Fed To Buy Treasurys 3 Times In Next 2 Weeks

Monetization of the country's debt continues unabated. Inflation is inour future and it's going to get nasty.-Lou

NEW YORK -- The Federal Reserve on Wednesday said it plans to purchase Treasury securities in three operations in the next two weeks, fulfilling policy makers' promise last week to slow down purchases of U.S. debt in the hopes that the program could help keep a lid on borrowing costs for consumers and businesses. It previously held four operations every two weeks. The central bank has already bought $262 billion out of the $300 billion originally stated in March. The Fed will buy debt maturing in 2011 to 2012 on Aug. 24 and 2026-2039 debt on Aug. 26. It will also buy debt maturing in 2012 and 2013 on Sept. 1. After the announcement, the broader Treasury market held onto gains. Ten-year note yields , which move inversely to prices, fell 5 basis points to 3.47%.

These numbers are actually rising the last few weeks, not an indicator of economic health. The sad thing is that many who have been unemployed for a long time are now losing their benefits, then what?-Lou

U.S. jobless claims unexpectedly rise

WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless benefits unexpectedly rose last week, a government report showed on Thursday, fanning worries of an anemic recovery from the worst recession in 70 years.

Initial claims for state unemployment insurance benefits rose 15,000 to a seasonally adjusted 576,000 in the week ended August 15 from 561,000 the prior week, the Labor Department said. Analysts polled by Reuters had forecast new claims slipping to 550,000 last week from a previously reported 558,000.

"I think that we're hoping for the numbers to stay below 600,000, and not until we get below 500,000 can we be more certain that there is an economic recovery," said Linda Duessel, market strategist at Federated Investors in Pittsburgh.

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You Might Be A Gold Bug.......

Being a little "gold buggy" myself, I found this very funny. Hats off to Joshua Brown from "The Reformed Broker" Blog-Lou

Gold bugs have been around for over 100 years, lurking at the fringes of the investment community and singing the praises of the yellow metal to anyone who will listen.

As a result of the plunging US dollar, apocalyptic drops in asset prices and the commodity’s eight year bull market, gold has attracted a huge following among investors over the last few years.

How do you know if you’ve become obsessed with the gold trade? Taking a page from Jeff Foxworthy’s You Might be a Redneck series, I thought I’d offer some guidelines…

• If you consider Diversification to mean a portfolio consisting of gold bullion, gold coins, gold bars and gold futures contracts…you might be a gold bug.


• If you’ve been growing your beard out since Obama was elected…you might be a gold bug.


• If the family dog’s name is Hyperinflation …you might be a gold bug.


• If you have a poster of a shirtless Peter Schiff hanging over your bed…you might be a gold bug.


• If you spent the summer up at the cabin storing your own urine for it’s nutrients…you might be a gold bug.


• If every single stock in your brokerage account contains the word “mining” in it’s name…you might be a gold bug.


• If you get your financial advice from the Glenn Beck show…you might be a gold bug


• If you start off many sentences with the phrase “Once gold breaks 1000,” …you might be a gold bug.


• If your IRA jingles when it hits the floor…you might be a gold bug.


• If the name of your investment club is AU Guys…you might be a gold bug.


• If the panic room you’ve just installed has it’s own panic room…you might be a gold bug


• If the birthday cards you send to friends and relatives include warnings about the danger of fiat currencies…you might be a gold bug.

LINK

Pimco: Dollar is Toast

Pimco states the obvious.-Lou

Pimco Says Dollar to Weaken as Reserve Status Erodes

Aug. 19 (Bloomberg) -- Pacific Investment Management Co., the world’s biggest manager of bond funds, said the dollar will weaken as the U.S. pumps “massive” amounts of money into the economy.

The dollar will drop the most against emerging-market counterparts, Curtis A. Mewbourne, a Pimco portfolio manager, wrote in a report on the company’s Web site. The greenback is losing its status as the world’s reserve currency, he said.

“Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure,” Mewbourne wrote in his August Emerging Markets Watch report. “The massive amounts of U.S. dollar liquidity produced in response to the crisis” have helped reduce demand for the currency, he wrote.

The Dollar Index, which tracks the greenback against a basket of currencies, touched 78.823 today, the lowest this week. It has fallen 12 percent from this year’s high in March as U.S. authorities pledged $12.8 trillion to combat the recession. China, the world’s largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves.

“While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative,” Mewbourne wrote.

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Cities In Crisis

Here are just two stories about the fiscal problems facing cities and states across the country, it will get much worse in the months to come.-Lou

Mayor Nutter: Courts May Face 'Virtual Shutdown'

Philadelphia AP-Philadelphia's court system will face a "virtual shutdown" if the cash-strapped citycity does not get state approval for a sales tax increase and changes to how it makes its pension payments.

That's according to Mayor Michael Nutter and court officials at a news conference Wednesday.Philadelphia is facing a $1.4 billion five-year budget deficit.The city has asked the state to approve a temporary sales tax increase in Philadelphia and allow changes to how the city makes its pension payments.

Without those changes, Nutter says nearly 1,000 police officers and 200 firefighters would be cut.District Attorney Lynne Abraham says her office and others would face devastating cuts, too.In Harrisburg, a state legislative leader says he hopes to have a bill ready for a vote next week.

City Government Closed For Business Today

The City of Chicago is basically closed for business on Aug. 17, a reduced-service day in which most city employees are off without pay. City Hall, public libraries, health clinics and most city offices will be closed. Emergency service providers including police, firefighters and paramedics are working at full strength, but most services not directly related to public safety, including street sweeping, will not be provided.

That also includes garbage pickup. Residents who receive regular collection on Mondays should expect trash to be picked up on Tuesday. Some other customers may experience a one-day delay as collectors catch up.

As part of the 2009 budget, three reduced-service days were planned for 2009, days which are unpaid for all affected employees -- the Friday after Thanksgiving; Christmas Eve; and New Year's Eve. The City Council recently approved moving the reduced-service day planned for New Year's Eve to Monday.

Do Stock Market Investors Have Their Heads In The Sand?

Are those who are buying into this stock market have their heads in the sand or are they just suicidal?

• Banks are failing every week and some really big ones. FDIC insurance fund is depleted and there are rumors of a bank holiday being called in September.
• The market has risen 50% from March lows, thats never happened without a significant increase in GDP and corporate earnings.
• The U.S. is running a $1.8 trillion deficit. 2010 should be $2 trillion.
• The US dollar is on life support
• Every month a new record in home foreclosures is announced
• Real unemployment U-6 is almost 17% and growing
• Retail sales are horrible.
• China's market is down almost 15% in a few weeks (a leading indicator of western markets)
• The Fed is monetizing the debt and trying to hide it.
• Most technical indicators are extremely overbought.
• September is the worst month of the year for stocks on average.
• The political environment is combustible.

What am I missing here? Nothing I suspect, just the late comers to the party who will be fleeced again.-Lou

Seniors Rise Up Against AARP

Tens of thousands of seniors have dropped out of AARP the last few weeks. They feel AARP is backing healthcare reform that will be harmful to seniors. Check out an organization that really cares about seniors: http://60plus.org/

Social Security To Default in 2 Years?

Does he know something? Perhaps he meant to say Social Security will be in deficit in 2 years.-Lou

Bachus discusses Social Security, health care

TUSCALOOSA Social Security could face a deficit within two years, according to U.S. Rep. Spencer Bachus who met with The Tuscaloosa News editorial board Tuesday.

“The situation is much worse than people realize, especially because of the problems brought on by the recession, near depression,” said Bachus, R-Vestavia Hills, in an interview with the Tuscaloosa News editorial board.

Bachus, the ranking member of the House Committee on Financial Services, said most people seem unaware of the impending crisis. He initially said Social Security could face "default" within two years, but his staff responded later saying the Congresssman intended to say "deficit."

“What this recession has done to Social Security is pretty alarming,” he said. “We’ve known for 15 years that we were going to have to make adjustments to Social Security, but we still thought that was seven or eight years down the road. But if things don’t improve very quickly, we’re going to be dealing with that problem before we know it.”

The solvency of Social Security, which provides pensions for people older than 65, has not played a major role in the current debate about health care in Congress. Bachus said it will not likely be addressed in any health-care bill the House eventually passes, although if a Social Security bailout is needed, it will invariably have an impact on government health-care programs.

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Chart Of The Day

The China Syndrome

click on chart to enlarge

This is a chart of the Shanghai Stock Index, it is clearly in breakdown mode. This chart shows that the six month uptrend has broken down. The index dropped another 4.3% today (not reflected on chart). The China market has led western markets the last few years, expect a stock market swoon very soon.-Lou

Foreigners Decrease US Treasury Holdings

Yesterday the Treasury Dept. released the Treasury International Capital (TIC) Data for June. This report reveals the increase or decrease in foreign ownership of U.S. Treasury bonds. Since we are so dependent on foreigners financing our huge deficit, this report is very important.

From yesterday's report:

Foreign holdings of dollar-denominated short-term U.S.
securities, including Treasury bills, and other custody liabilities decreased $19.5 billion. Foreign holdings of Treasury bills decreased $11.3 billion.

Banks’ own net dollar-denominated liabilities to foreign
residents decreased $82.9 billion.

Monthly net TIC flows were negative $31.2
billion. Of this, net foreign private flows were negative $27.7 billion, and net foreign official flows were negative $3.5 billion.

Read Full Report

Not only have foreigners cut back on their purchases of US debt, they have actually been net sellers of U.S. securities. This has huge implications for the value of the U.S. dollar, future interest rates and inflation.-Lou

Chart of the Day

click on chart to enlarge

This is a chart of the SP 500. After a historic 50% rise from the March lows it appears that the stock market is forming a rolling top. The MACD has crossed over (lower part of chart -blue line crossing below red line). I find the MACD to be one of the more accurate technical indicators. The MACD crossover suggests that the market will head lower in the days and weeks ahead.-Lou

Is The FDIC Bankrupt?

Lou Scatigna

August 18, 2009

As I have reported here the last few days, 5 banks failed this past Friday and 2 of them were huge. Colonial Bank's failure was the sixth largest in US history, depleting the FDIC's Deposit Insurance Fund (DIF) by $2.8 billion. Community Bank of Nevada was also seized on Friday with the DIF taking a $782 million hit. Total losses for FDIC on Friday is estimated to be $3.7 billion.

So how much is left in the DIF? Well according to this report Saxo Bank Research LINK prior to Friday's bank failures the FDIC DIF had been depleted to only $648.1 million. Subtract $3.7 billion in losses from Friday's closures and the DIF is technically bankrupt by at least $3 billion(or $3,000 million to give you the proper perspective).

There will be many more bank failures before the financial crisis is over. With the DIF technically bankrupt should you worry about the safety of your savings? Certainly not. There is no way the FDIC will not make good on any and all insured deposits.

This past Friday FDIC Chairman, Sheila Bair says it’s nothing to worry about. “The FDIC's guarantee is as certain as ever,”. “Our industry-funded reserves have covered all losses to date.”

It's kind of a misnomer to call FDIC insurance "insurance". With less than 2/10 of a penny (or not even that according to Saxo) in the insurance fund for every dollar of deposits, it is more of a government bailout plan using taxpayer, borrowed or printed money (most likely).

In May the FDIC petitioned Congress and received a pre-approved credit line of $100 billion to back bank failures. It looks like it's time to start drawing down that credit line but it won't be enough.

Depositors of the 1,000 plus banks that will fail will be paid back with freshly printed and depreciating dollars. Could a currency crisis and resulting hyper-inflation be far off?

Maybe the rumors of a "bank holiday" in September are not that far fetched.

The Bank Holiday of 1933

As I mentioned on Sunday's radio program, there are rumors (unsubstantiated) that the government may call a "bank holiday" in September. A bank holiday is when the government closes the banks for a number of days to prevent a bank "run" and then decides which banks should be closed or merged with healthy banks. The FDIC would most likely receive a large cash infusion from Congress to instill confidence that savings accounts would be insured. If it happened then chaos would ensue for sure. To be safe make sure you have enough cash and food on hand to last a month. Here is the story of what transpired during the last bank holiday in 1933, let's hope it doesn't happen any time soon.-Lou

http://www.bos.frb.org/about/pubs/closed.pdf

Listen To This Week's Radio Show

Listen to this Sunday's "The Financial Physician" radio program. Rumors of a "Bank Holiday" being called in September is discussed.

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