Tuesday, January 27, 2009

U.S. recession knows no borders

U.S. recession knows no borders by Tony Sagami

President Obama and the Democrat-controlled Congress are on a multi-trillion dollar spending spree to keep our economy from slowing even further.
Whether all that spending will revive our economy is yet to be seen. However, one thing is very clear —
Our recession is spreading across the Pacific Ocean to the booming Asian economies.
The United States has become a nation of consumers. And countries that make all the doodads, toys, clothes, and other consumer goods we can't seem to go without are seeing their economies slow to a snail's pace as we buy less and less.
As U.S. consumers buy less and less, many Asian countries are seeing their exports slow to a snail's pace.
The Chinese National Bureau of Statistics released their GDP data for 2008. And it turns out that the Chinese economy expanded by 6.8% in the last quarter of 2008 — the weakest quarterly year-over-year growth rate in seven years!
And for the year as a whole, the Chinese economy grew only 9%, way down from the 13% growth rate in 2007.
The reason for the slowdown is simple: Exports are way down ...
China's exports tumbled 2.8% in December, the most in nearly a decade. To put that in perspective, China enjoyed a 21.7% increase in exports during the fourth quarter of 2007. And for all of 2008, exports were up by just 17.2%, a huge drop from 25.7% in 2007.
I also pay a lot of attention to electrical output. That's because this statistic is an extremely accurate indicator of overall economic growth (or lack thereof). And in the fourth quarter China's electrical output was 6% below the same period in 2007.
Now, you may be telling yourself that a 6.8% economic growth rate is nothing to sneeze at. You're right — we'd do cartwheels for that type of economic growth in the U.S. — but the circumstances in China are very different.
You see, a population of 1.3 billion means that tens of millions of new workers are entering the workforce every year, especially as migrants from the poor interior cities move to the coastal cities looking for factory and construction jobs.
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So while 6.8% growth would be great in the U.S., a growth rate of 6.8% is almost like a recession to China.
On top of that, China is also facing pressure from President Obama to allow the yuan to rise in value. Timothy Geithner, Obama's pick for Treasury Secretary, said that "China is manipulating its currency."
Nevertheless, the last thing China can afford is to allow its currency to rise and make its exports more expensive. So I foresee that the currency-valuation issue will probably turn into some sort of political battle down the road, threatening to make things worse for both the U.S. and China.
No doubt, China's slowdown is going to affect more than just its own economy. And the steepness of this slowdown is likely to have a significant impact on much of the rest of Asia, which relies heavily on demand from China.
In fact, it is already causing ...
Slumps in Three Major Markets:
Slump #1 — Japan ...
The Japanese Finance Ministry reported that Japanese exports plunged by a faint-inducing 35% in December from the year before. For an export-dependent country like Japan, that is a kiss of corporate profit death.
Sony, for example, reported its first annual loss in 14 years last week. It also announced 8,000 layoffs and the closure of 10% of its manufacturing plants around the world.
Slump #2 — South Korea ...
Samsung reported its first ever quarterly loss. And it warned that it expected the cell phone market to drop by another 5% or 10% in 2009.
South Korea's economy contracted a painful 5.6% last quarter — twice as bad as had been expected. The problem? China is South Korea's biggest export market. And exports to China are nose diving.
Case in point: Korean electronics giant Samsung reported its first ever quarterly loss. The $674 million loss was a whopping two times larger than the Wall Street crowd was expecting.
The big problem, by the way, was cell phone sales. Furthermore, Samsung warned that it expected the cell phone market to drop by another 5% or 10% in 2009. So if you're a Motorola or Nokia shareholder, you might want to re-think the wisdom of holding on to a company in a shrinking industry.
Slump #3 — Australia ...
Australian Prime Minister Kevin Rudd warned last week that the slowdown in China will chop $3.3 billion of business from the Australian economy.
He went on to say, "And that means a massive five billion dollar fall immediately in Australian exports, just because of China alone, and with a consequential impact on Australian jobs."
In fact, Australian mining giant BHP Billiton is closing a nickel mine and cutting 6,000 jobs around the globe because of weaker demand from China, the world's No. 1 consumer of metals.
I could go on:
Singapore, Taiwan, India, Malaysia, Indonesia, and China's other Asian neighbors are all feeling the same economic pinch.
What's important is that things are going to get worse before they get better. I'm not just talking about the U.S., either.
What You Should Be Doing Now ...
I think U.S. dollar-denominated assets will get clobbered the most. So use any rallies to sell stocks and reduce your exposure to equities.
As the U.S. recession sends a financial tsunami from sea to shining sea, there are five moves you might consider to protect your wealth and profit from the chaos ahead ...
Use any rallies to sell stocks and reduce your exposure to equities. Raise cash!
I think U.S. dollar-denominated assets will get clobbered the most. I expect U.S. stocks and U.S. bonds to be among the worst performing assets in the world. I would avoid them like the plague!
Our politicians are spending money like there's no tomorrow. And that means a whole lot of inflation is in our future. So make sure your portfolio includes some inflation hedges, such as gold and timber.
If you're very aggressive and have some speculative money you can afford to put at risk, take a look at either long-term put options (also known as LEAPs). Or consider inverse exchange traded funds, such as the ProFunds Ultrashort FTSE/Xinhau China 25 (NYSE:FXP). This ETF is designed to move twice the inverse of the daily performance of the FTSE/Xinhua China 25 index. In other words, for every 10% the index drops, the ETF is meant to go up 20%. Of course, the opposite can happen: If the index rises 10%, the ETF could drop 20%.
Get ready to become a big, big buyer. The economic picture will get uglier. But the best time to buy is when nobody wants to! And don't forget that stock markets historically bottom 6-12 months before the economy does.
My Asia Stock Alert subscribers have already implemented the above strategy and are calmly waiting for the buying opportunity of a lifetime. I hope you will be ready to do the same.
Best wishes,
Tony

About Money and Markets
For more information and archived issues, visit http://www.moneyandmarkets.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Michelle Johncke, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.




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Friday, January 23, 2009

Home Video Security System

Home Video Security System
A Wireless Security Camera Makes Video Surveillance Easy, Portable and Cost EffectiveWith a wireless security camera, the walls have eyes. You can easily monitor the safety of your home or business without the complications of a wired camera system. A wireless security camera system lets you observe various rooms or locations in your home or office.The Security Camera GuideSecurity cameras are the most popular home security products. There are many home security companies that sell different types of security cameras. There are dummy cameras, wireless cameras, digital cameras, hard-wired cameras, and more. There are a variety of home security cameras for you to choose from.Wireless Home Security Cameras - Home Security Without The HassleWireless security cameras are quickly becoming the most popular commodity for security camera enthusiasts or those that simply need an added touch of security without the hassle of wires. Sometimes security needs a little discrepancy, and that's where wired security cameras fall short, and wireless cameras pick up.Discount Wireless Security CamerasIf you are concerned about the security of your home or business, a great aid in keeping your home or business secure is a surveillance camera or a multi-surveillance camera system. There is a large variety of surveillance cameras available that vary in design, price, capabilities and features. If you want to install a security camera in a hard to reach area where it is difficult to put a camera that has cables, a wireless security camera is perfect for you. Wireless cameras have no cables to deal with and their only limit is their range. Wireless cameras are convenient and usually easy to install.Understanding The Basic Styles Of A Security CameraWhen shopping for a security camera, it is important to have a basic understanding of the different styles of cameras, as well as the different modes. There are currently three main body styles: bullet, dome and box.Different Types of Hidden Security CamerasSpy on your nanny, your kids, or even your spouse!! Protect your home or business with a hidden security camera.Night Vision Security Camera - Do You Really Need One?A night vision security camera may sound like something our law enforcement officials would only use, but it is more commonly used by home and business owners than you might think. The question is, do you really need one?Why Buy A Wireless Security Camera?Protect your home and family with a wireless security camera!Design Your Security Camera System For Your NeedsAre you thinking of getting a security camera system for your home or business? Be sure to have a design that fits your specific needs. A camera set-up for a home will be quite different than a system for a business. Here's some tips in getting the right system for your situation.Low Light Security Camera Tips To Know Before You BuyThere are few things you should keep in mind when selecting the right low light security camera for your needs. How do you know your camera will perform in low light situations? Each camera has a specification known as the camera Lux rating or Minimum illumination rating.Why You Need A Home Security Camera And Selecting The Best One For Your NeedsWhen considering a home security system do not discount the importance of a good surveillance camera. Having a surveillance camera is a good way to scare of potential intruders.Fake Security Camera BasicsFake security cameras, also known as dummy cameras, are an imitation of a real security camera. Fake cameras are used to fool burglars and scare them away, as they look eerily similar like a real camera. Fake cameras are a very considerable option since they are quite cheap and available in half the cost of an original real camera.Security Camera SystemSecurity surveillance cameras are now available in different models and in different price ranges. Wireless security system is known as the most cost effective security system now available in the market. CCTV security surveillance system or close circuit television security system is fast becoming an integral part of the present day security system.Bolting A Safe To The GroundAn article in today's newspaper talked about how thieves stole a safe from a home. The safe was quite substantial in size but apparently, the burglars had enough time and the tools to remove the safe. The burglars obtained over $100,000 in cash and savings bonds.How to Protect Your Property and Your FamilyWhen it comes to alarm systems, you have a lot of choices. There are many different types of alarm systems on the market today and there are also many different components that make up an alarm system. You may choose to get a simple, bare-bones type model which will have fewer "extras" or you may choose an alarm system with all the bells and whistles.Luxury Jewelry Safes - The Perfect Home For Your ValuablesIf you rely on hiding places to secure your most valuable possessions, then you should consider a luxury safe for your home. These are not the ugly gray boxes that come to mind when thinking about a safe, but are decorative accouterments that will add decor as well as security to your home.Safes And Vaults For Your HouseFor precious possessions and vitally important documents, the optimal safeguard against burglary and fire is a safe-deposit box at your local bank. But most of these safe-deposit boxes are too small for bulky objects, and too inconvenient for frequently used items like financial records and computer disks. The best way to protect such articles is to store them in a safe in your residence that is burglar and/or fire resistant.Home Security Systems Help Prevent BurglariesThe mere presence of a home alarm is often enough to deter a would be burglar. Establishing a well built level of protection around your home is the best way to keep your home safe.Choosing a Burglar Alarm SystemsBurglar alarms are more needed now then ever. Statistics today show that a burglary occurs every 14 seconds. So why put your house at risk of being burgled instead of doing something now and getting a good, solid home burglar alarm system installed?


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Thursday, January 22, 2009

Where have our leaders gone?

Where have our leaders gone?

Released on: January 21, 2009, 4:25 am
Press Release Author: Anonymous-received as a forwarded email
Industry: Media
Press Release Summary: Where have our leaders gone? The only person I know who may be able to police and oversee the gigantic amounts of tax payer dollars being wasted and put into a defunct auto manufacturing industry is Iacocca and they are afraid to ask his opinion - they already know his answer!
Press Release Body: Remember Lee Iacocca, the man who rescued Chrysler Corporation from its death throes? He's now 82 years old and has a new book, 'Where Have All The Leaders Gone?'.Lee Iacocca Says: 'Am I the only guy in this country who's fed up with what's happening? Where the hell is our outrage? We should be screaming bloody murder! We've got a gang of clueless bozos steering our ship of state right over a cliff, we've got corporate gangsters stealing us blind, and we can't even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, 'Stay the course.'Stay the course? You've got to be kidding. This is America, not the damned, 'Titanic'. I'll give you a sound bite: 'Throw all the bums out!' You might think I'm getting senile, that I've gone off my rocker, and maybe I have. But someone has to speak up. I hardly recognize this country anymore.The most famous business leaders are not the innovators but the guys in handcuffs. While we're fiddling in Iraq , the Middle East is burning and nobody seems to know what to do. And the press is waving 'pom-poms' instead of asking hard questions. That's not the promise of the 'America' my parents and yours traveled across the ocean for. I've had enough. How about you? I'll go a step further. You can't call yourself a patriot if you're not outraged. This is a fight I'm ready and willing to have. The Biggest 'C' is Crisis! (Iacocca elaborates on nine C's of leadership, with crisis being the first.) Leaders are made, not born. Leadership is forged in times of crisis. It's easy to sit there with your feet up on the desk and talk theory. Or send someone else's kids off to war when you've never seen a battlefield yourself. It's another thing to lead when your world comes tumbling down.On September 11, 2001, we needed a strong leader more than any other time in our history. We needed a steady hand to guide us out of the ashes. A hell of a mess, so here's where we stand.We're immersed in a bloody war with no plan for winning and no plan for leaving. We're running the biggest deficit in the history of the country. We're losing the manufacturing edge to Asia, while our once-great companies are getting slaughtered by health care costs. Gas prices are skyrocketing, and nobody in power has a coherent energy policy. Our schools are in trouble. Our borders are like sieves. The middle class is being squeezed every which way. These are times that cry out for leadership.But when you look around, you've got to ask: 'Where have all the leaders gone?' Where are the curious, creative communicators? Where are the people of character, courage, conviction, omnipotence, and common sense? I may be a sucker for alliteration, but I think you get the point.Name me a leader who has a better idea for homeland security than making us take off our shoes in airports and throw away our shampoo? We've spent billions of dollars building a huge new bureaucracy, and all we know how to do is react to things that have already happened.Name me one leader who emerged from the crisis of Hurricane Katrina. Congress has yet to spend a single day evaluating the response to the hurricane or demanding accountability for the decisions that were made in the crucial hours after the storm. Everyone's hunkering down, fingers crossed, hoping it doesn't happen again. Now, that's just crazy. Storms happen. Deal with it. Make a plan. Figure out what you're going to do the next time.Name me an industry leader who is thinking creatively about how we can restore our competitive edge in manufacturing. Who would have believed that there could ever be a time when 'The Big Three' referred to Japanese car companies? How did this happen, and more important, what are we going to do about it? Name me a government leader who can articulate a plan for paying down the debt, or solving the energy crisis, or managing the health care problem. The silence is deafening. But these are the crises that are eating away at our country and milking the middle class dry. I have news for the gang in Congress. We didn't elect you to sit on your asses and do nothing and remain silent while our democracy is being hijacked and our greatness is being replaced with mediocrity. What is everybody so afraid of? That some bonehead on Fox News will call them a name? Give me a break. Why don't you guys show some spine for a change?Had Enough? Hey, I'm not trying to be the voice of gloom and doom here. I'm trying to light a fire. I'm speaking out because I have hope - I believe in America. In my lifetime, I've had the privilege of living through some of America 's greatest moments. I've also experienced some of our worst crises: The 'Great Depression,' 'World War II,' the 'Korean War,' the 'Kennedy Assassination,' the 'Vietnam War,' the 1970's oil crisis, and the struggles of recent years culminating with 9/11.If I've learned one thing, it's this: 'You don't get anywhere by standing on the sidelines waiting for somebody else to take action. Whether it's building a better car or building a better future for our children, we all have a role to play. That's the challenge I'm raising in this book. It's a "Call to Action" for people who, like me, believe in America'. It's not too late, but it's getting pretty close. So let's shake off the crap and go to work. Let's tell 'em all we've had 'enough.'Make your own contribution by sending this to everyone you know and care about. It's our country, folks, and it's our future. Our future is at stake!!
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Monday, January 12, 2009

Last Nail in the Coffin

Last Nail in the Coffin by Martin D. Weiss, Ph.D.

The government has just released one of the most shocking federal budget reports of all time.
Even if you overlook the gaping holes in their economic assumptions, it's obvious the federal deficit is going to deliver a punch below the belt of the economy.
And once you unveil the shaky assumptions, it's equally obvious the deficit could be the last nail in its coffin.
First, Look at the Government's Own Shocking Numbers!
The Congressional Budget Office (CBO) estimates that ...
The 2009 federal deficit will be $1.186 trillion! Even after adjusting for inflation, that's more than the combined cost of the Vietnam War ($698 billion) and the Korean War ($454 billion) ... 4.6 times more than the entire S&L bailout of the 1980s ... and 5.5 times larger than the Louisiana Purchase:
In sheer dollars, the 2009 federal deficit will shatter every record deficit of every nation in history.
Even in proportion to the larger U.S. economy, the 2009 deficit will represent 8.6% of GDP — more than four times the average under Bush, nearly seven times the average under Clinton, and 1.4 times the post-World War II record of 6% under Reagan.
After you factor in the additional deficit spending and tax cuts proposed in the Obama stimulus package, the deficit will surge to 10% of GDP.
Federal spending will reach 25% of GDP — the highest level in American history outside of World War II. But during World War II, most of the money was spent on war-related production, creating entire new industries and keeping millions of Americans in uniform or on the job. In contrast, most of the 2009 deficit spending will be for corporate bailouts, unemployment benefits, Social Security and Medicare.
Already, in the first quarter of fiscal 2009, the federal deficit has ballooned to $485 billion, an unprecedented increase of 353% compared to the previous year. If it continues to grow at that pace, it will make all the above estimates look small by comparison.
This is not a fictional scenario conjured up by a gloomy economists with a murky crystal ball. Nor does it represent a third-party diatribe against Democrats and Republicans. It accurately represents the actual numbers just released by the nonpartisan CBO on January 8.
Second, Take a Closer Look At Their Assumptions!
Beyond the traditional budgetary smoke and mirrors, here are just some of the holes in their estimates:
1. The CBO implicitly assumes that the debt crisis is largely behind us — no more big bank failures, no more GMs or Chryslers, no more international debt defaults and no Wall Street meltdown. But the very size of its own deficit projection — reaching 10% of GDP — makes that assumption highly questionable.
2. The CBO assumes that federal revenues will remain relatively stable at 17.6% of GDP, only slightly below the 18.3% historical average. That means there can be no depression, no unemployment disaster, no tsunami of corporate red ink and no plunge in federal tax revenues.
"Just make believe those events can never happen!" goes the rationale.
What about the government data showing that the unemployment disaster is already here? "Largely ignore that, too," seems to be the underlying theme.
3. The CBO assumes that the economy will recover after 2009, and the government will get most of its bailout money back. For the TARP program, for example, the assumption is that the cost will be only 25% of the total amount loaned or invested. The remaining 75%, it figures, will be paid or earned back.
In theory, perhaps. In practice, current trends show that the only realistic hope the government might have of recouping its original investment is by providing even more bailout money to sustain the companies it already has on life support.
At Fannie Mae and Freddie Mac, for example, portfolio losses are far larger than anticipated when they were first bailed out last year.Reason: Prime mortgages, which make up the bulk of their portfolios, are now defaulting at much higher-than-expected rates.
At Citigroup, the government has committed to an additional $20 billion on top of the initial $25 billion the bank received initially. Plus, Citigroup also has received a government backstop for up to $306 billion in loans and securities backed by mortgages. But here, too, the government's liabilities and losses are bound to be larger than anticipated.Reason: The bank's portfolio is stuffed with home mortgages, credit cards and other consumer loans that are highly exposed to surging unemployment.
We see the same pattern at AIG, General Motors, Chrysler and nearly every major corporation the federal government has bailed out so far: More good money after bad!
Ultimately, the government will either have to write off most of its bailout investments or wind up nationalizing the companies, draining more taxpayer money for a longer period of time.
Third, Consider theInevitable Consequences!
Based strictly on the official estimates of the 2009 deficit, any economist not on drugs must conclude that, in the coming months and years ...
The federal government will have to borrow more money than at any time in history ...
To raise that money, it will have to shove aside individuals, businesses, local governments and virtually all other borrowers, scooping up most of the funds available in the already-tight credit markets ...
By crowding out other borrowers, it will sabotage its own efforts now underway to restore private credit markets ...
It will put great upward pressure on interest rates — and ironically ...
It could bring on a new, more virulent debt crisis that deepens and prolongs the economic decline.
Fourth, Don't Forget the Big Impact This Can Have on You!
The official budget estimates are sending you the same message I've been giving you: You must brace yourself for America's Second Great Depression.
Any saver or investor who does NOT take protective action could be making a fatal mistake.
My recommendations are unchanged:
Recommendation #1. Keep as much as your money as safe and as short term as possible.
Recommendation #2. Despite the low yield, I recommend short-term U.S. Treasury securities for up to 90% of your money.
Recommendation #3. Despite apparent "bargains" now available in stocks and real estate, use any rally or recovery to get out of BOTH as fast as you can.
Recommendation #4. Don't dump your assets at any price. Sell in a deliberate, disciplined pattern. But do not delay! The time to move to safety is right now.
Recommendation #5. Learn how to build up an alternative source of profits and income, a core subject of our emergency briefing this coming Thursday at noon Eastern Time. Click here to sign up.
Good luck and God bless!
Martin
About Money and Markets
For more information and archived issues, visit http://www.moneyandmarkets.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Michelle Johncke, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.



Millions of Loans Modifications ComingHundreds of thousands, if not millions, of loan modifications may be soon under way. The government is considering a plan that would help 3 million homeowners avoid foreclosure. The plan would include loan modifications that would lower their interest rate for five years. According to the Mortgage Bankers Association, more than 4 million homeowners were at least a month behind on their mortgage in June and 500,000 had started the foreclosure process so some type of plan is desperately needed. Some banks have already started allowing borrowers to modify their existing loan. JP Morgan announced last week that they are starting a new program to stem the number of foreclosures and they will not put any homes in foreclose for the next 90 days while they implement the plan.JP Morgan's program will also include Washington Mutual and EMC clients, which they acquired earlier this year.Bank of America will start loan modifications Dec. 1 that are expected to cover about 400,000 loans previously held by Countrywide.I look forward to the help borrowers will receive under these loan modifications.

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Friday, January 09, 2009

Biggest flood of red ink the world has ever known

The biggest flood of red ink the world has ever known by Mike Larson

How much is $1.186 trillion — or $1,186,000,000,000, written out the long way?
• It's more than the inflation-adjusted cost of the Vietnam ($698 billion) and Korean Wars ($454 billion).
• It's more than the Louisiana Purchase ($217 billion) and the Savings and Loan bailouts ($256 billion).
• It's greater than the 2007 Gross Domestic Product of all but 13 other countries in the world.
• It's equal to $3,881 for every man, woman, and child in the U.S.
• It could buy 189,760,000,000 bushels of wheat at recent prices. 26,893,424,036 barrels of oil. Or 1,581,333,333,333 cans of Diet Coke at my trusty vending machine in the break room.
Why do I bring this up? Because that $1.186 trillion figure is the projected 2009 deficit, according to the latest report from the Congressional Budget Office (CBO).
And it is downright scary.
These Numbers Are Big — Really Big!
That $1.186 trillion is such a large number — so out of control — that it's hard for most of us mere mortals to process it. Suffice it to say ... It's the biggest flood of budgetary red ink any country has ever seen in world history. And it makes last year's $455 billion deficit look like chump change.
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It's not just the absolute number, either ...
The projected 2009 figure is equal to about 8.3% of U.S. GDP. That tops the post-World War II record of 6% set in 1983.
Still not worried?
Then get a load of this:
The CBO estimate doesn't even include any potential stimulus package from Congress and the Obama administration.
We haven't gotten the final details of the stimulus plan. But it could cost anywhere from $675 billion to $1 trillion. That means the ultimate 2009 deficit could end up being larger by 60% ... 70% ... 80% ... or more!
Is the red ink a short-term problem, one that will soon go away? Not according to the CBO. Scroll through the agency's report — "The Budget and Economic Outlook: Fiscal Years 2009 to 2019" (available at: http://www.cbo.gov/ftpdocs/99xx/doc9957/01-07-Outlook.pdf) and you'll come to a nifty table on page 23.
It projects red ink as far as the eye can see: An ADDITIONAL $3.135 trillion from 2010 through 2019.
Source: CBO
Two possibilities could bail us out of this black hole of debt:
Congress and the incoming administration could really clamp down on spending going forward to stem the tide of red ink.
Or the stimulus plan could manage to completely offset all the credit, real estate, and economic problems, thereby leading to a windfall in tax receipts.
Both are highly unlikely ...
And if neither scenario comes about, this country's finances are going to be blown to hell for years and years to come.
Consequence-Free Borrowing Forever?Not Bloody Likely
Now if you're the type of person who believes consumers, corporations, or even sovereign nations can borrow money they don't have ... and spend far beyond their means ... for all eternity, then you can stop reading right now.
The amount of money Obama will need in 2009 scares the bejeezus out of me.
There's absolutely nothing to worry about.
But if you're like me, and you think numbers like $1.186 trillion are so far off the charts that they HAVE to have consequences, then you should be downright scared!
The government is already selling record amounts of debt at auction, day after day, week after week.
This week alone, Treasury sold $8 billion in 10-year TIPS and $24 billion in four-week bills on Tuesday ... $30 billion in 3-year notes and $35 billion in 70-day cash management bills on Wednesday ... and $16 billion of nominal 10-year notes on Thursday. And there's no end in sight.
Total net issuance could approach a mind-boggling $2 trillion by year's end!
At some point, investors are going to balk at all this issuance. They're going to choke on the massive amount of U.S. paper spilling out of Washington. They'll demand higher yields to buy our debt, driving bond prices down and interest rates up, just as I warned in my December 5, Money and Markets column, "The Biggest Bubble of All: Long-term Treasuries?".
External Sponsorship
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Stocks have been hammered for the past 5 years – down 10% according to the S&P 500 index. Gold, meanwhile, is up about 100% during that time.
What few Americans realize, however, is that there's a unique gold investment, created and issued by the U.S. Treasury Dept., which skyrockets AFTER gold prices soar. Last time conditions were this good, it went up 665%... and it's beginning to soar again right now.
Click here for full details ...

Heck, the day of reckoning could already be upon us ...
Thirty-year Treasuries plunged more than 3 points on New Year's Eve ... another 2 30/32 on January 2 ... a whopping 5 16/32 on January 5 ... and another 1 28/32 on January 7. They've lost almost 13 points in a virtual straight line, while yields on 10-year notes shot up from 2.25% to 2.5%.
My advice remains the same: Short-term Treasuries are fine as a place to park your keep safe money. But stay the heck away from long-term U.S. debt.
Until next time,
Mike
About Money and Markets
For more information and archived issues, visit http://www.moneyandmarkets.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Michelle Johncke, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.




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Monday, January 05, 2009

Looming Collapse of Russia, China and more


Looming Collapse of Russia, China and more ... by Martin D. Weiss, Ph.D.

I hope you've had a great start to your New Year!
At the same time, however, I trust you are not counting on the latest holiday rally in the stock market — or the most recent incarnation of the Obama rescue package — to transform 2009 into a positive year for the economy.
The reasons: In addition to the massive wealth destruction I told you about two weeks ago and the continuing debt collapse I've been warning you about for many months now, the overseas engines of global growth are also collapsing.
This does not negate my long-term view that certain overseas economies offer great future opportunities. But it does represent a major short-term threat to U.S. investors, U.S. companies and the U.S. economy as a whole.
The undeniable reality: The debt crisis that first appeared in the U.S. subprime mortgage market ... then precipitated a Wall Street meltdown ... and has now driven the American economy into its sharpest decline since the Great Depression ... has now spread to the entire world.
It is driving the economies of Western Europe and Japan into an unprecedented tailspin. It threatens the economic — and potentially political — stability of Russia, China and several emerging market nations. And it's setting the stage for a global depression of epic dimensions.
Here are some of the most vulnerable major economies ...
Russia Smashed by Oil Price Collapse
Never in modern history has the success or failure of a major emerging economy been so dependent on one single commodity! And never before has that commodity fallen so far and so fast as Russian crude oil!
Russia does have other resource and revenue sources. But in just the past six months, Urals crude, Russia's primary export blend, has plunged from a high of nearly $141 per barrel to a low of a meager $32.34 — a 77% crash that's pounded Russian stocks like a sledgehammer and sliced through the Russian economy like a serrated sickle.
The big dilemma: To balance its federal budget, Russia must get a minimum of $70 per barrel for its crude oil. But at $32 and change, it's getting less than HALF that amount. The entire country is losing money hand over fist.
No wonder Russia's stock market has plunged 72%, forcing 25 separate stock exchange shutdowns!
Transneft, the Russian oil transporter, is down from $2,025 in January 2008 to a recent low of $270. Gazprom, the natural gas monopoly, has lost more than two-thirds of its market capitalization since May. Meanwhile, Lukoil fell from a May peak of $113 to a recent low of $32.
Russia's oil-driven real estate bubble is also collapsing. That's why Russian construction and real estate giant Sistema-Hals lost more than 94% of its value last year alone ... why PIK Group, another major construction giant, collapsed by 96% ... and why the entire RCP Shares Index of Russian developers has sunk 92% since its record high in June 2007.
Ford, Renault and Volkswagen are halting production at Russian assembly lines. Unemployment is likely to surge to 10% and beyond. Massive amounts of foreign capital are fleeing the country.
In a desperate attempt to stem the tide, the Russian government has devalued the ruble 11 times since November, and thrown a quarter of its foreign currency reserves at the raging debt crisis. But it's still not enough. Russia's primary source of revenues — energy exports — is in shambles; and unless crude oil prices could somehow DOUBLE in a big hurry, Russia's economic and financial decline cannot end.
Standard & Poor's has cut Russia's long-term debt rating for the first time in nine years, citing dangerous outflows and a "rapid depletion" of currency reserves. And more downgrades are in the offing. Even a major debt default is not unthinkable.
The biggest danger: Political upheaval and social unrest.
Even before this crisis, Russia's middle class earned less than $500 per month. Now, with the devastating plunge in oil revenues already in place, those numbers are falling to even lower levels. For a nation with a cost of living that rivals that of the U.S., Western Europe and Japan, the last thing the Russian people needed was a depression. Yet that's exactly what they're getting.
I visited Russia last year before the collapse in oil prices. I spoke to a variety of professionals and people on the street. And I stayed with friends who work in government jobs.
From everything I had read, I had anticipated signs of greater prosperity. Instead, I was surprised to see how little average citizens had benefited from the recent years of rapid economic growth.
Yes, they have more access to a wider variety of goods that were scarce during the Soviet era. But most professionals — such as teachers, doctors, nurses and government employees — are still living on the edge of poverty.
Equally surprising is the popular disgust and disdain for the government. Public opinion surveys and press reports may indicate broad support for the Kremlin's foreign policy, and they seem to be accurate. But support for domestic policies is another matter entirely.
My view: Any major disappointment with respect to pocketbook issues could lead to major political changes, the outcome of which is largely unpredictable.
China Far More Vulnerable Than Expected
China's extraordinary expansion of the past decade fueled booms in global trade, commodities and emerging markets. It was a major growth engine that turbo-charged Australia, Brazil, Southeast Asia and even Japan.
Now, however, that engine is grinding to a screeching halt. Indeed, when historians look back to major pivot points of this global economic crisis, they will undoubtedly point to the abrupt end of China's boom.
Many of us assumed that because China's economy was growing so quickly — at a breakneck pace of 10% or more per year — it could easily afford to slow down by a few percentage points and still be in far better shape than most other economies.
But now I seriously question that theory. Indeed, more often than not, companies, industries and entire nations that enjoy the biggest booms are also vulnerable to some of the biggest busts. Instead of a mere slowdown, as many still seem to expect, China's economy could suffer a wholesale collapse.
Exports, which still represent two-fifths of the Chinese economy, are already sinking fast. And the domestic economy, much of which depends directly or indirectly on the revenues flowing from exports, is also beginning to sink.
Warning signs are everywhere: Stocks, down 60% just in the last 12 months; imports, down 17.9% in November alone; foreign investments to China, off 36.5% last year.
In response, the government has slashed interest rates and pledged a $582 billion stimulus package. But that's mere pocket change compared to China's trillions in vulnerable exports. Moreover, it has done little to help millions of small- and medium-sized businesses which are already shutting down and laying off millions.
A big problem: 45% of the Chinese government bailout is earmarked for the cement and housing industry. Meanwhile, cash-flow problems are sweeping through the entire economy, downing airlines, manufacturers and property companies.
Airlines like China Southern and China Eastern, for example, have been losing money hand over fist. China's auto sales are plunging. Its shipbuilding industry is in a tailspin. And its real estate market is collapsing.
Next, expect surging unemployment ... mass reverse migrations from urban centers to the countryside ... spreading popular unrest ... and a major challenge to authority. Chinese leaders have already admitted that an economic downturn would test their ability to govern. Now, that downturn is here — and the ultimate test, on the near horizon.
Meanwhile ...
India, also heavily dependent on foreign demand for its goods, is suffering its worst export slump in recent memory. Overseas shipments plunged 12.1% in October and another 9.9% in November, forcing companies like Tata Motors, India's biggest truck maker, and Hyundai Motor to cut output, fire workers and shut down factories.
Brazil, which was growing at a record pace until the third quarter, has suddenly frozen in its tracks. Much of the foreign money it counted on has vanished, leaving acute capital shortages in its wake. Auto sales have gone dead, leaving biggest-ever inventories of unsold cars. Credit, abundantly available just a few months ago, is now gone.
Japan has been slammed by its worst recession since World War II ... with stock prices plunging to new 18-year lows ... industrial output suffering the largest monthly drop since records were kept ... Toyota reporting its first loss in 70 years ... layoff victims filling tent parks ... and worse.
Everywhere from Argentina and Mexico to Australia, New Zealand and even the once-rich Middle East, the worldwide debt crisis, the bust in commodities and the sharp slowdown in global trade are transforming massive booms into instant recessions.
It's happening fast and it's accelerating. Government rescue programs aren't nearly enough to turn the tide. And it's another key reason you must approach 2009 with great caution.
Stick with safety. Don't veer from the course I have laid out for avoiding the dangers. Wait for the truly big price declines ahead before reinvesting!
Good luck and God bless!
Martin
About Money and Markets
For more information and archived issues, visit http://www.moneyandmarkets.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Michelle Johncke, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.