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Prediction Payoff and More Real Stats

By Greg Hunter’s USAWatchdog.com  

Last week, John Williams of Shadow Government Statistics predicted on USAWatchdog that the unemployment number would be worse than expected.  He said in an interview, “The risk is on the upside because the economy is weaker than consensus.”    Williams went on to tell me that, “Unemployment has a fair shot at hitting 10%.” On the phone interview he offhandedly said,”It might go as high as 10.2 percent.”   I did not print that number in the story because I didn’t want to seem alarmist.  My bad!!    Williams was right!  It came in at 10.2 percent on Friday!!  Most other economists expected it to come in at 9.9 percent.  Keep in mind that is according to the “official”  government numbers.   Williams also said there would be a new push for more stimulus in Congress.  Williams has a habit of making big predictions that come true.  For more on last weeks USAWatchdog post, please click here,”Unemployment And A New Stimulus Bill.”

Check out what Williams says is the real unemployment rate!  22.1 percent!  That’s what the unemployment rate would be if you calculated it the way the Bureau of Labor Statistics did before 1994.  After 1994, BLS changed the way it did unemployment to make it look less than what it really is.   Below are bullet points from the most recent report on shadowstats.com.

Shadow Government Statistics

- Annual Payroll Loss Rivals  (Greg’s Take:  We’re still losing jobs big time)

-End of World War II Production Shutdown (Greg’s Take:  Manufacturing is drying up)

- Unemployment Jumps to 10.2% (22.1% SGS) (Greg’s Take:  Simple math, more than 1 in 5 are out of work)

- Systemic Liquidity Problems Still Intensifying (Greg’s Take:  The worst of the economic meltdown is still ahead of us)

- Fed Continues to Explode Monetary Base (Greg’s Take:  We’re printing money like never before)

Shadow Government Statistics is a fee based site…for more click (here)

We Rescued The Top And Told The Bottom To Kiss Off!

By Greg Hunter’s USAWatchdog.com  

The following video was on the Friday MSNBC  “Morning Joe” program.  It features the Chair of the Congressional Oversight Panel, Elizabeth Warren.  This group is supposed to monitor the bank bailout.  Warren is a Harvard Law professor that specializes in bankruptcy and contract law.  Something that came out in the interview: U.S. taxpayers are on the hook for more than 4 trillion in guarantees for financial assets!  This little fact is just glossed over in the interview!!  I cannot believe how candid and critical Warren was on the bailout of the big banks.    The country should have never been put in this “give us money or we will have systemic failure” situation in the first place.    The heads of the big banks made stupid greedy decisions that would have caused them all to go bankrupt if it were not for the government bailouts!   Keep in mind, not a one of these banking chiefs got fired.  Watch the video below for a very good and candid discussion.

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The Government Approved Carry Trade and Free Money

By Greg Hunter’s USAWatchdog.com  

Mixed in with all the happy talk about better than expected jobless claims and high productivity numbers was this story.  (CNNMoney.com) – “The Federal Reserve kept its key interest rate near zero once again Wednesday.”   I think this was the biggest story of the week and here’s why.  The Fed gave a signal to Wall Street that free money was going to be available for many months to come.  In a statement, the Fed said the current economic conditions are “… likely to warrant exceptionally low levels of the federal funds rate for an extended period.”  To any Wall Street Banker participating in the “new dollar carry trade” it was an “all clear” signal.

(The simple definition of a carry trade is to borrow money at a low rate ( in this case near zero percent for dollars) and invest it elsewhere at a higher rate of return.  In order for this to be profitable, rates for the borrowed money have to stay stable and low.)

The Fed might as well have said, “Get your free money here and invest it anyway you like for a guaranteed return.”  The Fed’s action is, at the very least, a tacit if not an outright approval of this kind of dollar damaging speculation.  This weakens the currency and can cause prices to rise.    By the Fed saying the phrase “extended period,” as it has said in the past, it is telling speculators that making this trade is going to be a sure thing for a long time.  The dollar carry trade will likely mean billions of dollars of profits to Wall Street banks, which are now acting more like hedge funds than lending institutions.  Welcome back to the casino mentality.

Nouriel Roubini, NYU Economics Professor, says this is the “mother of all carry trades.”  The professor also says, “… But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever…”  You may check out what Dr. Roubini had to say about this recently on CNBC in the video below.  Please keep in mind he gave fair warning about the current financial crisis long before it happened.

We live in a world where reckless speculators are encouraged and rewarded.  It is also a place where savers are disparaged and punished.  Savings is the bedrock of capital formation which is a key component of capitalism.  Look at Warren Buffet.  He just acquired a railroad for more than 30 billion dollars.  He didn’t do that with a good credit rating.  Buffet bought it with cold hard cash!   But who needs that when you have a printing press and zero percent interest rates that are abused by the privileged few.

 

Unemployment And A New Stimulus Bill

By Greg Hunter’s USAWatchdog.com  

The latest unemployment number will be released by the Bureau of Labor Statistics on Friday.  The consensus is it will be slightly higher than last month.   I interviewed John Williams, an economist at shadowstats.com.  He predicts, “The risk is on the upside because the economy is weaker than consensus.”    Williams went on to tell me that, “Unemployment has a fair shot at hitting 10%.”   Keep in mind that is according to the “official”  government numbers.  Williams contends if you caculate the unemployment number the way BLS did prior to 1994, then the real unemployment rate will be north of “21.4%.”

When the 10%  government number is hit, (that could be Friday) then Williams calls that an “odometer event.”  Meaning, folks will take notice, like when your car odometer rolls over from 99,999 to 100,000 miles.

Williams thinks the Democrats will then see the economy slipping further and says, “they will feel they have to act now!”  Everyone in Washington knows that a stimulus plan needs around 9 months to take effect.  If the Dems do not act soon, then the 2010 election will not be good for the party in power.  So, according to Williams, look for a higher than expected unemployment number and then a push for a new stimulus plan.

What will be the result of even more “stimulus?”  According to Williams, there will be more dollar weakness and higher prices.  A year an a half ago, while I was at CNN, I interviewed Williams.  Back in March of 2008, Williams predicted there would be an “inflationary depression.”  Check it out in the video below.

Williams told me yesterday that we are still heading for an “inflationary depression.”  He also said, “We still have the worst of the systemic and liquidity crisis and the worst of the economy ahead of us.”  Meaning, we are nowhere near a bottom.  Williams thinks gold at $1,100 an ounce is a “bargain.”

John Williams runs a subscription based web site called Shadow Government Statistics or shadowstats.com.  It is a site that is well worth the money.  Williams is a top notch economist that works for hedge funds and fortune 500 companies.  He is an expert in what I call the “real numbers.”  I do not get paid in any way for telling you about Williams or his site.

What the Big Headline Should be Today

Christie

By Greg Hunter’s USAWatchdog.com  

The headline today will probably be something like “Big Republican Wins on Election Day!”   Bob McDonnell won the Virginia Governor’s job and Chris Christie (left) unseated Democrat Jon Corzine for Governor in New Jersey.   I am sure there are going to be many stories about the revived party of Lincoln.  Some will proclaim the health care plan is dead or the Democrats will lose control of at least the House or the Senate in 2010.  Fact of the matter is, it’s not going to make much difference whether Democrats or Republicans are in power. The economy is in deep trouble because America is drowning in debt.  Many experts say the economy and the dollar are doomed to fall further in the future.

Today the Price of gold hit a new all time high!  It closed at $1,084.90!  What the headline should be is “Gold Flashing Warning Signal At New All-Time High.”  What caused the $30 run up in a single day?  India bought 200 metric tons of the yellow metal from the International Monetary Fund.   India buying gold is dollar negative and is just a small part of a world in the process of moving away from the U.S. Dollar.

According to Bloomberg…“This will encourage other countries and other investors, especially Indians, who are big buyers anyway, to jump into the market,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

The Reserve Bank of India paid $6.7 billion for the bullion, which it bought from Oct. 19 to Oct. 30. It was “the biggest single central-bank purchase that we know about for at least 30 years in such a short period,” said Timothy Green, the author of “The Ages of Gold.” “The only comparable event was the U.S.’s steady purchases in the 1930s and 1940s.” (The complete Bloomberg story)   

The “other countries and other investors” include China and Russia.  China has already been a big buyer in the gold market.  Earlier this year, it disclosed it secretly increased the country’s gold holdings by 75%.  China is also the world’s biggest producer of gold and is keeping every ounce it produces.  Russia backs a partial return to the gold standard to help resolve the financial crisis that started in 2007.

The entire world sees a weaker dollar in the future.  The big question is how much weaker?  The feeble dollar will spell inflation and some say hyper-inflation is a real possibility.  Talk about the depreciating dollar seems to be everywhere.  Here is an excerpt from a Forbes article that came out yesterday: “…Make no mistake about it: Central banks have not been liquidating their gold. This sale by the IMF (to India) is therefore an extraordinary event at a time when there is little gold supply to meet the burgeoning demand by investors wary of paper currency. Trillions of dollars have been injected into the financial system to save it from Armageddon; they must find a home somewhere.

Just listen to Buffett. Back in May, he warned, “No one can know the precise level of net debt to GDP at which the United States will lose its reputation for financial integrity.” In other words, printing money can degrade the integrity of the dollar, making gold look like an attractive alternative to Treasuries that yield 3.5%….” (click her for the complete Forbes article)

I made the case for a much weaker dollar or even a dollar collapse in my early September post, “Something Wicked This Way Comes.”  As the dollar goes down in value, gold will go up in price.  Gold expert Jim Sinclair (jsmineset.com) has been predicting gold at $1,650 on or before January 2011 for at least 3 years.  He has said many times that his original prediction will be on the low side and that gold will go much higher in price.  The lower dollar will have a devastating effect on America’s standard of living.  The Republicans had a big day yesterday, but big inflation is on the way no matter who is in control.   

CIT Bankruptcy Dire for Main Street

By Greg Hunter’s USAWatchdog.com  

It is official, CIT filed for bankruptcy protection Sunday night (11/01/09).  This was not a surprise because the lender had been having financial trouble for months.  The government tried to save CIT with a 2.3 billion dollar bailout last fall.  Now that money will be written off by the taxpayer.    I was listening to CNBC, last week, talk about the prepackaged bankruptcy of CIT.  You would have thought it was some small bank with 1,000 depositors.  The CNBC commentator brought up the term “prepak” referring to a prepackaged Chapter 11 Bankruptcy.   That’s when a company tries to reorganize debt to stay in business.  This is different from Chapter 7 Bankruptcy where a company liquidates assets and goes out of business.   The inference was that “prepaks” happen all the time and that this was expected, so it is OK.  It is not OK!   CIT is the 5th largest bankruptcy in corporate history!   The lender has $71 billion in assets and more than $64 billion in liabilities.   This bankruptcy will be dire for small and medium businesses across America.

Reuters reports, “…But the company’s long-term prospects are uncertain and the bankruptcy could leave more than one million small and medium-sized businesses looking for another source of funding, lawyers said.  “This could have a devastating effect,” said Jerry Reisman, a partner at law firm Reisman Peirez & Reisman in Garden City, New York, who has been working with many of CIT’s factoring clients.  These clients — about 2,000 small companies — are in a particular bind when it comes to finding alternative financing since CIT is by far the biggest provider of factoring services.  In the factoring business, CIT buys accounts receivables from vendors that range from $5 million to $1 billion in size and then works with their customers to ensure payment.”  (Click here for the complete Reuters story)

CIT will have a lot less money to lend.  That means many small and medium business will go bust because financing will dry up.  This is not a sign of things getting better but a signal the economy is taking another turn downward.  The CIT bankruptcy will set off a chain reaction of other failures for businesses that will not be able to keep their doors open without ongoing backing.  Even CIT may or may not survive bankruptcy.

Keep in mind, this happened on a weekend the FDIC took over 9 other banks in one day!   That is a record (so far) for the financial crisis that started in 2007.  This brings the total number of failed banks to 115 this year.  The FDIC expects more failures.  More bank failures means less lending!  It is as simple as that. (more on CIT from Forbes)

Is The American Empire Being Looted?

washington-department-of-the-treasury-washington-d-c-dctb2

By Greg Hunter’s USAWatchdog.com  

It is said at the end of an empire, the Treasury is always looted.  In the case of America, it is the value of the dollar and the credit rating of the United States that is being robbed from the American people.

NYU Professor of Economics, Nouriel Roubini, said in August of last year, Recent economic, financial and geopolitical events suggest that the decline of the American Empire has started. After the collapse of the Soviet Union there was a brief period where the world switched from a bipolar balance of two superpowers to a unipolar world with one economic, financial, geostrategic superpower, or better, hyper power, i.e the United States. But by now three factors suggest that the US has squandered its unipolar moment and that the decline of the American Empire – as the US was in effect a global empire – has started.

No one is backing a truck up to Fort Knox to pilfer America’s gold.  Nor is anyone swiping pallets of hundred dollar bills from the Bureau of Engraving and Printing, at least not yet.  So how is America being looted?

Let’s start with the 787 billion dollar stimulus program that was passed by Congress early this year.  The Bill was supposed to create lots of jobs.  According to President Obama’s Council of Economic Advisors, 600 thousand to 1.1 million jobs are estimated to have been “saved or created.”  When I read that in the paper, I thought “wow that’s all the jobs we got out of all that money?”  

So, I called my tax man Steve to crunch some numbers for me.  Steve is a Certified Public Accountant.  I told Steve, “Let’s give the President’s Advisors the benefit of the doubt and say 1.1 million jobs were “saved or created.”  Divide 787 billion dollars by the 1.1 million so-called jobs and, according to Steve the CPA, it comes out to $715,000 per job “saved or created.”  This is not a mistake.  Steve checked the math.  It came out to 715 thousand dollars per job!   

There is no way on God’s green earth that you can spend that kind of money and get that few jobs without massive fraud, waste and abuse!

Then a day later we find out, according to the Associated Press, that the “stimulus jobs were overstated by thousands.”  The AP report said, “…some jobs credited to the stimulus program were counted two, three, four or even more times.” …  “A child care center in Florida said it saved 129 jobs with the help of the stimulus money.  Instead, it gave pay raises to its existing employees.”   What a boondoggle!

The same is true for the Troubled Asset Relief Program or TARP.  700 billion dollars was appropriated so the banks could buy toxic assets to “free up” lending.  No toxic assets were bought!  What a taxpayer rip-off.  The Treasury handed out the cash to financial institutions and let the bankers spend the money on whatever they wanted.  Surprise, the bankers did spend some of the money on billions in bonuses to reward the very people who caused the economic meltdown in the first place.  No bankers were fired.  They just got big bonuses!  Yes, some banks such as Goldman Sachs and JP Morgan Chase did pay back the TARP money, but so what!  Those banks got huge financial help in other ways.  Check out my post called “The Untouchables: Goldman and Chase” for more on those taxpayer rip-offs.

I don’t know if all the trillions created and spent is just waste, incompetence or downright fraud.  It is probably all of the above.  It really does not matter because, in the end, the outcome will be the same.  The dollar will be diminished and the credit rating of the U.S. will be destroyed.  In the Great Depression, the value of the dollar and the “Full Faith and Credit” of the country were never in question.  I predict, before this financial crisis is over, both will be looted from the American Empire.

 

The Real Numbers From Shadowstats.com

By Greg Hunter’s USAWatchdog.com  

The information below is provided complements of shadowstats.com.  I do not get paid in any way for posting this information.  Shadowstats.com is a paid subscription site and well worth the money.   Here is the link for the full report.  (shadowstats.com)

Shadow Government Statististics  

-Recession Is Not Over
 
- Quarterly GDP Growth Is Not Sustainable, with 92% of Growth in Nonrecurring Factors
 
- Annual GDP Down 2.3% (5.7% SGS)

 

- 4th-Quarter GDP Should Resume Quarter-to-Quarter Decline 

 

 

– Durables Goods Orders at 1997 Level

– Help-Wanted Adverting at New 58-Year Low

Red Alert on a Dollar Collapse

By Greg Hunter’s USAWatchdog.com  

Peter Schiff is a legitimate candidate for the U.S. Senate in Connecticut for the 2010 election.  He runs a big time fund called Euro Pacific Capital.  He has made some big calls that have proven to be correct.  For one, he predicted the current financial meltdown at least 2 years before it happened.  He has written three books on finance and investing.  All are best sellers.  According to him, this downturn is not over by a long shot.  Schiff was out recently with a You Tube video warning about the collapse of the dollar.  That’s right, collapse as in worthless or near worthless.   This is kind of a long rant but well worth the listen.  Schiff is an economist and is no fool.   Please give this a listen, if you have the time, and heed his warning.  And please protect your assets!

(Q)Are Things Getting Better? (A)Yes and No

By Greg Hunter’s USAWatchdog.com  

There is an old saying in the markets, “nothing goes straight up or straight down.”  If the economy has a lot more to fall, as I think it does, then it will not fall straight down.  I think we are on a proverbial plateau in this downturn.   Yesterday, Treasury Secretary Tim Geithner said, “The financial sector story is in a much stronger position than it was but it’s a mixed picture,”  and “The price of credit has come down dramatically.”  The economic picture has improved because of massive amounts of money printing for things such as “Cash for Clunkers” and the “$8,000 home buyers tax credit.”   There has also been hundreds of billions spent buying toxic assets and our own treasuries to suppress interest  rates.  Yes, pump hundreds of billions of dollars into the credit markets and economy and things will look better…for awhile.   John Williams of shadowstats.com says in his latest alert, “Fed Pushes Monetary Base to Record High.”  That certainly makes sense because of what the Fed has been doing.  Williams is not alone in tracking high money growth by the Fed.  Terry Coxon of The Casey Report said, “As of July, the M1 money supply (currency held by the public plus checking deposits) had grown 17.5% in a year’s time. That’s not just unusually rapid, it’s extraordinarily rapid.”

Yes, the economy is appearing to look better.  However, even with all the money creation, it is not great.  Secretary Geithner said as much with his “mixed picture” comment.  Economist John Williams concurs and takes it one step further by saying, “Recession Not Over Despite a Positive GDP Quarter.”  Williams thinks the government will continue to print money at or near record amounts and thinks the downturn has farther to go.  Williams is expecting the economy will not look very good in the 4th quarter.  I think that means brace yourselves for another leg down.

New York University Professor Nouriel Roubini is once again sending up warning flares about a different problem, the Fed’s zero interest rate policy.  We’re talking free money, folks.  You might remember that he was one of the few that predicted the current financial crisis.  For that, he earned the  nickname “Doctor Doom.”  Now you can call him “Doctor Right on the Money.”   Roubini sees the economy a little different than Williams.  In some ways, Roubini sees things more positive and in some ways not so much, as told in the excerpt below.

Reuters reports:  … “Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis….”Roubini said he sees a bubble in emerging-market equities and that gains in some developing-nation currencies are becoming “excessive.”  The rally in oil “is not justified by the fundamentals,” he said.  An asset “bust” may not occur for another year or two as a “wall of liquidity” pushes prices higher …  In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets.  Roubini said the U.S. recession seems to be over, though the economic recovery in advanced nations will be “anemic.”… (The complete Reuters story)

Money printing will make things look better, but will it last?  What will happen if the Fed stops printing?  What will happen if the Fed keeps on printing?  Don’t be fooled by the crooked path the economy is taking.  Stay defensive.   One thing is for sure, when Professor Roubini gets nervous, you should too.

Bernanke’s Trillion-Dollar Decision

By Greg Hunter’s USAWatchdog.com  

A good friend of mine sent me and article from Politico with the headline “Bernanke’s trillion-dollar decision.”   I read the article.  It talks about how Fed Chief Ben Bernanke has to decide whether or not he will continue to support the banking system with 1 trillion dollars in funding that is “propping the system up.”   The writer laments the fact that decision will be Bernanke’s alone and Obama  “will have almost nothing to do with it.”

I wrote my buddy back and told him, ” So what do you think they are going to do?  Let it all collapse?  Not a chance.  Big inflation in gold, silver and energy are coming.”  Let me explain further.  Back in August when President Obama renominated  Ben Bernanke to his post at the Federal Reserve, don’t you think that Obama asked if he would continue to support the economy?  Which means print money.   The result of all the money printing that has occurred, and all that will come, will be inflation.  Nobel Peace Prize winner Milton Friedman said, “inflation is always and everywhere a monetary phenomenon.”

If Bernanke would have hesitated or given the slightest implication he would let the economy fail, Larry Summers would be Fed Chief right now.  The fix is in and Bernanke will continue quantitative easing (printing money) to buy toxic debt or continue buying our own treasuries to suppress interest rates.  This will be done overtly or covertly, but it will be done.  There are the 2010 midterm elections and the Democrats will want to keep control of both houses.  Then there is the 2112 Presidential election and Barack Obama will want two terms just like everybody else who has held that office.   Expect the money printing  party to continue, no matter what!   (Here’s the story from Politico.)

The Untouchables: Goldman and Chase

By Greg Hunter’s USAWatchdog.com  

This week the Federal Reserve hit thousands of banks with wide ranging pay controls.  The so called “Pay Czar” Kenneth Feinberg said that salaries paid to the top earning executives at some of the biggest bailedout companies would be slashed by 50% and capped at 500 grand a year.  The companies taking the cuts are American International Group Inc, Bank of America Corp, Citigroup Inc, General Motors Co, Chrysler, GMAC and Chrysler Financial.  The reason why Feinberg singled out these companies is because, according to him, they received “exceptional federal aid.”  What about the “exceptional federal aid” Goldman Sachs and JP Morgan Chase got?  I think Goldman getting at least 13 billion in the AIG bailout and getting paid 100 cents on the dollar for their exposure to the company was pretty “exceptional!!”  Then there are toxic assets turned over to the Fed.   We may never know how many billions of dollars of bad debt Goldman pawned off on the taxpayer because, according to the Federal Reserve, it is a secret.

Same goes for JP Morgan Chase.  How many billions of dollars of  toxic assets did it turn over to the Fed?  Ditching billions in bad bets at little or no cost to the banks is “exceptional” financial help!  Wouldn’t you agree?   Remember the JP Morgan Chase, Bear Stearns deal?  The Fed gave a total of 55 billion dollars to Chase to take over Bear.  And get this, tax payers were put on the hook for up to 40 billion dollars in liability for the failed bank.  I would call that pretty darn “exceptional” government help.  I love the way one blogger put it, “JP Morgan got the money ($55 billion) and the taxpayers got the risk (up to $40 billion), a ruse called the privatization of profit and socialization of risk.”

Of all the big banks Goldman and Chase have probably gotten the most help by taxpayer largeness.  Both Goldman and Chase would have also been bankrupt if it were not for the many sweet heart deals and government handouts given to them.  Yes these two institutions did repay TARP money but they have been helped out in so many other ways.  In my mind Goldman and Chase executives should have their pay cut in half and capped at 500 thousand dollars a year just like the 7 big companies named above.  But that will never happen because  they are  the untouchables.

Pakistan Fighting is Big Trouble!

By Greg Hunter’s USAWatchdog.com  

Pakistan is in a real struggle for control of the country with the Taliban.  This is an actual war, not the threat of war as we see with Israel and Iran.  I wrote about Pakistan as being one of 2 big problem areas in the world today in “The 2 Biggest Geopolitical Wild Cards in the World” post.  Take a good look at the map on this post and see how close the Taliban stronghold in the northern part of the country is to the capitol which is Islamabad.   If the Taliban is  successful in gaining control of the capitol and the country’s nuclear arsenal, then it will affect you!  For one thing, immediately higher prices for fuel.  Also, If the Taliban gains control or is perceived to be gaining control, then there is no telling what the military response will be from India or the U.S.   So when I read this headline in Reuters today “Pakistan braces for attacks as offensive continues”,  I thought I would pass it along to you.

By Augustine Anthony

ISLAMABAD (Reuters) – Suspected Taliban militants shot and killed a Pakistani army brigadier and his driver in the capital on Thursday as the military continued a major offensive against the insurgents in their strongholds near the Afghan border.  Exposing the country’s frayed nerves, the stock market dipped nearly three percent on false reports that a bomb had been found and shots fired at a courthouse in the capital, Islamabad.  The false alarm came as the country remained on high alert for possible retaliatory strikes by Talibanmilitants while the army attacks their strongholds in South Waziristan.  The offensive is a test of the government’s determination to tackle Islamic fundamentalists, and the campaign is being closely followed by the U.S. and other powers embroiled in Afghanistan.  On Thursday, suspected militants shot and killed Brigadier Moin-ud-din Ahmed, deputy force commander of the United Nations Mission in Sudan(UNMIS), who was on vacation in Islamabad.  “Everyone in the mission is very shocked,” Kouider Zerrouk, UNMIS spokesman told Reuters.  (More from Reuters)

Banking Trouble Gets Worse for Wells

By Greg Hunter’s USAWatchdog.com  

The story below is what I call the canary in the banking coal mine.  Wells Fargo was downgraded today by top banking analyst Dick Bove.  He didn’t downgrade them because they were making too much money.  What the article doesn’t say is  before Wells Fargo bought Wachovia,  Wachovia bought Golden West Financial in 2006.  Golden West was a leader in a little something called a Pay Option ARM.  Golden West had about 120 billion in these loans when Wachovia bought them.   Payment Option Arms are also called “pick a payment” loan because you literally pick what kind of mortgage payment you make to the bank every month.  You know, pay as a 30 year fixed, or 15 year fixed or interest only or negative amortization.  Negative amortization adds to the principal every month.  Guess what most people are choosing to pay?  You guessed it, negative amortization which is the cheapest payment possible.  One analyst called these loans “payment option insanity.”  Most of these loans are now, not profitable.  Plenty of folks default when they realize they will owe more than the home will ever be worth!   Wells Fargo grabbed the headline today, but the other banks are still  in trouble too and weak banking equals a weak economy.  Check out the article below.

Oct. 21 (Bloomberg) — U.S. stocks tumbled in the final hour of trading after analyst Dick Bove downgraded Wells Fargo & Co., erasing an earlier rally spurred by better-than-estimated results at Morgan Stanley and Yahoo! Inc.

Wells Fargo, the largest U.S. home lender this year, slid 5.1 percent after Bove of Rochdale Securities cut the shares to “sell” and said earnings were boosted by mortgage-servicing fees rather than improving business trends. Wal-Mart Stores Inc., the world’s largest retailer, tumbled 2.1 after saying it expects a “tough” holiday shopping season. The Standard & Poor’s 500 Index reversed a 0.9 percent advance as nine of 10 industry groups retreated, led by financials.

“Wells Fargo’s downgrade spooked investors,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages about $2 billion in San Antonio. “Investors are concerned because that’s one of the biggest in the industry and most of the recent news has been positive so far. So that could be an indication of problems ahead for other big names.”  (more from Bloomberg)

Betting on a “Currency Death Spiral”

By Greg Hunter’s USAWatchdog.com  

I have been warning about a currency crisis for weeks.  It appears I am not the only one worried about a big drop in value of the dollar.  David Einhorn of Greenlight Capital is also betting on a”currency death spiral.”  Einhorn is no small player.  He runs a 5 billion dollar fund and has a habit of making big calls.  In July, Einhorn sold 4.2 million shares of a gold ETF to buy physical bullion.  Buying physical gold couldn’t be more bearish and negative.  It is also play against the dollar.  Now, he is warning of more trouble coming for some of the big players in the financial industry.  Einhorn says some big banks like Citi should be broken up so they can not cause systemic risk.  To top it off, his fund is still buying gold!   This is a story you should read and pay attention to so you can understand what is really going on.

By Alistair Barr, MarketWatch

NEW YORK (MarketWatch) — Greenlight Capital is betting on the possibility of a major currency collapse and a surge in interest rates, the hedge-fund firm’s manager David Einhorn said Monday, citing ballooning government deficits in some of the world’s most developed countries.

Einhorn, who warned about Lehman Brothers’ frailty before it collapsed last year, also said financial institutions that are deemed as “too big to fail,” such as Citigroup Inc., should be broken up. 

Reuters
David Einhorn of Greenlight Capital. 

 Greenlight has been buying physical gold this year because Einhorn is concerned that efforts to save the financial system and fuel economic recovery are undermining the value of such currencies as the U.S. dollar.

On Monday, he said Greenlight has added new trades to this investment theme, buying long-dated options on much higher interest rates in Japan and other developed regions — effectively giving the firm the chance to make big profits from a jump in rates. The options, bought from major banks, are tied to interest rates four to five years out, Einhorn noted.

“Japan may already be past the point of no return,” he said during a presentation at the Value Investing Congress in New York.

 ‘Lehman shouldn’t have existed in any size to threaten the financial system.’ 

Japan’s debt is equal to 190% of the country’s gross domestic product and its government deficit will be 10% of GDP this year, according to Einhorn.

Japan has been able to borrow money at roughly 2% a year to finance these deficits, partly because the country has many savers willing to buy low-yielding government bonds. However, some of these savers may begin spending instead as they enter retirement, Einhorn argued.

“When the market refuses to refinance at cheap rates, problems emerge,” he said, adding that this could trigger a “currency death spiral.” (more from MarketWatch)