Economy Fails, Lose A Turn (or a year or more)

January 31, 2008

Chicken Smith View:

Stocks DownOne year ago on January 31, 2007, the DOW closed at 12,621.69.

Today, on January 31, 2008, the DOW closed 12,650.36. This is growth? This is cause for celebration?

So what happened to all the records that the DOW broke over the course of 2007? What happened to that glorious bull market everybody was rushing to be a part of? Nothing. It was never really there. And now we’re back to January 2007 levels. What’s next 2006, 2005, 2004?

Oh, the numbers did get to 14,000, but it was all irrational exuberance. Not a true representation of a market economy. That got left behind along with the old century. Today, it is no longer supply based on demand, rather it is demand based on supply — if you’ve got the money (or credit) and it’s available, just buy it. Who cares if it’s any good, everything eventually goes up, doesn’t it? Besides, when stocks are down, isn’t that the best time to buy?

Have you purchased eggs lately? Inflation is going through the roof! I don’t have to remind you of the housing mess, but what about the dollar mess? Or the frivolous lawsuit mess? Or the credit crunch? Or the political mess? Or the health care mess? Live in Massachusetts and can’t afford health insurance? No problem, just pay an outrageous fine for every month you weren’t insured to the Department of Revenue and at least those who don’t even work will be able to get some sort of sub-standard subsidized health care while you get taxed to death (you can thank Mitt Romney for that one).

It seems every aspect of our modern, “first-world” civilized life is taking a turn for the worse. And remember that the stock market is a trailing indicator, so that means we’ve yet to feel that pain. And that talk of a recession? Too late, we’re already waist deep in it.

What to do? You’ve got me. I’ve recommended everything from getting solar panels and digging your own water well to learning another language and exiting our currently collapsing U.S. society. The truth is, nobody knows what’s going on, nor what the best course of action is. For all I know, the rest of the world will suffer right along with us.

Great Depression ChartMy feeling is that the U.S. will be in a recession and/or depression for at least five years. I’ve heard numbers as high as 15 and 20 years, which lead me to believe it can easily get to 10 years of economic turmoil or more. If the Great Depression is any indicator, we may be in this for over 20 years! According to this chart of the stock market crash of 1929, I’d say we might be headed for a big drop, followed by a “Short Recovery” followed by never-ending drops.

Head for the hills? Fuggit about it, just charge up your credit cards and hope Visa & MasterCard collapse before you do.


Employment Plunges, Credit Tightens, Gold Climbs, Market Crash Forecast, Great Depression Ahead

September 8, 2007

The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987,” Greenspan was quoted by the newspaper as saying… http://www.reuters.com/article/ousiv/idUSN0640900320070907

Citigroup Unit Won’t Take New Mortgage Bank Clients… http://www.bloomberg.com/apps/news?pid=20601087&sid=aP1Ebhaa1J30&refer=home

The utterly ugly employment figures for August (a fall in jobs for the first time in four years, downward revisions to previous months’ data, a fall in the labor participation rate, and an even weaker employment picture based on the household survey compared to the establishments survey) confirm what few of us have been predicting since the beginning of 2007: the U.S. is headed towards a hard landing…. http://www.rgemonitor.com/blog/roubini/213894

33 percent of home loans didn’t close last month. A third of home loans originated by mortgage brokers failed to close in August as investors shied away from riskier borrowers, a new survey says… http://www.mcall.com/business/local/all-mortgages.6029291sep06,0,7164270.story

Countrywide May Cut Staff by 12,000. Countrywide Financial Corp., the nation’s biggest mortgage company, may reduce its workforce by 10,000 to 12,000 in the next three months, a 20 percent cut… http://www.bloomberg.com/apps/news?pid=20601087&sid=aQhytb8fv1Tk&refer=home

LEHMAN CUTS 850 MORE JOBS: Lehman Brothers Holdings Inc., which shut its subprime mortgage business last month, is cutting 850 more jobs, mostly at a U.S. subsidiary catering to borrowers with decent credit scores…http://www.nypost.com/seven/09072007/business/lehman_cuts_jobs_in_alt_a.htm

IndyMac to Cut 10 Percent of Jobs; May Post a Loss… http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azgqnpf9trLM

Don’t you just feel real sorry for gold? Look at that poor chart below and weep. …Actually weep for those idiots who cannot recognize a gold bull market when they see one. Hah! Gold will yet go where gold wants to go and perhaps where it has never been before– higher Margarita… http://www.kitco.com/ind/vaughn/sep072007.html

Gold Prices Climb As Stocks, Dollar Fall… http://www.forbes.com/fdc/welcome_mjx.shtml

Debugging Wall Street’s funky math. Big chunks of investment banks’ earnings are from assets that few know how to value. Should investors and regulators be concerned??? http://money.cnn.com/2007/09/06/magazines/fortune/eavis_level3.fortune/index.htm?postversion=2007090710

As Housing Market Cools, Far Fewer Become Agents… http://www.nytimes.com/2007/09/07/business/07agents.html?em&ex=1189310400&en=78ece3289daf0498&ei=5087%0A

America is already in a recession and the U.S. Government is flat broke to the extent of 8.9 trillion dollars. In other words, every man, woman and child in America owes $29,672 dollars in Government debt… http://www.opednews.com/articles/opedne_allen_l__070830_america_broke__2f_aver.htm

US Economy: Drowning in Debt… http://www.opednews.com/maxwrite/link.php?id=21979

American Dream Slashed Along with Home Values… http://www.opednews.com/maxwrite/link.php?id=37915

The Great American Dream still exists — in Iraq! http://www.opednews.com/articles/opedne_jane_sti_070329_the_great_american_d.htm

America’s House of Cards Economy… http://www.opednews.com/articles/opedne_michael__070814_house_of_cards.htm

Economic Armageddon Is Coming… http://www.opednews.com/articles/opedne_joel_s___070423_economic_armageddon_.htm

Bush’s Economy Is Poverty Stricken, Bleeding Jobs and Ready to Crash… http://www.opednews.com/articles/opedne_dan_meri_070524_bush_s_economy_is_po.htm

China’s Passenger Cars Leave US in the Dust… http://www.opednews.com/articles/genera_braden_g_070327_china_s_passenger_ca.htm

Chicken Smith View:

I know what you’re thinking; “how can this great, rich, powerful, generous and glorious country collapse?” Well, starting with the fact that the Egyptians, the Greeks, the Turks, the Ottomans, the Romans, the Mayas, the Spanish, the British and basically anyone that’s ever been in or part of a “great empire” all thought the same thing (even more so right before it collapsed), and then proceeding to the fact that we are facing similar historical events that preceded their demise, I think it’s highly likely that our great nation can see a reversal of fortunes in the near future.

What to do? Save your money! Have some gold and/or silver (no I don’t sell any). Consider the possibility of moving overseas (or across the border, Canada eh?). Get some useful skills such as learning to modify a car to run on cooking oil, building a solar panel, fortifying your home against intruders, digging a well in your back yard, learn another language, and anything else that can prep you for some tough economic times (which in turn can lead to some tough social times). Hey, if nothing else happens, at least you’ve got some good skills that will help you in our new world economy.


The Coming Of The Second Great Depression

May 3, 2007

Here’s a quote from an insightful interview with Warren Brussee, author of The Second Great Depression. Read the entire interview when you get a chance.

If people had been saving, some cushion could have been found through reducing the savings amount. But people have had a negative savings rate for the last 24 months. People have been living on the edge, and there is no cushion. The economy has been carried by the money that housing put into the economy. With that source gone, and with people now beginning to have to repay their loans, we are going to be driven into a deep recession, followed by a probable depression.

Chicken Smith View:

Another brief re-cap of some of the major events that will prompt the next depression:

1. 2000 – 2003 In an effort to avoid a recession, due to several quarters of negative GDP, the Fed lowers the Federal Funds Rates from 6.5% in May 2000 down to 1% in June 2003.

2. 2001 – 2005 Housing market soars as demand for homes exceeds supply. New homes are built. A huge sub-prime mortgage sub-sector of consumers purchase homes that they otherwise wouldn’t qualify for by taking out adjustable rate mortgages (ARMs).

3. 2002 – 2006 Consumers cash out on their rising property values by taking out equity mortgages to pay for travel and non-durable goods.

4. 2003 – 2005 A huge surge in the economy results from all the spending prompted by the cash out. Excessive spending causes Americans to deplete their savings and assume more debt. Inflation begins.

5. 2004 – 2005 In an effort to reduce the inflationary effects of the economic boom caused by the housing market and the increase in consumer spending, the Fed begins to raise the Federal Funds Rate. The rate goes from 1% in 2004 up to 5.25% in June 2005.

6. 2006 – 2007 The housing market reaches its peak and begins its downward path as interest rates rise and most demand has been met. Home builders all but stop new construction. Housing related businesses begin to see unemployment due to lower sales. ARMs begin to reset and homeowners experience sticker shock as their mortgages rise by as much as 50%.

7. 2007 – 2010 The American economy goes into a depression due to the domino effect that the housing market has on the rest of the economy.

I believe the Fed interest rate adjustments were just a band-aid on what would have been normal cycle recession and we simply delayed it and made it worse. We are now facing a major depression precipitated by the fact that we no longer have any savings and now-a-days every Tom, Dick and Harry have money in the stock market. It’s no longer something the informed investor does, rather something anyone with an internet connection can participate in.

The Dow Jones Industrial Average recently rose to 13,000 in seven weeks, when it took more than seven years to reach 12,000. Capital spending is down and companies are buying up their own stock. Consumer spending is only temporarily up right now, as that will take a big hit once everyone wakes up. The price of consumer goods as well as food staples such as corn and milk are going up, that in turn, raises the price of all sorts of products that come from those prodcuts and food prices usually don’t come back down.

The best advice I can offer is to save your money, but don’t keep it in a volatile place (ie, not the stock market), have some tangible assets (ie, a home that’s already paid for, maybe gold, maybe a bio-fuel car, or solar panels), and have a plan to ride out a downturn in the economy (ie, a backyard vegetable garden, maybe some canned goods).

If history is any indicator, things should get better. I say should because there are other factors that will come into play here that have not been part of previous recessions and the Great Depression, factors such as the devaluation of the dollar, foreign ownership of US companies and US debt, and a general disdain for all things American in some parts of the world. So even if our dollar is cheap, world-wide interest in some of our products has been diminishing, so there may not be an increase in our exports due to our devalued dollar.


Forget Web 2.0, Next Up Is Great Depression 2.0

February 22, 2007

“In real terms, the economy is already in recession… Industrial output continues to flag (in January it was down by another .5 percent) while millions of good-paying factory jobs are being airmailed to China where labor is a mere fraction of the cost in the USA. Also, automobile inventories are up while factory production is in freefall.” – Online Journal, February 22, 2007

Chicken Smith View:

Let’s look at a couple of charts from the government’s Bureau of Economic Analysis (BEA):

Trade Defecit

This chart represents our current trade defecit. Yes, it’s negative. Yes, it means that we import more than we export. We also spend significantly more than we make. So how can we do that? Credit. Just like you can buy all you want on your credit cards and only pay the minimums each month, so too does the rest of our economy. From a regular person like you or me all the way up the food chain including investors, corporations, our government, everyone in our country is living on credit. Which leads us to this next chart:

Debt

This chart shows our ever increasing debt. And of course, there’s no collective plan to reduce that in any way. Unfortunately, these credit defecits can’t go on forever. Eventually some market condition changes (ie, foreign investors start dumping their dollars, too many banks collapsing, a market crash, too many bankruptcies, etc.) and the credit bills will become due. That’s when no one will have the money to pay them back and everyone will start waking up to the fact that credit is not infinite.

So, how will all this end up? Economists don’t know, the Fed doesn’t know, investors don’t know, banks don’t know, and the government doesn’t know. The fact is that because the future is so uncertain, it’s in a lot of people’s best interest not to know, or worse, say that everything is going well “there’s nothing to see here, move along…” and it’s all blue skies ahead.

The truth is, that the signs are all lining up, just like they did prior to the first Great Depression, and the signs are all pointing to a dramatic down-turn in our debt-ridden economy. But wait, aren’t we a world power, the richest, the biggest spenders, the best? Well, sure, but we’re also the the biggest debtors, close to 60% of all world-wide credit is consumed by us. One of the major factors of the Great Depression was buying on margin. This is true today, and we’re so deep in credit that there’s really no way out unless the market corrects itself via Great Depression 2.0.

BTW, do read the Online Journal article by Mike Whitney if you get a chance. It lays out the causes of the next depression in greater detail.


If you read nothing else, read this article…

January 10, 2007

Mike Whitney, in his latest article, has done an excellent job in summarizing what I have been trying to convey in this blog and my personal e-mails to folks. Please read all of it (or as much as possible) and understand why we are destined for a recession at best and, more than likely, a depression at worst.Short of banks saying to all the ARM borrowers; “don’t bother to pay that interest rate increase on your mortgage payment”, which is not likely to happen, a sharp downturn in our eceonomy is destined to occur.

http://www.dissidentvoice.org/Jan07/Whitney09.htm

Chicken Smith View:

Ignoring this stuff will not make it go away. This is also not a self-fulfilling prophecy that will be brought upon the nation by all the nay-sayers and public fear. We are in real danger of a major economic catastrophe that has already been set into motion by forces outside of the control of wishful thinking. So ignore this at your own peril.


Who wants to plant the farm, dig a well, and trade peas for carrots?

December 21, 2006

When goods become scarce, or too expensive to purchase, we must re-learn how to provide the necessities for ourselves…

http://goldprice.org/news/2006/08/you-cant-eat-gold-self-sufficiency-is.html

Chicken Smith View:

This can happen.


Sound familiar? Replace 1929 with 2006…

November 29, 2006

Below are some quotes I’ve selected and highlighted from a documentary on “The Crash of 1929”. The full transcript can be found here: http://www.pbs.org/wgbh/amex/crash/filmmore/pt.htmlSome points to keep in mind while browsing the quotes below. Replace 1929 with 2006. In addition to the stock market, add the housing market, our national debt, credit card debt, globalization, etc…

Let me know if anything sounds familiar. Short on time? Read the items in BOLD.

“…everyone seemed to have an interest in the stock market. Certainly, the boot black, the tailor, the grocer owned shares of one kind or another.”

“The stocks themselves have no fixed value… No demand and the price goes down. For almost eight straight years, stock values had been rising. By 1929, there seemed to be no upper limits in this world of paper, numbers and dreams.”

“We were the only strong country in the world. The dollar was king.”

“One of the most wondrous inventions of the age was consumer credit. Before 1920, the average worker couldn’t borrow money. By 1929, “buy now, pay later” had become a way of life.”

“The stock market, once considered a highly risky place to put your money, was now beginning to attract a whole new group of amateur speculators.”

“Wealthy investors would pool their money in a secret agreement to buy a stock, inflate its price and then sell it to an unsuspecting public… Now, what’s happening is the stock goes from 10 to 15 to 20 and now, it’s at 20 and you start buying, other people start buying at 30, 40. The original group, the pool, they’ve stopped buying. They’re selling you the stock. It’s now 50 and they’re out of it. And what happens, of course, is the stock collapses.”

“Wall Street had its critics, among them economist Roger Babson. He questioned the boom and was accused of lack of patriotism, of selling America short.”

“Roger Babson warned of the speculation and said, “There’s going to be a crash and the aftermath is going to be quite terrible.” And people jumped on Babson from all around for saying such a thing…”

“This was a time in our history when governments did not, as now, take responsibility for the economy… what Coolidge did was to say how wonderful times were, how happy everybody was going to be and how prosperous everyone was going to be.”

“…the Federal Reserve Board… saw the speculation as reckless and dangerous because it was based more and more on the shaky foundation of borrowed money…”

“With everyone trying to borrow money to cover the falling value of their stocks, there was a credit crunch. Interest rates soared. At 20 percent, few people could afford to borrow more money. The boom was about to collapse like a house of cards.”

“Everything was not fine that spring with the American economy. It was showing ominous signs of trouble… The construction industry was sluggish. Car sales dropped. Customers were getting harder to find. And because of easy credit, many people were deeply in debt. Large sections of the population were poor and getting poorer.”

“Just as Wall Street had reflected a steady growth in the economy throughout most of the 20s, it would seem that now the market should reflect the economic slowdown. Instead, it soared to record heights. Stock prices no longer had anything to do with company profits, the economy or anything else. The speculative boom had acquired a momentum of its own.”

“It was this nature of mass illusion. Prices were going up, people bought. That forced prices up further, that brought in more people. And eventually, the process becomes self-perpetuating. Every increase brings in more people convinced of their God-given right to get rich.”

“…everyone was buying Florida real estate. As prices of land skyrocketed, more people jumped in, hoping to make a killing. Then, overnight, the boom turned to bust and investors lost everything.”

“the J.P. Morgan people would have something to say about how good things were — and I thought, “Well, they know a lot more about this market than I do.”

“Practically every business leader… and banker, right around the time of 1929, was saying how wonderful things were and the economy had only one way to go and that was up.”

“October 29th. Morgan’s bankers could no longer stem the tide. It was like trying to stop Niagara Falls. Everyone wanted to sell. AT&T down 50 percent. RCA, once $110 a share, couldn’t find buyers at $26. Blue Ridge 100 plunged to $3 and still no buyers.”

“For most others, it was all over… Hope of an easy retirement, the new home, their children’s education, everything was gone.”

“And it was just like a nightmare and I couldn’t believe what was going on here. “

“There’s nothing unique about this. It is something which happens every 20 or 30 years because that is about the length of the financial memory. It’s about the length of time that it requires for a new set of suckers, if you will, a new set of people capable of wonderful self-delusion to come in and imagine that they have a new and wonderful fix on the future.”

“At the end of 1929, as they celebrated New Year’s Eve, all that lay in the future. Nobody knew that the Great Depression was coming — unemployment, bread lines, bank failures — this was unimaginable. But the bubble had burst. Gone was that innocent optimism, the confidence, the illusion of wealth without work… they knew the party was over.”

Chicken Smith View:

Wake up people!!! This is not just a sign, it’s history repeating itself! Start fortifying your defenses. Invest in tangible goods that will hold their value. Gold anyone?