Tuesday, October 13, 2009

We still have a rough ride until year end.

We have about 12 weeks left to finish off 2009 and I expect this period will be a messy one with a series of events likely to hit the preverbal fan..

First of all it looks like Capmark Financial a commercial real estate made up of left overs from the crap heap once called GMAC is on the verge of bankruptcy. Now this is not huge in scale when compared to GM’s problems but it is certainly a sign of that the commercial property bubble is following the residential market down.

Even more damaging could be the expected bankruptcy filing for CIT

The impact to the U.S. economy could be huge if 1 million small businesses suddenly find themselves without a credit. Yes, some will find new banks, many however will flounder as they scramble to find new sources of credit either because banks are not lending or simply because they are so close to the edge that the very instant they loose their credit lines they will be forced to close shop. I don’t know how many people the average small business employs but if we say 10 employees each with a 10% failure rate after companies that lose their credit, we easily can add 1 million people to the unemployment rolls.

CIT has been trying to make a debt for equity swap deal with creditors but it’s starting to look more like a bankruptcy filing is imminent; today’s announcement the CEO plans to resign certainly seems like the old rat and sinking ship scenario.

The biggest issue could be Latvia’s failed attempts to meet the IMF’s austerity demands required for the more bailout money. Latvia’s foreign denominated debt makes it very hard for the Government to act in a way acceptable to their citizens, yet fulfill their IMF obligations. If they can’t sell more austerity to the populous the only other answer is to devaluate the currency, loosing EU and IMF financial aid and making default on foreign debt nearly inevitable. Recent government statements
claim they will meet the prerequisites for the international aid but how do they plan to sell more austerity when GDP is down nearly 20% and unemployment is rocketing?

A failure to make the required cuts and a forced evalution could also force Estonia and Lithuania to break their own currency pegs and endanger their planned adoption of the Euro. While the consensus says the EU and the world economy is now strong enough to weather a Baltic crisis it, other east bloc countries will face contagion and Swedish banks in particular will take some heavy hits that could dampen all the bold talk of recovery. Of course if the concensus is wrong it might plunge us back into a world wide crisis.

On top of these big stories small banks will continue to implode in the U.S. with the likelihood of reaching the 100 failed bank mark this Friday all while the FDIC struggles to deal with the losses.

So when someone comes on the TV and says commodities are over bought, gold has no real value and silver is simply a industrial metal remember that fiat money, equities, bonds, your business and even your job may only be fleeting things, but silver and gold have had real and substantial value throughout history.

I have no doubt that my $1100 and $20 target highs for the year will be attained very soon and maybe even greatly surpassed. I see that my blog hits are up, ad revenue has recovered and I’m getting more direct mail from bullion novices every week all indicating to me that the bull market in metals is certainly far from over.