More from Jim in Whiskey & Gunpowder:

The current occupant of the White House has sedulously prepared for his successor the biggest shit sandwich the world has ever seen, and there is naturally some concern that Mr. Obama might choke on it. The dilemma is essentially this: The consumer economy we all knew and loved has died. There will be pressure from nearly every quarter to keep it hooked up to the costly life support machines even though it is dead. A different economy is waiting to be born, but it is nothing like the one that has died. The economy-to-come is one of rigor and austerity. It is not the kind of thing that a nation of overfed clowns is used to. Do we even have a prayer of getting to it, or are we going to squander our dwindling resources on life support for something that is already dead?

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The End of Cheap Oil

You wouldn’t think so. After all, oil prices just plummeted…

But the fundamentals are clear as day. Oil is destined to get a lot more expensive.

It’s going to change life in the U.S. and the world…forever…but you can protect yourself and prosper… Click here to take advantage of oil’s temporarily lower prices.

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A case in point: The car industry. The Big Three, all functionally bankrupt, are now lined up for bailouts from the treasury’s bottomless checking account. Personally, I believe the age of Happy Motoring is over. Many Americans have already bought their last car — they just don’t it yet. The current low-ish price of oil is a total fake-out, having to do much more with asset-dumping in the paper markets than the true resource supply-demand equation. Most of the world (the media for sure) has ignored preliminary leaks from the International Energy Agency’s (IEA) forthcoming report which forecasts global oil depletion to be 9.1 percent in 2009. This is a staggering figure, very likely to offset whatever slack we see in global demand from the worldwide economic crisis. In fact, the global oil markets are poised for the most severe dislocations ever seen, meaning it’s a toss-up what happens first in the USA: A major leg back up in oil prices, or shortages, hoarding, and rationing.

For my money (literally) there are only two main reasons that any portion of the car industry should be rescued at the present time: One, because we need somebody to manufacture engines for military vehicles, and two, because we need somebody to manufacture rolling stock for the revival in passenger railroad service that will have to be a centerpiece of the future economy if we want to remain a civilized nation.

Even the progressive factions of the public may be in for much more “change” than they bargained for. The global economy as we knew it is finished (despite British PM Gordon Brown’s fatuous suggestion that we are ready to formalize it). The world is about to lose its “flatness” (sorry Tom Friedman) and get much rounder. For one thing, the racket of American “consumers” gobbling up the output of Asian factories in exchange for paper promises is over. For the moment, the Chinese are struggling with epic factory closures with the sudden prospect of a restive lumpenproletariat. The situation there is bound to get worse. Before long, these broke-and-hungry masses may actually challenge the present government. In the meantime, there’s no telling what the (unelected) Chinese government might do either to keep itself in power, or genuinely defend its country’s perceived economic interests. One thing is self-evident: We are not returning to the old racket of toys-for-treasury-bills. One thing China might do in economic self-defense is shed whatever U.S. dollar-denominated paper is moldering in their vaults before it becomes valueless altogether.

As global trade relations wither, and they will, the U.S. will be thrust back on its own devices, at the same time that oil resources grow punishingly scarce. Mr. Obama will have to contend with the necessary radical reform of all the activities necessary for daily life here. Near the top of the list — invisible to most of the public so far — will be the question of how we produce the food we need. Industrial farming is done, just as suburbia is toast. Mr. Obama will have to apply plenty of ass-time to the first stages of negotiating this bottleneck.

I don’t even know what he can do policy-wise, though he can certainly make it plain to the public that we have to grow more of our food close to home and do it with fewer engines and fewer oil-based soil supplements. It is a problem of such surpassing difficulty that it was not even close to being in the election arena. The transition will probably occur by means of “emergence.” Self-evident necessity will prompt different behavior and different ways of doing things. Sooner or later, the new arrangements will self-organize — if we don’t squander resources defending an unsustainable status quo. One thing we can certainly predict is that growing our food will require more human labor and attention — meaning there will be plenty of work for people currently losing their jobs at The Footlocker and Arby’s, but it’s far from certain whether they will be happy in their new vocations.

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Get Gold Cheap… Before It Takes Off Again

Gold is giving you another chance to get in for the inevitable ride up at a bargain.

Here’s how to get it at a discount and multiply those gains.

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We’re going to have to resume making things in the USA again, too, probably at a more modest scale, and probably fewer things than we are used to. We have no idea yet how this is going to happen. Like agriculture, manufacturing culture may have to return, if at all, emergently, as individuals and communities see opportunity in advantages like proximity to water-power and water transport. My guess is that corporate enterprise as we have known it — at the continental and global scale — is done for. I would not bet on any of the Fortune 500 carrying on the manufacturing work of the future using the plants-and-equipment that are familiar to them. The manufacturing of the future may be more like cottage industry than Procter and Gamble (NYSE:PG). Yet, obviously, there will be tremendous efforts to prop up failing corporate enterprise and prevent natural bankruptcies from occurring.

Similarly, the retail part of the economy. Many observers think that Wal-Mart (NYSE:WMT) and its clones are immune to the larger forces swirling around us. Just because many cash-strapped people are hunting for bargains at Wal-Mart these days does not insure the survival of the Big Box model very far into the future. In fact, in every trend we can see — from the oil markets to events in China to the impoverishment of the U.S. working class to the coming crisis in truck transport — you can easily discern fatal weaknesses in this model. Local retail (and its support structures) is coming back. We just don’t know how, yet, and we don’t know how much capital and effort will be squandered trying to rescue Wal-Mart, when the time comes. But the imperative re-scaling of commerce in America also represents huge opportunities for young people to get into their own businesses.

Mr. Obama will preside over the potential restructuring of all our systems, some of them in ways he and his supporters have not imagined. We haven’t begun to see where fate will take higher education, but my guess is that it will no longer be a “consumer” activity, and that the hypertrophied land-grant diploma mills will have to shrink or die as state financial support withers away, and all sorts of unnecessary professions from “public relations” to “marketing” cease to require certified graduates. The luxurious central high schools, utterly addicted to their yellow school bus fleets, will be left as a problem for the states and municipalities. I don’t believe they can be rescued, and they are already failing in many other ways, not least, educating and properly socializing young humans.

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The Deficit Time Bomb

Well, Election Day has come and gone…and our deficits are still there…and growing…

Those deficits are going to wreak more havoc on the economy and individual savings than can be properly imagined.

We’re still offering solutions in our “Personal Bailout Bundle” and it’s still exclusive till Dec 21. Don’t miss out. Just click here to read more.

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In the months just ahead, Mr. Obama will certainly be swamped with straight-ahead cash problems in every area of American life, from the foundering pension funds to the bankrupt state treasuries to the beggaring corporations to the starkly dispossessed and hungry masses of the jobless and re-poed. I wasn’t kidding when I came up with the label, “the long emergency,” to describe the storm that we are heading into, along with Mr. Obama. Of course, the current president — and Mr. Obama has been shrewd to point out there is only one president in office at a time — has more than two months to wreak additional havoc in the financial system. Right now, he’s asking Mr. O, “…do you want fries with that sandwich I made for you?”

Source: Presto Change-O

This from The Rude Awakening:

The American people voted for change…and now they’re going to get it. But the change they get may not be the change they expect Obama to deliver. Something more sinister may be coming our way.

After an historic election and inauguration, president-elect Obama will enter office with a huge list of challenges. These challenges — from a contracting economy to large-scale corporate bankruptcies to soaring national indebtedness — will undoubtedly restrict his agenda.

Let’s hope Obama recognizes the need for incentives, profits, and capital investments in the economy. The economy cannot be taxed and regulated without potentially severe consequences. Former Fed Chairman Paul Volcker (and the last Fed chairman to provide adult supervision for the banking community) is an Obama adviser. So Obama should be apprised of the consequences of Carter-era deficit spending and money printing.

At the very least, Obama must act as a check on the potential for a Democrat-dominated Congress to turn a recession into a depression.

For example, some in Congress are floating a proposal to steal your 401(k), sell the proceeds, and invest in “government-guaranteed” retirement accounts. The only thing this Marxist idea would guarantee is a depression. Call or write your congressman if you feel that your 401(k) is in danger. We shouldn’t allow them to steal more from prudent savers than they already have.

Keep in mind that presidencies rarely resemble campaigns. President Bush campaigned on limited government and a humble foreign policy, and we got the opposite. To top it off, we had the illusion of real growth, with credit and housing bubbles that led to the greatest misallocation of resources in history.

The free market has been falsely accused for this financial crisis. But the free market didn’t get us here; a combination of government spending and crony capitalism did. Much ink is wasted on how we need to re-regulate Wall Street, but the fact is that the problem would never have grown so large without agency conflicts.

The agency conflict on Wall Street is the mentality of “heads I win, tails you lose.” CEOs, traders, and mortgage-backed security factories were paid more for taking more risk. So it shouldn’t surprise us that they overdosed on leverage to magnify returns, without considering risk.

Performance pay should be based on creating long-term shareholder value, not on meeting next quarter’s earnings estimate. A good place to start would be bonuses in the form of restricted stock that does not vest for 10 years. I doubt Lehman would have blown up if employees were paid modest salaries with the potential for sizeable ownership stakes in the future.

Much of our current mess resulted from totally complacent, incompetent boards of directors. Carl Icahn has good ideas for how this can be addressed without excessive regulation. Icahn explains how most corporate boards behave like government bureaucrats in this post . In my view, we need an economy in which everyone acts like owners, rather than CEO-pillagers.

A banking system built upon on a foundation of paper money also contributed to this crisis. The Treasury and Fed allowed institutions to grow “too big to fail.” Without taxpayer subsidies (i.e., Fannie and Freddie — two of the worst crony capitalist institutions in history) and the subsidy of Fed rate cuts, housing prices would have kept growing in step with household income. Instead, house prices went to the moon. Precious capital was thrown into a black hole when mortgage-underwriting discipline went out the window and homebuyers deluded themselves with bubble psychology.

When the current deflation fears are finally slain by widespread recognition that paper money is limitless, we’ll probably see a return to inflation and higher long-term interest rates.

For now, though, demand for bonds remains strong (rates remain low). So the government will likely keep issuing record amounts of new Treasuries and use the proceeds for bailout after bailout, instead of for productive uses. In other words, the government will toss billions of dollars at walking corpses like AIG – a company that produces nothing but spectacular losses and embarrassing headlines – instead of tossing billions of dollars at companies that produce essential items like barrels of oil or bushels of wheat. When governments toss easy credit toward non-productive industries, the supply of currency soars relative to the supply of goods and services. We call this phenomenon, “Inflation.”

The U.S. government’s massive borrowing requirements over the next several months will absorb a lot of the private capital that would otherwise fund various productive enterprises. So that means that farmers and miners and manufacturers will struggle to secure the credit and investment they need to finance their production. And if farmers can’t get credit, they can’t plant crops, which means that grain supplies are likely to fall…and prices to rise.

As Albert Einstein observed, “The significant problems we face cannot be solved by the same level of thinking that created them.” If the federal government proposes “solutions” to this crisis with the same type of thinking that got us here, we could be in for a very long period of economic pain. America’s status as a destination for foreign capital is at stake.

If the new government fails to act wisely and understand how we got here, the only “government guarantee” we’ll have is depression.

Source: Government-Guaranteed Depression

This from Fleet Street Invest:

As investors, we must take a step back from the spectacle of this historic event and ask a more pressing question. What does this mean for the world economy and the world’s stock markets?

First the economy…

Almost 70 per cent of Americans named the economy as the number one motivation behind their vote.

A vote for a man that has so much influence on us all.

After all, when America sneezes, the rest of the world catches a cold. And when the US subprime bubble burst, we caught pneumonia. We are caught in a storm of macro crises: the credit crunch, housing slumps, recessions and bear markets across the globe. The responses by the world’s leaders affect all of the above and all of us.

As leader of the free world at such a low ebb, Barack Obama’s next move is so important.

President Obama wasted no time, addressing the economy in his acceptance speech:

“Even as we celebrate tonight, we know the challenges that tomorrow will bring are the greatest of our lifetime — two wars, a planet in peril, the worst financial crisis in a century.

“There is new energy to harness and new jobs to be created; new schools to build and threats to meet and alliances to repair.”

The President must, in the coming weeks, outline a convincing plan of action to help the world’s biggest economy get back on its feet.

What’s next for the economy?

A big recession bailout.

The last intervention by the US was the $700 billion bank bailout. That was about the financial system, not the recession.

The last recession bailout was the $150 billion of rebate cheques handed out to ordinary Americans. This fiscal injection was a bad call, one that the new President-elect opposed, and it had an artificial effect on the economy.

The money could have been much better spent and the next round of monies will be better spent.

How much money?

$300 – $500 billion is being touted as the size of the next injection. That’s what is estimated as necessary for America to spend to offset the downturn of the private sector.

- $300 billion is equivalent to a 2% boost to GDP.
- $500 billion is equivalent to a 3.4% boost to GDP.

The expectation is that rather than give everyone $600 to fritter away, they’ll put the money into big infrastructure projects to spur “job creation.”

Digging holes in the ground, building bridges… the Keynesian approach.

The good news is that it should all now happen a lot faster.

We have a Democratic President and a Democratic Congress. That means that we are unlikely to face the same sentiment-crushing political hurdles that we encountered with the $700 billion bailout.

SocGen Cross Asset Research

The bad news is that it only delays the inevitable. The US, the world’s largest recession and an economy that affects the UK heavily, is still going into recession. Even a supersized deal would not prevent recession in the US and, if anything, will probably push debt levels over 50% of GDP.

It’s a bad move in the long term, but having led his campaign on the economy, Barack Obama has no choice but to spend, spend, spend.

Source: Even Obama Can’t Fix The Economy

This from The Daily Reckoning:

America’s voters spoke yesterday [Tuesday]. And they said “Give us Obama.” And it came to pass that the man called Obama was given unto them.

“America is a place where all things are possible,” said the man himself in his victory speech.

And yes, it is possible for a half-black man to be elected. But no, all things are not possible. It is not still not possible to get rich by spending money. Nor is it possible to save a man from too much debt by giving him more credit. And you still can’t trust a politician… or his money.

The election “changed everything,” shouts the headline on today’s International Herald Tribune. But the eternal verities still apply; Barack Obama is not going to change them.

And that means that a slump caused by too much debt cannot be made to disappear. You can disguise it. You can delay it. You can push the losses onto someone else. But you can’t escape it.

The Dow rose 305 points on election day. Investors are looking for any bit of flotsam or jetsam to they can find to buoy them up. Anticipating an Obama victory, they thought things might change. The price of gold shot up $39. Gold buyers have their suspicions too.

“Post election rallies” are more myth than reality. Stocks rose strongly following Reagan’s first election to the White House…and again when Bill Clinton was elected. But neither Bush, père nor fils, boosted stock prices.

Still, an Obama rally is probably on its way. Investors are ready for it. Practically every major investment guru is calling for it. “Stocks are cheap,” they say. “This may be the greatest investment opportunity of our lifetimes,” they add. Even the ‘contrarians’ are getting aboard. “Investors are frightened,” they point out. “Confidence is down,” they explain. “There’s blood in the street,” they clinch the argument. All over the world, people look to Washington with hope in their hearts…and humbug in their heads.

“A New World Dawns” proclaims Britain’s Daily Mirror.

People look at Obama and think they see a young Kennedy… they think they’ll be about to rerun the tape and do a little editing – a New Frontier without the Vietnam war… a Camelot without Lee Harvey Oswald.

But it’s not a New Frontier that America faces… it’s an old, worn out flimflam. It’s not a new dawn at all – a dark night is falling.

Our old friend Adrian Day, originally from London, England, now from Annapolis, Maryland, explains:

“The position of the US today is approaching that of Britain at the end of World War II. Britain had been the world’s dominant economic, political and military power, with the world’s reserve currency. But by 1946 it was militarily stretched beyond its capacity, and highly indebted. The US took over the #1 spot and the dollar became the world’s reserve currency, with the pound falling from five-to-one in 1946 down to parity four decades later.

“The problem with being the world’s reserve currency is that more money is created than is necessary for the domestic economy’s needs. For decades, the US has created far more dollars than it needs, but it didn’t matter so long as other countries were prepared to buy and hold those dollars. But those dollars still exist. As other countries lose confidence and diversity, those dollars eventually come back…”

Yes, dear reader…a man must always compensate for his strengths. The US had the world’s strongest and most reliable currency for half a century. It was our greatest strength and our biggest export. But this much IS changing: the dollar is no longer our biggest strength; it is becoming our biggest weakness.

Source: This Is Not A New Dawn

Gold’s attempt to rise over $740 came to an end at noon in London (7:00 a.m. Eastern time) which, oddly enough, is the precise time of the silver fix. From that point, both metals were escorted lower…and every attempt at a rally during regular Comex hours in New York met with fresh selling…and the usual sellers showed up again in after-hours trading on the Globex. The silver price mirrored the gold price…and their respective graphs could have been interchanged with each other yesterday without noticing much of a difference. Everyone likes to denigrate silver as an ‘industrial metal’. If that’s the case, why (for the most part) do the prices of silver and gold rise and fall together? Just asking.

Having said all that, volume yesterday in gold was pitiful…mostly vapour…so moving the price around in either direction didn’t require a lot of buying or selling. Several hundred contracts (or less) in Far East trading will generally do the trick.

Open interest last Friday showed a decline of 1,344 contracts in gold…down to 305,451. In silver, the o.i. got shaved by another 630 contracts to 92,779. Both the SLV (AMEX:SLV) and GLD (AMEX:GLD) showed no change yesterday. The HUI, although not closing at its highs, did manage another day in the plus column.

In gold news, I see that Barrick’s Peter Munk has an “exceptionally positive view on gold.” Here’s what he had to say to Dorothy Kosich over at mineweb.com…”I think the outlook for gold is a hell of a lot more positive than anything else you can think of,” Barrick Chairman and interim CEO Peter Munk told analysts Thursday during a conference call Thursday to discuss financial results. “We have never seen such volatility. We have never seen such dislocations. And in fact we have never seen such turmoil,” Munk said. “If ever there was an expectation for gold to shine, we could not have imagined a more suitable, global macro economic climate than what we have seen over the last 90 to 120 days,” he noted. Nevertheless, Munk admitted, “You have to be disappointed…just like we are…that, despite the external factors falling in line with all the guys who predicted Doomsday and gold going to $10,000 an ounce, Doomsday has almost arrived. Certainly we are on the precipice a number of times. And gold grows slowly.”

Well, Peter…let me help you out a little here. First of all, look at yourself in the nearest mirror and you’ll see a large part of the reason. Then, when you get to the office tomorrow, kindly review Barrick’s hedging activities over the last fifteen years or so…although I’m sure you don’t really have to check, do you? Then take the short walk over to your bullion bank, JPMorgan (NYSE:JPM)….Suite #1800 South Tower, Royal Bank Plaza, 200 Bay Street, Toronto…I’m sure you know where it is. Have a chat with them. Then, on your way out of the building, take an elevator ride up to Sprott Asset Management in Suite #2700, and tell Eric Sprott and John Embry what you’ve discovered. They’ll get back to me, and I’ll report on it here. Thanks a bunch! )

The news was so bad yesterday, it just doesn’t fizz on me anymore….US Auto Sales Tumble: “If you adjust for population growth, it’s the worst sales month in the post World War II era” for the industry, said Mike DiGiovanni, (NYSE:GM) GM’s chief sales analyst, on a conference call. “Clearly we’re in a dire situation.” (Note to Mike: It’s going to get worse…much worse. – Ed). Bloomberg…US manufacturing contracts at fastest pace since 1982. AP…Banks, which are losing billions because many card holders aren’t paying anything, seek OK to forgive up to 40% of strapped consumer’ debt.” FT (London)…”British and EU monetary policy makers are facing mounting pressure to slash interest rates to historic lows.” Dailymail.co.uk…”Goldman Sachs (NYSE:GS) ready to hand out $7 billion salary and bonus package…after its $6 billion bail-out.” You couldn’t make this stuff up!!!

Today’s first story directly relates to the previous paragraph and the cartoon above. It’s from Bloomberg…and you have to ask yourself this question….”Will the World swallow another half-trillion in U.S. Treasuries this quarter?” The headline reads “U.S. to Borrow Record to Finance Deficit” and the link is here.

The next story is from thenation.com and is entitled “Paulson’s Swindle Revealed”. Contained in it, is a “stinging” letter from Leo W. Gerard, president of the United Steelworkers…sent to U.S. Treasury Secretary, Henry Paulson. Gerard puts it to Paulson in no uncertain terms. The story isn’t very long, but is worth the read, and the link is here.

Today’s last offering is from Mr. Turk over at goldmoney.com. In his latest commentary entitled “Gold Is Still in an Uptrend” James updates a dozen charts to show that gold, silver, and commodities remain in a bull market despite the damage done to them in recent months. He predicts that the bear market rally in the U.S. dollar will end soon and that the increase in the price of the precious metals and commodities will resume. I couldn’t agree more…and the link is here.

In stark fact, the importance of Gold is that its circulation as MONEY makes “The Manipulation of Money and (therefore) Credit” impossible. The fundamental concern of those who do understand the current financial crisis is not how high or low the Gold “price” expressed in US Dollar or any other fiat currency may go. It is how long it will take for Gold to be re-established as money, and where that will take place first. Because SOUND money is necessary for savings, investment, credit and markets to function properly, the re-establishment of Gold as MONEY is crucial. – Bill Buckler, the-privateer.com

Today is “Election Day – USA!”…not that it matters. It’s irrelevant who wins. As a matter of fact, the loser should be grateful that they will not be holding onto the wheel when the late, great USA finally crashes and burns. As a Canadian born in 1948…it’s been sad to watch over all those years. When the end does finally arrive, most Americans will never know what hit ‘em.

God Bless America!

See you tomorrow.

Source:And Then There’s This…Tuesday, November 4th, 2008

This will be the end of another of the things that’s keeping the fundamentals in the back of the classroom. All we’ll have left is the credit squeeze… Unfortunately though I feel like we’re going to have to live with that one for some time to come! There are signs that things are loosening up, but it’s a far cry from what should be considered as “normal” in the lending arena! As long as the credit squeeze remains in place and on the minds of traders & investors everywhere, we’re stuck with the Trading Theme of 2008… Well, let’s see, it didn’t come into play until late July, so it should be called the Trading Theme of late 2008 and 2009.

That’s right folks… When I first saw this all unfolding in July and August, I told you in this letter that this dollar strength could very well last through the elections and through to year-end… That was before the rot on the vine was exposed in September and October… Now, I fear that this will be the Trading Theme for most of 2009 too… As the Credit squeeze continues to hang over the markets like the Sword of Damocles. And… Someone told me that in 6 out of the last 7 elections, regardless of whether the Democrats or Republicans won, the dollar rallied in the 6 months following the election. So…. That takes us into 2009, with the Trading Theme and credit market squeeze… It all adds up…

And as long as I’m going down this road of bad news… I have come to a conclusion that the deflation wolf has won… For months I wrote about how inflation was winning but the deflation wolf was always at the door… Well… After viewing the landscape of falling stock prices, falling commodity prices, and falling home prices, I have to think that inflation is no longer the king of the hill… Deflation is all around us folks… The only things you don’t see falling are Consumer prices and bond prices… But those bond prices are sure to fall given the glut of Treasury issuance coming down the pipeline… And Consumer prices? Well, if Consumer Spending keeps falling off the cliff, then you can expect Consumer Prices to fall too…

But inflation isn’t going away… And in my opinion, it will hide out on the other side of this deflationary period… And at first it will look much like 1976 all over… 1976 was a great year, right Christine? But it wasn’t a great year for stagflation…

So… What does this mean for the currencies and precious metals? I don’t think it spells a Happy Days while the deflation is going on… But… On the other side of the deflation, it could very well spell rallies in currencies and metals that will be huge! You see, the Trading Theme remains in place for most of 2009, as we work through the deflation… And then as the Trading Theme is removed slowly, inch by inch, step by step, there will be an unwinding of “Safe Haven” trades (read U.S. Treasuries) and the race to the bottom for the dollar will be on…

That’s how I see it from my seat here on the Trading Desk in St. Louis Mo. Home of the 10-time World Champion St. Louis Cardinals! It’s not a pretty picture, near term, that I’m painting this morning, but even an artist paints some ugly pictures now and then… I know of one, no never mind, no need to go into that.

OK… You’ve been very patient, waiting for the update in currencies… So, here we go!

The currencies played the Trading Theme to a “T” once again yesterday… When I left you yesterday morning, the euro was trading 1.2845… But then, more deep, dark, dangerous data printed for the U.S. and the dollar slapped down the single unit and every other currency that got in its path. The data came in the form of the latest reading of Manufacturing in the U.S. The ISM Index fell from 43.5 to 38.9, a low since September 1982! OMG! For the new kids to class, the ISM Index draws a line in the sand at a 50 level… Any number above 50 equals expansion… Any number below 50 equals contraction… We haven’t seen manufacturing contract at this level since September 1982… And the NBER still hasn’t put the “recession sign” on the economy’s door? Geez Louise, what do these guys need to prove to them that we’re so deep in recession right now?

So… With that bad data in the books… The dollar rallied and pushed the single unit to below 1.27 for most of the day… We’re seeing some recovery this morning, and the euro has popped back up above 1.27… This morning, they are reporting from Europe that borrowing costs (LIBOR) have fallen a bit, thus loosening the purse strings… Recall, this was another of the things knocking the stuffing out of the euro and other currencies, as Financial Institutions in Europe stopped borrowing in LIBOR because the rate had gotten totally out of control on the high side. Instead, the Financial Institutions used the currency swaps market, selling their reserve currency (read euro) to raise the capital needed as reserves against the toxic waste they had on their books…

It was my assumption when hearing about this change to currency swaps to generate cash, that this would come crumbling down once LIBOR got back to what would be considered a “fair rate” for borrowing, and the swaps would get unwound, meaning the currency sold in the swap would be re-purchased. It will be interesting to see if this plays out, even with the Trading Theme in place.

The Reserve Bank of Australia (RBA) cut interest rates last night by a larger margin than I expected… I had thought the RBA would cut 50 BPS… Instead, the RBA followed up last month’s 100 BPS cut, with a 75 BPS cut! WOW! They aren’t messing around, eh? Before you skip down to the Currency roundup to see what the A$ is doing after a 75-BPS rate cut, no need… The A$ has rallied since the rate cut news! Talk about perverse! Currencies these days are just strange… Well, I guess it’s not the “currency” but the Currency Trader! But, who am I to look a gift horse in the mouth? The A$ is rallied…

The Canadian dollar / loonie rallied last night too… Hmmm… I’m sitting here thinking about these rallies and started humming the great song by the Who… Won’t Get Fooled Again! For I know that the Trading Theme is in play… Yes, it’s the Same Old Song… Ahhh the Four Tops too!

So, one down, two more to go… That is Central Bank rate cuts this week… Still to come… The Bank of England (BOE) and the European Central Bank (ECB)… The performance of the A$ after the rate cut is promising for these two currencies; pound sterling and euros respectively… But remember the Who!

Recall last week, when I was talking about having the fear that the Bank of Japan’s (BOJ) Ministry of Finance would intervene to stem the yen’s rise… Well, unless they’re lying… And we have no reason to believe they are… The BOJ announced last night that there was no currency intervention last week… Hmmm… Just wondering why then, did yen fall from 92 to 99? I doubt the rate cut on Friday had anything to do with it… Must have been all the jawboning…

Well, that, and… The fact that as things in the credit markets loosen up a bit, those cocky Carry Traders get back on their feet… And we all know that Carry Trades to yen are like kryptonite to Superman!

The data cupboard is pretty bare today, with only September Factory Orders on the docket, which are expected to drop -.8%… And Fed Head Fisher, will be speaking in Texas on economic challenges in Texas… Fed Head Fisher is always good for a quote… But this is election day, and most likely he will be a forgotten man today.

I’ll finish up today and head to the Big Finish right after I tell you about this little ditty that the Wall Street Journal reported this morning… “The Treasury Department is considering using more of its $700 billion rescue fund to buy stakes in a broad range of financial companies, not just banks and insurers. In focus are companies that provide financing to the broad economy, including bond insurers and specialty finance firms such as General Electric’s GE Capital unit, CIT Group and others.”

Hmmm… Is it not bad enough that now these finance companies are going to get bail out money too? But… What’s with the “others”? I sure hope they mean “other” finance companies, and not just “others” that need a bail out… Like, say, Joe’s Bar and Grill! YIKES! The Treasury Dept is out of control folks, and there’s no reining them in now… We’ve given them too much rope! UGH!

Currencies today 11/4/08: A$ .6875, kiwi .60, C$ .8525, euro 1.2785, sterling 1.5865, Swiss .8565, ISK (no live quote), rand 9.8910, krone 6.6950, SEK 7.73, forint 202.90, zloty 2.77, koruna 18.915, yen 99.50, baht 34.90, sing 1.4740, HKD 7.75, INR 47.72, China 6.8360, pesos 12.70, BRL 2.1410, dollar index 85.77, Oil $63.85, Silver $10, and Gold… $737.40

Source: Election Day!

The Washington Post figures the country has about one million homes too many.  And close to 30,000 of them are in Las Vegas alone.  “The solution, local executives say, will come not from Washington policymakers but from the market itself,” reports the Post. “When there are too many houses, builders stop building them. That has already happened, and many Vegas home builders have gone out of business.”

But of course, that’s not going to stop politicians from intervening anyway and trying to prop up home prices — that is, keep them unaffordable.  There was Jack Kemp, that paragon of supply-side virtue, stumping in Florida this weekend for John McCain and his $300 billion mortgage bailout.  Barack Obama’s campaign has lambasted the idea, but by the same token I haven’t heard any of his vaunted Chicago-school advisers come out and say housing prices have to come down before some semblance of balance can be restored.

Meanwhile, on the auto front, the big news to my mind is not that Treasury has spurned the idea of forking over money to General Motors for the purpose of buying Chrysler (I guess that sort of arrangement is reserved for banks), but rather the introduction of what’s billed as “the lowest priced car in the country.”  It’s a new model of Nissan’s budget subcompact, the Versa.  MSRP $9990.

Now if you’re of a certain age, you probably remember the introduction of the Yugo in the United States — also billed as the lowest-priced new car available at the time — $3990 in 1986.  The price was plastered all over the advertising.  So what, I wondered, does $3990 then translate to today?  The Minneapolis Fed’s handy-dandy inflation calculator tells me it’s $7547, rather a far cry from the $9990 Versa (destination and handling not included).

I’m sure the wonks at the Bureau of Labor Statistics would tell me I’m not taking into account “quality improvements,” better safety features, standard equipment that was once optional, and all their other hedonic calculations that allow them to skew the CPI figures so grotesquely.  And I’ll concede Nissan builds a better car than the Yugoslavians of 20-odd years ago, teetering in a fragile decade between Tito’s death and the breakup of the country.  But that’s not the point.  The point is there’s no car, good or bad, available today for the present-day equivalent of $3990 in 1986.  End of story.

In any event, housing is getting its bailout, Detroit will get its bailout sooner or later, and at no time does anyone ask where the money for these bailouts will come from.

This can’t end well.  Prepare accordingly.

Source: Homes and cars

Quote of the Week 2: “Why reasonable people go stark raving mad when anything involving a Negro comes up, is something I don’t pretend to understand.” – Harper Lee, To Kill a Mockingbird

Nine thoughts on week 44.

1) It’s weird, you can go to Harvard, spend hundreds of hours in pursuit of clearer thinking, then run across something that ties it all together. It’s what you’ve been hearing for years. But it comes out of left field, in a different contextual setting and wham…

So what follows here is thanks to Bob Sutton, author of The No Asshole Rule and a brilliant blog called Work Counts.

I’ve been pretty obsessed about the difference between smart people and wise people for years… Perhaps the best description I’ve ever seen of how wise people act comes from the amazing folks at Palo Alto Institute for the Future…

[T]he Institute’s Bob Johansen… explained that – to deal with an uncertain future and still move forward – they advise people to have “strong opinions, which are weakly held…”

Bob explained that weak opinions are problematic because people aren’t inspired to develop the best arguments possible for them, or to put forth the energy required to test them…

It [is] just as important, however, to not be too attached to what you believe because, otherwise, it undermines your ability to “see” and “hear” evidence that clashes with your opinions. This is what psychologists sometimes call the problem of “confirmation bias.”

2) Here’s a shocker about US offshore oil.

It costs $63.71 a barrel just to explore and find oil in US coastal waters. It then costs $6.83 a barrel to bring it to the surface. These are known as “finding” and “lifting” costs.

Combine the costs, and you’ll discover that, no matter who is president, oil is going to have to be at about $71 a barrel for oil companies to break even on US offshore exploration.

That’s a high cost for such benevolence.

And, before you start howling that I am some liberal weenie (from MSNBC) or conservative bully (from FOX News)… in other words a liar… these are official US government statistics that are straight from the Energy Information Administration’s annual January update.

If you’ll remember, the EIA is controlled by the current administration.  It’s had nearly eight years to make these numbers say anything it wants.

So, $70.54 a barrel is the breakeven number for offshore oil… that means to book a 12.5% profit offshore, oil companies need oil at $79.35 a barrel… a 20% offshore profit demands oil at $84.65… that’s with no hurricanes, greedy speculation or OPEC cuts.

The story is worse in the Canadian oil sands… low grade oil that will likely turn out to be one of the world’s all-time great scams… but I’ll save that for a time when I’ve broken my no-new-cynicism pledge.

3) Can you tell me what to make of this?

Gov. Sarah Palin said it in the Sept. 22, New Yorker, about why Alaska taxes oil companies and sends some of that money directly to its citizens (the underline is mine). “And Alaska – we’re set up, unlike other states in the union, where it’s collectively Alaskans own the resources. So we share in the wealth when the development of these resources occurs.”

4) Do you remember late this summer when I irritably predicted how cheap oil would become by Election Day. Back then I said $70.

It looks like I could be wrong, now that oil is under $65.

What I’d like to see now is someone in Washington, or on Wall Street, admit that the run up from $80 to $147 was the work of hedge fund oil-futures speculators.

Because, when you think about today, and you think about three months ago, what’s really changed?

Pretty much just the stock market… and that generated a lack of confidence that had people pulling money out of hedge funds, assuming those funds had any money left.

They certainly don’t have the cash to bet on oil.

It makes you wonder how many hedge funds are blaming the credit crisis for their failures, when in reality, they were wiped out by their own oil futures speculation and the ensuing margin calls.

5) Also, remember a month ago when I said I’d love to hear someone simply admit that they were wrong about the decisions and deregulation that led to the US’s financial crisis?

Well, I was happy to see that Alan Greenspan did apologize. Of course, in the wake, many people, some of them quite smarmily superior, skewed him.

I don’t get it (though I am sure some of you will instruct me). People want someone to blame… anyone to offer a hint of accountability.

Someone says, “blame me.” But, it’s not enough.

Maybe people were mad because Greenspan said there was nothing wrong with the mechanics of his overall plan… he just didn’t factor in human nature.

I actually think that he was shocked, even rocked, by how similar the actions of his peers – all those well-bred Ivy Leaguers on Wall Street – were to what happens when regular old Joes and Janes see money bags drop out of an armored car along an interstate.

Some people will do the right thing… but many others will see free money, stuff their pockets and run like hell.

What would you do?

6) It’s amazing how the world has changed. Eight years ago, politics was about morality… warring values.

Four years ago it was about religion… two Gods at war: their earthly servants doing their bidding.

Today it’s about money… your money. It’s the poverty of nations – street-level warfare against an invisible hand that threatens to scramble urban, suburban and exurban realities.

I’d trade the current crisis, in an instant, for an election where we argued about non-pocketbook stuff like reproductive rights or someone’s right to whack Bambi with a Howitzer.

7) This not a campaign issue, but it is a perspective issue.

Isn’t it perfectly clear that some people have totally lost perspective when they think a VP candidate – one whose base salary is more than three times as much as Joe the Plumber’s – needs a wardrobe that costs nearly four times what Joe makes a year… a makeup artist that makes more in a month than Joe makes annually… and a hair stylist that makes as much in eight weeks as Joe makes in a year?

This shouldn’t change anyone’s vote… but, I bet it makes some folks think twice about ever again sending those people any more… ideological dollars paying $11,500 a week for makeup artist Amy Stozzi because she earned an Emmy nomination for her work on “So You Think You Can Dance?” Come on!

They’re going to donate the wardrobe to charity… what are they doing about a $600,000-a-year makeup artist… have Stozzi give makeup lessons to people in unemployment lines?

Five predictions…

• Should Sen. John McCain lose on Tuesday, well-mannered people will be shocked by how quickly other less well-bred people throw Sen. McCain, not under the bus, but under the bulldozer. Suddenly the poor, tired old fud’s gambling problem will come to light as part of an ethics investigation. He’ll be pilloried for selling out his beliefs.

• Should McCain lose you can be assured that the “PALIN 2012 – YOU BETCHA!” will be running off the presses by Friday.

• Should McCain win, you’ll spend a week reading stories about how Diebold voting machines were hacked and how, like President Kennedy, Sen. McCain’s mafia connections won the day for him.

• Larry Flint will offer Gov. Palin $10 million to pose in Hustler. The majority of her supporters will be crestfallen when she demurs.

• Plumbing won’t seem like such a hot profession when Joe the Plumber finds out what congressmen make – perks and pension included. WURZELBACHER ‘12 signs are already printed.

Thankfully, much will be revealed on Tuesday.

9) This is as far as I ever get when I try to write a self-help book…

Whatever it is you really want, count movement toward that, and only that, as your measure of success.

My guess is Michael Masterson and MaryEllen Tribby’s new tome – a number one bestseller – does a little better than that at explaining how to make it big in this crazy new-world order.

Have a great weekend.

Make money, not war.

Andy

Source: Strong Opinions,  Weakly Held

This from Today’s Financial News:

Revenue for Penn National Gaming Inc. (NASDAQ:PENN) in Q3 slowed, as it did at most casino operations. But due to the termination of an attempted acquisition deal, the company received a settlement of a cool $225 million. In addition, the (intended) acquisition group purchased 12,500 shares of Series B Redeemable Preferred Stock due 2015 for $1.25 billion.

As a result, Penn reported a net income of $147.5 million. That’s $100.9 million more than the same quarter last year!

Currently, Penn operates 19 facilities in 15 jurisdictions. With this influx of cash, the company has declared itself ready to expand.

Waiting for November 4

Thanks to huge budget deficits, the State of Maryland is reconsidering its former stance on slot machines. This election day, my fellow Marylanders are likely to approve a referendum that would open the state for slots.

Penn has indicated interest in contracts to run slots facilities in Maryland. If the referendum to permit the five proposed sites is passed, the company will be ready to move on the bidding process.

Priced around $20, Penn had seen a 52-week high of $62.25. And with a P/E of 6.5, this company holds promise.

I recommend you buys shares of Penn National Gaming Inc. (NASDAQ:PENN) today [Friday] at or under $21. Depending on the outcome of the referendum, you could see short-term gains of 20% within the first weeks of November.

Source: Profit referendum: How this election day could boost Penn National (PENN)

Boo!

We begin today with a Halloween hypothetical: If you’re a mainstream economist or financial journalist, what’s the scariest possible scenario that could arise from an economic crisis?

Answer: That the ephemeral specter of the American consumer, whose purchases now make up over 70% of economic activity in I.O.U.S.A., would stop spending.

Uh-ho. In the third quarter of 2008, consumers reigned in their spending by the greatest margin in 17 years.

Looking closer at yesterday’s GDP data , we see that the Commerce Dept.’s measure of consumer spending fell by an annual rate of negative 3.1% — the first significant consumer spending pullback since 1991, and the biggest since 1980.

Consumer spending fell 0.3% in September, attests the Personal Income and Spending data released today — itself the first decline in two years and the biggest monthly fall since 2004.

Unfortunately, it doesn’t look like the consumer put that extra money in savings. According to AARP, one in five “workers” over 45 stopped contributing to retirement savings plans sometime over the last year.

As if to prove the point that these funds are not really “savings” at all, the value of American 401(k)s has fallen more than $2 trillion over the last 16 months. And since mid-2007, the average retirement savings account is down over 20%, says the Congressional Budget Office (CBO). Unfortunately, those numbers don’t reflect the past several weeks of mayhem on Wall Street, either.

To make your Halloween even more cheery, consider this: Nearly one in five American homeowners are “underwater” in their mortgages, meaning they owe more on their homes than the particle board boxes can bring on the market.

When we began the I.O.U.S.A. project in 2005, it was at the height of the housing boom. Many Americans were taking the equity of their homes and using it to keep up their spending. And why not? House prices were believed, at the time, to go up forever. Today, at least 7.5 million homeowners, according to First American CoreLogic, are wishing they’d not been caught up in the euphoria.

Another 2.1 million homeowners are “on the brink,” says the group, by having less than 5% real home equity. Here are the top 10 scuba users by percentage:

The housing crisis would normally beget a great opportunity for an enterprising homebuyer, if mortgage rates weren’t still soaring. Despite all the Fed’s rate cuts, all the government bailouts and all the promises from the campaign trail, the average rate on a 30-year fixed mortgage is 6.46%. That’s a full 20 points higher than this time last year.

In fact, all the evidence indicates that the Fed’s recent rate cuts have punished traditional mortgage borrowers. A 30-year fixed went for a still high 6.06% last week, 40 points lower than it is today.

Instead of following the Fed’s target rate, mortgage originators are paying closer attention to the rates on long-term U.S. government debt… which are being pushed up by the relentless onslaught of IOUs being pumped into the market.

The Bank of Japan, as we’ve been forecasting all week, decided to cut its lending rate today for the first time in seven years. Money there is now essentially free, as the BoJ has cut rates down to 0.3%. If 0.5% hasn’t kept the Japanese out of x recessions in the last six years… is the extra 0.2% really going to help?

Waving a white flag, economists from the BoJ altered their growth forecast for Japan in the current year… to zero.

“What’s going to be the next model for world trade?” asks Byron King. The global economy is on the cusp of recession. Finance-based “capitalism” — what the late Dr. Richebacher liked to call “late degenerate capitalism” — has melted down. So… what will replace it?

“Maybe places where significant natural resource owners won’t accept the idea of U.S.-style finance capitalism anymore,” ponders Mr. King. “For example, there are the entities like national oil companies (NOCs), which now control nearly 85% of the world’s resources of crude oil. NOCs grudgingly use dollars as a medium of exchange for their tanker loads of crude oil. And where they can get away with it, they don’t use dollars. Iran, for example. Many NOCs derive from cultures in which barter is an ingrained custom. So watch for that.

“Another key resource power in the world, Russia, is using its NOCs to develop a different sort of economic logic, based on the energy trade. The political powers of Russia have figured out that they can use state power through the NOCs to control their vast energy and natural resources. And control over energy and natural resources, in turn, leverages Russian state power. It’s post-Marxist economic thinking, but what else would you expect in the core nation of the former Soviet Union? We should anticipate that the Russians will see how far they can take it.

“But if U.S.-style finance capitalism collapses (or, worse, if it has already collapsed and we have not yet figured it out), then it will drag down most of the economies of other developed nations and emerging markets. The only other major player left on the stage will be Russia and its post-Marxist brand of ‘state power capitalism.’

“I don’t envy the next U.S. president,” says Byron. At least his readers would be well prepared for a new energy-based economy… would you? If you don’t already have it, you can gain access to the Outstanding Investments portfolio, here.

Barclays (NYSE:BCS) announced today it’s received an $11.8 billion bailout from — you guessed it — Middle Eastern investors . Three oil rich investors teamed up to buy almost a third of the legendary bank: the state-controlled Qatar Investment Authority, a separate fund controlled by the Qatar royal family and Sheikh Mansour bin Zayed al Nahyan of the Abu Dhabi royal family.

Barclay’s shares jumped 10% on the news.

The U.S. stock market enjoyed some modest gains yesterday. A typical, for October at least, last-minute surge pushed the Dow up 2.1%. The S&P and Nasdaq both gained 2.5%.

The Dow is up 9.6% for the week. Should it hold, that’s the best weekly gain since 1982. In fact, the Dow hasn’t gained that much in an entire year since 2000.

“Stocks always bounce after a severe sell-off,” remarks Eric Fry. “But post-crash bounces don’t sprout roots and blossom into new bull markets. On the contrary, these illusions of recovery deceive investors into believing that a new bull market is under way.

“Let’s imagine that you bought the Dow Jones Industrial Average in 1929,” Eric entreats, “AFTER it had already fallen 42% from its high. (Why 42%? Because that’s the amount that the modern-day Dow just fell.) How do you think you would have fared? Do you think you would have made money very quickly or very slowly?

“The answer is ‘both’ — you would have enjoyed a quick bounce. But if you did not sell into that bounce, you would have lost 80% of your capital during the next two years. If you had held on, however, you would have recouped your original investment… 22 years later!”

History doesn’t repeat, necessarily, but it very often rhymes. Caveat emptor.

After its biggest fall in 13 years, the dollar index has staged an impressive bounce. The dollar index is up 3 full points from Thursday’s low, to about 86.

Most currencies are back to levels from earlier this week, but today, we take special pity on the Canadian dollar… the loonie is on track for a 13% crash in October. Barring a sudden comeback tonight, October will mark the worst month for the loonie since at least 1950. Today, you can score a Canadian dollar for only 81 cents

Why such dismal times for our neighbors to the north? For starters, the U.S. dollar is on a tear. But commodities, the backbone of the Canadian economy, are also on the verge of one their worst months in a long time.

By the end of the day, commodities will have suffered their worst month since 1972.

Oil and gold are finishing October true to their recent form. As the dollar rises, gold is getting killed. It’s down $40 from yesterday’s high, to $730 an ounce. Oil is just a bit better, down $2, to $64 a barrel

Hmnn… here’s a fun development commensurate with an economic downturn: Gun sales are up.

So far this year, the FBI has run 8.4 million background checks — up 9% form the same period last year. Annual checks have climbed an average 5% since the FBI’s National Instant Criminal Background Check System began in 1998.

Praise the lord and pass the ammunition!

Ammunition sales are up to 8-10%. Yeeha!

“Are you serious?” asks an incredulous reader. “You really do not vote? Is it because you can’t or you won’t?

“As imperfect as our republic is, it’s very easy to criticize it. And I think we do have the right to criticize it. But when a person tells me that he doesn’t even bother to vote, I can’t help but feel that the apathy that represents is part of the problem.

“I think a higher percentage of voting would result in less marginal leadership. The last eight years proves the point.”

“What do you mean, ‘We don’t vote?’” asks another. “Why not?

“If you did, maybe you guys would stop making your acerbic remarks about how we all deserve what we get. We get what we don’t want with no choice in how this country is governed. Pick your poison!”

The 5: Don’t get us started.

One of the deficits we look at in the film is what David Walker calls “the leadership deficit” — the inability of elected officials to discuss, present, solve or even acknowledge the economic challenges of the country. Most of the voting public thinks the economy and politics are too complicated, so they leave the decisions up to some “expert” in Washington or on Wall Street. They effectively abdicate their responsibility to know the score… and hold public officials accountable. Campaign strategists know this… so they refuse to raise difficult issues during the campaign season.

You can’t get voted in by saying, “Hey, we’re going to have to tighten up the belt a bit. The government simply can’t afford to provide you with every creature comfort and pork barrel project you want to get your greasy mitts on… so we’re not going to promise it.” You can, however, get elected by saying, “We’re going to give every American health care… and jobs… and education… and security… and cheap energy… and drugs…and transportation… and protection from foreign competition… heck, we’ll even lower your taxes, too.”

There used to be this quaint idea in the country that our public officials were “citizen representatives.” You would serve your country or community for a few years out of duty or honor, but you didn’t quit your day job. Not so anymore. These guys consider elected positions as their jobs… and as soon as they get into office, they start running to keep their jobs in the next election.

“Why not vote?” you ask. “Why encourage them?” might be a better question.

Happy Halloween,

Addison Wiggin
The 5 Min. Forecast

P.S. The I.O.U.S.A. DVD and companion book is available with your Capital & Crisis subscription until Election Day. Get ’em here.

Source: Spooky Consumer Data, Underwater Mortgages, Time to Buy the Bounce? Don’t Vote, and More!