Gold is Sending a Dire Economic Warning

There are many people willing to deny basic economic reality or the news that the manipulated government data points from around the world are sending, however gold and the gold ETF (GLD) continues to flash a warning clarion that can not be missed by any observer.

Unfortunately for the naysayers, gold is still the final resting place for value and is indeed viewed as the alternative world currency by major economic powers such as China and Russia. The U.S. Dollar has had a nice run and with the impending collapse of the European Union as constructed appears imminent, another surge in the U.S. currency should be expected.

Thus a review of the warning from gold is warranted considering the horrible technical action this year and what the desperation to raise cash will create with a once in a lifetime opportunity for the wise to buy gold at a discount. More...

While You Were Sleeping The Economy Collapsed

Giordano Bruno
One of the most powerful forces in human psychology is the force of habit. Consistency, apathetic comfort, ties men to the ocean bottom to squeeze every ounce of oxygen from their last breath until it is gone, and we wake up at 50 or 60, only realizing then that we have done the same things and thought the same thoughts for decades without err. Repetition makes us easy to startle and easy to control. Any sudden break in daily routine can cause most people to freeze; animals gripped with terror at the very possibility of necessary individual action or adaptation.

This same repetition induces a type of “sleepwalk” in the average person, a zombie-like reanimation of brain functions that shriveled up and died years before, giving the impression of “life,” but in reality, it is merely a life on autopilot.

This is what makes catastrophes so catastrophic. It is not always the events themselves that reap such destruction, but people’s delayed reactions and dulled senses. The more ignorant the populace, the more magnified and painful such events become. Our lack of knowledge and reasonable action sets our own house ablaze, brings economies to ruin, and murders civilizations. Others may tip the problems into motion, but in the end, all of us, each and every individual, is responsible for the final result.

It is nearly Christmas, 2009, and the dangers of routine are never more blindingly obvious than they are at this time of year. A dangerous economic storm looms, its effects culminating most likely sometime in 2010. Many people know its there, they can feel it, but the chains of routine drag them back. “Our world will remain the same tomorrow as it was today…” they tell themselves, “…how could things possibly change?”

Mixed Signals Indicate Economic Disinformation

There are a number of half truths and financial fantasies floating around the U.S. today, which may explain why some have decided to throw caution to the wind, adopting a cult-like blind faith in the “unsinkable” American economy. I suspect that the consequences for this error in judgment will become quite clear to most by the end of next year, but until then, let’s examine our current situation, what the government has to say about it, and the reality they wish to gloss over.

Unemployment Thwarted By Bailouts?

Unfortunately, it depends on who you ask. If you ask the Labor Department, the U.S. lost only 11,000 jobs in November, far less than forecast, and unemployment evened out to 10% from 10.2%. Great news, right? It would be, if it were true…

Other data shows that the major revision in job losses may be an overenthusiastic calculation by the Labor Department.

First, the holiday season is notorious for generating thousands of temporary, low-paying part time jobs with an average of only 15-20 hours a week. The Labor Department counts people working these jobs as fully employed even though they do not make nearly enough money to support themselves and most will likely lose their positions once the Christmas season is over. Even with this influx of minimum wage holiday jobs to dilute unemployment numbers, it appears most retailers are only hiring about half of the number of temporary workers they did last year:

http://www.kidk.com/news/local/78476852.html

What this means is, unemployment will probably hit very hard in February and March when retailers begin cutting back once more, especially if Christmas profits fall short of target.

Second, there is a lot of evidence to suggest that the Labor Department is grossly and deliberately misreporting unemployment figures. Other groups which measure unemployment, including the ADP, have released national job loss reports that greatly differ from that of the Labor Department for November. In most cases, the Labor Department “adjusts” its numbers a month later to match ADP’s more accurate assessments. Very rarely do the ADP’s numbers completely overshoot actual job loss calculations. For November however, the Labor Department predicted only 11,000 jobs lost, while the ADP measured 169,000 jobs lost!

http://www.adpemploymentreport.com/

This is a major discrepancy! Either the ADP has somehow calculated way off the mark (which rarely if ever happens), or the Labor Department has rigged the numbers. Such a discrepancy by the Labor Department could not be made accidentally. It is hard to say which one is the case, but since the ADP is consistently accurate, and the Labor Department has more reason to flub the statistics, I will have to lean towards the ADP’s numbers as a realistic representation of November job losses.

What is more frightening is that eventually, the Labor Department will have to account for all the lost jobs they hid last month. When they make this adjustment, it will seem as though job loss has exploded after a short lull. This will send an abrasive shock through markets next year. In fact, markets recently took a hit as the government reported that the number of Americans filing for initial unemployment insurance at the beginning of December jumped much higher than analyst expectations:

http://money.cnn.com/2009/12/10/news/economy/initial_jobless_claims/index.htm

One would think claims should begin to dissipate after the miracle jobless drop in November.

Adding a sharper edge to this realization is the fact that a record 37.2 million Americans now require food stamps in order to survive, while the media blathers on about imminent recovery. That is 1 out of every 8 people in this country:

http://www.bloomberg.com/apps/news?pid=20601012&sid=aFbqGE.lEdi0

It is these kinds of mixed signals that reveal misinformation and half-truths by MSM and government sources.

Waiting For The Return Of The Dollar? Don’t Hold Your Breath…

As we have predicted in the past, erratic market movements have begun to occur this holiday season, and the artificial Dow rally will probably not make it through the winter. With uncertainty in stocks comes a flight to “safe haven” investments. Historically, the U.S. Dollar has been considered a safe haven, and out of habit, some investors continue to dump their assets into dollars when expecting fickle market conditions.

Recent weakness in the Euro has also lifted the dollar. Not drastically by any means, but enough to give the impression that the Greenback may soon make its return. Great news, right? Again, not quite…

Many investors make the mistake of looking only at the relative weakness of other world currencies when assessing the Dollar’s strength, but there are many other factors to consider. The Greenback is unique in that it derives its strength not so much from the overall health of the U.S. economy, or any solid circulation fundamentals, but from the fact that it is the “world reserve currency”. When we examine the foundation of the Dollar, we find an extremely weak overprinted currency belonging to a country with a $9.2 Trillion projected deficit and totally reliant on foreign investment. However, as long as the Dollar retains its label as the world reserve currency, it will continue to have a psychological significance to investors.

It would not take massive inflation to collapse the Greenback (although this is occurring). Wholesale prices jumped 1.8 percent last month, more than double the gain analysts expected, and sparking fears that the Fed will soon be forced to raise interest rates:

http://finance.yahoo.com/news/Spike-in-wholesale-inflation-apf-2682030532.html?x=0

Mainstream economists are attempting to downplay these numbers by claiming that the inflation will be temporary, but in reality, we are only seeing the beginning. This also throws a monkey wrench into the arguments made by some financial advisors that the dollar is safe, and we are more likely to see deflation than inflation. If this was truly a deflationary collapse like the Great Depression, then why have prices on goods increased instead of decreased? We should have seen substantial price cuts on commodities and base manufacturing materials if deflation was the threat, but this has not occurred.

A deflationary collapse would be far preferable to an inflationary collapse. With the dollar still intact, the economy could be rebuilt without help from outside agencies like the IMF. We know that the Elites are attempting to force the U.S. to answer to a centralized economic authority and accept a global currency in the form of Special Drawing Rights. They cannot accomplish this goal without collapsing the dollar. Period.

Setting the inflation threat aside, though, the only trigger necessary for a Dollar implosion would be for it to lose its reserve status in the eyes of the international financial community. Once this superfluous status is removed, the Dollar would no longer be considered a safe haven investment, and its value would plummet.

The signs that this event is about to occur are becoming more evident, most especially in Treasury Bond auctions and investment:

http://www.treas.gov/press/releases/tg443.htm

http://market-ticker.denninger.net/archives/1730-TIC-Data-Confirms-Foreign-Appetite-Gone.html

The “Treasury Yield Curve” is now the steepest it has been since at least 1980:

http://www.bloomberg.com/apps/news?pid=20601103&sid=atmWh_C.Afkk

Foreign investment in U.S. debt has plummeted. Barack Obama is attempting to auction off $150 Billion in U.S. T-bills, but net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been only $8.3 billion. Even more disturbing, foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $43.9 billion. Foreign holdings of Treasury bills decreased $38.3 billion. Meaning, not only are foreign investors NOT buying American debt, they are also beginning to get rid of the treasuries they already own! The biggest purchaser of U.S. Treasury debt is now the private Federal Reserve, printing money out of thin air and buying T-bills in order to prop up the value of its own currency! This cannot go on for much longer.

In order to permanently strengthen the basic value of the dollar, one of two things must happen; either the Fed must decrease the supply of dollars in the system (they are doing the opposite, printing up to $24 Trillion out of thin air in the span of a year), or, the Fed must somehow increase demand for all the dollars being created. As the dismal results of recent treasury auctions show, NO ONE wants dollars, especially not for the long term.

The consequences of this are obvious. Eventually, our incredible debt will become unserviceable, and the dollar will become completely undesirable. The Federal Reserve will be forced to raise interest rates and stop its endless printing, which will then pull the rug out from under the Dow and the T-bill market, making things even worse. Dollar proponents always seem to forget this very important detail; America is taking on more debt than it or any other country has in history. Without continued exponential investment from other countries, this debt will end the dollar, regardless of the weakness or strength of other national currencies, or the true rate of inflation.

For now, the Dollar will enjoy an increase in value due to weakness in Europe and uncertainty in stocks, sending more crisscrossed signals to the public as to the actual health of the economy. As far as the basics are concerned however, this increase will be short lived.

Credit Market Recovery? Not A Chance…

The stated purpose, the entire reason for the Banker Bailouts and the flood of printed money into our financial systems, was to “restore credit markets” so that banks could begin lending again.

First off, such a concept is astoundingly moronic. What caused the collapse of the housing market in the first place? Unhindered accumulation of debt by people who could not afford to pay it back! This debt was, of course, facilitated by the private Federal Reserve’s artificially low interest rates, which gave banks free reign to throw cheap money wherever they pleased. When people began to default on their loans en masse, the bubble burst, and triggered the landslide we are seeing today.

How exactly would the creation of more lending, and therefore more debt, fix a problem caused by too much debt? If the average American can’t afford to pay back their old debts, then why in the world would they want to take on new debt? The philosophy of forcing liquidity into the same debt mechanisms which caused the problem in the first place to save the economy could only be dreamed up by someone with the mind of a naive child, unless, that someone wanted to deliberately make the problem worse….

If that is the case, then they have succeeded admirably.

Banks received trillions of dollars in bailout money, but still have not returned to standard lending practices. In fact many have tightened their restrictions on lending even further:

http://moneyfeatures.blogs.money.cnn.com/2009/12/07/mortgage-lenders-still-arent-lending/

http://www.nypost.com/p/news/business/banks_need_to_lend_now_wIZJF5AD5gzJPV8ICjaByK

The Treasury has reported that bank lending balances continued to drop nine consecutive months through October:

http://finance.yahoo.com/news/Treasury-report-shows-bank-apf-2357245330.html?x=0&sec=topStories&pos=6&asset=&ccode=

So the goal of the bailouts, the goal given as an excuse to assuage the anger of the American people, was never accomplished, and probably never will be.

If banks aren’t using the bailout money they were given to create new loans then what are they doing with it? Some are hoarding the cash, while others have been gambling with it in the stock market! If the bailout money is still sitting in the pockets of bankers, and it never went into credit markets, then how can the Fed claim that it stopped the collapse? The fact is, the bailouts have done absolutely nothing except prop up the Dow and give the illusion that things are improving. No amount of spin, though, can change the fundamentals.

Banks across the country continue to shut down at an alarming rate. The FDIC has closed 140 so far this year, and recently announced the closure of two banks in California with assets totaling in excess of $10 Billion!

http://news.yahoo.com/s/ap/20091219/ap_on_bi_ge/us_bank_closures

Not only this, but the FDIC is in many cases unable to sell off these bankrupt assets to other banks, meaning, they are forced to absorb the entire debt instead of a small piece of it. Any depositors at the RockBridge Commercial Bank with savings of more than $250,000 in their accounts have essentially lost the remainder. Recovery of their savings could take months, and even then they may get only a portion of what they had in their accounts.

What does this mean? It means that the FDIC is having trouble guaranteeing your deposits. Why? Because the FDIC is broke. Before the announcement of the two California banks totaling $10 Billion, the FDIC was officially in the red for $8.2 Billion. The real amount of debt the FDIC has incurred is probably far more than reported.

I have heard it argued that 140 closed banks is not such a terrible number. During the Great Depression, over 3000 banks were shut down. This is another straw man debate point. Yes, thousands of banks were closed during the depression, but there were numerous small private banks and city banks in those days, and their total deposits were miniscule compared to modern corporate banks. It is not the number of banks closed that is important, it is the size of their assets and deposits which makes or breaks the FDIC.

How long can the Treasury go printing money to bailout the FDIC? I suspect not very long.

Housing Is Still In Trouble

The bottom line is, nothing has changed except how we are told to perceive the situation. Changing how one looks at a problem does not make the problem go away, as much as we would like it to. This fact goes for the housing issue as well.

We are told constantly by the MSM that the markets are improving, but if this is so, then why are large banks continuing to go bankrupt due to defaults on home loans? Why is it that mortgage delinquencies continue to rise to record levels every month?

http://realestateinvestordaily.com/market-information-news/mortgage-delinquencies-set-new-record-in-third-quarter/

Even families that received direct help from the U.S. government “foreclosure prevention plan” are behind on their payments!

http://www.reuters.com/article/idUSTRE5B41ME20091205

A glut of foreclosed homes are now on the market, but banks are having trouble finding anyone to buy, even at discount price ranges:

http://news.yahoo.com/s/nm/20091215/ts_nm/us_usa_housing_foreclosures

In response, the Federal Reserve is executing a plan to pump $1.25 Trillion into mortgage backed securities in order to bring interest rates down to record lows. This is very similar to the policy which they used to cause the housing crash in the first place:

http://finance.yahoo.com/news/Rates-on-30year-mortgages-set-apf-646421176.html?x=0&sec=topStories&pos=4&asset=&ccode=

Again, what we are told by the MSM and the government, and what seems to be occurring at the foundations of the economy, are in total opposition. Someone somewhere is lying.

On The Other Side Of The World…

Terrible events can occur while the masses are psychologically unaware or “asleep”, but they can also occur while we are literally asleep too. In a world designed around the concept of Globalization, that which damages the economy of one country, can have drastic effects on another. This was made evident by the recent trouble in Dubai, however, there is much more happening on the other side of the world that we rarely hear about.

Both Greece and Spain are currently in dire straights with mounting and unserviceable debt:

http://moneynews.com/Economy/greece-downgrade-credit-rating/2009/12/16/id/343500

http://www.economist.com/world/europe/displaystory.cfm?story_id=14973182

But these are not the only European countries in danger of default. If one examines debt as a percentage of a country’s GDP, one can see which nations are on the edge of collapse.

Nations with a high debt to GDP ratio have a tendency to default, that is, to go bankrupt. Greece and Italy already have a national debt larger then their entire GDP, which means the revenue of each country for a whole year is not enough to pay off what they owe! This indicates the very real possibility of economic collapse in these countries. Spain, UK, and Germany are all on the edge of the abyss as well.

It is important to note here that America’s debt is now around 75% of our GDP, and is projected to increase to 100% of our GDP by the end of Obama’s first term:

http://en.wikipedia.org/wiki/United_States_public_debt

Debt is the major driving force that will trigger collapse, and the U.S. is well on its way to accumulating epic amounts of it.

If any of these countries default on their debt (including the U.S.) the shockwave will send the rest of the globe into financial retreat.

Smoke And Mirrors

It’s nice to maintain a rosy outlook on the economic situation we face. It makes us feel safe. The fact is, though, that we are far from safe, and denying the problem will not make it go away. The MSM’s main drive, at least for now, is to promote a sense of well being. Some of them do it because they believe the markets are driven by psychology and that by creating a positive atmosphere, we can somehow make our troubles disappear through shear force of will. Of course, this is an absurd notion.

Others ignore the facts and spin ideas of recovery deliberately and with malicious intent, because they know comfortable people are not alert, and those that are not alert are easy to surprise, and surprised people are easy to control. The globalist George Soros for instance has lately been denying all signs of collapse, and making claims countries like Greece, Dubai, and the UK, have nothing to worry about:

http://moneynews.com/StreetTalk/Soros-Greece-Dubai-Default/2009/12/14/id/342566

Gee, I know that makes me feel a whole lot better.

What we are witnessing today is perhaps the greatest faux recovery in the history of the world. There is a reason why there is so much conflicting evidence. There is a reason why many economists are confused as to where the economy is going; because some of the evidence is based in fact, while the rest is designed to deceive. Learning and standing by economic fundamentals can help one in discerning what rings true and what does not. The fundamentals cannot be changed, they can only be hidden. Stick with the foundations of the system, ignore the fluff, the fog and shadows media game, and you will never be caught unaware when disaster strikes.

Superfund Says Gold to Rise to $2,000 Amid ‘Massive’ Inflation

Kim Kyoungwha

Oct. 28 (Bloomberg) -- Gold may rise to a record $2,000 an ounce in the next three years as investors hedge against “massive” inflation sparked by governments printing money, according to Superfund Financial Singapore Pte’s Aaron Smith.

“In the next few years, after the deflation cycle, we’ll see massive inflation,” Managing Director Smith, 30, said in an interview. “Soon, when you go to buy a cup of coffee, you’ll pay $20 or $30 because the dollar won’t be worth anything.”

The company’s Superfund Green Gold A Fund, which has more than doubled since its inception in 2005, has lost 15.6 percent this year because of higher volatility, said Smith, who joined in 2002. Gold rose to an all-time high this month as governments including the U.S. boosted debt to combat the global recession.

“When the U.S. dollar crashes, all the paper currencies have to crash, otherwise if their currencies are too strong, their economies will be weak,” said Smith, who issued similar gold forecasts in May and earlier this month. “Another excellent buying opportunity for investors is silver.”

Gold for immediate delivery, which touched a high of $1,070.80 an ounce on Oct. 14, traded at $1,039.32 at midday in Singapore. The metal has strengthened 18 percent this year, while the Dollar Index, a six-currency gauge of the dollar’s strength, fell 6.4 percent.

Gold Forecasts

Smith joins investors including Shayne McGuire, director of global research at the Teacher Retirement System of Texas, and Jim Rogers in forecasting higher gold prices. Pension funds will increase gold holdings as currencies decline, McGuire said on Oct. 22. Gold will probably top $2,000 in the next decade as the dollar weakens, Rogers said Oct. 7.

Superfund, founded in 1995 and backed by $1.6 billion in assets, specializes in so-called managed futures, using its own trading system to generate buy and sell calls on stock, bond, currency and commodity futures. Still, the company’s flagship Superfund A, which gained 35.4 percent last year, has lost 24 percent this year, Smith said.

The ratio of silver to gold, currently at 62.35, will be “cut in half” in the next three to five years as millions of people in South Asia and China buy the metal as an alternative because they can no longer afford gold, Smith said. Silver has soared 46 percent this year to $16.65 an ounce.

The Mother of all Carry Trades

US indexes - in fact global indexes - surged on weekend news that G20 nations shall largely continue their policy of stimulate, print, and stimulate more. The irony at this point is actual strength has the potential to hurt the markets, since it would be followed by tightening measures - so instead the market is having its cake and eating it too. When positive economic data is out, that is good for stocks (for obvious reasons)...and when negative economic data is out, that is also good for stocks because it means no end in assistance from central banks and governments. Gains were broad as the NASDAQ, S&P 500, and Russell 2000 all logged returns of 2.0-2.2%. The dollar continued its downward ways... closing at a 15 month low; and all was well in the world after the hiatus experienced a few weeks ago.

• The Dow Jones industrial average stormed to its highest level in more than a year Monday as a falling dollar boosted prices for gold, oil and other commodities. Stocks also jumped as investors grew more confident that governments around the world will keep interest rates low to help the global economy.
• Investors around the world see the dollar as weaker than other currencies, and so they're using it for what's known as a "carry trade," to finance purchases of investments in other countries. That trend takes the dollar down further when those purchases are made.

We've written in depth about the carry trade here; and it has become the *only* trade in town.

While extremely crowded, so was the "long technology" trade in 1999 and "long US real estate" in 2006. It is not so much the "US dollar should go down" part that has flaws, but the idea that every asset in the world is bullet free and can be bought as long as the US dollar falters thesis that has taken on an "over the top" pretense. But until it ends, it can continue for a long time... so we might be repeating this broken record for many more days ahead. Let it be known however, that when this relationship does shred you will see massive dislocations as so many speculators try to exit the same narrow door. Nouriel Roubini had an appearance on CNBC last week calling this the "mother of all carry trades"- 9 minute video.

What will be interesting is when this trade drives up the price of commodities to a point they turn from "neutral" to a major cost impediment both for consumer and corporation. If oil starts sniffing >$100 can we still pretend everything is fine? For now, that appears to be a worry for another day (month? year?). As the dollar was crunched, gold rallied to new nominal highs, breaking the $1100 threshold to finish at $1101.40.

• Gold prices climbed to another new high Monday as the U.S. dollar sank to a 15-month low. Gold for December delivery soared as high as $1,111.70 on the New York Mercantile Exchange before settling at $1,101.40 an ounce, up $5.70, or 0.5 percent.
• The gains came as the ICE Futures US dollar index, which measures the dollar against other currencies, dropped more than 1 percent to its lowest level since August 2008.

Silver gained 9 cents to finish at $17.46 and as we predicted Friday, the weakness in oil due to a frail US economy we saw in last week's closing session was forgotten after a weekend of speculative joy... crude jumped $2.37 to finish just under $80. What horrific unemployment figures?

If you are wondering where all that liquidity is heading, aside from direct purchases of US Treasuries via quantitative easing by the Fed, another sort of Ponzi scheme is running in the background. As the banks build reserves, courtesy of 0-0.25% Federal Funds rate, much of that money is simply going into.... (wait for it)... US Treasuries. Can you find which shell the US Treasury bill is hiding under? So when you hear of "insatiable demand" for US debt... here is the reality. After all, why lend money when Ben Bernanke offers you risk free returns?

• You know an economy isn’t healthy when banks are using as much of their money to buy government debt as they are to make loans to businesses. That’s just what’s happening right now. At the end of October, business loans were down 17% from a year earlier, while Treasury and agency debt holdings were up 8%.
• ... this helps explain why yields on Treasury bonds are so low even with mammoth U.S. budget deficits. Credit-wary U.S. banks are helping to finance this deficit because they’re afraid to put their money anywhere else. They can still earn a good, low-risk return buy borrowing very cheap short-term money and parking it in higher yielding Treasury bonds. They’re not the sole factor, but they contribute.

Europe and Asia were similarly thrilled by the pledges of sustained easy money. Britain's FTSE 100 rose 1.8 percent, Germany's DAX index jumped 2.4 percent, and France's CAC-40 rose 2.1 percent. In Asia, Japan gained 0.2 percent, China 0.4 percent while Hong Kong (+1.7%) and India (+2.1%) were the standouts. Brazil gained 2.1 percent.

5 Reasons The GDP Jump is Bull$shit

Brian Sullivan

GDP last quarter grew 3.5%, more than the consensus estimate of economists. That's good. Any positive GDP print is better than a continued drop in the economy.

Before we break out the party hats, keep in mind a few key points that may make that 3.5% gain much less than the headlines suggest:

1. Dollar-for-dollar we're losing money. Instead of thinking in percentage terms, think of GDP in dollar terms. The 3.5% growth is from a jump in total seasonally-adjusted output from $12.901 trillion dollars in 2Q to $13,014 trillion last quarter. In other words, the economy added approximately $112 billion dollars in output quarter-over-quarter. Yet we have spent $173 billion worth of the $787 billion dollar stimulus plan so far.

In other words, the stimulus plan is 'returning' just 65-cents for every dollar spent.

Factor in future interest on the stimulus debt or the reduced buying power of a dollar once the money-printing stokes inflation and that 'return' may fall even more.

As FTN Financial economist Chris Low states in a note to clients this morning, "the economy is entirely dependent on federal deficit spending at the moment." Government consumption rose 2.3% with non-defense spending increasing 6.8%. Non-defense spending has risen on average about 3.5% per year over the past decade, so this near doubling of the 10 year average shows that spending from the stimulus plan is a big part of the increase. Financing growth today at the expense of greater debt tomorrow is a slippery slope. If one borrows $100 dollars today at 4% interest and has (like most government bonds) a 10 year loan, we may have 'gained' $100 today for immediate needs but will end up paying $140 over the length of the loan.

There is still much time - and hundreds of billions in stimulus left to spend - for Americans to see a better return on their investment. But let's hope that future spending results in a better 'return' on our stimulus investment than 65-cents on the dollar.

2. The job market remains weak. Unemployment claims came in at 530,000 last week. Worse, as Miller Tabak's Dan Greenhaus points out, revisions to prior data means the total number of people filing for some form of continued unemployment insurance rose above 10,000,000 for the first time ever during the week of October 3rd. While fewer people may be losing their jobs, America isn't adding jobs either. Everything is about jobs. Unless the unemployed can find work and those working feel more secure in their jobs, we are unlikely to see any sustained recovery. 10 million people collecting unemployment insurance is a huge drag on state and local budgets. The President admitted today that job recovery will be slow, but the growth better occur soon or the benefits to those 10 million out of work Americans will soon drain and require the government to print or borrow more money to fill the hole.

3. Consumption is up, but much was driven by temporary incentives. Personal consumption rose 3.4% last quarter, with durables posting a massive 22.3% jump. Durables are the big ticket items (cars, etc) that have largely been driven by artificial incentives to spend. Cash for Clunkers, tax credits for energy efficient appliances and other temporary programs drove consumers into showrooms. More succinctly, of the $112 billion increase in seasonally-adjusted GDP, $36.2 billion of that - or about 1/3rd - was auto sales.Those programs, while helpful to car dealers and appliance stores, are not only temporary but there are many, such as auto sales analysis firm Edmunds.com, who estimate that programs like 'C4C' end up costing taxpayers more than they bring to the economy. The idea being that the credits do not result in 'new' money being created, but are rather a transfer to certain consumers' pockets from a growing American federal debt load that ultimately must be paid back or continually refinanced through more debt sales. What happens to consumption and sales when the incentives end remains a huge unanswered question.

4. Housing helps but can it last? The whopper in the GDP was residential spending activity, which rose 23.4% and adding more than a half-percent to GDP after being a drag for nearly three years. That's good news, but like the example of consumer durables above, one wonders if we are growing now at the expense of an economic drag later. The National Association of Realtors argues that nearly half of the jump in home sales this year was directly attributable to the tax credit. Also recall that the National Association of Home Builders, a group which ostensibly supports any program that helps sell homes, has itself estimated that if the home buyer tax credit is extended through November 2010, would cost about $30 billion in lost tax receipts while generating tax revenues for federal, state and local governments of $11.6 billion. That's a spend of nearly three dollars for every dollar raised. So while the tax credits are great for buyers, realtors and others in and around the housing market, it is money that is coming at the expense of greater long-term federal deficits.

5. The weaker dollar isn't doing what we keep hearing it's supposed to do. We are told over and over by proponents of a weaker U.S. dollar that it's good for America because it will help companies here sell their goods around the world. I have often argued this is a fallacy for two reasons: 1) when the dollar falls, other countries can borrow dollars and more cheaply finance capital projects in their own country, and 2) the Chinese yuan is pegged to our dollar and as we fall, the yuan falls, resulting in a similar net difference in currency valuations and maintaining China's massive labor cost advantage. The GDP report seems to confirm that view, as imports actually grew faster than exports, meaning more non-U.S. goods are flowing into America than the other way around.

Central Banks to Buy 10Million Ounces of Gold Annually

Image via Wikipedia

More evidence of USDollar's impending death, and coming inflation:

Jeffrey Christian, managing director of CPM Group, told the Denver Gold Forum on Monday that central banks are expected to buy 6 million to 10 million ounces of gold annually due to currency uncertainties after being net sellers in past decades. Christian gave what he said was a conservative forecast for gold to average $914 an ounce over the next 10 years.

"What we are seeing is that central banks are making the transition from large net sellers to large net buyers," Christian said. "You will see a net buying of 6 (million) to 10 million ounces per year by central banks, and that is an extremely conservative projection," he said.

Christian said that European central banks appeared to be done with their gold selling, and that central banks in emerging countries which have been building up foreign reserves were now diversifying into gold due to volatility in the dollar and other major currencies. Recently, China and other emerging economies have signaled growing interest in gold rather than stockpiling their currency reserves in U.S. dollar-denominated assets.