Author: Administrator

GO TO SCHOOL & BUY A CAR

Great news. Consumer credit SURGED in January. We blasted through the $2.5 trillion level. Car loans and student loan skyrocketed by almost $21 billion in just one month. Remember how I was wondering about all the new cars in West Philly? Here’s the answer. Ally Bank (GMAC in disguise) is making car loans of $35,000 to people in West Philly that have an average annual income of $16,000 and live in low income housing so they can buy Ford Expeditions. Imagine how smart all those people studying in their underwear at the University of Phoenix will be in two years when they graduate. Every dime of these $1 trillion in student loans are being covered by you. Obama is handing it out from your stash.  Sounds like a sustainable economic model.

Consumer Credit Outstanding 1

Seasonally adjusted
  Year Quarter Month
  2010 2011 2012
  2007 2008 2009 2010 2011 r Q4 Q1 Q2 r Q3 r Q4 r Nov r Dec r Jan p
Total percent change (annual rate)2 5.8 1.6 -4.4 -1.7 3.6 2.5 2.2 3.6 1.4 6.9 9.8 7.9 8.6
Revolving 8.1 1.7 -9.6 -7.5 0.4 -2.6 -3.7 1.5 -2.0 6.0 9.9 5.5 -4.4
Nonrevolving 3 4.4 1.5 -1.2 1.5 5.1 5.0 5.1 4.6 3.0 7.4 9.7 9.0 14.7
Total amount (billions of dollars) 2522.5 2561.8 2450.1 2408.3 2494.5 2408.3 2421.5 2443.3 2451.9 2494.5 2478.2 2494.5 2512.3
Revolving 941.9 957.5 865.5 800.2 803.8 800.2 792.8 795.9 792.0 803.8 800.1 803.8 800.9
Nonrevolving 3 1580.7 1604.3 1584.6 1608.1 1690.7 1608.1 1628.6 1647.4 1659.9 1690.7 1678.1 1690.7 1711.4
 
Terms of Credit 4

Not seasonally adjusted. Percent except as noted.
Commercial banks
Interest rates
48-mo. new car 7.77 7.02 6.72 6.21 5.75 5.87 5.86 5.79 5.90 5.45 5.45 n.a. n.a.
24-mo. personal 12.38 11.37 11.10 10.87 10.92 10.94 11.01 11.36 10.80 10.52 10.52 n.a. n.a.
Credit card plans
All accounts 13.30 12.08 13.40 13.78 12.74 13.44 13.43 12.89 12.28 12.36 12.36 n.a. n.a.
Accounts assessed interest 14.68 13.57 14.31 14.26 13.09 13.67 13.44 13.06 13.08 12.78 12.78 n.a. n.a.
 
Finance companies 5
Interest rates 4.87 5.52 3.82 4.26 4.73 4.57 4.73 n.a. n.a. n.a. n.a. n.a. n.a.
Maturity (months) 62.0 63.4 62.0 63.0 62.3 62.5 62.3 n.a. n.a. n.a. n.a. n.a. n.a.
Loan-to-value ratio 95 91 90 86 80 82 80 n.a. n.a. n.a. n.a. n.a. n.a.
Amount financed (dollars) 28,287 26,178 28,272 27,959 26,673 27,423 26,673 n.a. n.a. n.a. n.a. n.a. n.a.

Consumer credit surges again in January

By Greg Robb

WASHINGTON (MarketWatch) – U.S. consumers increased their debt in January by a seasonally adjusted $17.8 billion for a third month of sharp gains, the Federal Reserve reported Wednesday. Over the three most recently reported months, consumer debt has gained an average of $18.0 billion, compared with an average monthly gain of $5.3 billion from October 2010 until October 2011. The increase in January was larger than the roughly $10 billion gain expected by Wall Street economists. The increase was powered by non-revolving debt such as auto loans, personal loans and student loans-these three categories combined for a $20.7 billion jump in January, the biggest gain since November 2001. Credit card debt fell by $2.9 billion in the month, the first decline since August.

The credit card was essentially invented at the same time we went off the gold standard in the early 1970s. And look what has happened since. This will surely end well.



OH DEER, A RETAIL FRENZY!!!

Sometimes life is stranger than fiction. First off, you now know what a podunk community I live in – because this story was the Front Page top story in my local paper this morning. Yesterday was Super Tuesday. We are on the verge of war with Iran. Probably 10 people got shot or stabbed in Philly yesterday. And the top story in the Lansdale Reporter is about the crazed shopping pregnant deer. This is the Kohl’s where I use my 30% discount coupons and buy clothes from their 60% Off racks. I think there are few key takeaways from this article. This deer is probably smarter than 75% of the West Philly high school graduates who would be challenged to figure out how to enter this Kohl’s store. I think some key facts were left out of the story. Kohl’s is so desperate for business that they are now marketing to non-humans. Dolly the Deer received an offer in the mail with a 30% coupon if she shopped on Monday. So she galloped over to the store and proceeded to create a retail frenzy. I guess I’ll have to keep an eye out for deer pellets on my next shopping trip to Kohl’s.

Oh deer: pregnant doe ventured inside Kohl’s store in Hatfield

 By DAN SOKIL

While there may have been plenty of moms shopping at the Kohl’s Department Store in Hatfield Township Monday night, one expecting mother in the store of those was not like the others, according to Pennsylvania Game Commission wildlife conservation officer Chris Heil.

“Around 7:30 p.m., apparently a group of deer panicked. They were being chased, I think, by a dog and ran through the parking lot of Kohl’s, and one of the deer actually ran up and banged into the doors,” Heil said.

That deer, a pregnant doe, hit the handicapped entrance button at the store entrance and “just let herself in,” according to Heil.

“She was kind of trapped in the vestibule for a while until she was able to let herself into the store, at which point police were called and a little panic ensued,” he said.

Hatfield police responded to the scene after the call came in at 7:36 p.m. that the deer was trapped in one of the store’s dressing rooms, according to HTPD Lt. Eric Schmitz.

Customers were immediately evacuated, and employees were kept in a safe area as police called the Game Commission’s regional office in Reading for help securing the deer and getting it out of the store, Schmitz said.

“Officers responded and attempted to create a pathway for the deer to escape out open doors. However, the deer went from one dressing room to another,” he said.

That’s not the only place the deer went inside the store, according to Heil.

“She was running through the aisles and jumping through clothing racks, and when the deer entered into the dressing room it actually locked itself in” by kicking the door after it had entered.

Then again, there may be another reason the deer locked herself in the dressing room.

“She was actually looking at herself in one of the mirrors in the dressing room, kind of transfixed by herself in the mirror,” he said.

As humorous as that may seem, the deer still presented a danger to anyone nearby if it began to panic again.

“They’re very strong, and actually quite dangerous. When they panic like that, their hooves are like hammers. If they were to strike you with a kick, they could kill you,” Heil said.

Hatfield police “did an awesome job” keeping the deer contained in the dressing room until Heil arrived, he said, and he quickly determined that the deer was unhurt and did not need to be tranquilized, which can be fatal.

A set of large utility doors on the side of the building were opened to create another escape route, and Heil said the deer was eventually calmed enough to be led away without further panicking.

“I have a very large, heavy duty snare pole, and what I did was I quietly went into the dressing room and kind of lassoed her with the snare pole,” he said.

“I placed the snare pole around her neck, and was able then to kind of guide her like it was a leash. Initially she panicked a bit, which they normally do, but then she figured out I wasn’t going to hurt her,” and Heil was able to lead the deer out through the side utility doors.

Some minor cleanup inside the store was needed but the deer caused no major damage, Schmitz said, and no other similar incidents have been reported in the township recently.

Heil added that deer sometimes injure themselves while panicking if they hit store shelves or goods, but the deer last night was unhurt when she was released outside the parking lot.

“I let her out of the snare pole and released her, and she hoofed it down to the woods, looking for her friends I guess,” Heil said.

Game Commission officials make every effort to recover animals alive and unhurt, and store employees and Hatfield police deserve a great deal of credit for making sure that was possible last night, he added.

“For being surprised during a busy evening of shopping, my hat’s off to everyone who was there. They all did a great job keeping the patrons of the store safe, and keeping the deer safe as well,” he said.

He added that a similar incident took place in Lower Merion township last year, when a deer let itself into a drugstore using the handicapped access button and was also eventually freed without injury.

Store officials at the Hatfield Kohl’s referred comment on the incident to Kohl’s corporate office, which did not respond to a request for comment.



CAUSE, EFFECT & THE FALLACY OF A RETURN TO NORMALCY

 “Thousands upon thousands are yearly brought into a state of real poverty by their great anxiety not to be thought of as poor.” – Robert Mallett

 

I hear the term de-leveraging relentlessly from the mainstream media. The storyline that the American consumer has been denying themselves and paying down debt is completely 100% false. The proliferation of this Big Lie has been spread by Wall Street and their mouthpieces in the corporate media. The purpose is to convince the ignorant masses they have deprived themselves long enough and deserve to start spending again. The propaganda being spouted by those who depend on Americans to go further into debt is relentless. The “fantastic” automaker recovery is being driven by 0% financing for seven years peddled to subprime (aka deadbeats) borrowers for mammoth SUVs and pickup trucks that get 15 mpg as gas prices surge past $4.00 a gallon. What could possibly go wrong in that scenario? Furniture merchants are offering no interest, no payment deals for four years on their product lines. Of course, the interest rate from your friends at GE Capital reverts retroactively to 29.99% at the end of four years after the average dolt forgot to save enough to pay off the balance. I’m again receiving two to three credit card offers per day in the mail. According to the Wall Street vampire squids that continue to suck the life blood from what’s left of the American economy, this is a return to normalcy.

The definition of normal is: “The usual, average, or typical state or condition”. The fallacy is calling what we’ve had for the last three decades of illusion – Normal. Nothing could be further from the truth. We’ve experienced abnormal psychotic behavior by the citizens of this country, aided and abetted by Wall Street and their sugar daddies at the Federal Reserve. You would have to be mad to believe the debt financed spending frenzy of the last few decades was not abnormal.

The Age of Illusion

“Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.” – Sigmund Freud

In my last article Extend & Pretend Coming to an End, I addressed the commercial real estate debacle coming down the pike. I briefly touched upon the idiocy of retailers who have based their business and expansion plans upon the unsustainable dynamic of an ever expanding level of consumer debt doled out by Wall Street banks. One only has to examine the facts to understand the fallacy of a return to normalcy. We haven’t come close to experiencing normalcy. When retail sales, consumer spending and consumer debt return to a sustainable level of normalcy, the carcasses of thousands of retailers will litter the highways and malls of America. It will be a sight to see. The chart below details the two decade surge in retail sales, with the first ever decline in 2008. Retail sales grew from $2 trillion in 1992 to $4.5 trillion in 2007. The Wall Street created crisis in 2008/2009 resulted in a decline to $4.1 trillion in 2009, but the resilient and still delusional American consumer, with the support of their credit card drug pushers on Wall Street, set a new record in 2011 of $4.7 trillion.

A two decade increase in retail sales of 135% might seem reasonable and normal if wages and household income had grown at an equal or greater rate. But total wages only grew by 125% over this same time frame. Interestingly, the median household income only grew from $30,600 to $49,500, a 62% increase over twenty years. It seems the majority of the benefits accrued to the top 20%, with their aggregate share of the national income exceeding 50% today, versus 47% in 1992 and 43% in the early 1970s. The top 5% are taking home in excess of 21% of the national income versus less than 19% in 1992 and 16% in the early 1970s. It appears the financialization of America, after Nixon closed the gold window and allowed unlimited money printing by the Federal Reserve, has benefitted the few, at the expense of the many. The bottom 80% of households has seen their share of the national income steadily decrease since the early 1970s. There are 119 million households in the United States and 95 million of these households have seen their wages and income stagnate. One might wonder how the 80% were able to fuel a two decade surge in retail sales with such pathetic wage growth.

Your friendly Wall Street banker stepped into the breach and did their part to aid a vast swath of Americans to enslave themselves in debt. As the chart above reveals, the slave owners on Wall Street have been the chief beneficiary of the decades long debt deluge. It seems that charging 18% interest on hundreds of billions in credit card debt can be extremely profitable for the shyster charging the interest. Decades of mailing millions of credit card offers, inundating financially ignorant Americans with propaganda media messages convincing them they needed a bigger house, fancier car, or latest technological gadget and creating complex derivatives that permitted banks to market debt to people guaranteed not to pay them back but not care since they sold the packages of these toxic AAA rated loans to pension funds and little old ladies, has done wonders for earnings per share, stock option awards, executive salaries and bonus pools. It hasn’t done wonders for the net worth of the average American who has been entrapped in the chains of debt, forged link by link over decades of purposeful deception and willful delusion.

The 135% increase in retail sales over two decades may have been slightly enhanced by the 213% increase in consumer credit outstanding. Consumer revolving credit rose from $800 billion to the current level of $2.5 trillion over the last two decades. Those 15 credit cards in our possession were so easy to use that we financed our trips to Dollywood, Sandals, and Euro-Disney, in addition to financing our 72 inch 3D HDTVs, granite countertops, stainless steel appliances, decks, pools, recliners with a built in fridges, home theatre rooms, Coach pocketbooks, Jimmy Cho shoes, Rolex watches, yachts, bigger and better boobs, and of course our smokes and beer. Much has been made about the great de-leveraging by the American consumer. There’s just one inconvenient fact – it hasn’t happened – yet.

Total consumer credit outstanding peaked at $2.58 trillion in July 2008. Today it stands at $2.50 trillion. Revolving credit card debt peaked at $972 billion in September 2008 and subsequently declined to $790 billion by April 2011. It now stands at $801 billion, as living well beyond our means has resumed its appeal. Meanwhile, non-revolving credit for automobiles, boats, student loans, and mobile homes peaked at $1.61 trillion in July 2008 and “crashed” all the way down to $1.58 trillion in May 2010. Once Bennie fired up the printing presses, the government car companies decided to make subprime auto loans again and the Federal government started doling out student loans like a pez dispenser, all was well in the non-revolving consumer loan world. The debt outstanding has soared to $1.7 trillion, a full $90 billion above the pre-crash peak. So, after three and a half years of “austerity” and supposed deleveraging, consumer debt outstanding has fallen by 3%.

The Big Lie of austerity and consumer deleveraging is unquestioned by the talking heads in the mainstream media. They are incapable or unwilling to examine the actual data which substantiates the fact that Americans have NOT deleveraged and have NOT taken austerity to heart. The most basic facts fly in the face of consumers even having the wherewithal to pay down their debt. Median household income has declined from $50,300 in 2008 to $49,400 today. There are 5 million less people employed today than employed in 2008. Total wages in the country have only grown from $6.6 trillion in 2008 to $6.8 trillion today. This increase was concentrated among the .01%, who do not carry credit card debt. They profit from credit card debt. Real disposable personal income has fallen by 5% since the peak in 2008 as Bernanke’s Wall Street bailout zero interest rate policy has caused prices for everything except our houses to surge. The people carrying most of the credit card debt are the least able to pay it off. These are the same people who have swelled the food stamp rolls from 28 million in 2008 to 46.5 million today.

A CNBC bubble headed arrogant bimbo might sarcastically ask, “If the American consumer isn’t deleveraging, than how did revolving credit card debt drop by $182 billion over three years?” Rather than do the minimal research needed to find the answer, they would rather parrot the company/government line. The chart below, compiled from Federal Reserve data, provides the answer. The Wall Street banks have written off $193.3 billion of bad debt since 2008. Now for some basic math, that will probably be over the head of most Wall Street analysts and CNBC parrots. If you start with $972 billion of credit card debt and you write-off $200 billion (assuming another $7 billion in the 4th Quarter of 2011) and your ending balance is $801 billion, how much debt did the American consumer pay down? It’s a trick question. The American consumer ADDED $29 billion of credit card debt since 2008 to go along with the $90 billion of auto and student loan debt ADDED onto their aching backs. So much for the deleveraging storyline. It’s comforting to convince ourselves we’ve changed, but we haven’t. And the powers that be need you to keep believing, so they can continue to keep you enslaved and under their thumbs.

Consumer Credit Card Debt and Charge-off Data (in Billions):

Outstanding Revolving Consumer Debt Outstanding Credit Card Debt Quarterly Credit Card Charge-Off Rate Quarterly Credit Card Charge-Off in Dollars
Q3 2011 $793.4 $777.5 5.63% $10.9
Q2 2011 $787.4 $771.7 5.58% $10.8
Q1 2011 $779.6 $764.0 6.96% $13.3
2010 $826.7 $810.2 $75.1
Q4 2010 $825.7 $810.2 7.70% $15.6
Q3 2010 $806.9 $790.8 8.55% $16.9
Q2 2010 $817.4 $801.1 10.97% $22.0
Q1 2010 $828.5 $811.9 10.16% $20.6
2009 $894.0 $876.1 $83.2
Q4 2009 $894.0 $876.1 10.12% $22.2
Q3 2009 $893.5 $875.6 10.1% $22.1
Q2 2009 $905.2 $887.1 9.77% $21.6
Q1 2009 $923.3 $904.8 7.62% $17.2
Q4 2008 $989.1 $969.3

(Source: CardHub.com, Federal Reserve)

Loving Our Servitude

“There will be, in the next generation or so, a pharmacological method of making people love their servitude, and producing dictatorship without tears, so to speak, producing a kind of painless concentration camp for entire societies, so that people will in fact have their liberties taken away from them, but will rather enjoy it, because they will be distracted from any desire to rebel by propaganda or brainwashing, or brainwashing enhanced by pharmacological methods. And this seems to be the final revolution.” Aldous Huxley

The American people have come to love their servitude through a combination of self- delusion, corporate mass media propaganda, and an irrational desire to appear successful without making the necessary sacrifices required to become successful. The drug of choice used to corral the masses into their painless concentration camp of debt has been Wall Street peddled financing. Can you think of a better business model than being a Wall Street bank? You hand out 500 million credit cards to 118 million households, even though 60 million of the households make less than $50,000. You then create derivatives where you package billions of subprime credit card debt and convince clueless dupes to buy this toxic debt as if it was AAA credit. When the entire Ponzi scheme implodes, you write-off $200 billion of bad debt and have the American taxpayer pick up the tab by having your Ben puppet at the Federal Reserve seize $450 billion of interest income from senior citizens and re-gift it to you through his zero interest rate policy. You then borrow from the Federal Reserve at 0% and charge an average interest rate of 15% on the $800 billion of credit card debt outstanding, generating $120 billion of interest and charging an additional $22 billion of late fees. Much was made of the closing of credit card accounts after the 2008 financial implosion, but most of the accounts closed were old unused credit lines. Now that the American taxpayer has picked up the tab for the 2008 debacle, the Wall Street banks are again adding new credit card accounts.

With 40% of all credit card users carrying a revolving balance averaging $16,000, they are incurring interest charges of $2,400 per year. Some of the best financial analysts in the blogosphere have been misled by the propaganda spewed by the Wall Street media shills at Bloomberg and CNBC. The following chart, which includes mortgage and home equity debt, gives the false impression households are sensibly deleveraging, as household debt as a percentage of disposable personal income has fallen from 115% in June 2009 to 101% today. As I’ve detailed ad nauseam, $200 billion of the $1.2 trillion of “household deleveraging” was credit card write-offs. The vast majority of the remaining $1 trillion of “deleveraging” could possibly be related to the 5 million completed foreclosures since 2009. Of course, this pales in comparison to the unbelievably foolhardy mortgage equity withdrawal of $3 trillion between 2003 and 2008 by the 1% wannabes.  Bloomberg might be a tad disingenuous by excluding the $1 trillion of student loan from their little chart. If student loan debt is included, household debt outstanding surges to $11.5 trillion.

Based on the Bloomberg chart you would assume wrongly that American consumers are using their rising incomes to pay down debt. Besides not actually reducing their debts, the disposable personal income figure provided by the government drones at the BEA includes government transfer payments for Social Security, Medicare, Medicaid, unemployment compensation, food stamps, veterans benefits, and the all- encompassing “other”. Disposable personal income in the 2nd quarter of 2008 reached $11.2 trillion. It has risen by $500 billion, to $11.7 trillion by the end of 2011. Coincidentally, government social transfers have risen by $400 billion over this same time frame, a 20% increase. Excluding government transfers, disposable personal income has risen by a dreadful 1.1%. For the benefit of the slow witted in the mainstream media, every penny of the social welfare transfers has been borrowed. Only a government bureaucrat could believe that borrowing money from the Chinese, handing it out to unemployed Americans and calling it personal income is proof of deleveraging and austerity.

Household debt as a percentage of wages in 2008 was 185%. Today, after the banks have written off $1.2 trillion of debt, this figure stands at 169%. Meanwhile, total credit market debt in our entire system now stands at an all-time high of $54 trillion, up $3 trillion from 2007. It stands at 360% of GDP. In 1992, total credit market debt of $15.2 trillion equaled 240% of GDP ($6.3 trillion). Was it a sign of a rational balanced economic system that total credit market debt grew by 355% in the last two decades while GDP grew by only 238%? I think it is pretty clear the last two decades have not been normal or built upon a sustainable foundation. In the three decades prior to 1990 household debt as a percentage of disposable personal income stayed in a steady range between 60% and 80%. The current level of 101% is abnormal. In order to achieve a sustainable normal level of 80% will require an additional $2 trillion of debt destruction. No one is prepared for this inevitable end result. The impact of this “real” deleveraging will devastate our consumer dependent society.

The colossal accumulation of debt in the last two decades was the cause and abnormally large retail sales were the effect. The return to normalcy will not be pleasant for consumers, retailers, mall owners, local governments or bankers.

Demographics are a Bitch

In addition to an unsustainable level of debt, the pig in the python (also known as the Baby Boomer generation) will relentlessly impact the future of consumer spending and the approaching mass retail closures. Baby Boomers range in age from 51 to 68 today. The chart below details the retail spending by age bracket. Almost 50% of all retail spending is done by those between 35 years old and 54 years old. This makes total sense as these are the peak earnings years for most people and the period in their lives when they are forming households, raising kids and accumulating stuff. As you enter your twilight years, income declines, medical expenses rise, the kids are gone, and you’ve bought all the stuff you’ll ever need. Spending drops precipitously as you enter your 60’s. The spending wave that began in 1990 and reached its apex in the mid-2000s has crested and is going to crash down on the heads of hubristic retail CEOs that extrapolated unsustainable debt financed spending to infinity into their store expansion plans. The added kicker for retailers is the fact Boomers haven’t saved enough for their retirements, have experienced a twelve year secular bear market with another five or ten years to go, are in debt up to their eyeballs, and have seen the equity in their homes evaporate into thin air in the last seven years. This is not a recipe for a spending up swell.

Demographics cannot be spun by the corporate media or manipulated by BLS government drones. They are factual and unable to be altered. They are also predictable. The four population by age charts below paint a four decade picture of reality that does not bode well for retailers over the coming decade. The population by age data correlates perfectly with the spending spree over the last two decades.

  • 26% of the population in the prime spending years between 35 and 54 years old.
  • Only 14% of the population over 65 years old indicating reduced spending.

  • 31% of the population in the prime spending years between 35 and 54 years old.
  • Only 13% of the population over 65 years old indicating reduced spending.

  • 28% of the population in the prime spending years between 35 and 54 years old.
  • A rising 14% of the population over 65 years old indicating reduced spending.

  • 24% of the population in the prime spending years between 35 and 54 years old.
  • A rising 17% of the population over 65 years old indicating reduced spending.

The irreversible descent in the percentage of our population in the 35 to 54 year old prime spending age bracket will have and is already having a devastating impact on retail sales. In addition, the young people moving into the 25 to 34 year old bracket are now saddled with $1 trillion of student loan debt and worthless degrees from the University of Phoenix and the other for-profit diploma mills, luring millions with their Federal government easy loan programs. The fact that 40% of all 20 to 24 year olds in the country are not employed and 26% of all 25 to 34 year olds in the country are not working may also play a role in holding back spending, as jobs are somewhat helpful in generating money to buy stuff. Even with Obama as President they will have a tough time getting onto the unemployment rolls without ever having a job. The 55 and over crowd, who have lived above their means for three decades, will be lucky if they have the resources to put Alpo on the table in the coming years. The unholy alliance of debt, demographics and delusion will result in a retail debacle of epic proportions, unseen by retail head honchoes and the linear thinkers in the media and government.

We’re Not in Kansas Anymore Toto

“We tell ourselves we’re in an economic recovery, meaning we expect to return to a prior economic state, namely, a turbo-charged “consumer” economy fueled by easy credit and cheap energy. Fuggeddabowdit. That part of our history is over. We’ve entered a contraction that will seem permanent until we reach an economic re-set point that comports with what the planet can actually provide for us. That re-set point is lower than we would like to imagine. Our reality-based assignment is the intelligent management of contraction. We don’t want this assignment. We’d prefer to think that things are still going in the other direction, the direction of more, more, more. But they’re not. Whether we like it or not, they’re going in the direction of less, less, less. Granted, this is not an easy thing to contend with, but it is the hand that circumstance has dealt us. Nobody else is to blame for it.” – Jim Kunstler

 

The brilliant retail CEOs who doubled and tripled their store counts in the last twenty years and assumed they were geniuses as sales soared are getting a cold hard dose of reality today. What they don’t see is an abrupt end to their dreams of ever expanding profits and the million dollar bonuses they have gotten used to. I’m pretty sure their little financial models are not telling them they will need to close 20% of their stores over the next five years. They will be clubbed over the head like a baby seal by reality as consumers are compelled to stop consuming. As we’ve seen, just a moderation in spending has resulted in a collapse in store profitability. Retail CEOs have failed to grasp that it wasn’t their brilliance that led to the sales growth, but it was the men behind the curtain at the Federal Reserve. The historic spending spree of the last two decades was simply the result of easy to access debt peddled by Wall Street and propagated by the easy money policies of Alan Greenspan and Ben Bernanke. The chickens came home to roost in 2008, but the Wizard of Debt – Bernanke – has attempted to keep the flying monkeys at bay with his QE1, QE2, Operation Twist, and ZIRP. As the economy goes down for the count again in 2012, he will be revealed as a doddering old fool behind the curtain.

There are 1.1 million retail establishments in the United States, but the top 25 mega-store national chains account for 25% of all the retail sales in the country. The top 100 retailers operate 243,000 stores and account for approximately $1.6 trillion in sales, or 36% of all the retail sales in the country. They are led by the retail behemoth Wal-Mart and they dot the suburban landscape from Maine to Florida and New York to California. These super stores anchor every major mall in America. There are power centers with only these household names jammed in one place (example near my home: Best Buy, Target, Petsmart, Dicks, Barnes & Noble, Staples). These national chains had already wiped out the small town local retailers by the early 2000s as they sourced their goods from China and dramatically underpriced the small guys. The remaining local retailers have been closing up shop in record numbers in the last few years as the ability to obtain financing evaporated and customers disappeared. The national chains have more staying power, but their blind hubris and inability to comprehend the future landscape will be their downfall.

Having worked for one of the top 100 retailers for 14 years, I understand every aspect of how these mega-chains operate. They all approach retailing from a very scientific manner. They have regression models to project sales based upon demographics, drive times, education, average income, and the size of the market. They will build any store that achieves a certain ROI, based on their models. The scientific method works well when you don’t make ridiculous growth assumptions and properly take into account what your competitors are doing and how the economy will realistically perform in the future years. This is where it goes wrong as these retail chains get bigger, start believing their press clippings and begin ignoring the warnings of sober realists within their organizations. When the models show that cannibalization of sales from putting stores too close together will result in a decline in profits, the CEO will tweak the model to show greater same store growth and a larger increase in the available market due to higher economic growth. They assume margins will increase based upon nothing. At the same time, they will ignore the fact their competitor is building a store 2 miles away. Eventually, using foolhardy assumptions and ignoring facts leads to declining sales and profitability.

There is no better example of this than Best Buy. They increased their U.S. store count from 500 in 2002 to 1,300 today. That is a 160% increase in store count. For some perspective, national retail sales grew by 42% over this same time frame. Their strategy wiped out thousands of mom and pop stores and drove their chief competitor – Circuit City – into liquidation. But their hubris caught up to them. There sales per store has plummeted from $36 million per store in 2007 to less than $28 million per store today, a 24% decline in just five years. They have cannibalized themselves and have seen a $6 billion increase in revenue lead to $100 million LESS in profits. It appears the 444 stores they have built since 2007 have a net negative ROI. Top management is now in full scramble mode as they refuse to admit their strategic errors. Instead they cut staff and use upselling gimmicks like service plans, technical support and deferred financing to try and regain profitability. They will not admit they have far too many stores until it is too late. They will follow the advice of an earnings per share driven Wall Street crowd and waste their cash buying back stock. We’ve seen this story before and it ends in tears. I was in a Best Buy last week at 6:00 pm and there were at least 50 employees servicing about 10 customers. Tick Tock.

Best Buy - Annual Store Count Growth

Best Buy - Annual Sales per Store

You would have to be blind to not have noticed the decade long battles between the two biggest drug store chains and the two biggest office supply chains. Walgreens and CVS have been in a death struggle as they have each increased their store counts by 80% to 90% in the last 10 years. Both chains have been able to mask poor existing store growth by opening new stores. They are about to hit the wall. I now have six drug stores within five miles of my house all selling the exact same products. Every Wal-Mart and Target has their own pharmacy. At 2:00 pm on a Sunday afternoon I walked into the Walgreens near my house and there were six employees, a pharmacist and myself in the store. This is a common occurrence in this one year old store. It will not reach its 3rd birthday.

Walgreens - Annual Store Count Growth

CVS - Annual Retail Store Growth

Further along on the downward death spiral are Staples and Office Depot. They both increased their store counts by 50% to 60% in the last decade. Despite adding almost 200 stores since 2007, Staples has managed to reduce their profits. Sales per store have declined by 20% since 2006. Office Depot has succeeded in losing almost $2 billion in the last five years. These fools are actually opening new stores again despite overseeing a 36% decrease in sales per store over the last decade. These stores sell paper clips, paper, pens, and generic crap you can purchase at 100,000 other stores across the land or with a click of you mouse. Their business concept is dying and they don’t know it or refuse to acknowledge it.

Staples - Annual Store Count Growth

Office Depot - Annual Store Count Growth

Even well run retailers such as Kohl’s and Bed Bath & Beyond have hit the proverbial wall. Remember that total retail sales have only grown by 42% in the last ten years while Kohl’s has increased their store count by 180% and Bed Bath & Beyond has increased their store count by 175%. Despite opening 200 new stores since 2007, Kohl’s profits are virtually flat. Sales per store have deflated by 26% over the last decade as over-cannibalization has worked its magic. Bed Bath & Beyond has managed to keep profits growing as they drove Linens & Things into bankruptcy, but they risk falling into the Best Buy trap as they continue to open new stores. Their sales per store are well below the levels of 2002. Again, there is very little differentiation between these retailers as they all sell cheap crap from Asia, sold at thousands of other stores across the country. With home formation stagnant, where will the growth come from? Answer: It won’t come at all.

Kohl's - Annual Store Count Growth

Bed Bath & Beyond - Annual Store Count Growth

The stories above can be repeated over and over when analyzing the other mega-retailers that dominate our consumer crazed society. Same store sales growth is stagnant. The major chains have over cannibalized themselves. Their growth plans were based upon a foundation of ever increasing consumer debt and ever more delusional Americans spending money they don’t have. None of these retailers has factored a contraction in consumer spending into their little models. But that is what is headed their way. They saw the tide go out in 2009 but they’ve ventured back out into the surf looking for some trinkets, not realizing a tsunami is on the way. The great contraction began in 2008 and has been proceeding in fits and starts for the last four years. The increase in retail sales over the last two years has been driven by inflation, not increased demand. The efforts of the Federal Reserve and Wall Street to reignite our consumer society by pushing subprime debt once more will ultimately fail – again. The mega-retailers will be forced to come to the realization they have far too many stores to meet a diminishing demand.

The top 100 mega-retailers operate 243,000 stores. Will our contracting civilization really need or be able to sustain 14,000 McDonalds, 17,000 Taco Bells & KFCs, 24,000 Subways, 9,000 Wendys, 7,000 7-11s, 8,000 Walgreens, 7,000 CVS’, 4,000 Sears & Kmarts, 11,000 Starbucks, 4,000 Wal-Marts, 1,700 Lowes and 1,800 Targets in five years?  As our economy contracts and more of our dwindling disposable income is directed towards rising energy and food costs, retailers across the land will shut their doors. Try to picture the impact on this country as these retailers are forced to close 50,000 stores. Where will recent college graduates and broke Baby Boomers work? The most profitable business of the future will be producing Space Available and For Lease signs. Betting on the intelligence of the American consumer has been a losing bet for decades. They will continue to swipe that credit card at the local 7-11 to buy those Funions, jalapeno cheese stuffed pretzels with a side of cheese dipping sauce, cartons of smokes, and 32 ounce Big Gulps of Mountain Dew until the message on the credit card machine comes back DENIED.

There will be crescendo of consequences as these stores are closed down. The rotting hulks of thousands of Sears and Kmarts will slowly decay; blighting the suburban landscape and beckoning criminals and the homeless. Retailers will be forced to lay-off hundreds of thousands of workers. Property taxes paid to local governments will dry up, resulting in worsening budget deficits. Sales taxes paid to state governments will plummet, forcing more government cutbacks and higher taxes. Mall owners and real estate developers will see their rental income dissipate. They will then proceed to default on their loans. Bankers will be stuck with billions in loan losses, at least until they are able to shift them to the American taxpayer – again. No politician, media pundit, Federal Reserve banker, retail CEO, or willfully ignorant mindless consumer wants to admit the truth that the last three decades of debt delusion are coming to a tragic bitter end. The smarmy acolytes of Edward Bernays on Wall Street and in corporate America have successfully used propaganda and misinformation to lure generations of weak minded people into debt servitude. But, at the end of the day, you need cash to service the debt. Mind control doesn’t pay the bills.  We will eventually return to normal, just not the normal many had in mind.

“If we understand the mechanism and motives of the group mind, it is now possible to control and regiment the masses according to our will without them knowing it.” – Edward Bernays



 

SUBPRIME IS BACK BABY!!!

I’ve been harping on all the new cars I’ve been seeing in the slums of West Philly as I drive to work every morning. It seems you can get a car loan even if your credit score is 500. Just to give you some prespective, this dude has a credit score of 500.

It is amazing how many cars you can “sell” when you don’t need to worry about getting paid for the car. The “recovery” in U.S. auto sales has been so fantastic, Obama and his minions are rolling the same method out to the housing market. If you want to know why Fannie Mae and Freddie Mac have lost $200 billion of your tax dollars just read the story below where they are waiving that ridiculous underwriting requirement that forces the lender to determine if the borrower has a “reasonable ability to repay” the loan based upon debt-to-income ratio, income, and other factors.

Why should we expect people to repay their car loans and home loans? That is racist and discriminatory against people who don’t have money, assets, or a viable income stream. All hail Subprime loans, the savior of our country. They’re back baby!!!

Subprime to the Rescue

By Greg Hunter’s USAWatchdog.com 

Subprime lending is back, and it is creating headlines like: “February auto sales rise to highest level in 4 years.”  That comes from a story last week from Reuters.  Reuters goes on to say, “U.S. auto sales rose nearly 16 percent in February and the annual sales rate leapt to its best level in four years . . . For a second month in a row, sales surpassed even the most optimistic expectations.  Analysts ascribed the gains partly to rising consumer confidence and upbeat U.S. economic data.”  (Click here for the complete Reuters story.)  Subprime lending was one of the major causes of the 2008 economic meltdown.  You would think the banks and the government would have learned a lesson, but they did not. 

Subprime auto lending played a big part in those car sales figures.  According to published reports, people with a credit score of just 500 can now get a car loan. As of last August, more than 40% of car loans were given to subprime borrowers.  That number is growing according to Loans.org.  It said two weeks ago, “Due to a new trend that many lenders have begun to participate in, more and more subprime borrowers were able to obtain vehicle financing. As a result, outstanding car loans rose by 3.8 percent, which is roughly $23 billion. That sharp uptick in outstanding vehicle financing brings the national total to $658 billion.”  (Click here to read the complete Loans.org story.)   

Nothing gets the economy going faster than loaning money to people with a high chance of not paying it back.  Mind you, the economy is not improving because of increased exports, productivity gains, some sort of new technology or dynamic innovation.  It appears to be improving (somewhat) because of the return of subprime lending.  If that is not a sign of the impending doom of another future crash, I don’t know what is.  If we could only put people back to work as fast as someone could qualify for a subprime car loan, we’d be able to fix America’s chronic unemployment problem—at least for a little while.  

Not to be outdone by the auto industry, real estate is getting a boost from the government’s revamped “Home Affordable Refinance Program,” also known as “HARP 2.0.”  This program is only available to homeowners who have mortgages with Fannie Mae or Freddie Mac, but that is effectively around half of the mortgage market.  Perspective borrowers have to be current on their payments, and the mortgage must be under 125% of the home’s current value.  In other words, if you owe a $125,000 mortgage but the home is only worth $100,000, you can still borrow the full $125,000 and get a new loan with cheaper payments.  

Bankers love this new government financing program.  It cuts payments for mortgages by a few hundred bucks (on average) but not principle.  It retains the value of all those mortgage-backed securities packaged and sold by the banks, and this locks the homeowner into another underwater mortgage at taxpayer expense.  What do you think will happen when interest rates on mortgages go back up to more normal levels?  The underwater mortgages will be sunk even deeper, and taxpayers will be on the hook for billions in more losses.   On top of that, HARP 2.0 creates new mortgage paperwork so foreclosing will be much easier next time around.  Stupid consumers live on this question, “What are the payments?”  It is the dumbest finance question you can ever ask.

One mortgage website called Harploans.com touts this new government boondoggle as some sort of consumer rescue.   A recent Harploans.com posting said, “In addition to helping more than a million underwater homeowners refinance their mortgages, HARP 2.0 could cause an increase in mortgage originations of between $200-300 billion in 2012-2013.”  Here’s the real kicker and the most outrageous part of this new program.  Harploans.com goes on to say, “It is also notable that Fannie Mae has made some key changes to their underwriting guidelines pertaining to HARP 2.0 that could encourage more lenders to jump on board with the program. Fannie eliminated an underwriting requirement that forces the lender to determine if the borrower has a “reasonable ability to repay” the loan based upon debt-to-income ratio, income, and other factors. It appears that the lender is now able to qualify borrowers through a streamlined process that could only take into account credit score and the number of recent payments made. This could make it significantly easier to qualify borrowers for new loans.  (Click here for the complete Harploans.com posting.) 

Talk about throwing good money after bad, I think “HARP 2.0” should be called “Subprime 2.0” or maybe “Subprime Lite.”  No matter what you call it, this is nothing less than another banker bailout program handed out at taxpayer expense.  What can you expect in an election year?  It’s subprime to the rescue for autos, housing and the bankers; but they are trying to rescue a system that cannot be saved.

BREAD BASKET TO THE WORLD?

Maybe some of our farmer members can add some insight to this article from http://theeconomiccollapseblog.com/. Is the article too dire? Are drought conditions in the Midwest becoming more prevelant? Could we experience another dustbowl, on par with the 1930s? Is the data on the Ogallala Aquafier accurate? Inquiring minds want to know.

20 Signs That Dust Bowl Conditions Will Soon Return To The Heartland Of America

For decades, the heartland of America has been the breadbasket of the world.  Unfortunately, those days will shortly come to an end.  The central United States is rapidly drying up and dust bowl conditions will soon return.  There are a couple of major reasons for this.  Number one, the Ogallala Aquifer is being depleted at an astounding pace.  The Ogallala Aquifer is one of the largest bodies of fresh water in the entire world, and water from it currently irrigates more than 15 million acres of crops.  When that water is gone we will be in a world of hurt.  Secondly, drought conditions have become the “new normal” in many areas of Texas, Oklahoma, Kansas and other states in the middle part of the country.  Scientists tell us that the wet conditions that we enjoyed for several decades after World War II were actually the exception to the rule and that most of time time the interior west is incredibly dry.  They also tell us that when dust bowl conditions return to the area, they might stay with us a lot longer than a decade like they did during the 1930s.  Unfortunately, without water you cannot grow food, and with global food supplies as tight as they are right now we cannot afford to have a significant decrease in agricultural production.  But it is not just the central United States that is experiencing the early stages of a major water crisis.  Already many other areas around the nation are rapidly developing their own water problems.  As supplies of fresh water get tighter and tighter, some really tough decisions are going to have to be made.  Fresh water is absolutely essential to life, and it is going to become increasingly precious in the years ahead.

Most Americans have never even heard of the Ogallala Aquifer, but the truth is that it is one of the most important bodies of water on the globe.  It covers well over 100,000 square miles and it sits underneath the states of Texas, New Mexico, Oklahoma, Colorado, Kansas, Nebraska, Wyoming and South Dakota.

Water drawn from the Ogallala Aquifer is used to water more than 15 million acres of crops.  Without this source of water, the United States would not be the breadbasket of the world.

That is why what is happening right now is so alarming.

The following are 20 signs that dust bowl conditions will soon return to the heartland of America….

#1 The Ogallala Aquifer is being drained at a rate of approximately 800 gallons per minute.

#2 According to the U.S. Geological Survey, since 1940 “a volume equivalent to two-thirds of the water in Lake Erie” has been permanently lost from the Ogallala Aquifer.

#3 Decades ago, the Ogallala Aquifer had an average depth of approximately 240 feet, but today the average depth is just 80 feet.  In some areas of Texas, the water is gone completely.

#4 Scientists are warning that nothing can be done to stop the depletion of the Ogallala Aquifer.  The ominous words of David Brauer of the Ogallala Research Service should alarm us all….

“Our goal now is to engineer a soft landing. That’s all we can do.”

#5 According to a recent National Geographic article, the average depletion rate of the Ogallala Aquifer is picking up speed….

Even more worrisome, the draining of the High Plains water account has picked up speed. The average annual depletion rate between 2000 and 2007 was more than twice that during the previous fifty years. The depletion is most severe in the southern portion of the aquifer, especially in Texas, where the water table beneath sizeable areas has dropped 100-150 feet; in smaller pockets, it has dropped more than 150 feet.

#6 According to the U.S. National Academy of Sciences, the U.S. interior west is now the driest that it has been in 500 years.

#7 It seems like the middle part of the United States experiences a major drought almost every single year now.  Last year, “the drought of 2011” virtually brought Texas agriculture to a standstill.  More than 80 percent of the state of Texas experienced “exceptional drought” conditions at some point, and it was estimated that about 30 percent of the wheat fields in Texas were lost.  Agricultural losses from the drought were estimated to be $3 billion in the state of Texas alone.

#8 Wildfires have burned millions of acres of vegetation in the central part of the United States in recent years.  For example, wildfires burned an astounding 3.6 million acres in the state of Texas alone during 2011.  This helps set the stage for huge dust storms in the future.

#9 Texas is not the only state that has been experiencing extremely dry conditions.  Oklahoma only got about 30 percent of the rainfall that it normally gets last summer.

#10 In some areas of the southwest United States we are already seeing huge dust storms come rolling through major cities.  You can view video of a giant dust storm rolling through Phoenix, Arizona right here.

#11 Unfortunately, scientists tell us that it would be normal for dust bowl conditions to persist in parts of North America for decades.  The following is from an article in the Vancouver Sun….

But University of Regina paleoclimatologist Jeannine-Marie St. Jacques says that decade-long drought is nowhere near as bad as it can get.

St. Jacques and her colleagues have been studying tree ring data and, at the American Association for the Advancement of Science conference in Vancouver over the weekend, she explained the reality of droughts.

“What we’re seeing in the climate records is these megadroughts, and they don’t last a decade—they last 20 years, 30 years, maybe 60 years, and they’ll be semi-continental in expanse,” she told the Regina Leader-Post by phone from Vancouver.

“So it’s like what we saw in the Dirty Thirties, but imagine the Dirty Thirties going on for 30 years. That’s what scares those of us who are in the community studying this data pool.”

#12 Experts tell us that U.S. water bills are likely to soar in the coming years.  It is being projected that repairing and expanding our decaying drinking water infrastructure will cost more than one trillion dollars over the next 25 years, and as a result our water bills will likely approximately triple over that time period.

#13 Right now, the United States uses approximately 148 trillion gallons of fresh water a year, and there is no way that is sustainable in the long run.

#14 According to a U.S. government report, 36 states are already facing water shortages or will be facing water shortages within the next few years.

#15 Lake Mead supplies about 85 percent of the water to Las Vegas, and since 1998 the level of water in Lake Mead has dropped by about 5.6 trillion gallons.

#16 A federal judge has ruled that the state of Georgia has very few legal rights to Lake Lanier, and since Lake Lanier is the main water source for the city of Atlanta that presents quite a problem.

#17 It has been estimated that the state of California only has a 20 year supply of fresh water left.

#18 It has been estimated that the state of New Mexico only has a 10 year supply of fresh water left.

#19 Approximately 40 percent of all rivers in the United States and approximately 46 percent of all lakes in the United States have become so polluted that they are are no longer fit for human use.

#20 Eight states in the Great Lakes region have signed a pact banning the export of water from the Great Lakes to outsiders – even to other U.S. states.

Unfortunately, it is not just the United States that is facing a shortage of fresh water in the near future.  The reality is that most of the rest of the world is in far worse shape than we are.  Just consider the following stats….

-According to the United Nations, the world is going to need at least 30 percent more fresh water by the year 2030.

-Global demand for fresh water tripled during the last century, and is now increasing faster than ever before.

-According to USAID, one-third of the people on earth will be facing severe or chronic water shortages by the year 2025.

-Of the 60 million people added to the cities of the world each year, the vast majority of them live in deeply impoverished areas that have no sanitation facilities whatsoever.

-It has been estimated that 75 percent of all surface water in India has been heavily contaminated by human or agricultural waste.

-Sadly, according to one UN study on sanitation, far more people in India have access to a cell phone than to a toilet.

-Every 8 seconds, somewhere in the world a child dies from drinking dirty water.

–Due to a lack of water, Saudi Arabia has given up on trying to grow wheat and will be 100 percent dependent on wheat imports by the year 2016.

-Each year in northern China, the water table drops by an average of about one meter due to severe drought and overpumping, and the size of the desert increases by an area equivalent to the state of Rhode Island.

-In China, 80 percent of the major rivers have become so horribly polluted that they do not support any aquatic life at all at this point.

-In sub-Saharan Africa, drought has become a way of life.  Collectively, the women of South Africa walk the equivalent of the distance to the moon and back 16 times a day just to get water.

It has been said that “water is the new gold”, and unfortunately we are getting close to a time when that may actually be true.

Without water, none of us could survive for long.  Just try not using water for anything for 12 hours some time.  It is a lot harder than you may think.

We can’t grow our food in a pile of dust.  Unfortunately, many areas of the heartland of America are slowly but surely heading in that direction.

History tells us that it is only a matter of time before dust bowl conditions return to the central United States.  We have used irrigation and other technologies to delay the inevitable, but in the end it cannot be stopped.

Let us hope that the return of dust bowl conditions can be put off for as long as possible, but let us also prepare diligently for the worst.



Natgas Down, Opportunity Up

By Marin Katusa, Chief Energy Investment Strategist, Casey Research

The energy market is a complex beast, its many parts interconnected through a multitude of linkages. When one part fails, the entire system reacts: certain linkages are burdened with extra stress, while other components sit idle. Only by studying the entire machine can one understand the rippling effects that stem from one change.

With the energy market, the system is made up of various sectors – oil, natural gas, uranium, coal, and alternative energies – and the countries that have each of those energy resources. The components are then linked through a long line of forces, including the geographic distributions of supply and demand, international allegiances and trade deals, global markets and commodity prices, and the ever-evolving field of international relations. A change in any country, sector, or linkage resonates through the entire system.

From this perspective, North America’s shale gas revolution truly earns its accolade as a “game changer.” As many people now understand, the boom in natural gas reserves and production in the United States and Canada is changing the way North America will power itself in the future.

What a lot of people do not understand is how to profit from this shift.

Natural gas prices are depressed and expected to remain so for the short to medium term, so investing in natural gas options or a natural gas exchange-traded fund is not likely to bring home the big bucks anytime soon. Domestic natural gas equities are an even riskier idea – most producers are scaling back production and selling assets as they hunker down in preparation for a tough few years.

In this case, the way to profit is by understanding how natural gas’ changing role is impacting North America’s energy machine as a whole. Cheap natural gas is prompting utilities to switch from coal to gas where possible. The confluence of cheap natural gas and a risky global economy has droves of investors turning their backs on green energy, the sector that was such a market darling only a few years ago. Farther down the road, North Americans are debating – and in places implementing – a range of strategies to take advantage of the continent’s newfound abundance of natural gas, from natural-gas-powered transport trucks to exportation of liquefied natural gas (LNG).

Isaac Newton showed us that for every action there is an equal and opposite reaction. That is why every downside force in the energy sector creates upside opportunities elsewhere. The challenge is finding them. It takes an understanding of the entire global energy machine to figure out what areas are benefitting from the changing landscape.

For Every Down, There’s an Up

Natural gas seems to know that it is heading for several years in the doldrums and, in fighting spirit, it is trying to take a couple of other energy sectors down with it.

With coal, it is succeeding, but there are still lots of coal opportunities outside of the United States. With uranium, the global supply-demand scenario and America’s position within it is in such flux right now that cheap natural gas is doing little to reduce America’s need for U3O8. Then there’s the well-field services sector, where the successes born from horizontal drilling and fracturing created the gas supply glut that is forcing production cuts. Far from slowing down, however, well-field service companies are busier than ever as the oil industry adopts fracking to access shale oil, and the deepwater Gulf of Mexico continues to test the limits of drilling technology.

Coal

The sector feeling the worst impacts from gas’ downturn is thermal coal. Demand for the coal burned to generate power in the US is plummeting as utilities take advantage of the cheapest natural gas in ten years. Consumption of coal to produce electricity is expected to fall 2% this year to its lowest level since 1992, while gas-fired consumption rises 5.6%. Making matters worse, winter heating demand is falling in the face of mild weather: through January, this has been the warmest winter since 2006 and the fourth-warmest on record. With natural gas and warm weather conspiring against it, coal demand is decidedly down – in the second week of February, coal consumption was 4.3% lower than it was a year ago.

Exports are not going to provide any help. Last year, Europe bought 50% of America’s thermal coal exports, but demand from the EU is shrinking as the region struggles to stave off a recession. The economies of the EU shrank 0.3% in the fourth quarter of 2011 compared to the previous quarter, the first contraction since mid-2009.

In response, US thermal coal prices are deteriorating. Appalachian coal, the US thermal-coal benchmark, fell 15% in January alone to sit near US$60 per tonne and has moved little since (by comparison, Australian thermal coal is currently fetching almost US$120 per tonne). Mining costs to dig thermal coal out of the ground range from $60 to $75 per tonne for Central Appalachian producers, which means margins are already razor thin or nonexistent. Several major US thermal coal producers are reducing output and in some cases closing mines, including Arch Coal (NYSE.ACI), Patriot Coal (NYSE.PCX), and Alpha Natural Resources (NYSE.ANR).

Now for some good news. Thermal coal prices in the United States may be faltering, but that doesn’t mean that coal is in the doldrums across the globe. In fact, quite the contrary: global thermal-coal demand is expected to increase by 50% from 2008 to 2035, with the vast majority of increased demand coming from the developing world. That equates to a demand increase of 1.5% each year, and production is not quite expected to keep up to that pace. Rising demand plus not-quite-enough supply equals investment opportunities – maybe not in the US, but elsewhere.

That’s just thermal coal. There’s another component to the coal world: metallurgical coal, the higher-carbon coal used to make steel. Supplies are even tighter with metallurgical coal, which is why our subscribers have exposure to “met coal” through either equities or a fund. More recommendations are on the horizon: the upcoming edition of the Casey Energy Report will be all about coal. We will provide the background, supply and demand projections, and the best ways to profit from the global coal sector.

Uranium

The abundance of cheap gas has utilities looking to build more gas-fired power plants. Some observers have suggested that this will be to the detriment of the nuclear sector in the US. But that perspective is pretty shortsighted.

It is true that some utilities have delayed plans for new nuclear plants by a few years, primarily in response to the Fukushima nuclear disaster in Japan and the ensuing public backlash against uranium. But that backlash is already fading; and those delays will have only a minimal impact on the nuclear sector in the US. Five new generators are on track for completion this decade, including two reactors approved just a few weeks ago (the first new reactor approvals in the US in over 30 years). Those will add to the 104 reactors that are already in operation around the country and already produce 20% of the nation’s power.

Those reactors will eat up 19,724 tonnes of U3O8 this year, which represents 29% of global uranium demand. If that seems like a large amount, it is! The US produces more nuclear power than any other country on earth, which means it consumes more uranium that any other nation. However, decades of declining domestic production have left the US producing only 4% of the world’s uranium.

With so little homegrown uranium, the United States has to import more than 80% of the uranium it needs to fuel its reactors. Thankfully, for 18 years a deal with Russia has filled that gap. The “Megatons to Megawatts” agreement, whereby Russia downblends highly enriched uranium from nuclear warheads to create reactor fuel, has provided the US with a steady, inexpensive source of uranium since 1993. The problem is that the program is coming to an end next year.

At present the world is producing just enough uranium to meet global demand, but this precarious balance is already tipping. There are dozens of new reactors under construction in China, India, South Korea, and Russia that will need fuel. Production increases from new mines and mine expansions are not expected to keep pace. The race to secure uranium resources is on, and for the first time the US has to compete.

The answer is domestic production. The rocks underneath the United States hold lots of uranium, enough to make a significant contribution to the country’s uranium needs. The biggest impediment to mining this resource is public opposition to the nebulous dangers of uranium mining, but as the Megatons program ends Americans will start to see that the alternatives to domestic production are decidedly worse: competing against China, India, and the like for uranium is an expensive and unstable way to acquire a desperately needed energy resource. In fact, we have been vocal in predicting a demand-driven boom in US uranium production. We even expect to see “Made in America” uranium garnering a premium over imported yellowcake, in the same way that in-demand Brent crude oil earns a premium above oversupplied West Texas Intermediate crude.

We have already recommended a range of investments to our subscribers to gain exposure to the coming uranium resurgence and, as with coal, there is more to come: the next edition of the Casey Energy Opportunities newsletter will focus on uranium, with recommendations to boot.

Well-Field Services

The techniques used to unlock natural gas from shale reservoirs – horizontal drilling and well fracturing – worked so well that they created a supply glut that is altering the global energy scene. That supply glut is now prompting natural gas producers to cut back on output, which you might think would be bad news for the well-field service companies that complete those tasks.

Not to worry: North America is also in the midst of a crude-oil production boom, and the common theme linking most of the continent’s new wells is highly technical drilling and production methods. The purveyors of those techniques are the continent’s well-field service companies, and their services are very much in demand.

Well-field service companies have been able to compensate for lost gas fracking business by shifting to oil, as the oil industry has adopted fracking to unlock its shale deposits. If you’ve read about the oil production boom that is keeping North Dakota’s economy hopping, you read about the Bakken shale formation. In the Bakken, wells are drilled horizontally to follow along the oil-bearing layer, and then high-pressure fluids are forced down the well to fracture the shale and release the oil.

Meanwhile, the challenges of producing oil in the deepwater Gulf of Mexico continue to test the limits of drilling technology. Pushing through kilometers of water before drilling through just as much rock and then extracting and transporting oil from a platform rocked by waves and threatened by hurricanes demands a wealth of specialized equipment and operators.

Most oil and gas companies do not own drill rigs, nor do they actually drill or fracture their own wells. They contract those jobs out to companies that drill and frac for a living, known as well-field service companies. And with wells in America’s booming oil and gas fields requiring more complicated and more technical services with each passing year, the services these companies provide are essential to North America’s oil and gas producers.

The Casey energy team is all over the well-field services sector. Subscribers to the Casey Energy Report newsletter and the Casey Energy Confidential alert service were alerted to our latest recommendation in the sector in mid-November. Three months later, our investment is already up roughly 50% and we suggested that subscribers take a “Casey Free Ride,” which means selling enough shares to recoup one’s initial investment and retaining the remaining “free” shares for continued, risk-free upside exposure.

The Take-Home

When a machine is as interconnected as the global energy trade, no part can change without impacting the rest. The dramatic debut of shale gas in North America has done far more than just depress domestic natural-gas prices – a shift of this magnitude has impacts that reach far beyond one commodity or one country. Some of those impacts are negative, but hidden in the doom and gloom lie opportunities to profit. The key is to open your horizons and embrace the complexity and interconnectedness of the global energy machine… either that, or find a good mechanic who can do the job for you.

[One of the best opportunities we’ve seen in years involves leveraging a touchy situation that OPEC doesn’t want you to know about. Learn more about it.]



MY CONNECTION TO ANDREW BREITBART

 Oh Boy!!! Is the Administrator somehow mixed up in the murder of a conservative website mogul by the President of the U.S.? This could do wonders for visitor counts. You will notice the name Steve Bannon in the story below. This is the same Steve Bannon who directed my movie debut in GENERATION ZERO. I’ve since been on his radio show and have kept up an email correspondence with him. He’s a good guy. But, his movie was financially backed by Citizens United, before the Supreme Court ruling. I consider that one strike. A few months ago he contacted me about getting involved in one of Breitbart’s new ventures. Bannon is or was creating a new website called Big Finance and he asked me if I was interested in being the editor of the site. In my opinion, Breithbart was too far to the right. He supported Palin and the neo-con fringe of the Republican party. I let the whole thing drop. There is no way I could support the right wing neo-con agenda of the Republican party. It sounds like Bannon is ready to pick up the mantle and continue to the war against Obama. I suggest he stay away from small planes and make sure he knows who prepared his meals.

Filmmaker Steve Bannon: Breitbart‘s Tapes of Obama’s College Years to Be Released in 7 to 10 Days

I have videos, this election we’re going to vet him,” new media mogul Andrew Breitbart proclaimed at this year’s CPAC event.

Breitbart was, of course, referring to clips that allegedly show President Barack Obama during his college days — videos that the media leader claimed would show “why racial division and class warfare are central to what hope and change was sold in 2008.”

These tapes, which have inspired conspiracy theories surrounding what led to Breitbart’s death on Thursday of natural causes at the age of 43, are now purportedly going to be released (Glenn Beck has strongly cautioned viewers against jumping to conclusions connecting the tapes to Breitbart’s death).

On Thursday evening, Steve Bannon, a writer and documentary filmmaker (“The Undefeated”), told FOX News‘ Sean Hannity that Breitbart’s company will release the mysterious Obama Harvard tapes within seven to 10 days.

Steve Bannon Says Breitbarts Obama Colleges Tapes to Be Released

After Hannity brought up the tapes that Breitbart said “would change this election,” Bannon gave more information regarding when the public can expect to see them.

“There‘s a set of tapes and we’re going through it,” Bannon announced. “The staff…the guys are going through a series of tapes of President Obama at Harvard and…we’ll come back to you in a week or two and show them here on the Hannity show.”

“In one week, we’ll have these tapes?,” Hannity asked.

Bannon confirmed that they should be ready for release in a week to 10 days.

Watch the interview with Bannon, below (comments begin around 3:50):

(H/T: The Gateway Pundit)



THIS SHIT MAKES MY HEAD HURT

Below is an article about Americans not being able to feed themselves in 2011. According to the study 18.6% are struggling to put food on the table. The data on food stamp usage supports this contention. When the Wall Street created financial meltdown occurred in 2008 there were 30.8 million Americans on food stamps. When the government announced the recession was over in December 2009, there were 39 million Americans on food stamps. We are now supposedly over two years into an economic recovery (Obama & CNBC tell me so) and the number of Americans on food stamps is 46.3 million – and still rising. Anecdotal evidence is everywhere as the food bank near my house had to move to a building three times as large as their old facility. Senior citizens have barely gotten an increase in their Social Security payments for the last three years, while the price of food is up 20% to 30%. Anyone who shops at a grocery store knows this is true (except for Ben Bernanke).

But, the stock market is soaring. The MSM is proclaiming good times are back. Even though millions of Americans have given up looking for a job, the unemployment rate keeps falling. Bernanke and the BLS tells us there is no inflation. When I drive through West Philly I see brand new luxury automobiles surrounding low income housing and broken down hovels. The wheels on some of these luxury autos cost more than my Honda Insight. There is no one starving in West Philly. The inhabitants of this squalor are generally obese. Their hovels have Direct TV satellite dishes on their roofs. Every supposedly poor person I see has a cell phone to their ear. The average household income in this neighborhood is $16,000. The median home value is $25,000. The true unemployment rate exceeds 50%.

You can see why this shit makes my head hurt. Nothing makes sense anymore. My belief is that there are millions of good proud people who are having a very difficult time feeding themselves. They are the people in the formerly working middle class. They never took a handout from the government like the parasites living in West Philly. They worked blue collar jobs and lived within their means. Their jobs got shipped off to China by Harvard MBA efficiency experts. They are dying a slow painful death. The 99 weeks of unemployment has run out. Despite the government propaganda, there are no new jobs being created. The entitlement class knows how to play the system. They are not starving. Obama will keep them happy in order to get re-elected. It’s the once proud working middle class (the backbone of the country) that are suffering the most.

Even though I think I understand what is going on, this shit still makes my head hurt.

Growing Number Of Americans Can’t Afford Food, Study Finds

Afford Food

The Huffington Post     

Here in the United States, growing numbers of people can’t afford that most basic of necessities: food.

More Americans said they struggled to buy food in 2011 than in any year since the financial crisis, according to a recent report from the Food Research and Action Center, a nonprofit research group. About 18.6 percent of people — almost one out of every five — told Gallup pollsters that they couldn’t always afford to feed everyone in their family in 2011.

One might assume that number got smaller wrapped up with the national unemployment rate falling for several consecutive months. In actuality, the reverse proved true: the number of people who said they couldn’t afford food just kept rising and rising.

The findings from FRAC highlight what many people already know: The economic recovery, in theory now more than two years old, has done little to keep millions of Americans out of poverty and deprivation. Incomes for many haven’t kept pace with the cost of living, and for a large swath of the country, things today are as bad as ever, or worse.

Forty-six million people lived below the poverty line as of 2010, a record number, according to the Census Bureau, and one that’s not even as high as some other estimates would have it. Take a further step back and the situation appears even more dire. About 45 percent of people in the U.S. have reported not being able to cover their basic living expenses, including food, shelter and transportation, according to the group Wider Opportunities for Women.

The official poverty rate is about 15 percent, but over two-fifths of Americans have so little saved that one financial emergency is all it would take to put them in poverty, according to the Corporation for Enterprise Development.

These high rates of financial insecurity — a consequence of the weak job market, and the prevalence of jobs that don’t pay very well — are making themselves felt at the level of everyday spending.

Recently, for example, a Center for Housing Policy study found that a growing number of middle-income owners and renters are paying more than half their earnings just to keep a roof over their heads. And as of 2009, almost one in five Americans over 50 years old were skipping on doctor visits, switching to cheaper medications or forgoing some medicines entirely out of financial necessity, according to a recently published study by the Employee Benefit Research Institute, a think tank.

As for widespread hunger of the kind recorded by FRAC, research shows that the entire country ends up paying one way or another. While the people who can’t afford food are obviously suffering the worst, the social costs incurred — from the money spent to keep food pantries open to the lifelong diminished earning power of impoverished children — come to about $167 billion a year, or $542 for every man, woman and child in the country.



QUOTE OF THE DAY

There’s a reason that education sucks, and it’s the same reason it will never ever ever be fixed. It’s never going to get any better, don’t look for it. Be happy with what you’ve got. Because the owners of this country don’t want that. I’m talking about the real owners now, the big, wealthy, business interests that control all things and make the big decisions.

Forget the politicians, they’re irrelevant.

Politicians are put there to give you that idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land, they own and control the corporations, and they’ve long since bought and paid for the Senate, the Congress, the State Houses, and the City Halls. They’ve got the judges in their back pockets. And they own all the big media companies so they control just about all the news and information you get to hear.

They’ve got you by the balls.

They spend billions of dollars every year lobbying to get what they want. Well, we know what they want; they want more for themselves and less for everybody else. But I’ll tell you what they don’t want—they don’t want a population of citizens capable of critical thinking. They don’t want well informed, well educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interest. You know something, they don’t want people that are smart enough to sit around their kitchen table and figure out how badly they’re getting fucked by a system that threw them overboard 30 fucking years ago.

They don’t want that, you know what they want?

They want obedient workers, obedient workers. People who are just smart enough to run the machines and do the paperwork and just dumb enough to passively accept all these increasingly shittier jobs with the lower pay, the longer hours, the reduced benefits, the end of overtime and the vanishing pension that disappears the minute you go to collect it.

And now they’re coming for your social security money.

They want your fucking retirement money; they want it back so they can give it to their criminal friends on Wall Street. And you know something? They’ll get it. They’ll get it all from you sooner or later because they own this fucking place. It’s a big club and you ain’t in it! You and I are not in the Big Club. By the way, it’s the same big club they use to beat you in the head with all day long when they tell you what to believe. All day long beating you over the head with their media telling you what to believe, what to believe, what to think and what to buy.

The table is tilted folks, the game is rigged.

Nobody seems to notice, nobody seems to care. Good honest hard working people, white collar, blue collar, it doesn’t matter what color shirt you have on. Good honest hard working people continue, these are people of modest means, continue to elect these rich cocksuckers who don’t give a fuck about them. They don’t give a fuck about you. They don’t give a fuck about…give a fuck about you! They don’t care about you at all, at all, at all.

And nobody seems to notice, nobody seems to care.

That’s what the owners count on, the fact that Americans are and will probably remain willfully ignorant of the big red, white, and blue dick that’s being jammed up their assholes everyday. Because the owners of this country know the truth, it’s called the American Dream, because you have to be asleep to believe it.

George Carlin



SIGNS OF RECESSION

Charles Hugh Smith with a couple of on the ground observations that we are in recession. I detailed my on the ground observation about the two strip malls near my house going almost completely dark in the last two years. My on the ground observation regarding how the powers that be have been able to disguise this recession is made every morning as I drive through the mean streets of West Philly. I drove past the Mantua Square low income housing mecca this morning and observed four brand new cars with the registration sticker still in the back window parked in front of these $250,000 low income housing units. This is a neigborhood where the average household income is $16,000 and there are brand new $30,000 automobiles parked everywhere. My guess is that 80% of the “INCOME” in this neighborhood is a direct transfer from the taxpayer into the bank accounts of these fine upstanding citizens. How in God’s name can these people afford to buy brand new cars? How in God’s name can an automobile dealer sell these people cars on credit?

This is where Bennie, his printing press, Obama, and Wall Street are colluding to keep the balls in the air for a little while longer. Anyone with an ounce of brains knows these people should not have access to brand new cars bought with credit. Obama is funneling hundreds of billions to these people and Bennie and Wall Street are providing easy credit to people who should never have access to easy credit. The result is an illusion of normalcy, when in reality they are setting the country up for an even greater collapse than 2008. The signs of recession are everywhere. The signs of blatant fraud, manipulation and stupidity require some critical thought and observation.

A final unrelated point regarding Mantua Square – Is it too much to ask that since these people are getting free housing, welfare, free heat, food stamps, and new cars courtesy of the U.S. taxpayer, could they at least pick up the trash and debris that litter their front lawns. You have this beautiful complex amid tremendous squalor and they can’t even walk out their front door and pick up the trash? I’m starting to lose my faith in humanity.

Let’s hear your on the ground examples of recession. 

 

 
What’s Your Favorite “On the Ground” Recession Indicator?

February 28, 2012    

Beautifully maintained trophy cars are being dumped for cash. What does that say about the “real” economy?

Everybody has their own “on the ground” recession indicators:the mall parking lot, the tony restaurant that used to be packed every weekend, and so on.

I have two favorites: freight trains rumbling south down the main line of the West Coast and “sell your own car” used car lots.

The freight trains are self-explanatory: at the top of the housing bubble, they were loaded with flatcars of lumber. Now? A lot of empty flatcars and container flats. A lot. Yes, the official statistics indicate rising rail traffic, but they must mean one more car has a load in a 100-car train and there’s only 20 empties. The freight trains I see are still running with beaucoup empty cars.

There may be some explanation of why this is so, but I can report that these trains pulled no empties in 2007.

“Sell your own car” lots reflect the “private market” for used cars.If you want to know what people are trading in for new cars, then go look at new car dealers’ used lots. At the local Honda dealer, I saw a number of Lexus SUVs on their used lot; people trading down to save on gasoline?

I’ve sold a few cars myself at the local “sell your own car” lot, so I know it’s reputable and a model that works for buyers and sellers.For a flat fee, you park your car on their lot and price it however you want. Potential buyers get to test-drive it, take it to their mechanic, etc. It’s a big lot, so the selection of cars and prices is suggestive of larger trends–at least to me.

Back in 2009 at the initial depths of the recession, the used Toyotas and Hondas vanished and the lot filled with Volvos and other big-car-payment brands. I took this to reflect people were ditching their car payments and snapping up older reliable cars they could buy for cash and get another 100,000 miles out of.

I hadn’t been by the lot in a while and what I saw astonished me.The lot was packed with “fun” cars and luxury brands: four recent-vintage Cooper-Minis were lined up (none sold in the week I monitored the lot). A cute yellow VW Beetle–another “fun” car– was over by the Mercedes. Yes, Mercedes, and Porsches, all beautfully maintained.

For the first time in the two decades I’ve scanned this lot, it was chockful of luxury cars:a pristine black 2002 Porsche Boxter with low mileage that raised my blood pressure and sorely tempted me because it was “priced to sell”–and for a Scots-Irish-French tightwad, that’s saying something; an equally beautiful Mercedes 500-series two seater, low mileage, brand-new in appearance; a fairly decent Jaguar; another pristine 300-series Mercedes, a classic, unbelievably well-maintained Porsche 911 (1991)– the list goes on.

In the good old days, these “still look new” luxury cars would have been snapped up at these prices. But now they sit here, unsold, day after day.

Another class of “fun” car was also represented–the muscle car: a very clean recent vintage red Trans Am attracted onlookers in one corner of the lot.

Sellers can add comments to the sales tag, and on at least two of the luxury vehicles it was noted that the car had been their father’s, one owner. Others indicated the original owner was selling.

If you know some car buffs, or you are one, then you know what these low-mileage super-clean luxury cars represent: they represent the lifetime achievement car for a guy, or the trophy car the rising exec takes out on the weekend. There is no other explanation for a 10-year old car to have 17,000 miles, or 33,000 miles–they were all garaged and enjoyed as a third or fourth car.

It seems Dad is getting too old to drive, or it’s no longer feasible to ease into the low-slung Porsche, and so he’s given it to one of his kids. And the kid drove it to the lot to turn into cold hard cash.

As for the “fun” cars: maybe they’re still selling big numbers of new vehicles, but the glow of owning a mediocre-mileage car with no room for the dog or kids seems to be fading for existing owners. My sister-in-law spent a fortune having her Mini Cooper fixed last year, and our friend with a cutsy VW Beetle had a repair bill after a few years of ownership that could have bought a decent used car instead.

For whatever reason, “fun” cars that I never saw on the lot before are now there in abundance.

This is all anecdotal, of course, and wide open to interpretation. If you go to the techie-hipster favored neighborhoods in San Francisco, the tony cafes and restaurants are crowded: there’s plenty of Web 2.0 money floating around. If you only look at these concentrations of talent and free-flowing investment capital, the economy looks like it’s booming. Ditto if you try to book a table near the Opera on performance night: there’s plenty of old money around that can spend $100 per dinner, too.

Once again, there were no older Toyotas or Hondas on the lot, only a few 2-year old models asking near-new prices. I interpret this thusly: older reliable cars that will last another five years without major expense are snapped up immediately, and superfluous “fun” cars and luxury trophy vehicles are being turned into cash.

When people are driving their pride and joy cars out of their pampered garages and selling them for cash, not trading them in for a new car or keeping them for pleasure, I think that’s saying something about the “real” economy you won’t find if you hang around Twitter HQ or the bejeweled Opera crowd.

You may intepret it differently, of course. That’s the beauty of “on the ground” recession indicators.



EXTEND & PRETEND COMING TO AN END

The real world revolves around cash flow. Families across the land understand this basic concept. Cash flows in from wages, investments and these days from the government. Cash flows out for food, gasoline, utilities, cable, cell phones, real estate taxes, income taxes, payroll taxes, clothing, mortgage payments, car payments, insurance payments, medical bills, auto repairs, home repairs, appliances, electronic gadgets, education, alcohol (necessary in this economy) and a countless other everyday expenses. If the outflow exceeds the inflow a family may be able to fund the deficit with credit cards for awhile, but ultimately running a cash flow deficit will result in debt default and loss of your home and assets. Ask the millions of Americans that have experienced this exact outcome since 2008 if you believe this is only a theoretical exercise. The Federal government, Federal Reserve, Wall Street banks, regulatory agencies and commercial real estate debtors have colluded since 2008 to pretend cash flow doesn’t matter. Their plan has been to “extend and pretend”, praying for an economic recovery that would save them from their greedy and foolish risk taking during the 2003 – 2007 Caligula-like debauchery.

I wrote an article called Extend and Pretend is Wall Street’s Friend about one year ago where I detailed what I saw as the moneyed interest’s master plan to pretend that hundreds of billions in debt would be repaid, despite the fact that declining developer cash flow and plunging real estate prices would make that impossible. Here are a couple pertinent snippets from that article:

“A systematic plan to create the illusion of stability and provide no-risk profits to the mega-Wall Street banks was implemented in early 2009 and continues today. The plan was developed by Ben Bernanke, Hank Paulson, Tim Geithner and the CEOs of the criminal Wall Street banking syndicate. The plan has been enabled by the FASB, SEC, IRS, FDIC and corrupt politicians in Washington D.C. This master plan has funneled hundreds of billions from taxpayers to the banks that created the greatest financial collapse in world history.

Part two of the master cover-up plan has been the extending of commercial real estate loans and pretending that they will eventually be repaid. In late 2009 it was clear to the Federal Reserve and the Treasury that the $1.2 trillion in commercial loans maturing between 2010 and 2013 would cause thousands of bank failures if the existing regulations were enforced. The Treasury stepped to the plate first. New rules at the IRS weren’t directly related to banking, but allowed commercial loans that were part of investment pools known as Real Estate Mortgage Investment Conduits, or REMICs, to be refinanced without triggering tax penalties for investors.

The Federal Reserve, which is tasked with making sure banks loans are properly valued, instructed banks throughout the country to “extend and pretend” or “amend and pretend,” in which the bank gives a borrower more time to repay a loan. Banks were “encouraged” to modify loans to help cash strapped borrowers. The hope was that by amending the terms to enable the borrower to avoid a refinancing that would have been impossible, the lender would ultimately be able to collect the balance due on the loan. Ben and his boys also pushed banks to do “troubled debt restructurings.” Such restructurings involved modifying an existing loan by changing the terms or breaking the loan into pieces. Bank, thrift and credit-union regulators very quietly gave lenders flexibility in how they classified distressed commercial mortgages. Banks were able to slice distressed loans into performing and non-performing loans, and institutions were able to magically reduce the total reserves set aside for non-performing loans.

If a mall developer has 40% of their mall vacant and the cash flow from the mall is insufficient to service the loan, the bank would normally need to set aside reserves for the entire loan. Under the new guidelines they could carve the loan into two pieces, with 60% that is covered by cash flow as a good loan and the 40% without sufficient cash flow would be classified as non-performing. The truth is that billions in commercial loans are in distress right now because tenants are dropping like flies. Rather than writing down the loans, banks are extending the terms of the debt with more interest reserves included so they can continue to classify the loans as “performing.” The reality is that the values of the property behind these loans have fallen 43%. Banks are extending loans that they would never make now, because borrowers are already grossly upside-down.”

Master Plan Malfunction

You have to admire the resourcefulness of the vested interests in disguising disaster and pretending that time will alleviate the consequences of their insatiable greed, blatant criminality and foolish risk taking. Extending bad loans and pretending they will be repaid does not create the cash flow necessary to actually pay the interest and principal on the debt. The chart below reveals the truth of what happened between 2005 and 2008 in the commercial real estate market. There was an epic feeding frenzy of overbuilding shopping centers, malls, office space, industrial space and apartments. During the sane 1980’s and 1990’s, commercial real estate loan issuance stayed consistently in the $500 billion to $700 billion range. The internet boom led to a surge to $1.1 trillion in 2000, with the resultant pullback to $900 billion by 2004. But thanks to easy Al and helicopter Ben, the bubble was re-inflated with easy money and zero regulatory oversight. Commercial real estate loan issuance skyrocketed to $1.6 trillion per year by 2008. Bankers sure have a knack for doing the exact opposite of what they should be doing at the exact wrong time. They doled out a couple trillion of loans to delusional developers at peak prices just prior to a historic financial cataclysm.

The difference between bad retail mortgage loans and bad commercial loans is about 25 years. Commercial real estate loans usually have five to seven year maturities. This meant that an avalanche of loans began maturing in 2010 and will not peak until 2013. With $1.2 trillion of loans coming due between 2010 and 2013, disaster for the Wall Street Too Big To Fail banks awaited if the properties were valued honestly. A perfect storm of declining property values and plunging cash flows for developers should have resulted in enormous losses for Wall Street banks and their shareholders, resulting in executives losing not only their obscene bonuses but even their jobs. Imagine the horror for the .01%.

The fact is that commercial property prices are currently 42% below the 2007 – 2008 peak. The slight increase in the national index is solely due to strong demand for apartments, as millions of Americans have been kicked out of their homes by Wall Street bankers using fraudulent loan documentation to foreclose on them. The national index has recently resumed its fall. Industrial and retail properties are leading the descent in prices according to Moodys. The master plan of extend and pretend was implemented in 2009 and three years later commercial real estate prices are 10% lower, after the official end of the recession.

Part one of the “extend and pretend” plan has failed. Part two anticipated escalating developer cash flows as the economy recuperated, Americans resumed spending like drunken sailors and retailers began to rake in profits at record levels again. Reality has interfered with their desperate last ditch gamble. Office vacancies remain at 17.3%, close to 20 year highs, as 12.3 million square feet of new space came to market in 2011. Vacancies are higher today than they were at the end of the recession in December 2009. The recovery in cash flow has failed to materialize for commercial developers. Strip mall vacancies at 11% remain stuck at 20 year highs. Regional mall vacancies at 9.2% linger near all-time highs. Vacancies remain elevated, with no sign of decreasing. Despite these figures, an additional 4.9 million square feet of new retail space was opened in 2011. The folly of this continued expansion will be revealed as bricks and mortar retailers are forced to close thousands of stores in the next five years.

It is clear the plan put into place three years ago has failed. Extending and pretending doesn’t service the debt. Only cash flow can service debt.

Now What?

Extending and pretending that hundreds of millions in commercial loans were payable for the last three years is now colliding with a myriad of other factors to create a perfect storm in 2012 and 2013. The extension of maturities has now set up a far more catastrophic scenario as described by Chris Macke, senior real estate strategist at CoStar Group:

“As banks and property owners continue to partake in loan extensions amid a softening economy, commercial banks continue to “delay and pray” that property values will rise. Many loans are piled up and concentrated in this year, and at the same time, the economy is slowing. This dilemma has resulted in the widening of what is commonly termed the “loan maturity cliff,” which is attributed to the so called extend-and-pretend loans. During the market downturn, lenders extended the maturity dates of loans with properties that had current values below their balances. Instead, however the practice has resulted in a race for property values to try to catch up with the loan maturity dates.”

The Federal Reserve, Wall Street banks, Mortgage Bankers Association and the rest of the confederates of collusion will continue the Big Lie for as long as possible. They point to declining commercial default rates as proof of improvement. The chart below details the 4th quarter default rates for real estate loans over the last six years. Default rates in the 4th quarter of 2009 peaked for all real estate loan types. Still, today’s default rate is 450% higher than the rate in 2006. A critical thinker might ask how commercial default rates could fall from 8.75% to 6.12% when commercial vacancies have increased and commercial property values have fallen. It’s amazing how low default rates can fall when a bank doesn’t require payments or collateral to back up the loan and can utilize accounting gimmicks to avoid write-offs.

 

Real estate loans

All

Booked in domestic offices

Residential 

Commercial 

Farmland

2011:4

8.22

9.86

6.12

3.26

2010:4

9.07

10.11

7.98

3.61

2009:4

9.55

10.45

8.75

3.43

2008:4

6.03

6.64

5.49

2.28

2007:4

2.90

3.07

2.75

1.51

2006:4

1.70

1.95

1.32

1.41

The reality as detailed by honest analysts is much different than the numbers presented by Ben Bernanke and his banker cronies. A recent article from the Urban Land Institute provides some insight into the current state of the market:

 Ann Hambly, who previously ran the commercial servicing departments at Prudential, Bank of New York, Nomura, and Bank of America said a wave of defaults is coming in commercial mortgage–backed securities (CMBS). And Carl Steck, a principal in MountainSeed Appraisal Management, an Atlanta-based firm that deals in the commercial real estate space, said property values are still falling.

Noting that CMBS investors booked $6 billion in real losses in 2011 and have already taken on $2 billion more in losses so far this year, Hambly told reporters in a private briefing that “it’s going to take a miracle” for many borrowers to refinance their deals when they come due between now and 2017.

Carl Steck said that lenders who are taking over the portfolios of failed institutions are finding that the values of the loans “are coming in a lot lower than they ever thought they would.” And as a result, he thinks a “fire sale” of commercial loans is just over the horizon.

Analysts expect 2012 to be a record-setting year for commercial real estate defaults. Last week delinquencies for office and retail loans hit their highest-ever levels, according to Fitch Ratings. The value of all delinquent commercial loans is now $57.7 billion, according to Trepp, LLC. If you think the criminal Wall Street banks limited their robo-signing fraud to just poor homeowners, you would be mistaken. The fraud uncovered in the commercial lending orbit will dwarf the residential swindle. Research by Harbinger Analytics Group shows the widespread use of inaccurate, fraudulent documents for land title underwriting of commercial real estate financing. According to the report:

This fraud is accomplished through inaccurate and incomplete filings of statutorily required records (commercial land title surveys detailing physical boundaries, encumbrances, encroachments, etc.) on commercial properties in California, many other western states and possibly throughout most of the United States. In the cases studied by Harbinger, the problems are because banks accepted the work of land surveyors who “have committed actual and/or constructive fraud by knowingly failing to conduct accurate boundary surveys and/or failing to file the statutorily required documentation in public records.”




Your Ad Here

The Wall Street geniuses bundled commercial real estate mortgages and re-sold them as securities around the world. The suckers holding those securities, already staggering from the overabundance of empty office space, will be devastated if it turns out they have no claim to the properties. They will rightly sue the lenders for falsely representing the properties. Mortgage holders in these cases may also turn to their title insurance to cover any losses. It is unknown if the title insurance companies have the wherewithal to withstand enormous claims on costly commercial properties. It looks like that light at the end of the tunnel is bullet train headed our way.

One of the fingers in the dyke of the “extend and pretend” dam has been removed by the FASB. The new leak threatens to turn into a gusher.

 

Andy Miller, cofounder of Miller Frishman Group, and one of the few analysts who saw the real estate crash coming two years before it surprised Bernanke and the CNBC cheerleaders sees a flood of defaults on the horizon. In a recent interview with The Casey Report Miller details a dramatic turn for the worse in the commercial real estate market he has witnessed in the last few months. His company deals with distressed commercial real estate. This segment of his business was booming in 2009 and into the middle of 2010. Then magically, there was no more distress as the “extend and pretend” plan was implemented by the governing powers. The distressed market dried up completely until November 2011. Miller describes what happened next:

“All of a sudden, right after Thanksgiving in 2011, the floodgates opened again. In the last six weeks we probably picked up seven or eight receiverships – and we’re now seeing some really big-ticket properties with major loans on them that have gone into distress, and they’re all sharing some characteristics in common. In 2008 and 2009, these borrowers were put on a workout or had a forbearance agreement put into place with their lenders. In 2009, their lenders were thinking, “Let’s do a two- or three-year workout with these guys. I’m sure by 2012 this market is going to get a lot better.” Well, 2012 is here now, and guess what? It’s not any better. In fact I would argue that it’s still deteriorating.”

Why the sudden surge in distressed properties coming to market in late 2011? It seems the FASB finally decided to grow a pair of balls after being neutered by Bernanke and Geithner in 2009 regarding mark to market accounting. They issued an Accounting Standards Update (ASU) that went into effect for all periods after June 15, 2011called Clarifications to Accounting for Troubled Debt Restructurings by Creditors. Essentially, if a lender is involved in a troubled debt restructuring with a debtor, including a forbearance agreement or a workout, the property MUST be marked to market. Andy Miller understands this is the beginning of the end for “extend and pretend”:

“I believe it’s a huge deal because it means you don’t have carte blanche anymore to kick the can down the road. After all, kicking the can down the road was a way to avoid taking a big hit to your capital. Well, you can’t do that anymore. It forces you to cut through the optical illusions by writing this asset to its fair market value.”

Ben Bernanke and the Wall Street banks are running out tricks in their bag of deception. Wall Street banks created billions in profits by using accounting entries to reduce their loan loss reserves. They’ve delayed mortgage foreclosures for two years to avoid taking the losses on their loan portfolios. They’ve pretended their commercial loan portfolios aren’t worth 50% less than their current carrying value. Bernanke has stuffed his Federal Reserve balance sheet with billions in worthless commercial mortgage backed securities. The Illusion of Recovery is being revealed as nothing more than a two bit magician’s trick. In the end it always comes back to cash flow. The debt cannot be serviced and must be written off. Thinking the American consumer will ride to the rescue is a delusional flight of the imagination.

Apocalypse Now – The Future of Retailers & Mall Owners

 

When I moved to my suburban community in 1995 there were two thriving shopping centers within three miles of my home and a dozen within a ten mile radius. Seventeen years later the population has increased dramatically in this area, and these two shopping centers are in their final death throes. The shopping center closest to my house has a vacant Genuardi grocery store(local chain bought out and destroyed by Safeway), vacant Blockbuster, vacant Sears Hardware, vacant Donatos restaurant, vacant book store, and soon to be vacant Pizza Pub. It’s now anchored by a near bankrupt Rite Aid and a Dollar store. This ghost-like strip mall is in the midst of a fairly thriving community. Anyone with their eyes open as they drive around today would think Space Available is the hot new retailer. According to the ICSC there are 105,000 shopping centers in the U.S., occupying 7.3 billion square feet of space. Total retail square feet in the U.S. tops 14.2 billion, or 46 square feet for every man, woman and child in the country. There are more than 1.1 million retail establishments competing for every discretionary dollar from consumers.

Any retailer, banker, politician, or consumer who thinks we will be heading back to the retail glory days of 2007 is delusional. Retail sales reached a peak of $375 billion per month in mid 2008. Today, retail sales have reached a new “nominal” peak of $400 billion per month. Even using the highly questionable BLS inflation figures, real retail sales are still below the 2008 peak. Using the inflation rate provided by John Williams at Shadowstats, as measured the way it was in 1980, real retail sales are 15% below the 2008 peak. The unvarnished truth is revealed in the declining profitability of major retailers and the bankruptcies and store closings plaguing the industry. National retail statistics and recent retailer earnings reports paint a bleak picture, and it’s about to get bleaker.

Retail sales in 1992 totaled $2.0 trillion. By 2011 they had grown to $4.7 trillion, a 135% increase in nineteen years. A full 64% of this rise is solely due to inflation, as measured by the BLS. In reality, using the true inflation figures, the entire increase can be attributed to inflation. Over this time span the U.S. population has grown from 255 million to 313 million, a 23% increase. Median household income has grown by a mere 8% over this same time frame. The increase in retail sales was completely reliant upon the American consumers willing to become a debt slaves to the Wall Street bank slave masters. It is obvious we have learned to love our slavery. Credit card debt grew from $265 billion in 1992 to a peak of $972 billion in September of 2008, when the financial system collapsed. The 267% increase in debt allowed Americans to live far above their means and enriched the Wall Street banking cabal. The decline to the current level of $800 billion was exclusively due to write-offs by the banks, fully funded by the American taxpayer.

Credit cards are currently being used far less as a way to live beyond your means, and more to survive another day. This can be seen in the details underlying the monthly retail sales figures. On a real basis, with inflation on the things we need to live like energy, food and clothing rising at a 10% clip, retail sales are declining. Gasoline, food and medicine are the drivers of retail today. The surge in automobile sales is just another part of the “extend and pretend” plan, as Bernanke provides free money to banks and finance companies so they can make seven year 0% interest loans to subprime borrowers. Easy credit extended to deadbeats will not create the cash flow needed to repay the debt. The continued penetration of on-line retailers does not bode well for the dying bricks and mortar zombie retailers like Sears, JC Penny, Macys and hundreds of other dead retailers walking. With gas prices soaring, the economy headed back into recession and the Federal Reserve out of ammunition, Andy Miller sums up the situation nicely:

“Well, I think we’re headed into an economy right now where there’s just not a lot of upside. Do we think, for example, in the shopping center business, that retail and consumer spending is going to go way up? Certainly not. I think that as times get tougher and unemployment remains high, it’s going to have a negative impact on consumer spending. In almost in any city in America right now, it doesn’t take a genius to see how much retail space has been constructed and is sitting there empty. Vacancy rates are as high as I’ve seen them in almost every venue that I visit. I’m very concerned about the retail business, and I think it’s extremely dangerous right now.”

The major big box retailers have been reporting their annual results in the last week. The results have been weak and even those whose results are being spun as positive by the mainstream media are performing dreadfully compared to 2007. A few examples are in order:

  • Home Depot was praised for their fantastic 2011 result of $70 billion in sales and $6.7 billion of income. The MSM failed to mention that sales are $7 billion lower than 2007, despite having 18 more stores and profit exceeded $7.2 billion in 2007. Sales per square foot have declined from $335 to $296, a 12% decline in four years.
  • Target made $2.9 billion on revenue of $67 billion in 2011. $953 million of this profit was generated from their credit card this year versus $744 million last year because they reduced their loan loss reserve by $260 million. Target is supposedly a retailer, but 33% of their bottom line comes from a credit card they desperately tried to sell in 2009. They have increased their store count from 1,600 to 1,800 since 2007 and their profit is flat. Sales per square foot have declined from $307 to $280 since 2007.
  • J.C. Penney is a bug in search of a windshield. Their sales have declined from $20 billion in 2007 to $17 billion in 2011 despite increasing their store count from 1,067 to 1,114. Their profits have plunged from $1.1 billion to a loss of $152 million. Their sales per square foot have plunged by 14% since 2007. Turning to a former Apple marketing guru as their new CEO will fail. Everyday low pricing is not going to work on Americans trained like monkeys to salivate at the word SALE.
  • The death spiral of Sears/Kmart is a sight to see. As the anchor in hundreds of dying malls across the land, this retail artifact will be joining Montgomery Ward on the scrap heap of retail history in the next few years. Its eventual bankruptcy and liquidation will leave over 4,000 rotting carcasses to spoil our landscape. The one-time genius and heir to the Warren Buffett mantle – Eddie Lampert – has proven to be as talented at retailing as his buddy Jim Cramer is at picking stocks. He has managed to decrease sales by $10 billion, from $53 billion to $43 billion in the space of four years despite opening 247 new stores. That is not an easy feat to accomplish. At least he was able to reduce profits from $1.5 billion to $133 million and drive the sales per square foot in his stores down by 15%.
  • Widely admired Best Buy has screwed the pooch along with the other foolish retailers that have massively over expanded in the last decade. They have increased their domestic sales from $31 billion to $37 billion, a 19% increase in four years. This increase only required a 444 store expansion, from 873 stores to 1,317 stores. A 51% increase in store count for a 19% increase in sales seems to be a bad trade-off. Their chief competitor – Circuit City – went belly-up during this time frame, making the relative sales increase even more pathetic. The $6 billion increase in sales resulted in a $100 million decline in profits and a 13% decrease in sales per square foot since 2007. It might behoove the geniuses running this company to stop building new stores.
  • The retailer that committed the greatest act of suicide in the last decade is Lowes. Their act of hubris, as Home Depot struggled in the mid 2000’s, is coming home to roost today. They increased their store count from 1,385 to 1,749 over four years. This 26% increase in store count resulted in an increase in sales from $47 billion to $49 billion, a 4% boost. Profitability has plunged from over $3 billion to under $2 billion over this same time frame. They’ve won the efficiency competition by seeing their sales per square feet fall by an astounding 21% over the last four years. I’ve witnessed their ineptitude as they opened four stores within 10 miles of each other in Montgomery County, PA and cannibalized themselves to death. The newest store, three miles from my house, is a pleasure to shop as there is generally more staff than customers even on a Saturday afternoon. This beautiful new store will be vacant rotting hulk within three years.

Do the results of these retail giants jive with the retail recovery stories being spun by the corporate mainstream media? When you see some stock shill on CNBC touting one of these retailers, realize he is blowing smoke up your ass. These six struggling retailers account for over 1.1 billion square feet of retail space in the U.S. One or more of them anchor every mall in America. Wal-Mart (600 million square feet in the U.S.) and Kohl’s (82 million square feet) continue to struggle as their lower middle class customers can barely make ends meet. The perfect storm is developing and very few people see it coming. Extend and pretend has failed. Americans are tapped out. Home prices continue to fall. Energy and food prices continue to rise. Wages are stagnant. Job growth is weak. Middle and lower class Americans are using credit cards just to pay their basic living expenses. The 99% are not about to go on a spending binge.

As consumers reduce consumption, retailers lose profits and will be forced to close stores. It is likely that at least 150,000 retail stores will need to close in the next five years. Less stores means less rent for mall developers. Less rent means the inability to service their debt as the value of their property declines with the outcome of Ghost Malls haunting your community. Maybe good old American ingenuity will come to the rescue as we convert ghost malls into FEMA prison camps for uncharged Ron Paul supporters, Obamacare death panel implementation centers, TSA groping educational facilities, housing for the millions kicked out of their homes by the Wall Street .01%ers, and bomb shelters for the imminent Iranian invasion.

Debt default means huge losses for the Wall Street criminal banks. Of course the banksters will just demand another taxpayer bailout from the puppet politicians. This repeat scenario gives new meaning to the term shop until you drop. Extending and pretending can work for awhile as accounting obfuscation, rolling over bad debts, and praying for a revival of the glory days can put off the day of reckoning for a couple years. Ultimately it comes down to cash flow, whether you’re a household, retailer, developer, bank or government. America is running on empty and extending and pretending is coming to an end.



 



WHY THEY ARE THE GREATEST GENERATION

They are rapidly dying off. There are very few Greatest Generation members left. What they did is being forgotten by todays generations. This is how Turnings in history happen. This is why history is cyclical. This is why we are doomed to repeat mistakes of the past. The five week battle of Iwo Jima in 1945 marked the very end of the last Fourth Turning. Without the sacrifice of these men, there would not have been a new High. Fourth Turnings require tremendous sacrifice and a spirit that doesn’t seem to be present today. In the space of five weeks more American soldiers were killed on the tiny volcanic island of Iwo Jima than were killed in eight years of fighting in Iraq. The Japanese did not believe in surrender. These young marines had to slaughter 18,000 Japanese to take this rock. They did it. I can’t even imagine the horror of those five weeks in hell.

This event took place in year 16 of the last Fourth Turning. We are presently in year 5 of this Fourth Turning. Do horrors of this scale or greater await our Millenial generation? Will they meet the challenge. Will we all meet the challenge. There is no guarantee that a new High will occur. There are many challenges, risks, and battles ahead. Will the American people make their ancestors proud or will we shirk our responsibility to future generations? The choice is ours.

 

Anniversary recalls grim toll of Iwo Jima

Bruce Bender remembers the Marines’ bloody fighting for the Pacific island in 1945. Breaking his silence over World War II, he recently wrote his memoirs so his children would know what happened.

Iwo Jima anniversary

Bruce Bender, 88, was in the first wave of U.S. Marines to land on the beaches of Iwo Jima on Feb. 19, 1945. He was with the 4th Battalion 14th Marines and has written a book about his experiences during World War ll. (Scott Smeltzer / Daily Pilot / February 16, 2012)

 
By Lauren Williams, Los Angeles TimesFebruary 21, 2012
 
Although his memories of Iwo Jima are more than 6 decades old, Bruce Bender remembers the volcanic ash, the pungent smell of sulfur and oppressive heat with vivid clarity.Bender was one of the first Marines to set foot on a desolate island in the Pacific in 1945 in what became a turning point in World War II. The offensive began calmly enough, but it didn’t stay that way for long.The barrage began when the third wave of Marines hit the shore. It didn’t end for two days.”They were shooting at us — we were digging holes,” Bender said, a faint accent reflective of his native Pittsburgh still in his voice.Of the 29 men who came ashore together, Bender was one of three to survive the bloodshed, and the only one to leave unscathed.

Sunday marked the 67th anniversary of the storming of Iwo Jima. Bender, who’s 88 now and lives in Costa Mesa, is one of a shrinking number of World War II veterans who have survived to share their memories.

The marching orders were straightforward: Ascend Mt. Suribachi and eventually make the island safe for U.S. pilots to use as a stopover en route to the Japanese mainland.

But the planned five-day mission turned into a bloody commitment lasting more than a month. More than 6,000 Americans lost their lives and about 18,000 of the Japanese defenders were killed, according to the U.S. military‘s estimates.

Before the storming of Iwo Jima, the U.S. Navy led a three-day bombardment that stripped the island of its vegetation, leaving the Marines exposed as they came ashore. The heat and the stench of sulfur were oppressive. and Bender said he found it amazing that the Japanese soldiers had been able to live on the island.

Suribachi was pockmarked with caves and other well-concealed hiding places where the Japanese would shoot at the advancing Marines. It was nearly impossible to determine where the shots were coming from, Bender said.

Amid the chaos of the battle, Bender received a combat promotion to first lieutenant because of the escalating fatalities.

Bender said the smell was nearly impossible to forget. Men on the island were barred from using water for anything other than drinking. They faced a possible court-martial if they used valuable freshwater to bathe, he said.

After a month without bathing, the men reeked.

But the Battle of Iwo Jima took place as the war was winding down, and before long, Bender was recuperating in Maui, Hawaii.

He eventually graduated from USC on the GI Bill. While there, he met his wife, Jeanette, 83, in what she describes as a “whirlwind romance.” Married for 62 years, the couple have three children, four grandchildren and eight great-grandchildren.

Over the years, like many veterans of his era, Bender has remained silent about his experiences.

“He said, ‘Why should I be the one to be here to tell the story?’ ” Jeanette Bender said.

It wasn’t until about five years ago that he saw the value in telling his children about his life during the war. He later opened up enough to start writing it down.

Last December, each of his children found a hardcover copy of his book under the Christmas tree.

“I promised my children over the years that I would have it done and completed, and I finally did,” he said. “It was just, well hey, instead of buying junky things for our kids, we tried to give something they could pass on to their own children when they have children.

“We wanted to put money into something that would last,” he said.



PROPAGANDA

To be successful, must be aimed at the TOTAL POPULATION and not at INDIVIDUAL GROUPS the purpose being to attract the WIDEST POSSIBLE ATTENTION. It is not intended as personal instruction. FACTS PLAY NO ROLE IN PROPAGANDA, which is always to create an IMPRESSION. It has to be ONE-SIDED systematic, sustained INDOCTRINATION that what the GOVERNMENT, the MEDIA, and POLITICAL LEADERS are saying is the TRUTH. And it has to be pitched in such a manner that the PEOPLE feel that it is their THINKING.



AIN’T NO REST FOR THE WICKED (Oldie but Goodie)

I wrote this article in May 2009. I couldn’t get anyone to publish it because it makes a clear distinction between evil and good. I call out those that I think are evil. Many people don’t think things are that black and white. I stand by every word. Check out the chart near the end on the article where Obama and the CBO projected deficits in FY11 and FY12 of $900 billion and $500 billion. They only missed by $1.2 trillion. Close enough for government work.

 

There ain’t no rest for the wicked, money don’t grow on trees, I got bills to pay, I got mouths to feed, there ain’t nothing in this world for free. I know I can’t slow down, I can’t hold back though you know I wish I could, oh no there ain’t no rest for the wicked, until we close our eyes for good. – Ain’t No Rest for the Wicked – Cage the Elephant

Money doesn’t grow on trees for most of America. We sit down at our kitchen tables and write out checks to the phone-company, electric company, credit card-company, mortgage-company, and auto finance company every month. We clip coupons and go to the grocery store every week to put food in the mouths of our children. This is what our parents did before us. We work 40 to 60 hours a week to pay these bills and feed those mouths. It’s not easy. We do it because that is what hard working American families do. We work hard, try to save some money for a rainy day and do the best we can. We had been taught that nothing in this world was free. We have been misled. If you were wicked, taking risks beyond the comprehension of average Americans and endangering the entire worldwide financial system, money does grow on trees and there is plenty for free. Money can be printed out of thin air by the wicked and doled out to the wicked. The definition of wicked is:

Evil in principle or practice; deviating from morality; contrary to the moral or divine law; addicted to vice or sin; sinful; immoral; profligate

To put it in the most basic terms, what has happened in this country in the last decade is that evil wicked people have attained positions of power in government, banking, and industry and have committed sins against humanity for their own glory and enrichment. Those who should have stood up to these evil doers are just as guilty as the engineer driving the train to Auschwitz. Albert Einstein understood this danger:

“The world is a dangerous place to live; not because of the people who are evil, but because of the people who don’t do anything about it.”

There have always been evil people. Adolf Hitler, Joseph Stalin, Bernie Madoff, Dennis Kozlowski, Charles Manson, Charles Keating Jr., Joe McCarthy, Jeff Skilling, Bernie Ebbers, Jim Jones, Michael Milken, and Ivan Boesky come to mind. Some committed horrendous atrocities, others stole billions, others destroyed reputations, and others lived lives of decadence and immorality. The reason they are all household names is because they were able to commit their crimes because other people didn’t do anything to stop them. All of these men could have been stopped if citizens, coworkers, auditors, Prime Ministers, government regulators, Boards of Directors, Congressmen, or family members had been brave enough and moral enough to make a stand against their evil deeds. The one and only poem that ever made an impression on me in high school was The Hangman by Maurice Ogden. Below are the last stanzas. Evil can only flourish in society if we allow it to flourish. A society united against wickedness, dishonesty, corruption and wantonness could stand the test of time. I’m afraid our Great American Republic has allowed evil to flourish, and the hangman’s scaffold has grown to enormous proportions.

        “You tricked me Hangman.” I shouted then,
        “That your scaffold was built for other men,
        and I’m no henchman of yours.” I cried.
        “You lied to me Hangman, foully lied.”

        Then a twinkle grew in his buckshot eye,
        “Lied to you…tricked you?” He said “Not I…
        for I answered straight and told you true.
        The scaffold was raised for none but you.”

        “For who has served more faithfully?
        With your coward’s hope.” said He,
        “And where are the others that might have stood
        side by your side, in the common good?”

        “Dead!” I answered, and amiably
        “Murdered,” the Hangman corrected me.
        “First the alien … then the Jew.
        I did no more than you let me do.”

        Beneath the beam that blocked the sky
        none before stood so alone as I.
        The Hangman then strapped me…with no voice there
        to cry “Stay!” … for me in the empty square.

THE BOTTOM LINE: “…I did no more than you let me do.”

Hell is Empty and all the Devils are Here

Bill Shakespeare sure had a way with words. He understood the battle between good and evil on earth. He also understood that evil can span generations. “The evil that men do lives after them; the good is oft interred with their bones.” The main stream liberal media scoff at the use of the terms evil, the devil, sin and wickedness. These are antiquated terms used by our grandparents. Everyone knows that we have progressed beyond such childish terms. The distinctions between evil and good have been purposely blurred by those in power. The ruling elitists prefer to operate in shades of gray, where right and wrong can be spun and parsed into legal mumbo jumbo. This is not as complicated as those in power want you to think. Our parents taught us right from wrong. Lying, cheating, stealing, swearing, and killing are wrong. It’s that simple. No gray, just black and white. As the mainstream liberal media is filled with vacuous, cheerleader ideologues, I prefer the wisdom of the greatest minds in history. Evil does exist in the words and deeds of men in government, banking, the media and corporate America today.

“When good people in any country cease their vigilance and struggle, then evil men prevail.” – Pearl S. Buck

There are many good people in our country. I would even venture to state that the overwhelming vast majority of our 306 million citizens are good people. The problem is that the good people have let their guard down and allowed evil men to prevail. By delegating their civic responsibility for their own well being to corrupt, power hungry, evil men, we have traded liberty and freedom for a false sense of security. The military industrial complex, healthcare industrial complex, media industrial complex and now the banking industrial complex and auto industrial complex are now in command of our lives. By following the false prophets of government solving all the ills of society, we have allowed the hangman’s gallows to grow and loom ever larger over our every day existence. The examples of evil infiltrating the halls of government, banking and industry are many.

Evil Words & Actions

“False words are not only evil in themselves, but they infect the soul with evil.” – Socrates

  • CEO’s of banks and financial institutions going on TV and lying that their firms were strong and viable. (Angelo Mozilo, Jimmy Cayne, Ken Lewis, Robert Steele, Charles Prince, John Thain)
  • The President and Vice President of the United States lying to the American people that there were WMD in Iraq and proclaiming that Iraq was involved in the 9/11 attack.
  • The Secretary of the Treasury lying to the American people and Congress regarding the banking system in order to ram the TARP bill through Congress.
  • The Secretary of the Treasury and Federal Reserve Chairman threatening the CEO of Bank of America and forcing him to lie about the true losses of Merrill Lynch.
  • Mortgage brokers lying to their clients regarding the terms of the toxic mortgage products they were peddling.
  • Homebuyers who lied about their income and/or assets in order to qualify for a mortgage.
  • Alan Greenspan urging Americans to take out an adjustable rate mortgage when rates were at all time lows, while simultaneously saying that home prices on a national basis would never fall.
  • Treasury Secretaries and other high officials lying on their tax returns.
  • Financial advisors telling their clients to invest in a financial product because it makes the advisor more money, versus being in the best interest of the client.
  • Being politically correct in your speech rather than truthful because a constituent might be offended.
  • Politicians making promises to voters while trying to be elected which they never intend to keep.
  • When the President of the United States commits adultery in the Oval office and then lies to the American public.

Creative Evil

“Ignorance, the root and stem of all evil.Knowledge becomes evil if the aim be not virtuous.” – Plato
                                                           

  • When the highly educated use their knowledge to keep the ignorant from understanding the truth about the financial condition of the country.
  • When the Federal Reserve Chairman withholds the names of the banks that have received billions in taxpayer funds with no accountability.
  • The MBA genius or geniuses who created the stated income, no documentation mortgage loan in order to enrich themselves and their leaders.
  • The millions of Americans who accepted loans for homes, cars, and home furnishings that they knew they could never repay.
  • The bankers who made loans to people who they knew could never repay them, because they would earn all of their money upfront and would sell the loans to someone else.
  • The executives of AIG who silently allowed twenty employees in their Financial Products Group, led by Joseph Cassano, to gamble and lose $500 billion while paying Mr. Cassano $280 million in compensation.
  • Alan Greenspan for allowing moral hazard to grow to immense proportions due to the unspoken Greenspan Put. Every financial institution knew he would come to their rescue if their risky bets blew up. Therefore, they had no reason not to leverage 40 to 1.
  • The bank executives who allowed their trading desks to use derivatives to make huge bets on currencies, interest rates, default rates, and mortgages in order to generate obscene salaries, bonuses and stock option awards. The original purpose of derivatives was to hedge risks.
  • The rating agencies Moody’s and S&P who took blood money from banks and other financial institutions to rate packages of subprime mortgages, credit card debt, and car loans as AAA without ever examining the assets or real potential for default.
  • The Accounting Firms that will sell audit opinions based on the amount of fees they receive. This leads to the logical conclusion that no financial statements can be relied upon.
  • The bank executives who knowingly sold toxic worthless assets to pension funds, insurance companies, municipalities and senior citizens because of their desire for short-term profits and obscene bonuses.

 Government Evil

“Society in every state is a blessing, but government, even in its best stage, is but a necessary evil; in its worst state an intolerable one.” – Thomas Paine

  • When elected government officials secretly collude with bankers to create a non-governmental Federal Reserve Bank that controls the currency of the country and systematically generates inflation to allow government to spend at an ever increasing rate.
  • Taxing citizens to create bureaucratic government agencies and programs that fail to accomplish their mission while continuing to grow in size as politicians use them to reward the contributors to their re-election campaigns.
  • Congressmen allowing 40,000 highly paid corporate lobbyists in Washington DC to write laws and buy votes because it will keep them in power.
  • Putting thousands of earmarks into every Congressional spending bill to benefit your supporters to the detriment of the country.
  • When government employees leave government service and accept high paying jobs with the companies they previously regulated.
  • The SEC hierarchy ignoring the conclusive evidence provided by Harry Markopoulos about the Bernie Madoff Ponzi scheme because Madoff was respected, connected and had friends in high places at the SEC.
  • Low paid SEC investigators are purposely less stringent in their investigations because they want high paying jobs on Wall Street with the firms they are regulating.
  • The Federal Reserve has purposely taken worthless assets onto their balance sheet from insolvent banks in order to fraudulently portray the U.S. banking system as healthy. They have committed billions of taxpayer funds with no oversight or audit of their activities.
  • Taxing citizens to use the money to create offensive weapons of war and using them to preemptively invade a sovereign country with no Constitutionally required declaration of war.
  • Launching hundreds of cruise missiles from a thousand miles away into a city of six million people, knowing thousands of innocent people would be murdered.
  • Torturing human beings at Abu Ghraib and Guantanomo, thereby winning the fight, but losing the war. The U.S. will have no moral authority when American soldiers are captured and tortured.
  • Invading a country under false pretenses in order to enforce our world view on a sovereign nation to secure billions of barrels of oil.
  • Selling weapons of mass destruction to other nations.
  • Convincing the majority of the population through manipulative means to give up freedoms and liberties in the name of safety and security.
  • Monitoring the phone conversations, emails, and movements of American citizens without their knowledge.
  • Paying farmers to not grow food, while millions in the world starve to death every year.
  • Encouraging the poorest Americans to gamble what little they have at State sponsored casinos and in State run lotteries to pay for ever increasing State spending.
  • Politicians spend money today in order to bribe their constituents for votes, while passing the bill onto future unborn generations.
  • Politicians pass laws that reallocate wealth from producers to the takers in society and create a class of societal dependents who will continue to vote for more goodies and benefits.
  • The FASB allows financial firms to value “assets” at whatever price they choose in order to mislead investors.

Media Evil

“Young people are threatened… by the evil use of advertising techniques that stimulate the natural inclination to avoid hard work by promising the immediate satisfaction of every desire.” – Pope John Paul II

  • Advertising by the National Association of Realtors in 2005 and 2006 after home prices had doubled in five years telling all Americans it was the best time to buy and that buying a house is always a great investment.
  • Both liberal and conservative ideologue pundits skewing every issue in order to prove their pre-ordained position.
  • Corporate titans like GE own TV networks and slanting the reporting of the news in a way that aligns with their corporate interests.
  • Paid political consultants train politicians to not answer the questions they are asked. They are trained to repeat their talking points, not answer questions truthfully.
  • The mainstream media use their power and influence to mislead the public regarding the true state of the economy and the truth about the future finances of the country.
  • Companies like GMAC/Ditech used misleading TV commercials to lure the ignorant and poor into loans which they could never repay.
  • The negative ads run during political campaigns are made up of smears, innuendo, half truths, and bold faced lies intended to destroy the character of opponents.
  • Using polls in order to slant your message in a way that appeals to the most voters.
  • Using advertising techniques to convince people to buy products they can’t afford by appealing to their emotions and biases.
  • TV shows that glorify killers, immoral lifestyles, crime, drug use, etc. in order to push their agenda on children.
  • The media exaggerating risks of pandemics, terrorism, crime, and weather events in order to increase ratings.

After slogging through this depressing list I’m sure there will be many in the status quo crowd who will argue that most of the examples I’ve listed are not illegal, therefore they are not evil. This is where the elite in control of the country and the average American part ways. The elite will make the case that we live in a modern world with modern standards, based on modern thought. They use the media to manipulate the masses into believing that evil is actually good. As the citizens of the country allow this to happen, the hangman’s scaffold grows ever larger. Our parents taught us right from wrong. It is black and white. Only those in power want the world to be bathed in shades of grey. This allows them to commit fraud, manipulate public opinion, utilize leverage to make risky bets with taxpayer funds, and use wealth and power to secure more wealth and power. The unelected bureaucrats in the back pocket of the banking cartel designed a bailout plan that attempts to keep the evil bankers in control of our economy. Nobel economist Joseph Stiglitz, whose sound advice has been ignored by government central planners, described the bailout recently:

“The designers of the bailout are either in the pocket of the banks or they’re incompetent. It’s a real redistribution and a tax on all American savers. This is a strategy trying to recreate the bubble. That’s not likely to provide a long-run solution. It’s a solution that says let’s kick the can down the road a little bit. They haven’t thought enough about the determinants of the flow of credit and lending.”

The business pundits think it is wonderful that criminally negligent banks can borrow at 0% from the Fed and lend to the public at 6%. Meanwhile, senior citizens get .50% on their money market funds and 2% for 5 year CDs. Until we bring the country back from its acceptance of immorality and evil as common place, we are destined for the tragic fate of the Roman Empire.



Money is the Root of Evil

Now a couple hours past, and I was sitting in my house, the day was winding down and coming to an end, so I turned on the TV, and flipped it over to the news, and what I saw I almost couldn’t comprehend, I saw a preacher man in cuffs taking money from the church, he stuffed his bank account with righteous dollar bills but even still I can’t say much cause I know were all the same, oh yes we all seek out to satisfy those thrills. – Ain’t No Rest for the Wicked – Cage the Elephant

Money is not inherently evil. It is useful to buy food, pay for utilities, education, and transportation. It can be used to support charities, take vacations, or be saved for a rainy day. It can be invested in capital equipment, research, or technology, which has the potential to generate more money for the investor. It can also be squandered on depreciating assets such as unnecessarily luxurious houses, luxury cars, TVs, stereo systems, Blackberries, iPods, and other baubles and trinkets. Spending money on these things is not evil or wrong. Buying these things with borrowed money that you are not capable of paying back is wrong. Lending money to people and companies that cannot pay you back in order to generate short term profits to enrich management is wrong. Creating financial leverage products whose sole purpose is to mislead investors, regulators, accountants and the public in order to enrich management is wrong. Debt which is not used for productive purposes only leads to sorrow and heartbreak.
[D.+Debt+to+GDP+from+1920s]

Total credit market debt as a percentage of GDP has risen from 130% of GDP in 1952 to 350% of GDP today. The various bailout and stimulus schemes enacted in the last year will drive this percentage above 400% in the near future. When a country allows this much debt to accumulate versus its GDP, they have done something seriously wrong. The country’s politicians, business leaders, and citizens have all contributed to this disaster. If the debt had been used for constructive fruitful purposes such as building refineries, laying pipelines, replacing decaying water pipes, building nuclear power plants, repairing the 156,000 structurally deficient bridges, or researching and developing cutting edge energy, biotech, or nanotech technologies the increase may have had some merit.

Instead, banks created new forms of debt to benefit themselves through excessive CEO pay, stock options to reliable lieutenants and stock buybacks to make EPS appear better. Government used debt to pay for useless wars of choice, tax cuts for the rich, expansion of the unfunded Medicare program, ethanol subsidies, and other payoffs to the 40,000 lobbyists scurrying around Washington DC like cockroaches. Of course, I didn’t intend to insult cockroaches. Americans used the debt buy and sell houses to each other, leasing cars they couldn’t afford, taking vacations they couldn’t afford, and buying doo-dads they didn’t need. Corporations used debt to buy and sell divisions to each other, bought back their own stock, rewarded management with $50 million compensation packages, while shipping millions of jobs to China. Reckless companies used leverage to do $3 trillion of mergers and acquisitions in 2006, at the top of the market.

The debt was wasted on non-productive assets, useless financial gimmicks and complex fraudulent products sold to investors. No one knows at what level the debt will swamp the ship of state. A rogue wave has just crashed across our bow and washed many overboard. A captain of state that cared about the remaining passengers would reverse course and take responsible evasive action. Our captain and his crew of gamblers have decided to speed up and take the ship of state headlong into a perfect storm. We all know how this will end it is only a matter of when.

 We also know how it all began:

“Permit me to issue and control the money of a nation, and I care not who makes its laws.” – Mayer Amschel Rothschild

When the banking cartel succeeded in creating the Federal Reserve Bank in 1913, control of money in the United States was put into the hands of bankers whose sole purpose is to enrich themselves at the expense of the citizens of the country. Their relentless printing of money has resulted in the dollar losing 96% of its value since 1913. The printing of dollars has allowed politicians to spend money today and make unfunded commitments decades into the future. The systematic inflation created by the Federal Reserve is immoral as it impoverishes the middle class and senior citizens for the benefit of bankers, the elite rich and entrenched politicians. Much of the moral decay in our nation can be traced to the manipulation of money in the last 8 decades. During the 1950’s, 1960’s and into the 1970’s, a family of five could be supported with a father working and a mother staying at home with the children. Today, due to relentless inflation, the average family of four needs to have both parents working to maintain a similar lifestyle. Inflation adjusted median household income has been stagnant since 1970. The social pressures caused by the Federal Reserve induced inflation such as increased divorce, children raising themselves, and focus on material possessions has resulted in a society whose fabric is tearing.

FRED Graph

The Federal Reserve’s mandate to keep short term interest rates steady and conducive to long-term growth has been a farce. The interest rate policies of the Federal Reserve have caused every financial crisis since 1913. The Great Depression from 1929 to 1940 is debated endlessly regarding FDR’s social programs and whether they helped or hurt. What is rarely discussed is the fact that the Federal Reserve’s loose monetary policies in the 1920’s created the disastrous stock market crash and the depression that followed. Milton Friedman explained the decadent relationship between banks and the Federal Reserve:

“Banking is a major sector of the economy in which no enterprise ever fails, no one ever goes broke. The banking industry has been a highly protected, sheltered industry. That’s because the banks have been the constituency of the Federal Reserve.”

Alan Greenspan’s interest rate decisions and belief that financial institutions did not need to be regulated during his reign as Federal Reserve Chairman from 1987 to 2006 were by far the most significant cause for the worldwide financial system collapse. Greenie trained Wall Street to expect the Federal Reserve to bail them out whenever their horrific financial bets went south. He created the moral hazard that eventually led to the recent collapse. He did it in 1987 after the stock market crash, in 1990 when Citicorp was rescued for the 1st time, during the Reagan initiated S&L crisis, the Mexican peso rescue, the Asian currency bailout, when Myron Scholes and his models brought down Long Term Capital Management, prior to the Y2K fake crisis, after 9/11, and lastly during the 2003 false deflation scare. These bailouts encouraged the extreme risk taking and 40 to 1 leveraging that occurred between 2003 and 2008. Allowing financial institutions to not have to accept the consequences of their irresponsible actions was and is wrong. Ben Bernanke has continued this immoral policy of bailing out corrupt bankers at the expense of prudent bankers and prudent citizens.

FRED Graph

The reduction of interest rates to 1% in 2003 by Greenspan encouraged consumers, investors, banks, hedge funds, and investment banks to go on the greatest debt financed buying binge the world has ever seen. By “saving” the idiots who lost their shirts in the internet bubble, Greenspan created a debt bubble of epic proportions. Lessons about margin debt and excessive leverage that should have been learned during the 2000 – 2002 stock market crash were forgotten by 2004, with margin debt reaching $381 billion in 2007, 40% higher than the NASDAQ peak in 2000. Investment banks increased their leverage from 10 to 1 to as high as 40 to 1. Consumers used home equity and credit cards to live way above their means. All of these choices were bad decisions. Very simply, these decisions made freely by millions of people were wrong.

4

The chart below is the clearest visual representation of why those proclaiming green shoots sprouting are either, liars, knaves, or fools. The green shoots are actually poison ivy. Real disposable income has only risen fourfold since 1960. Real household debt rose at virtually the same rate as disposable income from 1960 to 1980. By 2009, real household debt had increased by twelvefold. The miraculous Reagan Revolution was nothing but a debt induced fraud. All of the apparent wealth in America has been a gigantic sham. The McMansions, fancy cars, HDTVs, jewelry, and other “essential” gadgets were not bought with earned income. The Federal Reserve and their banking brotherhood leant billions to delusional Americans, convincing them to live for today and not worry about tomorrow. But now tomorrow has arrived. Housing “wealth” continues to plummet, stock “wealth” is down 40% in 18 months, and our old friend household debt remains stubbornly in place. This debt must be paid down before any green shoots can take permanent root. Any policy that encourages the expansion of consumer debt would be immoral, wrong and foolish. This is the policy that the Obama administration has chosen.

5

Something Wicked This Way Comes

“No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.” – H.L. Mencken

Americans are still infatuated with President Barrack Obama. He is a dynamic speaker and shrewd manipulator of public opinion. After eight years of George Bush’s narrow minded demagoguery, Obama’s appearance of intelligence and moderate rhetoric have been refreshing to many. His words may be comforting but his policies, if fully implemented, will lead to an irreversible decline of the American Empire. The chances of reversing our current misguided course get slimmer by the day. The Keynesians who have taken control of our government pick and choose the wisdom of this renowned economist. His assessment of how aging populations act describes a major roadblock to fixing our broken society.

“Most men love money and security more, and creation and construction less, as they get older.”

The government has promised to protect us from terrorists, protect us from swine flu, protect us from Wall Street, protect us from foreign corporations, protect our car industry, protect our union jobs, protect our retirements, and protect us from having to take responsibility for our actions. We have sacrificed liberties, rights, responsibilities, and entrepreneurial spirit for a false sense of security provided by a corrupt, inefficient, morally bankrupt government. Our rapidly aging population has chosen security over creative destruction and renewal of the American Dream.

The polarized extremists that dominate the dialogue in our country make rational necessary change virtually impossible. The public relations maggots have taken the “green” agenda into elementary schools and the mainstream media has done their usual job of misinforming the masses. As the “green” guru Al Gore continues to live in his 20 room mansion with 8 bathrooms while raking in millions as a partner in a joint venture firm, his misleading agenda is directing the country down the wrong path. The average Joe now believes that solar energy, ethanol, and higher mileage cars will save the earth and make the U.S., energy self sufficient. This is a big lie and will lead to suffering and economic calamity when oil prices soar past $200 a barrel in the foreseeable future. The U.S. no longer has the moral authority to tell other countries how to manage their finances. Our fiscal deficit as a % of GDP in 2009 will exceed 12%. Countries we have scoffed at and ridiculed like Italy, Mexico and Argentina will have deficits less than 4% of GDP. This is only the beginning.

6

The deficit projections from the Obama administration and CBO are dead on arrival. When tax revenues don’t materialize and the predicted V shaped recovery turns into an L shaped depression, deficits will far exceed the already horrific projections. The government continues to spend our children’s and grandchildren’s money at an ever increasing rate on bailouts, non-investment stimulus, healthcare waste and subsidies for friends of Congress. P.J. O’Rourke humorously explained government drunk with power.

“Giving money and power to government is like giving whiskey and car keys to teenage boys.”

wapoobamabudget1

The dilemma facing our country is that the elite ruling class in control of the nation wants to maintain the status quo. The 50% of Americans who pay no Federal taxes will gladly support increases in taxes on the 50% of Americans who do pay taxes. Those without health insurance will vote for anyone who promises them government healthcare at no cost. There are 306 million Americans. I often refer to the average American in my articles. Part of our problem is that by definition, half of Americans are below average. After spending Memorial Day weekend at the Jersey shore, I know where a large number of below average Americans like to vacation. They give themselves away fairly easily. If your body is more than 50% covered in tattoos, you have more than 10 body piercings, your gold chain weighs more than 5 pounds, and your idea of cuisine is a fried Oreo, you’re a below average American. These zombie-like citizens have absolutely no interest in deficits, GDP, the National Debt or shared sacrifice. The majority prefer not to be bothered.

 An entitlement society will eventually wither and die. Only societies that produce something of value to other societies will prosper. Using financial hocus pocus and enormous amounts of leverage creates nothing of value to anyone except the criminals who created the financial weapons of mass destruction. Bailing these criminals out will waste essential capital and lead to our ultimate demise as a world power. Dr. John Hussman clearly lays out our future:

“The bottom line is that the attempt to save bank bondholders from losses – to provide monetary compensation without economic production – is not sound economic policy but is instead a grand monetary experiment that has never been tried in the developed world except in Germany circa 1921. This policy can only have one of two effects: either it will crowd out over $1 trillion of gross domestic investment that would otherwise have occurred if the appropriate losses had been wiped off the ledger (instead of making bank bondholders whole), or it will result in a stunning and durable increase in the quantity of base money, which will ultimately be accompanied not by a year or two of 5-6% inflation, but most probably by a near-doubling of the U.S. price level over the next decade. As I’ve noted previously, the growth rate of government spending is better correlated with subsequent inflation than even growth in money supply itself, particularly at 4-year intervals. Regardless of near-term deflation pressures from a continued mortgage crisis, our present course is consistent with double digit inflation once any incipient recovery emerges.”

The following graphs tell the story of a country in decline and a country on the rise. We proudly proclaim that we are a consumer society that creates 70% of its GDP by buying stuff and saving nothing. Instead of encouraging and rewarding saving, which leads to productive investment, our government pours an additional $7.5 billion into GMAC and demands them to lend the money to millions of subprime borrowers, because they deserve to drive a BMW just like any big time Corporate Treasurer. While America was “inventing” Twitter so Americans could waste more time on useless bullshit, China built three nuclear power plants and two refineries.

8

China on the other hand is sailing an entirely different course. With gross national saving of 52% of GDP it is only a matter of time before China becomes the world economic leader. The 21st Century will be China’s century. There is much wrong with their society. Pollution, human rights abuses, and fraud are major issues, but the enormous amount of saving and investment in infrastructure, manufacturing plants, nuclear power plants and refineries will overcome those issues. As the Obama administration and the Federal Reserve double down on failed socialist policies that will bankrupt our country, the Chinese increase their productive capacity and use their depreciating dollars to buy up natural resources around the globe.

9

We have been confronted with stormy seas in the last two years. Our leaders’ inept management and inane solutions caused the crisis. They have committed hundreds of billions in the last six months. This has resulted in the seas receding from the shoreline. There is an unusual calmness. An alert and dutiful government would be warning Americans to run inland by paying off debt and preparing for rough times ahead. Our government is encouraging Americans to venture out to where the violent waves were recently breaking and pick themselves up a new car or an “affordable” house. When the tsunami warning is sounded, it will be too late.

We are in our current predicament because we have allowed evil men to gain control of our government and financial institutions. These men have enriched themselves at the expense of taxpaying citizens. Trillions have been stolen from the American people and no one goes to jail, no one is punished, and no responsibility is taken by the culprits. If we stand by silently while criminal bankers are bailed out and policies are put into place that increases our crushing debt, the Hangman’s scaffold will loom ever larger. On Memorial Day, when we honor those who died heroically to protect and defend our way of life, the lesson of shared sacrifice should bear out that it is morally wrong to spend money today and pass the bill to unborn future generations.

10

THE BOTTOM LINE: “…I did no more than you let me do.”



DOUG CASEY – “PRESIDENTIAL CANDIDATES ARE PATHETIC CLOWNS”

Doug Casey has respect for only one presidential candidate. Guess which one.




 

(Interviewed by Louis James, Editor, International Speculator)

L: Doug, with all the US election gossip in the news, readers are wondering what we make of the circus. The Republicans haven’t settled on which walking ethical disaster they are going to pick as their candidate, and neither of us thinks the only decent man in that contest – Ron Paul – will get the nod. With recent economic numbers seeming to bolster the president, your fear that the Democrats could pick a left-wing general instead of Obama seems to be evaporating. So, what do you think – is it looking like four more years of Obama?

Doug: Well, as Clinton correctly said, “It’s the economy, stupid.” This is hands-down the determining factor in how most people will vote. Unfortunately, most people don’t have a clue what actually makes for a strong economy. In the unlikely event that the economy does not exit the eye of the storm this year, my guess is that people will vote for Obama. The economy seems better to those who are not looking too closely; it’d be “Don’t change horses midstream” and “Steady as she goes” type thinking.

L: But if you’re right about the economy exiting the eye of the storm?

Doug: Then the Republicans should have a shot. But the leading candidates, other than Ron Paul, as you mentioned – Romney, Gingrich, and this horrible new contender, Santorum – are all extremely dangerous, rabid warmongers. On top of that, Santorum appears to be something of a religious fanatic who poses a dangerous threat to the social fabric of US society. Of course all of them thump the Bible, catering to Americans’ atavism; the US is the by far the most religious of the world’s developed countries… so maybe Santorum is what they want.

L: We’ve talked about Ron Paul before; still no hope there?

Doug: No. It’s a pity, because he’s the only real antiwar candidate consistently polling at significant numbers – 15% to 20%. He’s also the only real voice for fiscal sanity, rolling back the police state, deregulating the economy, and many other positive things. But he’s got no chance. He speaks fairly well for the libertarian minority in the US, but certainly not for the entitlement-mentality majority, and not even for the majority of Republican voters. The Republicans have become the warfare party, and Dr. Paul doesn’t fit in. The Democrats have long been the welfare party, so he doesn’t fit in there either. It’s just not going to happen for Ron – not because of any fault with him, but because the whole system is so corrupt and the electorate is so degraded. If the US is to be compared with ancient Rome, then we’re far beyond the days of the early republic, when heroes like Horatio and Cincinnatus could provide inspiration and save the day. We’re more at the stage where US leaders resemble emperors of the third century, every single one of whom was a disaster. Men like Elagabalus and Caracalla, and finally Diocletian, who transformed the empire into a proto-feudal police state out of desperation. Leaders tend to reflect their constituency, and the state of a country. The US empire is in severe decline.

But let’s talk about Obama. I’ve been accused of being soft on Obama, even though he’s arguably an even worse president than Baby Bush was. I’ve even been accused of pandering to racism, because I haven’t lambasted Obama in the same way I used to take pleasure in lambasting Bush…

L: If you did lambaste Obama, I’m sure you’d be criticized for speaking ill of the first black US president. But if you also get criticized for not calling him out, you’re damned if you do and damned if you don’t.

Doug: Yes, saying anything unkind about the first black US president is clearly proof of racism. [Laughs] That just shows how completely degraded political discourse in the US has become. Pundits don’t see people as people to be praised or criticized on the merits of their words and deeds, but as members of groups. A president, in this view, should not be judged on his ideas, policies, and actions, but on which groups he can be seen as part of.

It also helps to be totally vapid, so no one can find any dirt on you; I suspect that’s Santorum’s main virtue. And smarmy – like Mitt Romney and Rick Perry smiling at each other during the “debates” when they each really wanted rip the other guy’s lungs out. Anyway, they aren’t real debates, where ideas are discussed intelligently and explored fully. They’re just charades where the candidates try to remember good quips and funny one-liners that their handlers have written for them.

L: The refusal to judge a person based on his or her own merits is pure groupthink.

Doug: Exactly. One of the driving forces of this prison planet we live on. The candidates just want to be alpha monkeys, in order to lord it over the beta monkeys.

Back to Obama. It’s interesting to observe that in spite of some of his rather extreme positions on some things, he doesn’t act aggressively, like his Republican competitors would do. He’s slick, with everything he says couched in reasonable-sounding language. He never comes across as a radical. Yet bad ideas seem to seep out of the White House like swamp gas in the night. They rarely change greatly from one moment to the next, but mutate slowly like a cancer, eventually building up a fog of deceit in reasonable-sounding, smarmy doublespeak, so that it’s hard for most people to know what’s right. That was the nice thing about Bush: he was outspoken, albeit in a stupid kind of way. He constantly stuck his foot in his mouth, so it was hard to take him seriously.

However, I take Obama very seriously. Everything he has put forward has been terrible policy. And he’s surrounded himself with about 20 “czars,” all of them hardcore statists. I think the practice started with Jerome Jaffe – the drug czar under Nixon – but it’s gotten out of control under Obama. Strange, I don’t see the word “czar” anywhere in the Constitution…

L: As for specific policies, there was, for starters, his healthcare reform; he managed to take the US further down the road to socialized medicine than anyone since Lyndon Johnson.

Doug: Yes, he took that title away from Baby Bush, who added the massive prescription drug benefit for Medicare recipients. But I have to object when you say “health care,” because what we’re really talking about is medical treatment, which is care when you’re sick. It’s not actually health care, which is about eating well, exercising, and things that keep you from getting sick.

L: I know, I know… that’s just the terminology of the day; I should know better than to let the enemy define the terms. For example, I’ve long thought that it’s a mistake to use the word “capitalism” when discussing the free-market system. Capitalism was Marx’s term, and not only was his view of capital as wrong-headed as the labor theory of value, it mistakenly encourages the idea that industrialists have more power in the marketplace than their customers. Just ask the former heads of General Motors, IBM, Kodak, Xerox, and other fallen giants if they had more power than the customers who stopped consuming their products. “Consumerism” is a dirty word in today’s world, but it’s a more accurate word for free enterprise, if you want to define it in terms of who calls the shots.

Doug: It’s critical to be careful with your words; these collectivists and statists have won half the war if you let them define the terms. That’s why we so often start these conversations with a definition. The sloppy and undefined use of words leads to sloppy and undefined thinking, and that leads to stupid and destructive actions.

L: So, should we define Obama?

Doug: That’s hard to do. You know, it’s funny. When Trump was running, I criticized him. It’s hard for me to say anything good about Trump under any circumstances – but he at least had the brass to ask questions about Obama that other public figures wouldn’t touch, questions about who Obama really is and how he seemed to appear from nowhere. To my knowledge, no one has stepped forward to identify themselves as a school friend, or even a college friend of his. I’m not a conspiracy theorist, but I have to say that as far as I know, none of these questions have been satisfactorily answered.

L: You don’t need to believe any conspiracy theories to notice that there’s something odd about the man. He seems like a big zero to me, not a big O. Even when he’s reading the speeches people write for him to pull on the population’s heartstrings, he comes across almost completely wooden. Sometimes I’m sure he’s pausing not where there are commas or periods, but where the lines wrap on his teleprompter. He has the personality of a frozen mackerel.

Doug: It’s interesting that you point that out – I’ve often wondered if the special interests behind him couldn’t come up with anyone better. I’m not saying he has to be another George Carlin or Dave Chappel, but it would be nice to see that someone is home. Obama is so flat, I can’t even be sure whether he’s intelligent or not, although I initially assumed he was very smart. With Baby Bush, it was clear that he actually lacked intelligence. With Obama carefully plodding through his teleprompted speeches, I actually can’t tell if he’s smart or not. He was president of the Harvard Law Review, which would seem to argue for intelligence, but that could have been finessed as well. And exactly who paid for all his schooling and related expenses? I honestly don’t know who we’re dealing with.

L: It’s almost as though he were literally a puppet. Maybe there really is no Obama.

Doug: He’s an empty suit. But then, so are Romney and all of the guys who actually stand a chance of becoming president of the US. This actually softens my dislike of Gingrich, among those who seem to have a chance this time around. He’s outspoken. A lot of his ideas are manifestly dangerous or goofy, but at least he comes out and says them – at least he actually has ideas – and that makes him interesting at times. Nor does he attempt to hide his arrogance. There’s something to be said for exposing your vices as opposed to hiding them; hidden vices are much more dangerous, like hidden IEDs.

L: Something to be said for entertainment value?

Doug: Sure, although it’s entertainment on the level of farce. There’s no element of nobility in any of these people. The ancient Greek tragedians wouldn’t have considered putting any of them in a play: These aren’t great men with tragic flaws; they’re pathetic clowns. They’re all play-acting, pretending to be something their pollsters think the electorate wants, pandering to the unwashed mob.

If they were to appear in a play, Perry might be cast as an assistant manager at a Target store, Gingrich as the vice principal at the local community college, Romney as an aspiring actor who wants to play the father in a 1950s-style sitcom, Santorum as goody-goody DMV employee, and Obama as a community organizer… whatever that is. Ron Paul is too authentic to appear in such a low farce.

Anyway, to escape from their lackluster lives, they go bowling together on Wednesdays. Even though they’re quite similar – or maybe because they’re basically so very similar – they don’t like each other and get into arguments centering on two things: each other’s poor character and their uninformed and unsound political and economic views. You could just use lines from the debates and Obama’s speeches for the dialogue.

But I fear it would be a boring show unless Saturday Night Live or The Onion did it. No way would Aeschylus or Sophocles touch the material; they liked heroic characters with tragic flaws. It’s impossible to write good tragedy about nonentities.

Obama seems to lack any personality – unlike, say, Clinton, who’s a genuinely engaging guy, even though his ideas are almost as uniformly bad as Obama’s. I have to ask myself: What kind of a person can become president of the US at this point? Clearly no one with strong principles will ever make it, partly because such a person can’t make the insipid, inoffensive, statements that appeal to the lowest common denominator. I wonder where they find these people? It might be a good new reality show – call it The Lowest Common Denominator.

L: Okay, but we’ve probably crossed the line to making personal attacks – though I think those who presume to rule over others deserve greater public scrutiny of their persons and ideas. Let’s get back to policy. “Cash for clunkers” was, if I’m not mistaken, an idea backed by the Obama administration, and in my view a clear attempt to simply open the spending spigots to try to bribe the electorate.

Doug: Yes, that was a great idea. Subsidize the destruction of perfectly good vehicles with billions of borrowed dollars, in order to keep mismanaged auto companies afloat. Then there was the housing credit, which induced scores of thousands of people to get into the collapsing housing market at taxpayer expense. And keeping interest rates near zero, in a desperate attempt to keep old bubbles inflated; that will just inflate new bubbles while it destroys the currency. Obama is disaster incarnate for the economy. Everything he’s doing – and pushes the Fed to do – is not only the wrong thing, but the exact opposite of the right thing, as we’ve commented on many times. I honestly can’t think of a single good thing about Obama. There must be something… perhaps he neither kicks his dog nor beats his child. But he’s a sociopath; he’s got all the signs of one that I spell out in this month’s Casey Report… just like Clinton. But not so much like Bush, who was helpful in defining the often fine line between “stupid” and “evil.”

L: What about foreign policy? He did bring the troops home from Iraq. I wish he’d bring them all home, but that was a step in the right direction, wasn’t it?

Doug: Yes, bring them home so they can practice the bad habits they picked up as invaders in the Middle East as cops in the US. But it’s true – he did get US troops out of Iraq. On the other hand, the Obama administration has put new troops in other places, like Uganda and Australia, participated in the bombing of Libya, and who knows what he’ll do if Egypt falls apart. He may yet intervene in Syria, where the US is already sending arms to the insurgents. I suspect he and his minions are now negotiating with the Taliban mainly to arrange a semi-graceful exit for the troops next year from Afghanistan. It wouldn’t do to have a running gun battle while the last people are evacuated from the embassy in Kabul, holding on to the skids of helicopters, like in Saigon. And it looks like they’ll start a war with Iran.

L: Yes, he can hardly claim to be a man of peace when he likes to take credit for ordering the extrajudicial execution of Osama Bin Laden.

Doug: What are you talking about? Don’t you know he was awarded the Nobel Peace Prize? Actually, I’m glad he got it: it serves to fully discredit the prize as an overrated scam. And how about this new National Defense Authorization Act that allows the military to detain US citizens indefinitely? That was hardly a bill a defender of civil liberties would sign into law.

Obama, whoever and whatever he is, is just bad news all around. If he’s reelected, people are going to get exactly what they deserve. That’s one good definition of justice, and you have to be in favor of justice. The only problem is that it’s unjust for the maybe 20% of the population who’ve fought against the descent of the US into a police state.

L: So… if the economy doesn’t blow up and the election is likely to go to the Democrats and not the Republicans, do you think that a guy as boring as Obama can actually get reelected?

Doug: If the economy doesn’t blow up, I do think Obama will be reelected. Most US citizens are recipients of government largess of one sort or another these days, and they won’t vote for Republicans who might cut or reduce their handouts. And maybe Americans want witless and boring; that makes things seem normal. It’s grasping at a straw… appearance rather than reality.

Though I still think that if the Democrats really wanted to lock in a win, they’d get a left-wing general to run. It’s a scary world out there, and people want security, not just in their pocketbooks, but from all the threats they’ve been told are menacing them from all around the world. Americans have apotheosized the military. They idiotically believe it’s efficient, when actually it’s just a heavily armed version of the post office or the TSA. And they idiotically believe it isn’t corrupt – even though all the top generals are politicians first and Pentagon spending is like a billboard advertising corruption.

L: Do you think that could actually happen? Obama seems pretty strong with his supporters – wouldn’t he have to be caught in the closet with a sheep or something like that to lose his party’s nomination?

Doug: That’s probably right, so again, if the economy doesn’t blow up, we’ll likely get four more years of Obama. Even if the economy really blows up, the possible Republicans are so unappealing that it’s hard to believe any of them could get traction. That and the fact that half the country relies on government benefits that they fear a Republican would take away means we might get four more years of Obama anyway. Although there’s no chance elected Republicans will actually cut spending; Republicans are chronic hypocrites who talk the talk in order to gull naïve voters in the diminishing middle class. Perhaps we’ll get The General only after the Greater Depression has a lot more people living in tent cities. And after the US has bombed and been counterattacked by Iran – and maybe had a few more wars as well. A “strong” leader will have great appeal in 2016.

L: The Man on a White Horse. Sigh. Investment implications?

Doug: Well, I do think the economy will take a nosedive soon, in which case the recommendations are the same as we’ve been making. We’re not a trading service – entirely apart from the fact that I don’t believe in trading. But, under the four more years of Obama scenario, we’ll almost certainly see massive inflation, which would be bullish for industrial metals and could even be good for stocks in general, even though I don’t think they are cheap at this point in time. There could be many new bubbles created by the massive amounts of liquidity they’d have to pump into the economy, and we’ll watch out for those.

On a more fundamental level, whatever they do and whatever amount of paper money they throw at an economy suffering from decades of distortion and malinvestment, I just don’t think it’s possible to return to real prosperity without going through the wringer first. Even with massive liquidity injections, life for the average guy is not going to get better, it’s going to get worse. I expect chaos, but I’m not looking forward to it. Chaos will present opportunities, but it’s also quite unpleasant and inconvenient.

L: Okay, but let’s say Helicopter Ben starts throwing billions of bushels of new $1,000 and $10,000 bills out of his fleet of helicopters – where would be the best place to stand with a net to catch some of those?

Doug: Well, in spite of my many differences with him, I am partial to what Warren Buffett says about investing in basic businesses. You want to be an owner of a well-run business that produces simple things everyone needs and wants – even if their standard of living is collapsing. But the key is to buy such companies at bargain-basement prices – to succeed as a speculator, you have to buy low and sell high.

L: Hm. Well then, in addition to our usual calls on the precious metals and energy, this seems like a good time to point out certain sectors within the tech markets. New innovations that make things better/faster/cheaper would be even more in demand in a depression, and new medical devices and treatments are always going to be things people want and need, regardless of economic conditions.

Doug: Right. And stepping back from intelligent speculation to intelligent investing – because they’re two different methodologies – I want good, solid companies. High dividends, low P/E ratios, and solid growth are the holy grail. But I think it’s too early to buy. Too much turmoil and uncertainty ahead, even for the best-run companies with the most essential goods and services. I’d rather buy after we’re in the middle of the turmoil, not before it appears.

I also feel compelled to remind readers of the urgency of diversifying the political risk in their lives by internationalizing. This is the best sort of thing discussed over a cigar and nice glass of wine, which maybe readers will join me for at our upcoming Harvest Celebration in Argentina. I understand that there are few a still spots left.

L: Okay then. A look at the situation from a slightly different angle. Thanks for your thoughts.

Doug: A pleasure, as always. I know you’re in the Congo as we speak. Perhaps next time we can talk about Africa…

WE ARE THE ROMAN EMPIRE

I love reading MSM articles that blather on with trivialities while missing the big picture. It costs 2.4 cents to make a penny. It costs 11.2 cents to make a nickel. The article provides all kinds of facts but fails to reach the logical conclusion that 100 years of currency debasement by the Federal Reserve has reached its point of no return. The Romans methodically reduced the metal content of their coins as their empire slowly and methodically declined. The price of all metals continue to rise in dollars as the Federal Reserve prints them at hyper-speed. There is no way to produce a penny or a nickle for less than the value of the coin. We’ve passed the point of no return. The USD has lost 97% of its purchasing power since 1913, as man made inflation has destroyed the middle class. We are the Roman Empire in its final death throes.

Obama wants cheaper pennies and nickels

 

The U.S. Mint is facing a problem — especially during these penny-pinching times. It turns out it costs more to make pennies and nickels than the coins are worth.

And because of that, the Obama administration this week asked Congress for permission to change the mix of metal that goes to make pennies and nickels, an expensive recipe that has remained unchanged for more than 30 years.

To be precise, it cost 2.4 cents to make one penny in 2011 and about 11.2 cents for each nickel.

Given the number of coins that the mint produces — 4.3 billion pennies and 914 million nickels last year alone, those costs add up pretty quickly: a little more than $100 million for each coin.

But even though Treasury has been studying new metals since 2010, it has yet to come up with a workable mix that would definitely be cheaper, and it has no details yet as to what metals should be used or how much it would save to do so.

Even if a cheaper metal can be used, it might not take the cost of a penny down to less than a penny.

Just the administrative cost of minting 4.3 billion pennies costs almost a half-cent per coin by itself, leaving precious little room to make a penny for less than a cent, no matter the raw material used.

The raw material cost of the metals used in a current penny is only about 0.6 cents per coin, according to prices quoted on the London Metal Exchange, and a breakdown of a penny’s composition from the mint. The mint paid 1.1 cents on average for the metal used in a penny in 2011, but that is the cost of ready-to-stamp blanks from the supplier, not raw material traded on commodity markets.

Funny money? 11 local currencies

There have been times in recent years when a run-up in zinc and copper priceshas taken the raw material value of a penny above one cent.

That’s the case for a nickel today. Its more expensive metal mix means the raw materials in each are worth almost 6 cents per coin, based on current market prices. (States eye silver and gold currencies)

Despite popular belief, since 1982 pennies have only been copper plated, not copper through and through. Much less expensive zinc makes up 97.5% of the mass of a penny, the rest is a copper coating.

Nickels actually have much more copper in them — 75% copper and 25% nickel, the same mix it has always had.

The mint did make steel pennies for one year — in 1943 — when copper was needed for the war effort. And steel might be a cheaper alternative this time. Steel is roughly one-quarter the price of zinc on the London Metal Exchange.

Treasury had already made a cost-saving move in December when it stopped making dollar coins.

With 1.4 billion surplus presidential dollar coins sitting in bank vaults waiting to be circulated, and American consumers showing little appetite to start using the coins, Treasury estimates the halt in production of the coins will save about $50 million a year.

Check commodity prices

Treasury spokesman Matt Anderson said Treasury has the authority to stop making the dollar coins on its own, but it can’t change the mix of metals in pennies without permission.

As for the suggestion of some that the penny be abandoned altogether, Anderson said only “that is not a proposal we have put forward.”