US Adds 300,000 New Millionaires

The rising stock market has pushed America's millionaire population close to its all-time highs before the recession.

According to data from Spectrem Group, the Chicago-based wealth research firm, there are now 8.99 million U.S. households whose net worth totals $1 million or more (not including primary residence). That's up from 8.6 million in 2011 and just short of the all-time record set in 2006, when the United States had 9.2 million millionaire households.

The stock market's rise has been the biggest driver of millionaire creation. With this year's gains, Spectrem said, the United States may have already exceeded its all-time record.

Most of the benefits from rising stocks have gone to the wealthy, since the top 10 percent of Americans own more than 80 percent of all stocks, according to research from Edward Wolff of New York University. But the recent stock surge has also created a new gap within the wealthy, or at least between millionaires and the so-called affluent. Read more >>

Stock exodus continues as investors yank $5.1 billion out

The stock market keeps going up, and investors keep cashing out. Mutual fund investors pulled $5.1 billion out of U.S. stock mutual funds for the week ended Sept. 26. The prior week, investors removed $4.8 billion from these funds, according to data from the Investment Company Institute.

The exodus from the stock market has picked up speed since the Federal Reserve announced another round of quantitative easing, or QE3. By buying more bonds, the Federal Reserve is hoping to push investors into riskier investments like stocks. This has succeeded on one front by boosting stock prices, but investors continue to flee the stock market.

All three major stock indexes have seen double-digit growth this year, and the S&P 500 (SPX) has gained 16%. The total 2012 outflow from U.S. mutual funds is roughly $93 billion. By comparison, those funds lost around $67 billion during the first nine months of 2010, and $83 billion during the first nine months of 2011. Read more >>

Consumer Confidence Crashes to 9 Month Low

With inflation expectations soaring and jobs plentiful relative to hard-to-get falling slightly, Consumer Confidence plunged its most in 10 months to a level not seen since November of last year. It seems that despite all the hopes and prayers priced into US equity market valuations, the US Consumer remains unimpressed, unhappy, and unemployed. Of course, the 'good is bad, bad is better' market has interpreted this as a clear QE-on flag (for this millisecond anyway). Read more >>

Investors pull another $2.7 billion out of stocks

The flight out of U.S. stocks continued last week, with investors yanking $2.7 billion of domestic stock mutual funds.

The retreat from the U.S. stock market continued last week, as investors refrained from making any big bets amid the market's summer doldrums.

Another $2.7 billion was pulled from U.S. stock market mutual funds during the week ended Aug. 15, according to the Investment Company Institute, bringing the 2012 outflow total to more than $69 billion.  By comparison, those funds lost in the neighborhood of $40 billion during the first seven months of 2010 and 2011.

While stock mutual funds have been bleeding money, investors have shown a voracious appetite for bonds, which are considered safe haven investments. In fact, bond funds raked in $7.2 billion last week, the most since early April, according to ICI data. Read more >>

95 Percent Of The Jobs Lost During The Recession Were Middle Class Jobs

Who is the biggest loser in the ongoing decline of the U.S. economy?  Is it the wealthy?  No, the stock market has been soaring lately and their incomes are actually going up.  Is it the poor?  Well, the poor are definitely hurting very badly, but when you don't have much to begin with you don't have much to lose. 

Unfortunately, it is the middle class that has lost the most during this economic downturn.  According to Bloomberg, 95 percent of the jobs lost during the recession were middle class jobs.  That is an absolutely astounding figure.  Yes, some executives lost their jobs during the last recession as did some minimum-wage workers.  But overwhelmingly the jobs that were lost were middle income jobs. 

Sadly, the limited number of jobs that have been added since the end of the last recession have mostly been low income jobs.  A higher percentage of Americans are working low income jobs than ever before, and the cost of living continues to rise at a very brisk pace. This is causing an erosion of the middle class unlike anything we have ever seen in American history. More...

Many have little to no savings as retirement looms

After a vicious decade of no growth for the stock market, including two 401(k)-eating bear markets and persistently sky-high unemployment, more Americans are finding themselves in their 50s and 60s with practically no money saved for retirement.

"We were in our 30s, blinked, and now we're our parents' age," says Alan Tipps, a corporate jet pilot who typically earns more than $100,000 a year when he's working. But Tipps, 52, has been laid off three times during the past four years, and says that has forced him to burn through what was in his 401(k) just to "keep the lights on" in his home in Portales, N.M.

Investors of all ages have suffered. But for those close to retirement, it's been especially tough, because they're faced with taking distributions from investment portfolios that in some cases are a fraction of their peak value. Forced early retirements and the near extinction of pensions are making things worse, creating a generation of aging investors in which some have little or no plans for how they're going to pay for retirement. More...

What Sept-Oct 2008 taught us: the bottom 90% really does not matter

Image by publik16 via FlickrComment of the day by Keri at Bankste...

Like today, it was true 100 years ago that most people had very little skin in the stock market game; in fact, the average man's involvement in the stock market was even less at that time. However, the people who did---as is still true today---not only had/have skin in the game, but also happened/happen to be the most politically powerful. Thus, what hurts the politically powerful will be "fixed" by the politically powerful. Enter the Federal Reserve Act.

What Sept-Oct 2008 taught us if nothing else is that the bottom 90% really does not matter; very cynical, I know, but that's what I learned, anyway. Remember the first TARP vote? Paulson's three-page blank check authorization bill, aka TARP, was overwhelmingly unpopular with 90%+ of the voting public. And when it was voted down in the House at the end of September, the DJIA crashed 777 points the same day. Many of our elected representatives are themselves members of that top 10%, thus all the sudden their votes were hurting their own pocket books. Within a few days, TARP came up again for a vote, and those same reps had two choices: 1.) help themselves on the backs of the taxpayer (aka, the other 90%), or 2.) release the taxpayer from the cluthes of the zombie banks. They chose the former---and then, many of them were re-elected by their own "90%" back home two years later. Go figure.

"We" are getting what "we" deserve to a great decree---but only if "we" means "the collective majority." The collective majority still falls for the manufactured left-right paradigm, and fails to see that the different puppets are manipulated by the same hands, year after year. The average person on the street, and probably the average rep or senator, has no clue that the US is backstopping the EU banks as we speak, and no clue that the US is bailing out Greece (and Ireland, and Italy, and...) through the US-run IMF. The biggest danger of a stock market crash, as inevitable as it is, is not the danger that pension plans will lose money, or even that the top 10% will get hurt. The real danger is that it will repeat the "Rich Man's Panic" of 1907 that prompted the FRS, and this time on a global scale. We call the VIX the "fear index," but the SP500 or DJIA are truly the fear scales of the elite and the wanna-be elite politicos, and if/when we get another market crash, the fear level will very likely prompt the test-tubing of creature worse even than the one from Jekyll Island.

Ten Stock-Market Myths That Just Won't Die

Image by Getty Images via @daylife

Brett Arends
The Dow Jones Industrial Average last week ended up pretty much where it had been a little more than a week earlier. A rousing 200-point rally on Wednesday mostly made up for the distressing 200-point selloff of the previous Friday.

The Dow plummeted nearly 800 points a few weeks ago — and then just as dramatically rocketed back up again. The widely watched market indicator is down 7% from where it stood in April and up 59% from where it was at its 2009 nadir.

These kinds of stomach-churning swings are testing investors' nerves once again. You may already feel shattered from the events of 2008-2009. Since the Greek debt crisis in the spring, turmoil has been back in the markets.

At times like this, your broker or financial adviser may offer words of wisdom or advice. There are standard calming phrases you will hear over and over again. But how true are they? Here are 10 that need extra scrutiny.

1 "This is a good time to invest in the stock market."

Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir — step this way!"

2 "Stocks on average make you about 10% a year."

Stop right there. This is based on some past history — stretching back to the 1800s — and it's full of holes.

About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.

3 "Our economists are forecasting..."

Hold it. Ask your broker if the firm's economist predicted the most recent recession — and if so, when.

The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict "a slowdown, but not a recession." That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.

4 "Investing in the stock market lets you participate in the growth of the economy."

Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren't as rare as you've been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.

5 "If you want to earn higher returns, you have to take more risk."

This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, "risky" Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for "risk," your broker probably thinks that's "volatility," which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.

6 "The market's really cheap right now. The P/E is only about 13."

The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That's because earnings are so volatile — they're elevated in a boom, and depressed in a bust.

Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or "Tobin's q," which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap.

7 "You can't time the market."

This hoary old chestnut keeps the clients fully invested. Certainly it's a fool's errand to try to catch the market's twists and turns. But that doesn't mean you have to suspend judgment about overall valuations.

If you invest in shares when they're cheap compared to cash flows and assets — typically this happens when everyone else is gloomy — you will usually do very well.

If you invest when shares are very expensive — such as when everyone else is absurdly bullish — you will probably do badly.

8 "We recommend a diversified portfolio of mutual funds."

If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice.

But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.

9 "This is a stock picker's market."

What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns — for good or ill — has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?

10 "Stocks outperform over the long term."

Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."

Write to Brett Arends at brett.arends@wsj.com

Global Economic Collapse Of “Staggering Proportions” Imminent

Peter Kropotkin - Image via Wikipedia

An excerpt from an interesting bit written by Sorcha Faal who I rarely take seriously. But this piece has an odd and chilling ring of truth.

Grim economic warnings are being sounded from the United States today after one of their top market forecasters and social theorists named Robert Prechter advised everyone to abandon the stock markets over what he says will be one of the largest financial crashes (of “staggering proportions”) to occur in over 300 years rivaling the Great Depression, the Panic of 1873, and the collapse of the South Sea Bubble in 1720, a crash so catastrophic it deterred people “from buying stocks for 100 years.”

Important to note about Prechter’s dire warning is its being based upon what is called the Elliott Wave Principle developed by Ralph Nelson Elliott (1871-1948) that is a form of technical analysis that investors use to forecast trends in the financial markets by identifying extremes in investor psychology, highs and lows in prices, and other collective activities.

Elliott, in turn, had based his new principle on the findings of the great Russian evolutionary theorist Peter Kropotkin (1842-1921) who in his book titled “Mutual Aid: A Factor of Evolution” countered Charles Darwin’s (1809-1882) “survival of the fittest” evolutionary theory by concluding that cooperation and mutual aid are as important in the evolution of the species as competition and mutual strife, if not more so.

Elliott was also greatly influenced by Kropotkin’s greatest work “The Conquest of Bread” that lays bare the defects of the economic systems known as Feudalism and Capitalism by showing how they thrive on and maintain poverty and scarcity, in spite of being in a time of abundance thanks to technology, while promoting privilege.

Simply put, where Darwin’s theories advocated a World where men are pitted against their fellow men for survival, Kropotkin stated that only through mutual cooperation with each other could our human race survive and prosper with no man every having to live in poverty or despair.

Kropotkin, though being praised by many in his lifetime, including the great Irish poet and author Oscar Wilde (1854-1900) who called him “a man with a soul of that beautiful white Christ which seems coming out of Russia”, the “Anarchist Prince”, as Kropotkin became to be known, saw his theories lose out those of Darwin’s who were backed by the powerful and moneyed interests of the Western Empires.

What spurred Elliot’s great interest in Kropotkin’s theories is that the great Russian had not only predicted the Panic of 1873, but also the Great Depression. Kropotkin, however, did not live to see the Great Depression but Elliot did, and by expanding on Kropotkin’s theories discovered that while stock market prices may appear random and unpredictable, they actually follow predictable, natural laws and can be measured and forecast using Fibonacci numbers.

So completely did Elliot examine and expand upon Kropotkin that in 1946, two years before his death, he published one of the most important books of the 20^th Century titled “Nature's Law - The Secret of the Universe” that, in part, shows:

“Rhythm In Nature, Egyptian Pyramids size - ratios and scaling are based on Natural Laws involving Fibonacci numbers, Sunflower research on how Sunflowers and their seeds conform to exact Fibonacci ratios, How the Washington Monument & US History is ruled by Natural Laws & Fibonacci numbers, Wave knowledge can be applied to stocks-bonds-grains- cotton -coffee & others, Stock market cycles and waves, Corrections, Complex corrections, Triangles, Thrust breakouts, Wave extensions, Correct wave counting, Sideways movements, Irregular tops, Scaling of charts, 13-year triangles, Dow Jones Industrial Avg Analysis and charts, How retracements and patterns maintain 62% ratios, Price of gold, Waves in gold prices, Gold chart and waves for 685 years from the year 1250 thru 1932.

Human activities and patterns also run in waves, more Dow Jones and London Industrials chart analysis, Dow Jones Railroad Index chart and analysis from 1906 thru 1944, Why news events are merely the tardy recognition of natural laws and waves, Natural laws discount the value of sudden major events, Detailed suggestions on maintaining charts, Daily range charts, Hourly charts, Chart paper and chart size, Weekly range charts, Monthly charts, Investment timing, Wave analysis foretells markets future direction, The fact sudden news has little long term effect because it's already reflected in the waves and cycles.”

It goes without saying, in the Western World at least, and especially the United States, that Prechter’s dire warning is going virtually unreported on even as the Baltic Dry Index (BDI) and the American stock markets are mirroring those of the Great Depression year 1932 and pointing to an even greater economic apocalypse to come.

Even worse for the American people are new reports showing their National Debt by the end of the year will soar to its highest level since the end of World War II and represent a crushing 62% of their entire National economy. More...

Robert Prechter - Get out of stocks; Dow to fall below 1,000

Image via Wikipedia

Jeff Sommer
With the stock market lurching again, plenty of investors are nervous, and some are downright bearish. Then there’s Robert Prechter, the market forecaster and social theorist, who is in another league entirely.

Mr. Prechter is convinced we have entered a market decline of staggering proportions - perhaps the biggest of the last 300 years.

In a series of phone conversations and e-mail exchanges last week, he said that no other forecaster was likely to accept his reasoning, which is based on his version of the Elliott Wave theory - a technical approach to market analysis that he embraces with evangelical fervour.

Originating in the writings of Ralph Nelson Elliott, an obscure accountant who found repetitive patterns, or “fractals,” in the stock market of the 1930s and ‘40s, the theory suggests that an epic downswing is under way, Mr. Prechter said. But he argued that even skeptical investors should take his advice seriously.

“I’m saying: ‘Winter is coming. Buy a coat,”’ he said. “Other people are advising people to stay naked. If I’m wrong, you’re not hurt. If they’re wrong, you’re dead. It’s pretty benign advice to opt for safety for a while.”

His advice: Individual investors should move completely out of the market and hold cash and cash equivalents, like Treasury bills, for years to come. (For traders with a fair amount of skill and willingness to embrace risk, he suggests other alternatives, like shorting the market or making bets on volatility.) But ultimately, “the decline will lead to one of the best investment opportunities ever,” he said.

Buy-and-hold stock investors will be devastated in a crash much worse than the declines of 2008 and early 2009 or the worst years of the Great Depression or the Panic of 1873, he predicted.

For a rough parallel, he said, go all the way back to England and the collapse of the South Sea Bubble in 1720, a crash that deterred people “from buying stocks for 100 years,” he said. This time, he said, “If I’m right, it will be such a shock that people will be telling their grandkids many years from now, ‘Don’t touch stocks.”’

The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash “extremely grateful for their prudence.” More...

Only buyers of the current rally are investment banks

Leigh Skene

The outperformance of risk assets over the past year suggests investors appear to believe that all credit problems have been solved – but nothing could be further from the truth, says Leigh Skene at Lombard Street Research.

“Rising stock markets and narrowing credit spreads depend on buyers being more anxious to buy than the sellers are to sell,” he says. “So who are the enthusiastic buyers of risk assets?”

Surprisingly, says Mr Skene, surveys show that the usual investors in major rallies – pension funds, hedge funds and retail investors – have not been net buyers of equities. And he says the most likely explanation for this anomaly in the biggest stock market rally since the 1930s is that major investment banks are the anxious buyers. More...

Gold is breaking out in all currencies

Neil Charnock
We have been looking at global trends and the debt markets very carefully this year so as to remain prudent about our views on the direction of gold and the Australian gold sector. This may seem like a long bow to draw however the thigh bone is connected to the knee bone when it comes to global markets and capital flows.

We specialize on coverage of gold and the Aussie gold stocks that make up the Australian gold sector which is one of the important gold share markets due to our high level of gold production and another key reason I will get to shortly. Another important part of our work is on the currencies due to the importance of the AUD to our gold sector and also for our international clients. We have even taken on a leading Fx broker as an advertiser due to the importance of Fx for international capital flows at this point in history.

Our thesis for this year has been one that includes continued trends on global markets on the back of stimulus capital along with increasing sovereign debt trouble and contagion which will (and has) produce fear. We have seen this as a positive environment for gold along with extreme volatility and distortions in the currencies and see no reason to change that view at this stage.

Gold is breaking out in all currencies and I forecasted a rise to the US$1180 area a week or so back. It has not quite made that target and may not, perhaps it will overshoot. After hitting record highs in Euro terms the gold price consolidation of the past 4.5 months in USD terms appears to be drawing to an end with only a few weeks left before we see lift off. I am expecting one last dip in the USD POG (price of gold) which will be short lived and reasonably shallow. The US$1100 level is not out of the question on this hypothesised pull back. More...

Many Developing Crisis Ahead

The Next Crisis
And the next…and havens
Christopher Laird, PrudentSquirrel.com
With the Asian stock markets stalling, and the US markets insisting on rallying a suspicious 25 points a day with nary a correction in over a year, something is definitely wrong out there. What gives? I cannot believe the US economic prospects are that good right now.

But then again, with the EU markets and the EU itself looking like it’s about to disintegrate, with a new bailout story on Greece that never pans out, and what a failure to bail out Greece will do to the Euro – a Euro crisis alone can tank all markets and cause massive social unrest in the EU with nations starting to bolt as they find staying with the huge budget cuts are politically impossible.

But there are many developing crises right now. What then is the next crisis that will lead to panicky markets again? Surely one is due again. The VIX is at low levels similar to just before the Bear crisis in 2007 and Lehman mega crisis in Fall 2008.

Gold-

The relentless rise in the US stock market is either a head in the sand routine by Funds who have nowhere else to put money, or the central banks are unilaterally supporting the markets with these rather suspicious 25 point rises in the Dow day after day for a year…(a bit of exaggeration but you get the idea). It’s as if some great power has made an edict to relentlessly make the Dow (or your favorite index) rise no matter what to scare financial bears out of the market.

There is a much larger issue here

But there is something much bigger out there driving all this, and unfolding right in front of our eyes – the deconstruction of the entire world economy from its post WW2 US centric consumer model – combined with relentless employment shrinkage and labor arbitrage with Asia. That combination is leaving the Western economies and their accustomed standard of living in tatters, with a very bleak outlook henceforth. Europe especially is vulnerable to depression level forces with youth unemployment age 16 to 24 in Spain for example at 42%! In short, meaningful austerity measures are impossible for the weaker EU countries.

The only outcome must be chaos in the West – economically and socially. That chaos is going to begin soon. It is already showing a few stirs.

Serial crises unavoidable

What the world is presently going through are serial crises each year, roughly two a year since 2007, which rocks currency markets and ultimately rallies gold, which is the one market that seems to prosper in these uncertain times. The commodity markets are more like speculator zones, and I don’t feel these are very good havens because of that.

We did some brief price studies on prices back in 1908 to the present. Even with the gold ‘Manipulation story’ (which is true) gold actually does reflect the price changes of real goods since 1980 and even all the way back to 1908. I picked 1908 because I have data from then on prices and its pre US Federal Reserve. (Example a loaf of bread was 10 cents in 1908-1930 roughly and now is $3. That is 30 times higher. Gold is also roughly 30 times higher).

So even with manipulation, gold is still reflecting the price changes of real goods in the economy pretty accurately. Now of course if gold were to spike it would then start reflecting the massive world central bank public bailouts of all and sundry markets which are on the verge of total collapse (banking, sovereign bonds, and so on). That phase will yet appear when it’s ready.

But getting back to the theme – that of serial crises on the horizon as far as the eye can see…

China has a major problem ahead

And then there is China – and its gigantic construction bubble which is alive and well (way too well) and – is going to be popped by a determined Chinese government. And Even so China certainly is well aware that 60% of their economic growth in recent years is construction related. Did you know that? If China is popping a huge construction bubble that is 60% of their economy then why is everyone talking about using basic commodities as an investment haven? There is a difference between a haven and a speculation. Commodity markets are speculation markets right now. That makes them subject to wild price swings.

All this crisis list is because of one major theme

Everything that is happening in the world – market dangers, sovereign debt crises, labor arbitrage of West to East, government budget overruns of a huge magnitude, currency instability (Euro situation as one example), pressure on China to let the Yuan rise, looming trade wars, and especially social chaos in the West if austerity measures are implemented, falling tax revenues on a nothing less than disastrous scale worldwide (except in China for the moment but that is going to change rapidly) – are all derivatives of the changing of the economic guard from West to East.

So, all the crises we are facing also represent this larger picture – of a changing economic world order from West to East – Asia is rising.

The problems are all compounded in the West and Asia by an age gap (aging gap) of huge magnitude. This age gap is all the baby boomers retiring not only in the West but in Asia too – especially Japan which is on deflationary legs and needs government stimulus – again- to try and replace what all the aging boomers earned and bought. Which isn’t going to work; it hasn’t worked for the last 20 years even when things were pretty good for Japan since 1990…

We can list more looming crises but I think you get the idea.

How do we get from here to there?

Now, the world will transition to some state where Asia takes over the economic engine, and if labor arbitrage keeps up, the West is going to be left out cold in any economic rebound.

If that is so, how do we get from here to there? I certainly have doubts that the commodity sector is not vulnerable for the second coming economic downleg, particularly when China is trying to pop their construction boom/bubble. Which is probably going to happen later this year.

In order to safely navigate through your retirement years, you are going to have to find ways to protect your savings – and that will probably involve not only gold and silver stocks for example to hedge against a falling USD, but also some mix of currencies during the turmoil that is to come for liquid assets like cash.

The recent favorite havens do not have a good track record except gold

6 years ago the Euro was bandied about as being the solution to the USD. Now the Euro appears fatally flawed. I also get concerned that commodities are constantly being promoted as the safe haven, especially after witnessing the horrendous commodity crash in Summer 2008. We warned subscribers of that pending crash two months ahead of time that the USD was due to rally.

In any case, the only way to safely preserve your savings will involve closely tracking developments in sovereign bond markets and careful choices of a batch of currencies, gold stocks (or coins) and possible well chosen commodities, but not ones being turned into speculation markets, which many are now.

Of Bonds and Bondage

VK @ The Automatic Earth
Certificates of confiscation: Of bonds and bondage
Recently I had a private conversation with Automatic Earth contributor El Gallinazo in which he proceeded to chide me for my shortcomings in viewing the stock markets only, clamoring I should focus my attention more on the debt markets, since, as he so graciously put it, "the stock market is but a pimple on the debt markets ass".

I went surfing for knowledge as it were and noted the value of the world's stock markets as of November 2009 was about $44.2 trillion (That's a pretty big pimple!) while global debt markets were valued at $82.3 trillion.

What does this mean? I got out my notes on the debt market from my days not so long ago in University. And came across many long forgotten concepts: par values, coupon rates, zero coupon bonds, basic bond pricing, duration, convexity, credit risks,inverted price yield relationships etc. Aaaarrgggh!! Enough to make my head spin. Too much jargon is bad for you.

Then I stumbled upon a little line: Indenture: Agreement containing the terms under which money is borrowed.

That's what they call bond contracts. Indenture. According to the dictionary, or in this case a convenient google search, Indenture refers to a type of contract in the past that forced a servant or apprentice to work for their employer for a particular period of time.

What struck me was how true this is, not referencing past shenanigans, but present day reality. Society as we know it is indentured, we are virtual debt slaves, servants of our corporate and political elites.

Every time a sovereign, municipal or corporate bond is sold somewhere, every time you hear the national debt going up, that's a piece of you being sold off. There's nothing more to the bond market, nothing less. Human beings are being lined up on the chopping block, sold to the highest bidder, for a price.The future of their children and their hopes and dreams sold at a price determined by a large market for human debt slaves. A modern day global debt gulag if you ask me.

If you work for a corporation, the private debt issued by them promises to extract everything from you while they can milk you for all that you are worth. If the debt is issued by your country or town, the promise is to extract everything necessary to pay up from your you and your children.

Hence, in today's world, there are multiple claims on you, your life, your children and your hopes, dreams and ambitions, as well as theirs. The elites through various frauds, machinations, complex algorithms and at its heart plain greed for unbridled power have bundled you into little packages and sold you off many times over to the point that there are claims on your life, your soul and its third derivative.

Which brings me to the monster $1000+ trillion derivatives market (Exchange Traded + Over The Counter), which has been to a large extent built (leveraged) on top of the $44.2 trillion stock markets and $82.3 trillion debt markets.

At least in the pre-derivatives era a human life had been reduced to the value of the cash flow it produced over its lifetime, conveniently called Net Present Value.

In today's world, a human life has been further reduced to and by bets being played on a global video game network much like Call of Duty/ World of Warcraft, except in this case, you can't opt out nor can you log off. The consequences are very real, the outcome of suffering is inevitable. There is no reset button.

I can understand cattle not having a complex enough awareness to be able to judge their own imminent demise at the slaughter house, but people? Why, they have no excuse at all, we are a real tragi-comic bunch. Not only do we elect our herders and executioners i.e. politicians, we elect them with cheer, pomp and adulation, we also commend their choice of weapon, in this case being debt to wave away whatever happens to ail us. Debt, the very thing that we are slowly but surely being slashed with. Death by a thousand cuts if you will.

What will you tell your children? What excuse have you prepared? The numbers were too big? Economics is really confusing? I didn't realize I was selling you off at an auction? You'd almost think we're all delusional Catholics, sending our children to schools where they can be molested by hordes of conniving predators who, when pressed, won't shy away from calling themselves the victims. The Vatican and Goldman Sachs have way more in common than just the fact that both swim in luxury.

Next time you read that the National Debt has gone up by $1,600,000,000,000, that total debt owed by the US internally and externally is $54 trillion, that there are $65-100 trillion in unfunded liabilities, one thing I hope you take from this little rant is that you and your family are on the hook for all this debt owed to Kings and psychopaths, bankster mafia elites and drug lords with Caribbean accounts. I hope you also realize that they've decided to feast on your children with a sprinkling of shattered futures, dreams and hopes.

I'll sign off with The Automatic Earth's Ilargi's saying, "Tails you lose. Heads you die." Now that's a bet you never should have taken.

The depressed state of the American public seems to be a surprise to the government

John Crudele
Hey Washington! Economy has us very worried

Come real close to the page. I want to whisper a secret in your ear.

Pssst . . . Americans are not happy.

You already know that, of course, because you are a regular, communicative human being who lives in the real world.

You go to the supermarket and hear other shoppers complain about the cost of putting food on the table. And you listen to neighbors bitch about job prospects.

You even notice that the price of gasoline and home heating oil hasn't gone down despite all that's wrong with the economy. The laws of supply and demand, which would have you believe we'd be paying about $1 a gallon for gasoline right now, have been repealed by Wall Street's speculators.

Your kids are getting an expensive education that you fear will be worthless because they'll never be employed anywhere, much less in their chosen field.

And you are probably avoiding the doctor because even if you are lucky enough to be covered by insurance, the co-payment on the prescription will mess up the family budget for a month.

You know all this. It has you worried.

Yet the depressed state of the American public seems to be a surprise to people who run the country. Not a total surprise, mind you, because politicians are clearly worried about being kicked out of office, which would mean they'd have to find a real job in a weak economy.

But these politicians and the Wall Street folks still happily pulling down the big bonuses were clearly not ready for the news last week about the complete, utter, total, absolute and unqualified miserableness of the public.

To recap: the Conference Board, a private, unbiased research organization, reported that its consumer confidence index fell horribly to 46.0 in February from 56.5 last month. And I checked -- there was no statistical fluke that could have caused such a startling drop.

Some fools even tried to dismiss that figure as a reaction to the weather, meaning the lack of blizzards in the months ahead should make everything alright again.

Then, ABC News reported that its Consumer Comfort Index plunged to the minus-50 mark and now hovers just four points from its record low.

The Conference Board survey is particularly interesting because it's broken up into two components.

The "Present Situation Index" -- meaning, how's your life today? -- dropped nearly six points to 19.4. But the "Expectations Index" of how those surveyed believe the economy will be six months from now declined a whopping 13.5 points.

Holy crisis!

Even with the stock market still bubbling and media trying its damnedest to convince us at least a million times a day that there's an economic recovery, the American public isn't buying it.

Worse, we've become a clinically depressed nation that doesn't think the situation will ever get better.

OK, so what's really going on?

Well, this is what you get when the government lies to people and when those in elected office believe their own fibs.

At this point in my rant I have to go back over a lot of things I've already written about -- like government reports on economic growth that mislead, and employment surveys from Washington that fudge the truth and inflation claims that insult the intelligence of even the most dim-witted among us.

But the public's bad mood also has to do with expectations. Promise people improvement and they expect you to deliver. Deliver too little and they are going to be angry.

Has the economic situation improved over the past year? Sure.

In late 2008, politicians of both parties with their eyes on winning (or in the case of the Republicans, keeping) the White House managed to bring the nation's banking system to the brink of failure. That'll happen when you utter the words 'brink of failure' enough.

It is one of those statements that's self-fulfilling.

The economy has stabilized since then, helped greatly by the fact that some wealthy people feel wealthier because of an unbelievable snap back by the stock market during 2009. (And by unbelievable in this context I mean that what happened shouldn't be believed as either legitimate or sustainable.)

But the economic data that is being cheered hasn't really been that great.

For instance, as I've said before, the growth in the nation's gross domestic product in the fourth quarter, which was widely described as impressive, really wasn't. Most of the 5.9 percent an nualized gain came from a re building of inventories by companies and a make-be lieve drop in inflation.

It's been estimated that just 1.7 percent of the increase came from consumer spending, the biggest factor in the economy. Most of the rest of what was manufactured is sitting in warehouses.

And if you understand what the word annualized means in this context, there's less to cheer about.

When you divide that annualized 1.7 percent consumer spending into the four quarters of the year, you see there was only slightly more than an 0.4 percent expansion in the final four months of 2009.

So, Americans aren't happy. What a surprise!

The Great Recession of 2011-2012

Image via Wikipedia

James Srodes
Are you ready for the Great Recession of 2011–2012? You should be, for it is getting under way even as you read this. Just as the 2009 “greatest economic crisis since the Great Depression” actually began back in 2007, so we are in the early days of the next cycle. Only this recession is going to be a doozy. And the aftershocks will be felt long after President Hillary Clinton leaves the White House in 2024.

The coming crisis should be no surprise, for we all have had plenty of advance warning. If it is a surprise, blame those chat-show economists who have become so politicized that they ignore the truths of their own science in order to acquire celebrity. Nor should we forget those politicians who deliberately suborn national interest for the security of zero-sum pork-barrel politicking. Combine it all with a news media largely made up of self-referential ignoramuses and it is small wonder that most of the world has been diverted as Dorothy was in Oz by the lightning bolts, explosions, and billowing smoke screen being generated by the men behind the curtain. The truth is our wizards dare not admit that the levers they pull are not really connected to the true crisis that confronts America or its place in the global market.

Despite the self-congratulatory assurances from the White House, Congress, and part of Wall Street that we have been saved from a slide into a 1930s depression, our most serious trials still lie ahead of us. We are unlikely to be able to get back to those halcyon days of perpetual prosperity and optimism that Americans (and most of the industrial world) enjoyed for the last 50 years. A tectonic shift is occurring beneath our feet and the world’s economic climate has shifted. We face not just a few abrasive years of getting back to normal, but a generational hard slog of constricted markets, limited resources, and rolling setbacks. And in each episode of crisis, some will prosper, the weak will suffer most, and radical visions propounded by political snake-oil salesmen of all persuasions will make rational discourse nearly impossible to conduct.

This is not to say that the Apocalypse is upon us, as morally satisfying as that might be to some. Nothing so dramatic is going to happen. The future offers no therapeutic collapse of civilization, with roaming bands prowling the rubble for Soylent Green. Folks will try to live just the way they have been but those lives will be more pinched, the opportunities more limited; caution and bitterness will replace the open-handed optimism that made it a wonder to be a 20th-century American, or even a Western European. If the stolid Swiss now quake at the sight of a minaret in Zurich, it is just one of the many new worries for all of us to fret over in the years to come. Civil privileges now considered “rights” will be up for renegotiation.

One has to feel a twinge of sympathy for the people who have chosen careers of service in government—not just in Washington but in all the capitals of the industrial West. Life just is not going to be as uplifting as it once was back when policy innovations were both credible and idealistic. But it must be especially hard for the crowd of wizards in Washington these days. Building consensus is hard when no one will talk to anyone else. Little wonder then that so much of the dramatic rescue being claimed by the White House in reality turns out to be merely putting rouge on the patient’s cheeks and exclaiming how well the poor soul looks.

Underscoring the difficulty in charting a new economic course is the truth that the government’s own statistics have become so distorted by age and the dynamics of change that they really don’t reflect the depth of the crisis that is upon us. So the wizards continue to twiddle the levers of stimulus and regulatory rules changes without realizing that the dials and barometers have long ago broken connection with what is going on. Houston, we have a problem.

CONSIDER JUST A FEW of the economic bellwethers one hears about on the evening news as proof that the crisis has been stabilized and recovery is imminent. Stock prices are up, true. But trading volume is way down and that is because retail investors—citizens making real investment choices— are on the sidelines. The price rises that swell the Dow Jones Industrial and other indices reflect almost pure speculation by Wall Street’s investment houses that are soggy with Washington’s cash injections. Just as Cash for Clunkers inflated Detroit’s hopes last summer, so the share price recovery is more of a sign of a new bubble inflating than it is of real value returning to share market prices.

The same for housing prices, only more so. It was headline news recently that house prices in “some” areas of the country had stopped declining quite as fast, while in some fewer areas there were even tiny increases in prices of houses sold, if not much increase in the volume. Yet there are uncounted hundreds of thousands of vacant houses, condominiums, and commercial office space for which there is no rational prospect of a buyer during 2010 or perhaps ever.

It will get worse. Of the 47.4 million home mortgages in place today, nearly 10.7 million are “underwater,” that is, the money owed on the loan is greater than the value of the house. And that’s not counting the 2.3 million other mortgages that are “near-negative equity.” Most of these latter will face sharply higher upward ratcheting of their interest rates in 2010 and 2011 and that will automatically plunge those debts below the surface.

In Nevada already the amount of mortgages outstanding is estimated at $132.6 billion against property worth $116.7 billion, a loan-to-value ratio of 116 percent. Even another slight decline in prices in areas such as California (loan-to-value ratio of 72 percent), Arizona (91 percent), or Florida (87 percent) will swamp Washington’s promised next round of mortgage subsidy relief. The government’s own rescue agencies, Fannie Mae, Freddie Mac, and FHA, are dead in the water, and the government’s bank deposit insurance agency, the FDIC, says it has no more reserves to offset the coming next round of failing banks.

EVEN WHEN WASHINGTON ADMITS to a worrying 10-plus percent unemployment rate the real numbers are so far from reality as to be laughable. The recent headlined dip in the jobless rate turns out to have been caused by more than 50,000 already jobless people simply giving up and dropping out of the workforce. This has the statistically absurd result that the percentage of people deemed to be unsuccessfully seeking work is judged to have improved. When labor data is closely parsed for the measure known as “U-6,” which includes people forced to work part-time, those “discouraged” from seeking jobs, and those “marginally attached,” the rate trends above 17 percent.

But even that fails to accurately gauge the cold reality of the hopelessness facing folks at either end of the workforce demographic—the very young (where unemployment is trending above 60 percent) and those 55 and older who are forced back into job quests because their nest eggs vanished in the storm. Two-thirds of the job losses across the country have happened to the very blue-collar workers the Democratic Party has claimed for its own. For those Americans who still have hourly-wage jobs, their employment week would be the envy of a Frenchman—33 hours, on average. Sectors such as manufacturing, construction, and even retailing continue to shed workers; the only consistent gains over the last two years have been, no surprise, in government employment.

The policy response of all Western governments is to follow the failed Japanese model of trying to inflate one’s way out of a downdraft, pumping up another bubble. The theory is that if interest rates are forced low enough, and the money supply increased enough, and the government ramps up deficit spending to redistribute more wealth from the supposed rich to the supposed poor, a “multiplier effect” of economic growth will be sparked by consumers buying more, businesses investing more, and more jobs being created with prosperity spreading and growing. But if interest rates are already at zero, and the value of the dollar has been halved by doubling the supply of it, and the debt service burden of government spending is already suffocating the capital markets, how can one expect consumers to buy more (to buy more of what?), or businesses to invest more (for a new machine to do what?), much less to hire old workers back when the jobs they used to have are vanished, not to some Third World haven, but just vanished?

No one in Washington can say with a straight face just what the U.S. gross domestic product is except that we have been pushed back at least a decade and will probably be more than a decade in just getting back to where we were in 2006 (when GDP rose by an anemic 2.7 percent) just before the bubble burst the next year. Meanwhile new bubbles are forming all around us, in the commodity markets, in Hong Kong real estate, in the troubling data coming out of China and other Asian economies, all just waiting to buckle. Can you say Dubai? Greece? More...

Debt Dynamite Dominoes: The Coming Financial Catastrophe

Andrew Gavin Marshall
The people have been lulled into a false sense of safety under the ruse of a perceived “economic recovery.” Unfortunately, what the majority of people think does not make it so, especially when the people making the key decisions think and act to the contrary. The sovereign debt crises that have been unfolding in the past couple years and more recently in Greece, are canaries in the coal mine for the rest of Western “civilization.” The crisis threatens to spread to Spain, Portugal and Ireland; like dominoes, one country after another will collapse into a debt and currency crisis, all the way to America.

In October 2008, the mainstream media and politicians of the Western world were warning of an impending depression if actions were not taken to quickly prevent this. The problem was that this crisis had been a long-time coming, and what’s worse, is that the actions governments took did not address any of the core, systemic issues and problems with the global economy; they merely set out to save the banking industry from collapse. To do this, governments around the world implemented massive “stimulus” and “bailout” packages, plunging their countries deeper into debt to save the banks from themselves, while charging it to people of the world.

Then an uproar of stock market speculation followed, as money was pumped into the stocks, but not the real economy. This recovery has been nothing but a complete and utter illusion, and within the next two years, the illusion will likely come to a complete collapse.

The governments gave the banks a blank check, charged it to the public, and now it’s time to pay; through drastic tax increases, social spending cuts, privatization of state industries and services, dismantling of any protective tariffs and trade regulations, and raising interest rates. The effect that this will have is to rapidly accelerate, both in the speed and volume, the unemployment rate, globally. The stock market would crash to record lows, where governments would be forced to freeze them altogether.

When the crisis is over, the middle classes of the western world will have been liquidated of their economic, political and social status. The global economy will have gone through the greatest consolidation of industry and banking in world history leading to a system in which only a few corporations and banks control the global economy and its resources; governments will have lost that right. The people of the western world will be treated by the financial oligarchs as they have treated the ‘global South’ and in particular, Africa; they will remove our social structures and foundations so that we become entirely subservient to their dominance over the economic and political structures of our society.

This is where we stand today, and is the road on which we travel.

The western world has been plundered into poverty, a process long underway, but with the unfolding of the crisis, will be rapidly accelerated. As our societies collapse in on themselves, the governments will protect the banks and multinationals. When the people go out into the streets, as they invariably do and will, the government will not come to their aid, but will come with police and military forces to crush the protests and oppress the people. The social foundations will collapse with the economy, and the state will clamp down to prevent the people from constructing a new one.

The road to recovery is far from here. When the crisis has come to an end, the world we know will have changed dramatically. No one ever grows up in the world they were born into; everything is always changing. Now is no exception. The only difference is, that we are about to go through the most rapid changes the world has seen thus far. More...

Greek Stocks Drop 3.9%; Banks Tumble

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ALKMAN GRANITSAS
Greek stocks fell sharply Monday, extending their losing run to four sessions, as investors battered banking shares.

The Athens Stock Exchange's general index closed 3.9% lower at 1806.40 on relatively heavy turnover, while major markets firmed. Investors also demanded a higher premium for holding Greek government bonds over German Bunds, the euro zone benchmark.

"What we are clearly seeing is not a selloff in just specific Greek shares; we are seeing a wholesale selling off of the country," said Nicholas Douzinas, head of foreign markets at Intersec Securities in Athens.

"We are seeing many open sell orders on the market," he added.

Banking stocks were especially hard hit, falling 6.8%, amid speculation that Greek banks were facing financing difficulties and possibly further credit-ratings downgrades. Market leader National Bank of Greece SA dropped 8.5%, while No. 2 lender EFG Eurobank Ergasias SA dived 9% and Alpha Bank SA closed 5.4% lower.

But both Greek and foreign banking officials Monday privately denied speculation that the Greek banks were facing any financing difficulties. Analysts said that the selloff in bank stocks reflected the difficult environment facing Greek banks.

"I'm a little doubtful about all this speculation," said a senior analyst at a local bank. "But it's a fact, the market sees that the banks are facing a very difficult environment and that's weighing on banking stocks."

Indeed, Greek banks, which are due to start reporting results next week with Piraeus Bank SA on Feb. 18, are widely expected to report disappointing fourth-quarter earnings.

Since December, when Greece's sovereign debt was hit by three ratings downgrades in quick succession, the Athens stock market has lost more than 1,000 points. The index is down nearly 18% this year.

Bank shares also are suffering from the higher yields that investors are demanding for Greek debt, which indirectly affects their borrowing costs. The yield gap between 10-year Greek and German bonds widened to 3.63 percentage point Monday, up from about 3.50 percentage point on Friday.

The market's fall came ahead of a meeting Wednesday between Greek Prime Minister George Papandreou and French President Nicholas Sarkozy and a European Union summit on Thursday.

Many market participants are looking to see if Greece's EU partners will declare some kind of direct or indirect financial support for the country in an effort to forestall future borrowing problems when the country goes to the bond market in April or May.

In addition, the Greek government is to publish a much-awaited tax reform proposal on Wednesday. Civil servants also have scheduled a strike for Wednesday.

"Right now, everyone is looking ahead to Wednesday and Thursday," said Intersec Securities' Mr. Douzinas.

Obama Wants Your Retirement Account

Obama to meddle with your retirement account?
Administration considers forcing investors into Treasury debt
Jerome R. Corsi
The Obama administration appears to have come up with a novel way of financing trillion-dollar budget deficits – demanding IRA and 401(k) holders buy trillions of dollars in Treasury bonds.

With the Treasury needing this year to see another $1 trillion in debt to finance the anticipated federal budget deficit, and the Federal Reserve about to discontinue its 2009 program of buying Treasury bonds for the Fed's asset portfolio, the Obama administration is scrambling to find ways to sell government debt without having to raise interest rates.

Bloomberg reported Friday that Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Mark Iwry are planning to stage a public comment period before implementing regulations that would require private investors to structure IRA and 401(k) accounts into what could amount to a U.S. Treasury debt-backed government annuity.

CNBC's Rick Santelli broadcast the rumor the same day from the trading floor during CNBC's "Power Lunch" show.

Spokesmen from both the U.S. Treasury and Department of Labor confirmed to WND that the federal agencies about to enter a pre-regulation public comment phase on the proposed rule change.

But the agencies are getting serious pushback from the mutual fund industry, objecting to what some financial planners see as a government attempt to divert hundreds of billions of dollars of private retirement accounts
into federal government debt, regardless whether the investment in Treasury bonds is in the best interest of the retirement-oriented investor.

On the Department of Labor website, the transcript of a Dec. 9 webchat with Borzi confirms the Employee Benefits Security Administration is about to issue a Request for Information on how annuity lifetime options should be structured into a wide range of defined contribution retirement plans, including 401(k)s.

Under ERISA, the Department of Labor regulates approximately 700,000 private pension plans, with approximately $4.7 trillion in assets.

"Lifetime Income Options," code words for annuities, are also listed in the Department of Labor's regulatory agenda for the Employee Benefits Security Administration, issued Dec. 7 and filed in the Federal Register.

The government's argument is that IRA and 401(k) investors lost principle in the stock market when the Dow Jones Industrial Average plummeted from a closing of 14,164.53 on Oct. 9, 2007, to 6,547.05 on March 9, 2009.

For instance, Fidelity Investments reported the average fund balance on the approximately 11 million accounts Fidelity manages dropped 31 percent to $47,500 at the end of March, from $69,200 at the end of 2007.

With the stock market rally since March, Fidelity further reports 401(k) account balances increased 128 percent by the end of the third quarter 2009, to an average of $60,700, from the low at the end of the first quarter 2009 of $47,500.

While U.S. Treasury bonds have had historically lower yields than equity returns, government proponents of the idea argue Treasury bonds are safer, guaranteed by the federal government to pay principal and interest regardless of market conditions.

Furthermore, annuities as life insurance contracts have a unique investment advantage of being able to pay a specified lifetime income, regardless how long the annuitant lives.

The Investment Company Institute, a national trade organization representing the mutual fund industry, argues that the distinction of the Obama administration proposal would be to require annuities funded with Treasuries to be embedded within IRAs and 401(k) programs, using the fear of loss as a reason to demand retirement investors own Treasuries.

Right now, IRA holders and investors in 401(k) plans are free to invest in Treasury bonds, if they choose.

Also, annuities are a popular settlement option for IRAs and 401(k) plans that transition from the accumulation phase to the payout phase.

Annuities are an attractive payout instrument, because annuities offer the part of lifetime income and only a portion of each payout installment is considered taxable as return of investment principle.

Interest or investment earnings in annuities accumulate income tax-deferred until the annuitant takes out money, either in an unscheduled withdrawal, or in a payout option extending over a specified number of years in retirement, or for the lifetime of the annuitant.

The unusual nature of the Obama administration's proposal would be to place as an investment a tax-deferred instrument like an annuity within a tax-deferred retirement program. Investment advisers typically use annuities as an investment option for after-tax dollars, not as a required investment option within a retirement program like an IRA or 401(k) that is already income-tax deferred.

A survey conducted by the Investment Company Institute showed more than 70 percent of all households disagreed with the idea of requiring retirees to buy annuities with a portion of their assets, whether the annuity is offered by an insurance company or by the government.

Moreover, 96 percent of households in the survey responded that retirees rejected the idea that the government should mandate turning IRA or 401(k) assets into annuities, asserting instead that retirees should make their own decisions about managing retirement assets and income.

The Investment Company Institute member companies manage some $11.62 trillion in mutual fund assets for some 90 million mutual fund shareholders, including retirement-oriented investors participating in defined contribution plans such as employer-sponsored 401(k) accounts.

The Coming Confiscation of 401(k)'s

expectedreturns.blogspot.com
Our government is in the middle of a funding crisis that will be resolved as it always has: through the confiscation of citizens' hard-earned wealth. Judging by the way Americans are being conditioned to accept criminal behavior at the highest levels of government, this confiscation will probably be pretty explicit. I'm guessing we'll eventually see a FDR-style confiscation of gold and retirement accounts (401(k)'s). From the following article in Businessweek, Americans Oppose Initiatives Limiting 401(k) Choices, ICI Says, it seems that day is quickly approaching.

U.S. investors oppose federal initiatives that would force them to give up control over their 401(k) accounts, the Investment Company Institute said.

Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing a steady payment for life, according to an institute-funded report today.

7 out of 10 Americans against government control of 401(k)'s? This probably means legislation is going to be shoved down our throats anyway. I mean, isn't this the new trend in our new "government-knows-best" style of government?

Annuity Conversion, aka Theft

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.

The coming theft of retirement accounts is one of the most obvious trends for the next 20 years. I mean seriously, the American public stood shell-shocked like 5 year olds while getting looted to the tune of trillions of dollars- what makes you think the government isn't going to steal your retirement accounts?

The government is going to try to sell the move into annuities as a "safe" way to protect the public from the vagaries of the stock market. The truth is, the government is damn broke, which means they will have their hand in every person's pocket. The confiscation will function like this. American citizens will be forced to buy a worthless asset (in this case U.S. Treasuries) and receive a paltry return on capital. Factoring in inflation, returns are likely to be negative.

That the government has to resort to such measures indicates the severity of the current funding crisis. First, the insane monetization of debt. Now, Americans will be compelled to prop up the Treasury market. 5 years ago you couldn't make this stuff up; today, it is a reality.

Stock Market Collapse + Retirement Hopes Destroyed

Ok. So the government is basically telling us they are going to confiscate 401(k)'s. Now think for a second what happens when massive forced inflows of capital into stocks turn into massive forced outflows. It doesn't take a genius to figure out stocks are going to crater, and with it, the retirement hopes of millions of Americans.

When a critical mass of the population realizes this, then you will really know what a panic is. 401(k)’s were always structurally deficient products. The standard line is that with tax benefits and company matches, nothing can possibly go wrong! 401(k)'s are for the "wise" investor who is in it for the mythical "long-term". Whenever I hear this ridiculous line from someone, I know the person hasn't looked at a single "long-term" chart in his life. Sorry to ruin the party, but in the "long-term" (at least for Baby Boomers) stocks are going to go down in real terms and taxes are going to rise. And oh yea, you're getting taxed on income, which means if your 401(k) is actually worth something, the only person who will be celebrating is Uncle Sam. This is a disaster in the making for the disappearing middle class in America.

2010-2020: Major Paradigm Shifts Coming

These are interesting times. I can tell you this much: a lot of paradigms are about to change in the next 10 years. Most people are already skeptical of our government, which is clearly evidenced by the plunging approval ratings of both Congress and President Obama. However, most people are ignorant about the lengths governments always go to in order to prevent insolvency.

The current forced bond purchase scheme by our government reminds me a lot of what happened in France during the French Revolution, when church property was confiscated in return for assignats- which functioned as bonds. It didn't take long for those assignats to be worthless in value. I expect the same thing to happen eventually with U.S. Treasuries.

There will be a crisis of sorts in the near future. This is just one of the many reasons I am extremely bullish on gold.