| The Weekend Edition - September 5-6, 2009 |
Traders were only focused on one thing Friday: vacation... The Mogambo with instructions on achieving a 'sound currency'... Outlook not great in the Empire of Consumption, says Byron King... Frank Holmes on why September is the best month for gold... But Sept. is bad for the overall market, explains Bill Jenkins... Bill Bonner warns that the 'brains' are at it again - look out!
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The Daily Reckoning's Highlight of the Week:
Highest Unemployment Rate Since 1983
Baltimore, Maryland
The first week of September has been filled with ups and downs...but mostly downs. After a plunge on Tuesday, the stock market is shaky...and concerns are high about the performance on Wall Street on Tuesday, following the holiday weekend.
However, gains in stocks accelerated on Friday afternoon, after the jobs data was released. Investors took notice that the numbers of jobs lost in August was smaller than expected - and chose to ignore the unemployment rate's rise to its highest level since June 1983.
Are we the only ones that see this little tidbit as a bad sign? Maybe investors have other things on their minds. Says Jonathan Vyorst, senior vice president and portfolio manager at Paradigm Capital Management, "...it's a less panicky day because everyone's thinking about vacation."
Well, enjoy the bliss while you can...we think stocks will be in for a rude awakening come Tuesday morning.
But none of this is coming as a big surprise to Bill Bonner. In fact, he sees everything happening just as expected. Keep reading for the Highlight of the Week...
So far, everything is happening just as we expected. After more than half a century of boom, we are now in a bust. People need to downsize...cut back...and live a little less large than they had in the boom years. That means...well...just what you'd expect.
Wasn't it just yesterday that we reported that Florida was losing population? People just aren't retiring like used to. Here's comes the evidence:
From The New York Times comes this headline: "Older US Workers Put Retirement on Hold."
The Times tells us that older people are continuing to work because they don't have a choice. They can't afford to retire. So they hold onto jobs, which is another reason it's so hard for the unemployed to find a job. Those who have them aren't giving them up. A Bloomberg report today, for example, tells us that more people are applying for job benefits than expected. Another tells us that millions of people are running out of benefits before they find a job.
Just what you'd expect, in other words. Here are some of the other things we expected:
1. Unemployment is still rising.
"Investors discouraged by US jobs report," says a headline at the International Herald Tribune. To make a long story short, August was a disappointment. More jobs were lost than expected.
We don't know how many jobs we should expect to lose. But we're in the downhill part of the credit cycle; we're bound to lose a lot of them.
2. Sales are falling.
That's another thing we would expect. People have to cut back. So...they do cut back. Sales go down. That means fewer sales and fewer jobs. No point in making things, shipping them and retailing them if no one is buying them, right?
3. What else would you expect? Lower house prices? Check. Higher savings rates? Check. More bankruptcies? Check. Falling prices? Check.
Isn't it nice when things work out "as they should?' Check.
[While most are scrambling as the downturn deepens, you could be sitting pretty...due to a 'loophole' in the bailout. This loophole allows you to get 'bailout income checks' this year - and every year - until the U.S. economy recovers. You could make up to $17,500 in this year alone. Act now...] 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.
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| ALSO THIS WEEK in The Daily Reckoning: Getting ready for the last holiday of the summer and missed a DR essay this week? Never fear...we have them all for you, below...
8/31/09: Driving a Fiat Currency Into a Tree
by The Mogambo Guru
Tampa, Florida
"...achieving a 'sound money' is the easiest thing in the world! Just stop creating more of it! That's all you need!"
09/01/09: An Empire of Consumption
by Byron King
Pittsburgh, Pennsylvania
"Now people with white collars are getting hit with permanent job losses in sectors like banking and law. Many parts of the nation's financial districts are the new Rust Belts of America."
09/02/09: September is the Best Historical Month for Gold
by Frank Holmes
San Antonio, Texas
"The Federal Reserve's massive stimulus spending and the expectation that the current low-interest-rate environment will continue for many more months are additional headwinds for the dollar, and thus tend to be positive for gold."
09/03/09: The September Syndrome
by Bill Jenkins
Pylesville, Maryland
"We are now in just the second year of this disaster. We are witnessing an almost perfect copy of the first Great Depression. And there are more nasty little secrets in the economy, waiting like ticking time bombs to explode."
09/04/09: The Fixers Aim to Fix Fixes With Another Phony Fix
by Bill Bonner
Baltimore, Maryland
"Smart people were also to blame for the biggest single error of the last century: central planning. The central planners thought they could fix the supposed evils of the natural economy with logic and reason. The idea was so alluring half the world fell for it."
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Finally, we take a look at our two favorite government-sponsored entities.
Last year, Fannie and Freddie lost $100 billion between the two of them. Even with almost $100 billion in federal bailouts, they couldn't stop losing money hand-over-fist.
However, over the past month, investors took a second look. Fannie Mae jumped by as much as 266% in August, while her brother, Freddie Mac, soared a whopping 300%.
Lifetime Income Report's Jim Nelson with more on this story:
"We aren't going to try to predict what these two will do, but we are fairly certain that President Obama and Secretary Geithner won't give up anytime soon.
"In February of this year, Geithner told reporters that as much as $200 billion could go toward each of these two semi-government entities - up from the initial $100 billion. All of this money will have to be paid back to the government - at least in a perfect world - through special private preferred stock yielding 10%. But when you need money as badly as these two, you're willing to take that 10% interest rate.
"Sure enough, they are still asking for more money. Fannie just asked for another $10.7 billion last month. That's nothing, though. Each of these mortgage lenders have up to $150 billion left before they reach Geithner's $200 billion mark.
"While this leaves an incredibly sour taste in the mouths of any taxpayer, it is making some on Wall Street very rich. 300% in a month is a rare feat, but they are pulling it off.
"We, [at Lifetime Income Report] however, are staying as far from Fannie and Freddie as possible. That kind of rise, with very little actual reasoning behind it - other than access to this bailout capital - gives us absolutely no hope that common stock in these companies is worth a single penny."
We'll keep you updated on this story as it unfolds.
Enjoy the rest of your weekend,
Kate Incontrera
The Daily Reckoning
P.S. Jim's Lifetime Income Report readers are already on board to take advantage of all these bailouts. In fact, they're in position to do much better than the government even if Fannie and Freddie pay up. Join them...learn how by clicking here.
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