up the best. Eastern Europe is beholden to outsiders more than most in that region consequently, they can fall in the next group. China has a variety of internal and external disasters but the country is so large timing for their recession-depression could be extended. For now, China is suffering from extreme weather, earthquake aftermath, critical electricity and coal shortages, lack of water and water quality concerns, severe pollution, and forthcoming grain shortages. These problems are not routine stuff but severe emergencies in most instances. Meanwhile, they struggle in preparation for the August Summer Olympics putting on a happy face for the entire world. That is a very tall order indeed.

A truthful analyst discussing crude oil this morning on CNBC shook the audience with a prognosis of $500 per barrel oil. He reviewed current shortages with powerful ideas and caught viewers’ attention. His answering summary for problem-solving was a full-court press on new drilling, more refineries, conservation, coal-to-oil processing and several more nuclear power plants. His key point was we need LIQUIDS in production, consequently solar; wind, geothermal and others will not solve these problems but merely delay the inevitable. The USA must employ dramatic energy conservation, and actively implement new reserves bringing them to market as fast as possible. We think Congress will screw-up as usual forcing energy rationing and much higher prices. You can always count on them to do the wrong things. American drivers are already reducing trips to save gas with national consumption off -1.6%. Meanwhile, short refinery capacity shoots gasoline higher than oil on a ratio.

Rougher Second Global Economic Phase Underway

Since housing and credit markets tanked over the past two years various problems were papered over or repaired seemingly putting a lid on trouble with apparent resolutions. These problems, particularly with spent-out consumers and crashing credits are getting worse. Make no mistake. Turmoil has just begun as more severe credit crunchies soon arrive to hit autos, housing, regional banks, and credit cards, coupled with inflative rising prices.

We have inflation in food and energy with deflation in the others. Pricing power has diminished in heavy hard goods and durables. Some housing prices in the used markets of Michigan appear to be at 40-50 year lows. We saw three examples this week of lovely brick ranch homes on large lots, with garages, excellent landscaping, in move-in condition for $50-$55,000!! These prices are off ($100,000) from the selling highs. On some, a new-build brick contract might exceed that price forgetting the land, and rest of the construction costs. As a result, they slowly begin to sell even within this legendary crashing home market. In Michigan the price is the same for new luxury cars or a nice home.

We’ve written several times housing markets for used homes (85% of all annual sales) must re-price drastically lower finding a new base settling down far enough to induce new market buying. In fiscally burned out Michigan we see this conclusion, finally, beginning to arrive.

A new argument erupted today regarding massive teacher lay-offs in the Detroit Public Schools. They are losing new students so fast, state and federal funding allotments were drastically reduced imposing new heavier burdens on a big city school system already on its knees in red ink. The plan is to lay-off 2,200 system jobs and cut $362mm in the next fiscal year. They are $408mm in the hole right now on the current budget. We forecast The City of Detroit to go BK along with their schools within 1-2 years. The State of Michigan, which by law must balance their budget, could crash within 2-3 years.

For those not paying attention, the bond world financing these huge public pies is moving in the wrong direction to help them. We have written before, the end is near when fire, police, teachers and other municipal workers are laid-off. The City of Pontiac located near-north of Detroit is also on the verge of disaster. This town is home to massive General Motors operations basically carrying Pontiac’s tax budget. It seems they might all tank together. GM stock is sinking faster as it reported the cash burn increases and remaining time to design-build new attractive products has a closing window. Auto sales hit a 15 year low and soon go lower. Chrysler has less then $9 billion in the bank, scarcely enough for 18 months. Ford is sinking in economic quicksand.

Pricing Power Sinks

In today’s Detroit News real estate section a high quality national building company is offering substantial kitchen and bath upgrades on their new homes for $1! We are seeing new car prices in this dog-eat-dog environment crashing to new lows. I was recently looking at new pick-up trucks and received a cash offer of $19,950 for a fully optioned, 2008 top of the line model, V-8, 4X4 truck having an MSRP sticker of nearly $30,000. Probably 18 months ago this vehicle was at least $4-$5,000 more.

Empty retail stores pop-up like summer dandelions not only in strip retail centers where they fall first but in first rate shopping malls. A major restaurant holding company with three, major top- name national brands is filing bankruptcy on all of them. Medical clinics offering plastic surgery are losing sales as this stuff is primarily elective. We see an increase in junk telephone calls begging for new business. Parents are moving youngsters to home schooling not only as they fear schools’ skidding quality but have concerns as to whether the schools will even be in operation next year.

More Economic Signals And Forecasts

What lies ahead in this radically changing environment? In our view, the primary news changing event is the forthcoming attack by Israel on Iran. Our European friends have been predicting this for months and we chose to think it might not happen. Now we are about 80-90% certain it will. This event, if it becomes true, will drive energy and precious metals prices to the moon. On the other hand, stock markets could severely crash. The disruptions in global banking and credit markets might receive immeasurable damage; perhaps some of it un-repairable. One analyst says it’s a partial ploy to keep Bush in office after January based upon the War Powers Emergency Act.

The worst of the credit crisis remains to be acknowledged. We see thousands of smaller regional banks at risk for housing mortgage defaults and erosion of their capital base. At least one national home builder will file BK. The US Dollar has peaked and begun to sell again. This selling has months if not years to go, finding support back at 46.50 on the index. Bond markets sink into disarray including corporates, municipals, state issued bonds and junk bonds. Credit has dried-up and so has liquidity despite rate cutting efforts of the Federal Reserve. Qualified buyers are not taking new loans and unqualifieds’ are rejected with tougher terms and credit demands. The US money supply is growing between 11% and 16% as printing new cash is the last desperate measure available for the Federal Reserve to ensure adequate liquidity. Some suggest hyperinflation lies ahead and we agree.

Consumers are so afraid of these market conditions they’ve finally stopped the spending. Retail sales are in the tank while families stay home, dig-in for tough times and start to save money.

Spring Buying Cycle Has Arrived

Watch for new rallies in most all commodities markets in late August. We should see channelized mini-rallies in gold and silver this summer. The bloom is off the rose and our off-schedule, nasty “Sell-in-May-And-Go-Away” finally arrived. However, our summer forecast is a mild haircut in most stock shares including precious metals. The only action to prevent selling is our stunningly time-worthy Plunge Protection Team who had multiple recent failures to prop shares. Will they win during the June push-‘em-up event? We think with all the other market dangers they will prop their little hearts out and not permit the Dow and S&P 500 to get out of control. In our newsletter, Trader Tracks, we provide weekly guidance and extra e-mail alerts to report our best new trades and offer suggestions for trade management.

Whatever you do, make a concerted effort to stay with the trend and hang onto your core holdings of preferred shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan and squirreled away. Big traders are always ready to buy on 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. -Traderrog

Roger Wiegand
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 and futures- commodities trading with specifics for individual trades.  See www.webeatthestreet.com for more information.

Contact Claudio Bassi, at Trader Tracks New York City publishing offices for a modestly priced trial subscription 718-457-1426 Monday through Friday, 9:30am to 5pm or, e-mail Claudio at cbassi@miningstocks.com