By Greg Hunter

This cartoon would be even funnier if were not partially true.  These days the average American owes $8,000 dollars on his credit cards.  I was asked by a friend of mine, “How should I hedge my investments in this environment?”   What  he really should ask is, “ How do I prepare for an economic storm?”  I am not a money manager, so I cannot tell you how to make tons of money.  I can tell you how to rig for trouble.

First of all, the best hedge you can have is low or no debt.  Once you have a car payment, credit card payment or mortgage payment, you cannot cut back on it.  In tough times, you either continue to pay or default.  So, cut your debt first and foremost.  If you have a car payment, pay it off.  When you own your car and your state DMV sends you the title, it will amaze you how well that paid for car will run.  Car leasing is one of the worst  things you can do financially unless you work in sales and you can write it off.   Do not lease.  Find a good used car and pay it off as fast as you can.  It will be cheaper and more cost effective.

Credit cards are death on plastic.  You should only use a credit card if you can pay it off every month.  If you are carrying a balance, interest is eating your financial house like termites 24/7.   If you want some motivation to help you accelerate paying off  your credit card debt, then take a good long look at what you pay in interest every month.  Let’s say the interest portion of your payment is $300 dollars a month.  Start thinking in terms of 300 bucks a month in gas, groceries, shoes, tires, whatever, but start thinking in terms of what you could be buying instead of paying interest to the credit card company.  This will be painful to ponder but you need to do it for motivation to pay off those credit cards.

Save some money!  Keep at least 6 months of emergency money!  Then and only then are you ready to hedge your investments.  You should bank at more than one institution and check its financial health at a place like The Street.com or Bankrate.com. I do not get paid to promote these companies; these are just the ones I use.  You should also have two well capitalized brokerages.  I like Scottrade and Edward Jones. Again, I do not get paid to promote these companies. These two places have some of the highest capital ratios in the business.  That is important because the insurance that you get on your brokerage account is not really worth that much.  It is not easy to collect and you are not guaranteed to get all of your money back.  Also, look at the Bernie Madoff and Alan Stanford fraud cases.  People who were wiped out had all their money in ONE PLACE and that is stupid!!

You should also own some physical gold such as U.S. minted coins. Most experts recommend between 5 – 15%.  You should keep it in a safety deposit box at a bank you check out and trust.  I guarantee you every rich person has a physical gold position.  And finally, let me repeat myself…GET OUT OF DEBT and STAY OUT OF DEBT.  If that means staycations and wearing shoes longer than you would like – suck it up and do it!

By Greg Hunter

President Obama’s speech on health care to Congress was high on emotion but short on details.  When he was finished, I wasn’t sure the “Public Option” was in or out.  I do not know how you can insure an additional 46 million people for free.  Obama said he won’t sign a bill that adds,”one dime to the deficit, now or in the future.”   On the other hand, the Congressional Budget Office thinks health care will add 239 billion dollars to the deficit in the next 10 years.  Michael Tanner of the Cato Institute says,”If the new health care entitlement were subject to the same 75-year actuarial standards as Social Security…” the bill will add an additional  9.2 trillion bucks to the deficit over the next decade.   That said, I think the President will get a health care bill through Congress.  It will not be the bill the far left or far right wants, but there will ultimately be a bill to sign.  Obama needs a victory, and I predict he will get one and it will cost real money!

I’m worried about the real problem in America, unemployment!   Yesterday on MSNBC’s ”Morning Joe,”  someone said ”…unemployment was Obama’s next big problem.”   What!!   It was a problem when the President entered office, and with 15 million people out of work, unemployment is a problem right now!!!  That comment was made while Time Magazine was rolling out it’s next cover.   It’s called “Out of Work in America.”  If Obama doesn’t get this fixed by 2012, he will be standing at the end of that long line on the cover.

I cannot for the life of me  figure out why the health care  issue was pushed ahead of unemployment, which is a symptom of a bad economy.  Don’t get me wrong, health care is a big issue but compared to the ongoing financial meltdown, it’s like fighting over band-aids on the deck of the Titanic!  The financial situation in the country is not just bad, it’s in cardiac arrest!   I know the Fed just came out and said the worst recession in 70 years was over, but that is simply  preposterous!  

 We just paid people $4,500 a pop to trade in their “clunker” and buy a new car because it was the only way to pull the auto industry out of a tailspin.  America is in the hole and going deeper by the day.  Just this week, the  government sold 70 billion of our national debt.  That is 70 billion dollars in Treasuries in a single week to help fuel the biggest budget deficit in U.S. history!!!     2009 will produce a record deficit of 1.58 to 1.84 trillion dollars of red ink.  That’s nearly 4 times what the Bush administration ran up in 2008.    The Treasury Secretary also thinks we will not be coming out of this economic mess anytime soon and he admitted as much in early September at a Congressional Hearing on TARP spending.   Foreclosures are up, and it’s forecast  by the Treasury Department that “millions  more are coming.”   Speaking of  real estate, those lucky enough to stay in their homes are going to continue to be hit with falling prices.  Commercial real estate is in free fall.  Banks are failing at a rate of a half dozen a week.  The government is printing money to buy it’s own bonds to artificially suppress interest rates, and unemployment is at 21%  and rising (using shadowstats.com computations).   There is no way the worst is behind us, quite the opposite. 

Obama may win the health care battle, but he will lose the war on the economy or, at best,  just keep it on life support.

By Greg Hunter

I am not a gold bug, but I can spot a warning sign when I see one.  Gold is near an all time high and this is no fluke!   High prices are the result of  big demand from monster players who are afraid of a dollar crash.    My fears all center around Fed Chief Ben Bernanke’s announcement in mid-August of  plans to end Quantitative Easing.  QE is a program where the Fed used more than 300 billion in “printed money” to buy Treasuries to artificially hold interest rates down.   The Fed wants this program phased out by the end of October.   Oh really!  Bernanke is going to stop buying debt and allow interest rates to spike!  Not a chance.     Interest rates could go up dramatically, and any homeowner with an adjustable rate mortgage would be hit with higher payments…much higher.   I, and many other people, think  The Fed will be forced to keep “printing money” and that creates an even bigger problem for the dollar.   Martin Hutchinson at the Prudent Bear revealed his prediction in a recent article called “October Surprise,” …” Given the current predilections of the world’s central bankers, it is likely that when the T-bond bubble bursts, they will rush to the printing presses, the Fed buying Treasuries in a frantic attempt to stabilize the bond market. In all but the shortest term, that is unlikely to work; it will cause a spiraling increase in gold, oil and other commodities…” Hutchinson goes on to say,”If October 2009 fails to produce a full-scale T-bond rout, it will not be long delayed thereafter…”

He’s not the only one feeling something bad is coming.  New York University Professor Nouriel Roubini, who predicted the financial crisis, said recently,“If markets were to believe, and I’m not saying it’s likely, that inflation is going to be the route that the U.S. is going to take to resolve this problem, then you could have a crash of the value of the dollar.”

Nassim Taleb, author of the runaway best seller “The Black Swan,” said in mid-August on CNBC ,”The risk is still there and we are probably worse off than we were before.” You definitely cannot call Taleb a market cheerleader and he is clearly not comfortable with this so-called “recovery.”   You can check it out in the video below.

I think  when Taleb says, “worse off” , he means the economy is worse now than when Secretary of the Treasury Hank Paulson told members of Congress last year that there was risk of “systemic failure.”  Right after that Congress voted for TARP money to bail out the banks.

Even easy Al Greenspan is a little worried about the dollar.  “Unless we roll in this whole degree of expansion, we will be in trouble,” the former Chairman of the Federal Reserve told a conference in Mumbai via videoconferencing.  “I am not talking 3-5 per cent inflation, I am talking double-digit inflation in the US.”

Finally, there is John Williams at shadowstats.com.  Just last week, he correctly predicted there would be a “negative surprise” with the unemployment number.  He was right on target, it was worse than expected.  Now he says,”With both the economic and systemic solvency crises, I believe the worst
still is ahead of us.”

How far ahead of us is my question?  Famed gold investor Jim Sinclair thinks the dollar will take a big hit,”in the middle of the fourth quarter.”  Sinclair also thinks the Fed will once again be forced to ”print money” to buy Treasuries when the QE program ends.  When that happens, the dollar will fall hard and all hell will break loose.

Just like the famous book “Something Wicked This Way Comes,”  there will be horror.  Who knows how it will all turn out, but there will be no happy ending and gold will sell at a much higher price.

By Greg Hunter

I love the phrase “A picture is worth a thousand words”  because you tell a lot of people a complicated story in a short amount of time with just one look.   The “Other Real Estate Problem”  I am talking about in the headline is commercial real estate such as malls, hotels, office space and industrial sites.    You have not heard too much about this problem, and most people believe it does not affect them, but it does!   As commercial real estate goes so goes the economy and that could very well mean continued job losses.   The picture below is from the The National Council of Real Estate Investment Fiduciaries:

This graph is included in an excellent article written by Brian Pretti of  Financial Sense Observations.  Please note in the lower left hand corner of the chart,”We have NEVER seen anything like this.” That means this is big folks!  This chart shows what is happening to the value and the income generated for about 6,000 properties with nearly 300 billion in value.  For the rest of the story about commercial real estate, please read Pretti’s well done in depth article by clicking this link.

The Friday headline in the Wall Street Journal reads “Job Losses Moderate But Unemployment Hits 9.7%.”  This is just a short post to give you the “Real” number according to John Williams at shadowstats.com.  He recreates government statistics the way they were done before the Bureau of  Labor Statistics changed methods to make things look better than they really are.  According to shadowstats.com, the unemployment rate using the BLS method in 1994 would be 21.1%, an increase of .5%.  By the way, Williams predicted there would be a negative surprise two days ago.  (see USAWatchdog post ”Alert! No Substance to Economic Recovery)   He was right on target!

By Greg Hunter

There are so many reasons why this stock market should be hitting a wall.  Just a few are: high unemployment, plummeting tax revenues, major real estate declines, defaults in both residential and commercial properties, hundreds of banks are expected to fail this year and next, cities and states going broke and wars fought on 2 fronts. There is no end or resolution in sight for any of these problems.

Yet, the stock market has ”climbed a wall of worry” to produce one of the biggest bear market rallies in history.  The DOW is up about 50%  in just 5 months.  The market by most standards is not cheap.  So is everybody crazy?  Well, apparently corporate insiders are not.  They were dumping their stocks at a rate of 30 to 1 during the month of August according to TrimTabs Investment Research.  That means for every insider buying shares of stock, there were 30 insiders selling shares of stock!  According to TrimTabs, that is a record.  Take a deep breath…that is the smell of the money harvesting Wall Street machine revving it’s engine!  Nowhere is the buy low and sell high mentality more apparent than in this chart of the S & P 500 below :

The S&P 500 is at about the same level as it was in 1997. And consider this, people have been stuffing around 5 to 10 percent a year into their pre-tax  retirement accounts (which amounts to hundreds of billions of dollars.)   So shouldn’t the market be much higher?    Where did all that cash go?   The money was “ harvested” by insiders, hedge funds and big banks!  These folks sold high, took your contributions and left you holding the losses.  All the while, “the experts” told you to be a “long term investor” and be “diversified.” What happened in the last 12 years?  Isn’t that enough time to make some money?   Isn’t a group of 500 top stocks diversified?  Well look at the picture above and any 3rd grader can see THAT DIDN’T WORK!!! You could have beaten S&P 500 returns by a mile by just putting your money in an FDIC insured bank account during the last 12 years!!  On top of that, you would not have paid a  management fee (1 percent on average) which would have saved you another 12 percent!   What a rip-off!!!

Also, consider the fact there are a whole lot of companies that are no longer in the S&P 500 because they have either gone bankrupt or the share price has evaporated.   That means the “investing” picture for the little guy is actually a whole lot worse than the S&P shows.  Let’s name  just a few companies in the past 11 years that delivered a big loss to anyone holding them:   Lehman,  Bear Stearns, Fannie, Freddie,  AIG, GM, Chrysler, Enron, WorldCom, Adelphia, Wachovia and WaMu.  That is only a few I can name off the top of my head.   I think you get the point.

Fast forward to today and  reconsider the 50% increase in the market in just 5 short months.  Still, most people are down at least 30 percent from the high.  If you are a trader or insider, you love this market!   If you are a “buy an hold”  investor, get ready to sit on another big loss in the old 401k or sell some stock and you too can harvest some money just like the big guys!

By Greg Hunter

John Williams of shadowstats.com put out an alert today (9/2/09).   It read, in part,”Something Brewing in Systemic Solvency Crisis?” Part of what Williams  does is give forecasts to clients, some of which are big companies and hedge funds.  He  bases his predictions on government statistics but not the way they are done now.  Williams rebuilds government stats the way they were computed before they were distorted.   In other words, the way government statistics are done now makes things look better than they really are.   For example, the official unemployment rate stands at 9.4% , but if you compute UE as it was done by the Bureau of Labor Statistics (BLS) prior to 1994 it would be 20.6%.  By the way, Williams predicts unemployment will reach 34% in 2 years!

Williams says money growth is slowing which is probably why he thinks there is “no substance to economic recovery.” Slowing money growth equals big problems for the financial system and it will force the Fed to act again.  So what will the Fed do?  It appears create more money.  Williams says the monetary base…”surged”  at the end of August .    Also, Williams thinks  the reappointment of Ben Bernanke is another yellow flag.  Even though there were rumors of replacing him, it just does not make sense considering the problems on the horizon.   My take: There are plenty of shoes that will be dropping and it’s probably best to give the appearance of continuity and stability in the face of a new wave of financial turmoil.

Finally, Williams thinks there is going to be a negative surprise with Friday’s (9/4/09) unemployment number.  In other words, there is going to be a bigger unemployment number than expected.

For the complete report and other accurate recreated government statistics, subscriptions are available at John Williams’ site: http://www.shadowstats.com/

I did not get paid to write this article or to push shadowstats.com.  I just think Williams knows what he’s talking about and backs it up with facts.  What shadowstats.com does is something you will not see much of in mainstream media.  John Williams has appeard on network and cable TV and has been quoted in many national publications.

By Greg Hunter

FDIC Chairman Sheila Bair dropped a small bomb on CNBC last night.  She said, “Commercial real estate will be more of a driver of bank failures.”   What! You mean more than the imploding residential real estate market? Oh… at that point I felt a little sick at my stomach.  There already is a huge unrelenting problem in housing.   (see my post from last week “Real Estate at a bottom?…Not!”) Now there is going to be an even bigger drag on the banks!  It will be a colossal second wave of commercial property defaults that will kill bank balance sheets.  I have to admit, Larry Kudlow did a good job of pressing Bair for a true picture of  the banks’ financial health both big and small.  When she started mentioning  “full faith and credit,” she looked nervous to me.  Just give it a look  right up until they start talking about the “Super Regulator.”  (This is kind of long so you can also just skip it and read on after the video.)

The Federal Deposit Insurance Corporation has about 4.5 trillion in insured deposits with only 10.4 billion in net worth.  Said another way, that is 10.4 billion to insure 4,500 billion dollars.  No wonder Bair looked nervous.  The FDIC does have a direct line of credit to the Treasury of 500 billion.  There is no doubt she will  be tapping that money to pay depositors in this next wave of commercial real estate collapse.  There are about 3.5 trillion in commercial real estate loans held by banks. Commercial property owners are defaulting at rates not seen since the 90′s.  Banks are getting stuck with malls,office buildings and industrial sites.  Add the ongoing residential real estate meltdown to the equation and you have big losses and inevitable bank failures.  The question is how many and which ones? “The bottom line: Defaults are exploding,” said Richard Parkus, an analyst with Deutsche Bank.  “It’s terrible. It’s going to be worse than in the early ’90s.”

Then, there is this wrinkle.   Earlier this year, Congress and the big banks got the Financial  Accounting Standards  Board or FSAB to change the rules. Instead of “mark to market” accounting where a bank is required to value an asset at the price you can sell it today, banks can price assets at what they might get in the future.  I and a few other people call it “mark to fantasy.”  I also think it’s government sanctioned accounting fraud.  There is no way for the government, an investor or a depositor to really know the financial health of the banks.  That is sad and a little scary.  Remember it was about a year ago that Treasury Secretary Hank Paulson told members of Congress that if he did not get the TARP money, there would be a “systemic” failure.  There is simply no way of knowing how bad this could get or if the government can keep things under control.  So what can you do?  I check my bank every 6 months.  Here is a free link to The Street.com Banks and Thrift Screener.  This is a fast simple way to see if your bank is headed for trouble.

By Greg Hunter
This is a tale of 2 stories the press started covering last week.  One, let’s call it the “Kidnapped Girl” story.  It’s about a young woman who escaped after being kidnapped and held against her will for 18 years.  The other, let’s call it “The Fed Secrets” story. It’s about the Federal Reserve losing a court decision that will force it to say who it gave trillions of dollars to during the financial meltdown.

No doubt, the young girl who was kidnapped 18 years ago will get plenty of coverage.  Every news organization will be fighting for the first exclusive interview with the victim and the children.  They will spare no expense.  Already there have been live shots, aerial footage and front page stories.   Before it is through, you will know every detail imaginable of this sad story, from the food she ate to the birth of the 2 children she allegedly was forced to have with her abductor.  The “Kidnapped Girl” story will be followed right up to the end of the criminal trial.  Mark my words, this story will be covered for months.  Heck, the kidnapped girl may even get her own reality TV show.

On the other hand, there is “The Fed Secrets” story.  The Fed lost a Federal case last week that could force its secret actions into the light of day.  Also, considering the Federal Reserve is responsible for the value of every dollar you spend or save, this should be a very big deal with worldwide implications!  Still, “The Fed Secrets” story is barely a blip on the mainstream media radar.

The Fed will file an appeal.  Meanwhile, the Federal Reserve asked Manhattan Chief U.S. District Judge Loretta Preska to delay enforcement.
“The immediate release of these documents will destroy the board’s claims of exemption and right of appellate review,” the motion said. “The institutions whose names and information would be disclosed will also suffer irreparable harm.” It went on to say The Fed’s “ability to effectively manage the current, and any future, financial crisis” would be impaired, according to the motion.

Does The Fed think lying and concealing will help the public?  It certainly will help the insolvent banks.  I think it is very likely the Fed also bailed out foreign banks, and these “loans” are not loans at all but taxpayer giveaways.  If the Fed was forced to reveal facts such as those, then the very existence of the Central Bank could be in question.  In short, most Americans would be angry and outraged!

It is up to the media to cover stories so the public is informed and it does this by the allocation of resources.  On one side of the scale, you see an “anvil” of journalistic weight.  Much has and will go for the coverage of the “Kidnapped Girl” story.  On the other side of the scale, you see a “feather” weight of commitment for “The Fed Secrets” story.  So little being spent to cover a something that could affect the lives of every American goes to show you how out of touch the mainstream media can be.  Masters of the media may be scared to tell the truth or are downright dishonest and know full well what they are doing.

Both the “Kidnapped Girl” and “The Fed Secrets” stories deserve to be covered.  There is nothing wrong with lopsided coverage as long as the highest priority is put on the story with the biggest impact on the lives of the people.  Instead, the biggest story is getting the “feather” treatment and the smaller story is just more of the infotainment that keeps the public in the dark.

Hunter’s Take

John Crudele is one of the good guys when it come to telling the truth and protecting your investments.  The article below is nothing short of brilliant, concise and adds real clarity with what stinks about the economy.  When I say stinks, I mean fishy.  If you have money invested in the stock market, you should read this until the very end because  Crudele offers a warning everyone should give serious thought to.  I have been reading Crudele’s column in the New York Post for years, and he has a habit of speaking his mind and backing it up with fact!   See his must read article below:

——————————————————————————————–

HOW GOLDMAN SACHS’ PROBLEMS ARE HURTING YOU

By John Crudele/ NY Post 8/27/09

AMERICANS should boycott the stock market.  No, I’m not kidding. And this isn’t going to be one of those funny columns.  In fact, I’m deadly serious that investors shouldn’t risk any more of their money until there are promises of a thorough investigation of Goldman Sachs.

Over the past few years I’ve looked into the much-too-cozy relationship between Goldman and Washington.  I’ve suspected that this Wall Street firm has been acting, in essence, as an arm of the government. And I am also pretty sure that if Goldman and Washington have something secret going on, the investment firm isn’t doing it for altruistic reasons. There’s money to be made.

In 2007 I reported in this column that Treasury Secretary Hank Paulson let the cat out of the bag when he confessed on a cable TV show that it was “my job to talk regularly to market participants . . .”  Paulson had been the chairman of Goldman right before taking the job as head of Treasury.  So, if he felt it was his “job” to talk with people on Wall Street then who else would he speak with if not his old friends at Goldman?  The head of the US Treasury would, of course, know lots of secrets. In the olden days, this would be called “inside information.”

And despite Paulson’s contention it would be entirely inappropriate for him to discuss sensitive matters with people who could profit from the information. It is, in fact, illegal. And the penalty could be jail time.  More on the story…