More Pain Ahead

It looks as if my assumption/prediction that no less than 78 U.S. banks will fail this year is going to be easily met. So far 36 banks in less 5 months have gone south including the big juicy Bank United of Florida whose failure will cost the FDIC an estimated 4.9 billion.

As if this was not bad enough the FDIC has increased the number of “Problem” banks from 252 to 305 up 21% while the FDIC insurance fund from 17.3 to 13 Billion in the same period, prompting an emergency levy on the banks to raise more money.

While the FDIC states the industry as a whole showed a first quarter profit compared with a Q4 loss last year, 22% of banks are still taking losses and 59% are showing lower income than last year, which would seem to show there is room for many more failures both this year and next.

From the article I saw last week but can’t find the link(sorry) it would seem that banks are sitting in the eye of the storm. While things seem to be calmer with lower losses than last year, in reality we are simply in the period where most of the subprime mortgages have already reset but the vast majority of the ARMs have yet to hit their reset date. Claims by the banks or markets that things are better are simply lies to pump share prices ahead of share offerings needed to recapitalize for the next wave of losses. Don’t be fooled, not only is there a huge wave of ARM resets in the next two years but there are additional home loses from unemployment to consider, failing commercial mortgages and increasing credit card defaults as well.

Just today JP Morgan stated they expect 9% credit card defaults this year, while defaults at WaMu could range between 19-24% and with profits from gouging and fees curtailed by recent laws many banks will continue to hang on or bleed out slowly only to be hammer into submission Q4 or next year as the ARM products begin to be reset.

Me despite my fear of the U.S. dollar going all to shit I’ve actually bought my first U.S. stock in 2 years with a small purchase of FAZ, a 3 times leveraged financial bear ETF. The Bank index has recovered too much in my opinion and I expect financials to take another beating some time soon. I wish someone would explain why all he announced dilution of U.S. bank shares is not hurting the share price more, this makes no sense what so ever!

Meanwhile the debt, foreclosures, bankruptcies continue to pile up. If you want to send your eyes spinning and your mind reeling have at look at this all inclusive debt clock

and they want you to believe things are getting better, yeah right!

Imaginary plastic diseased green shoots

While all this talk of green shoots has many people exuberant that the big bad recession is over and we are already heading for a recovery, I just don’t see it. In fact for me all this good news and group hugging fills with me with even more fear and apprehension as I wait for then other shoe, or rather boot to drop. People who are not even healed from the last financial beating they took are jumping on the don’t worry, be happy bandwagon as if all the things they’ve seen over the last two years was just a bad dream. Idiots!

I had a conversation yesterday with someone who originally thought I was rather nuts and overly pessimistic; he no longer things I’m overly pessimistic. He said to me “this can’t be over this easily, what do you think will be the next crisis that ends this rally?”

In reality I don’t think it will take a new crisis but the simple progression of what’s already going on to bring about the next downward leg. Credit is still contracting despite the giant stimulus plans of most major governments, while banks have been raising money and taking government bailouts they have been losing a great deal of that money and shrinking limits on credit cards and credit lines. As long as credit is held back these so called green shoots cannot grow and prosper, instead I see them withering in a prolonged credit drought. Of course the same withering could take place without spending the money so why bother?

Of course there are very sound reasons for personal credit access to be shrinking so don’t expect to see this change unless governments step in and mandate loaning. An article in the NYtimes which may or may not be hidden behind a subscriber wall reported

According to estimates by Oliver Wyman, a management consulting firm, card losses at the nation’s biggest banks could reach $141.5 billion by 2010 if the regulators’ loss rate was applied to their entire credit card business. It could top $186 billion for the entire credit card industry.

This $186B is more than $100 billion larger than the worse case scenario used in the recent bank stress tests, so how valid were those stress tests? Additionally the unemployment rate used in the Government calculations has already been achieved so additional job losses will nullify the assumptions made in their tests. These stress tests were bogus and have understate the problem they same way they've understated this crisis from the get go.

Just today, Advanta a small business credit card company (one that I had never actually heard of) announced it was shutting down all 1 million accounts to preserve capital after defaults hit 20%. Advana will attempt to pay off its investors at somewhere between 65-75 cents on the dollar and close shop. This collapse leaves 800,000 businesses that were paying their bills without credit as of June 10. Many of these companies will have a very hard time finding new credit in this market. Green sprouts my ass!

The commercial real-estate market has certainly not bottomed and I don’t see how it can until retail bounces back. The big question is how can retail bounce back with 25 million unemployed and growing in the U.S. and personal credit being cut back? That’s right, it can’t!

China has just announced its exports are off 22% , the U.S. trade deficit is up and their budget deficit for 2009 is admitted to be heading for 1.8 Trillion by year end. I’m banking it will be well over $2 Trillion.

So see! We don’t need a new crisis we just have to wait for the ones we already have to finish unwinding.

From the how bad can it get file:
How about tearing down nearly complete homes because they are would cost too much to complete and sell?

This absolutely freaking insane, they were actually wrecking better stuff than I can hope to own! Man I wish I was close enough I could have scavenged a $40 granite counter top or new house windows for $20 in order to fix up my little hovel. Another story about the same development mentioned a lady who got enough lumber to build a shed in trade for a 6 pack of Corona.

Of course sometimes tearing down cities makes sense like in Flint where they are considering a consolidation of the city by tearing down nearly vacant communities and allowing people to move to other areas where there are enough people to support communities and retail. This is actually a brilliant proposal but even more so if they converted some of these empty blocs to urban farming creating some local jobs, keeping more of their food money local. Empty land near existing commercial buildings or residential blocs could become parks with huge community sized geothermal heating plants under them. Flint could become a model for sustainability.



Gold and Silver

I’m quite pleased to see a little strength appear in the metals market albeit later in the season than I would have expected; most years we start to tank about now and wallow until the summer holidays are over. This year perhaps the mantra will be not sell in May and go away, but something more like don’t be mental, covert to metal. Hey I don’t claim to be a poet! Silver is outperforming gold right now but after the beating we took last year it needs to outperform just to stay in the game.

I still can’t find 5, 10, 20, 50 or even oz bars locally but the silver shortage seems to be getting somewhat better with silver Maples and Eagles appearing in stores again even if their premiums still seem ludicrously high. Many coin stores/banks are charging a $5-6 premium for Maples when First Majestic Silver can be caught some days (before they adjust their prices) selling bars and rounds at premiums as low as .50 Personally I’d prefer a much bigger pile of silver rounds rather than pay a premium ranging around 35% for Government coins and then get dinged for provincial taxes on top. Majestic also has the hard to find 5oz, 10oz and kilo sizes with a commitment to add a 50oz bar soon.

Last months reduction in Comex silver of about 10 million oz was a nice surprise but rather than a new trend to clean the stockpiles out it seems this was probably just the silver ETF taking delivery of some of the silver its fund was short. Are they balanced now? Let’s hope not, I’d like to see them draw off another 10-20 million ounces before years end. Bwahahahahah

You can’t polish a turd!

I want to firmly state that I do not believe any of the Main Street Media hype that this rally in anything more than a suckers rally bought with about by massive propaganda and manufactured results. This is just one more attempt to fleece the sheeple before the hammer comes down and crushes the markets again. Nouriel Roubini shares my belief that this is a suckers rally; believe Jim Cramer if you want but Roubini has actually been right this decade, Cramer the Bear Stearns cheerleader, not so much.


Sure a few banks are claiming profit but at what cost to the public who’s picking up the bail out costs of TARP and other plans designed to benefit the guilty. You also have to wonder how many of these results are going to be restated later or are simply hiding the real numbers until years end.

It seems daily that the Government creates more schemes to let the biggest, baddest and guiltiest of the banks sell their toxic assets to the either the government directly or to other investors subsidised by the government. The end result? the Government moves that much closer to default or hyper inflation, the public moves that much closer to tax revolt or downright insurrection and the big banks get a “get out of jail free card” all while taking their mega wages and watching for opportunities to prey on small banks consolidating yet more market share and power.


So what is really happening?

1. Have defaults on houses stopped or even slowed? NO

2. Are defaults on credit cards increasing? Yes

3. Is the Employment situation improving? No

4. Won’t number 3 make 1 and 2 worse? Yes

5. Can stimulus create jobs faster than they are destroyed? No

6. Are Government revenues down at all levels? Yes

7. Can towns, cities or states balance their books any time soon? No

8. Are government debt sales fully subscribed? No

9. Are Governments buying their own debt and creating money? Yes

So what do the financial reporters see in this mess that makes them claim the worst is over? Oh yes, a memo from above telling them what’s this week truth should be, encouraging you to invest more money in those things they want to short next week. Don’t fall for it; follow the basic truths of money.

You cannot indefinitely spend more than you have.

No government can expect to meet obligations of 5-6X GDP with a plan that increases spending and borrowing while revenues fall, unless they resort to destroying their own currency. With GDP and revenues falling and spending increasing obligations could reach 7-8x GDP in no time at all. The point of no return is here or fast approaching and the failure of the U.S. in particular and the west in general is no longer just possible but probable

When governments destroy their own currency you must retreat to physical assets that will maintain their value over time. Since housing prices are still falling I will maintain as I have for 3 years that silver, gold, and productive land are the three best long term assets. If you must delve into equities metals, energy and food still represent items of limited supply trying to contend to an ever growing population.

Who's watching the Watchmen

I don’t often tackle a purely political topic on this blog but I think it’s imperative that you pay attention to this

A new bill called the cybersecurity Act of 2009 has been introduced in the U.S. congress that while claiming to improve security gives the U.S. government (that bastion of logic, fair play and non partisan behaviour) the "right to shut down the Internet in an emergency situation and disconnect critical infrastructure systems on national security". This bill will let the Gov step in, control and shut down private networks, further it gives them total access to private information.

Read the entire article here If you are a U.S. citizen complain about this before they steal your data or find a reason to turn off the ISPs of sites that don’t agree with Government propaganda and misinformation. There is no such thing as a free market anymore and if Bills like this get passed free speech and a right to privacy could also be eliminated.
Do you trust those bastards? I don't

Is there a run on silver at the COMEX?

Ok I hate when this happens, I get lazy for a few days and don’t bother checking the silver warehouse stocks and when I go back for a peak I have one of those WFT! moments as silver levels have dropped from 124 million just a few days ago to 115.6 million ounces. This is big!

Why are stocks dropping, and why so quickly?
Why would someone remove their silver from storage? A margin call and a need to liquidate perhaps, or getting their personal assets away from ground zero for fear of something messy like a default happening at the Comex? Or is it just late deliveries not keeping the stocks up

I don’t know at this point, it might just be a fluctuation in storage levels corrected later in the month by mass deliveries or it could be the start of a run on silver.

I’ve not noticed any bad physical shortages recently, Scotia seems to have maples in silver and gold and there have been less complaints recently about delays at NWT Mint, (at least I’ve heard less). Yet I’m told that for each of the last 5 trading days 2 million ounces of silver have been delivered putting us on track to hit the monthly delivery maximum of 15 million ounces. This looks big folks go make a physical purchase if you can manage it.

Just to note that on Wed the trend did not continue and there as a small change in category transaction and a modest delivery of around 200,000 ounces.