Saturday, August 29, 2009

The Recovery Isn't Adding Up - The Daily Reckoning Weekend Edition

Celebrating A Decade of Reckoning
US Edition Home Contributors Media & Testimonials archives DR's 10th Anniversary DR's 10th Anniversary
The Weekend Edition - August 29-30, 2009

  • Homeowners still can't get their heads above water...
  • Rob Parenteau heads to the beach for perspective on the downturn...
  • Are you skeptical of Peak Oil? Puru Saxena will change your mind...
  • James Howard Kunstler crushes any 'green shoot' hopes...
  • Bill Bonner with a look at the Bernanke Put...and more!

  • --------------------- Special Offer ---------------------------

    Options Made Simple

    Let's face it - playing options can be tricky. But they can also be incredibly lucrative.

    Well, in this report, we lay it all out for you. It's quite plainly, the easiest way to play options...ever. And the gains are just as big. Keep reading here.


    The Daily Reckoning's Highlight of the Week:
    The Recovery Isn't Adding Up
    Baltimore, Maryland

    Big news this week: Bernanke is going to be staying where he is, at the head of the Federal Reserve. Of course, this is because he has 'saved' the United States from the near disaster of the Second Great Depression...or so every media outlet and financial 'expert' out there would like you to think.

    But, as we've been pointing out, this 'recovery' isn't adding up. Take this little tidbit: The FDIC reported on Thursday that the number of troubled banks rose to 416 at the end of June, up from 305 at the end of March. Says MarketWatch: "FDIC said this is the largest number of banks on its 'problem list' since June 30, 1994, when 434 banks were on the list. Assets at troubled banks totaled $299.8 billion, the highest level since Dec. 31, 1993, the agency said."

    If that doesn't spell recovery, I don't know what does.

    In the Highlight of the Week, below, Bill Bonner points out the other pieces of the economic puzzle that doesn't result in a picture of a healthy US economy. Read on...

    Ben Bernanke was put up for another term as head of the Federal Reserve. And the Obama administration said the downturn was a little worse than it had thought, so it's estimate for the 2010 budget deficit had to be updated - increased by 19% - to $1.5 trillion. The Congressional Budget Office did its own count and came up with $1.4 trillion. Either way, it's a lot of money.

    We have wondered where the money would come from. Yesterday, Goldman's top economist, Jan Hatzius, said he thought much of it would be 'monetized' by the Fed...with the Fed's balance sheet increasing as much as $2 trillion.

    The Fed's balance sheet is the monetary ballast for the whole economy. As it increases, so does the amount of sail the economy can put up. In theory, the potential for inflation increases geometrically; one dollar on the Fed's balance sheet could be multiplied into $10 in the economy. Bernanke has already doubled the Fed's balance sheet - buying up and additional $1 trillion worth of Wall Street's failures and the feds' debt. He might have to buy another $2 trillion worth - bringing the total to $4 trillion - before this crisis is behind us, said the Goldman fellow.

    Home prices are still going down, says the latest report, but 'less than forecast.' Is that good news? Well, it could be worse.

    The latest sales figures show an uptick. But careful analysis shows that homes sales figures are still terrible. People are buying $250,000 houses...but they're the houses that sold for $500,000 in 2005. And the poor folks with $500,000 houses...and jumbo mortgages...are sinking. Almost half of them will be underwater by 2011, according to one estimate.

    The feds now say that 10% unemployment is unavoidable. Naturally, when people lose their jobs they have a hard time keeping up with mortgage payments.

    "Bay Area Delinquency Rates Soar," says a headline.

    Two years ago, when a homeowner was late on his mortgage payments, there was a 45% chance that he'd catch up. This is known as the "cure rate." Well, now the cure rate is down to 6.6%. Homeowners never catch up...they fall further and further behind until the house is foreclosed.

    Want some more news? In past recessions, the United States emerged first and pulled the rest of the world out of its funk. This time, the United States is still on its way analysts look to China. The Peoples' Republic says it is growing fast. It also says it will have an inflation rate of 2% this year. Currently, prices are falling at a 1.8% rate. China is in deflation, not inflation. What's up in China? We won't know for a while...but don't count on it to pull the world out of a correction. China needs a correction as much as anyone.

    [The US consumer isn't going to be able to pull the global economy out of this mess - because who is lending them a hand? Certainly not the US government. Don't wait for them to bail you out - take charge of your fate and use a completely legal 'loophole' to receive your first "bailout" income check. See how here.]
    The above is just an excerpt from Bill's standout essay from this week. You can read it in its entirety on The Daily Reckoning site - it's an essay you don't want to miss. See here.

    --------------------- Special Offer ---------------------------

    Quadruple Your Money with a 231 Year-Old Discovery

    Every country in the developing world needs this 231-year-old discovery, but...

  • Only 10 companies in the world have it...
  • Only 3 of them are pure plays...
  • Only ONE can actually deliver...
  • Turning every one of your dollars into four by this time next year! Keep reading for the story...


    ALSO THIS WEEK in The Daily Reckoning: Did one of this week's essays sneak by you? Don't worry; we have them all listed for you, below...

    Golden Eggs in the Most Valuable Market Basket
    by The Mogambo Guru
    Tampa Bay, Florida

    "But now he could sell the golden egg and buy some baskets! The news was, of course, so exciting that the rancher stumbled and fell, and all the real eggs broke, turning the day into a total loss..."

    Analysis by Anecdote
    by Rob Parenteau
    San Francisco, California

    "Most striking was the absence of people on the beach during the weekdays. Even in the depths of the 1973-5 recession, we cannot recall the beach seeming so sparsely populated."

    Peak Oil: Supply Data Doesn't Lie
    by Puru Saxena
    Hong Kong, China

    " is much easier to increase usage, but it takes a long time to ramp up production. So, unless this is a permanent global recession, it is inevitable that the price of oil will go up significantly over the medium to long-term."

    Financial Crisis Called Off
    by James Howard Kunstler
    Saratoga Springs, New York

    "The key to the current madness, of course, is this expectation that all the rackets, games, dodges, scams, and workarounds that American banking, business, and government devised over the past thirty years will just magically return to full throttle, like a machine that has spent a few weeks in the repair shop."

    Bernanke to Stay Put
    by Bill Bonner
    Ouzilly, France

    "...investors are buying the Bernanke Put again, confident that the Fed chief will keep pushing money into the system and stocks will continue rising. But Ben Bernanke, for all his bluster, is a victim of the trade. Everyone knows what he is up to."


    With so much of the news revolving around the economic downturn and the happenings in the financial sectors, one would think that financial literacy would be a key part of your child or grandchild's curriculum at school.

    In fact, the exact opposite is true. A recent MarketWatch article points out that although most surveys show (and our personal experience reinforces this) many Americans have trouble with handling their credit and balancing checkbooks, financial literacy is very rarely on the curriculum in schools.

    And it's not just about personal financial literacy...when we interviewed the average 'man on the street' for the IOUSA documentary, we found that adults couldn't explain the difference between debt and deficits, and had very little knowledge on how much the national debt was at that time. This is why we tried to make it very clear in the movie (and in the companion book) how all of these things that make up our economy are connected - and how the decisions they are making in Washington directly affect American citizens.

    It's becoming clear that we aren't going to be out of this downturn today...or tomorrow...or even next year. Maybe it's time to start rethinking that curriculum, eh?

    Enjoy the rest of your weekend,

    Kate Incontrera
    The Daily Reckoning

    P.S. If you haven't yet, you can get your free copy of IOUSA (the book and the DVD) by clicking here.

    --------------------- Special Offer ---------------------------

    The End of Our Dependence on Foreign Fuels?

    Energy costs are rising. You and I both know that. Heck, in the past few months alone, the cost to heat and power my home has gone up by 27%.

    The Navy knows that too...and they've tapped a secret source of energy 113 miles northeast of Los Angeles.

    This source of energy has enough reserves to reduce our dependence on foreign oil...and my former Navy 'insider' has found a total of five ways by which you could grab a piece of the profits.

    See here.
    The Daily Reckoning - Special Reports:

    History of Financial Disasters: Will you be Wiped Out?

    US Recession: By far the Weakest Recovery

    Introducing the Single Best Way to Make Sure You'll Never Run Out of Money...

    AGORA Financial Resources: The Daily Reckoning Is:

    Economics & Politics
    Crisis & Opportunity
    Gold, Oil & Energy
    Growth, Tech & Medical
    Options Investing

    Founder: Bill Bonner
    Editorial Director:
    Addison Wiggin
    Publisher: Rocky Vega
    Managing Editor: Kate Incontrera
    Web Editor: Greg Kadajski
    About The Daily Reckoning: Now in its 10th anniversary year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists.

    For additional articles and commentary follow The Daily Reckoning on Twitter and Facebook.

    Agora Financial

    To end your Daily Reckoning e-mail subscription and associated external offers sent from Daily Reckoning, cancel your free subscription .

    If you are you having trouble receiving your Daily Reckoning subscription, you can ensure its arrival in your mailbox by whitelisting the Daily Reckoning.

    © 2009 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the World Wide Web), in whole or in part, is strictly prohibited without the express written permission of Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202. Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

    No comments:

    Post a Comment

    Note: Only a member of this blog may post a comment.