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New from RGE and Nouriel Roubini

We are very pleased to share with all of you the newest addition to our analytical offerings: The Roubini Global Economics Asset Market Views.  Earlier this month, we announced that Arnab Das had joined RGE as Managing Director of Market Research and Strategy.  Read the RGE Strategy Team’s Q4 Outlook (login required).

Arnab is an exceptional strategist and he has a proven track record of success for building strategy teams.  I hope you will find the attached analysis useful and thought-provoking. It is the first of many such insights to come from RGE’s Strategy Team. Future Strategy Team reports will be available exclusively to RGE clients. To subscribe or upgrade your current account, please contact sales at 212.645.0010 or email info@roubini.com  

Sincerely,

Dean Daniels

Chief Executive Officer

Roubini Global Economics

77 Responses to “New from RGE and Nouriel Roubini”

son ot the paulNovember 3rd, 2009 at 10:40 am

Berkshire Hathaway (BRK.A) is paying $100 per share for the rest of the railroad company it does not already own, in a move that is “an all-in wager on the economic future of the United States,” Buffett said. @ @”

The AlarmistNovember 3rd, 2009 at 12:54 pm

Well, he was going to give most of it away anyway, so what the heck. Must be fun playing Monopoly with real money and railroads. “Take a Ride on the Reading. If you pass go, collect $200M.”

GuestNovember 3rd, 2009 at 3:10 pm

I’m not a fan of Alarmist’s, but I’ll have to say that I’m a worse fan of folks that reply with utter uselessness! Can’t elaborate on your feelings? Limited vocabulary perhaps?

The AlarmistNovember 3rd, 2009 at 3:34 pm

Takes one to know one, I guess. Why don’t you lose the skirt and take a more creative name other than Guest so we can follow your wit and wisdom?

GuestNovember 3rd, 2009 at 10:46 am

Someone made the analogy that we are in the car heading off the cliff because leadership policy has no other solution other than to sell the lie of the false economy they created.It has become obvious to most on this blog that leadership acting as financial terrorist have extorted the working class and by fraud, manipulation and lies have saved themselves only knowing full well the car will soon be ejected off the cliff.So lets start thinking in terms of leadership. This is planned and a coordinated effort to save them and kill the working class. In the end there will be revolution between current leadership and the working class they drove off the cliff.Don’t expect any one in leadership to do anything but put the parachute in place for themselves.

economicminorNovember 3rd, 2009 at 11:39 am

Irrational!The wealth they have is derived from the working class. Their income is derived from the working class. The ability to support the police and military comes from the taxes and bodies of the working class.Why would any rational person or group kill and feast upon the geese that have been laying the golden eggs?What appears to be happening should not exist outside cartoons and pulp fiction.I go back to my earlier conclusion and that is that the people in charge are so disconnected to Main Street, that they really have no clue as to what they are doing. We the People need to fire all those in Congress and the Administration and put the common people back in charge. We need to get the high paid lobbyists out. And you are right, it will probably take some form of revolution to do this.. Unfortunately.

GuestNovember 3rd, 2009 at 12:09 pm

by “leadership” I mean the corporatists and banksters with help from a frightened and morally depraved congress and even those in congress who have lost touch because of bribes

The AlarmistNovember 3rd, 2009 at 12:57 pm

The only thing that keeps them in check is the sobering fact that roughly 60 million private citizens own over 200 million guns.

GuestNovember 3rd, 2009 at 1:51 pm

They can be disconnected, but that doesn’t mean that they don’t know how things actually work. How could it when THEY are the ones making things work?The disconnect is in compassion, a lack of. If there was proper levels of compassion we’d all be christ-like, and That ain’t going to happen.I’ll still contend that there are those who don’t give a feck about others and there are those that do, but that it doesn’t matter because the real issue is that the very system that we’ll all caught up in is not capable of achieving sustainability. It’s not like the “leaders” can all come out and say this, that the natural resource base cannot support the world’s population (of addition of more). It’s the ultimate conundrum: hell will break loose if this fact isn’t communicated; hell will break loose if if is! So, people just go through the motions thinking that it’s way too big of an issue and that “God,” nature, or whatever will resolve it, which is correct.

blindmanNovember 3rd, 2009 at 11:02 am

history tells, combatants perform to establishbetter business relationships for their respective”leadership” who cannot refrain from profiting fromevery drop of blood..the purpose of purpose and flags? conceal the truth of eternal blood sucking. no peace here, nontill quiet, darkness and light..”What goes by the name of love is banishment, with now and then a postcard from the homeland, such is my considered opinion, this evening.”(Samuel Beckett (1906-1989).http://www.poemhunter.com/quotations/famous.asp?people=Samuel%20Beckett&p=13.” [T]he syndrome known as life is too diffuse to admit of palliation. For every symptomthat is eased, another is made worse. The horse leech’s daughter is a closed system. Her quantum of wantum cannot vary. ” samuel becket..Geneva Study BibleThe horseleach hath two {h} daughters, crying, Give, give. There are three things that are never satisfied, yea, four things say not, It is enough:(h) The leach has two forks in her tongue, which here he calls her two daughters, by which she sucks the blood, and is never satisfied: even so, the covetous extortioners are insatiable.Wesley’s Notes30:15 The horse – leach – An insatiable creature, sucking blood ’till it is ready to burst. Two daughters – The following things resemble the horse – leach in its insatiableness; nothing being more ordinary than to call those persons or things the sons or daughters of those whose examples they imitate. Three – Though he begins with two, yet he proceeds from thence to three, and four, all which are said to be the daughters of the horse – leach.King James Translators’ NotesIt is…: Heb. WealthJamieson-Fausset-Brown Bible Commentary15, 16. horse leech-supposed by some to be the vampire (a fabulous creature), as being literally insatiable; but the other subjects mentioned must be taken as this, comparatively insatiable. The use of a fabulous creature agreeably to popular notions is not inconsistent with inspiration..comment: so there we have it, the place whereinspiration, murder and parasitism culminateto involve all of mankind in a universal andglobally expressed human folly perfectlyexpressing the will of the horseleach, feed,feed, and then feed till the feed demand justis no more due to a sort of bubble burst.the creed of the vampire or zombie? generallyspeaking..http://bible.cc/proverbs/30-15.htm.ps.. “worstward ho”! ( link to morist “worsity” ).http://www.samuel-beckett.net/w_ho.htm.”Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.”.When the object is perceived as particular and unique and not merely the member of a family, when it appears independent of any general notion and detached from the sanity of a cause, isolated and inexplicable in the light of ignorance, then and only then may it be a source of enchantment.(Samuel Beckett (1906-1989),keywords: coffin / flag / corpse / heroin / enchantment.AND…You are not satisfied unless form is so strictly divorced from content that you can comprehend the one without almost without bothering to read the other..just one more… from 1972.?.Those with stomach still to copulate strive in vain..fear not, there is this. a new approach toadditions to the family.http://news.bbc.co.uk/2/hi/health/8319149.stm.

blindmanNovember 3rd, 2009 at 11:53 am

i have found this. it appears to be bernanke’sfinal draft of talking points for his next appearance before congress.? or so it has been rumored..”Worse less. By no stretch more. Worse for want ofbetter less. Less best. No. Naught best. Best worse. No. Not best worse. Naught not best worse. Less best worse. No. Least. Least best worse. Least never to be naught. Never to naught be brought. Never by naught be nulled. Unnullable least. Say that best worst. With leastening words say least best worse. For want of worser worse. Unlessenable least best worse.”.So leastward on. So long as dim still. Dim undimmed. Or dimmed to dimmer still. To dimmost dim. Leastmost in dimmost dim. Utmost dim. Leastmost in utmost dim. Unworsenable worst..samuel becket, worstward ho!ps.and plenty more. less too more less to evenless and worse. it seems to be just theunfolding systemic degeneration of symbolas observed by consciousness, articulated,blow by blow, till even the blows are articulated,worsely. it is becket’s art or excrement, foretelling the machinations of the end of themillennium? perhaps.

GuestNovember 3rd, 2009 at 12:45 pm

Blindmani enjoy your posts but recently i have been skiping your posts because ofthe way you format them. Why can’t you format these posts in regular wide length paragraphs?

blindmanNovember 3rd, 2009 at 12:58 pm

g,it is my way of heading off the sidewindercalamity that strikes unpredictably, also i prefer reading down as apposed to across, easier onthe eyes?please read my posts or i will have to drownmyself. it’s the least you could do. -)

The AlarmistNovember 3rd, 2009 at 1:00 pm

Sometimes the art is in the formatting … don’t oppress him with your conventional viewpoints, man!

blindmanNovember 3rd, 2009 at 1:27 pm

yea,what he said! and what exactly is formatting?is that some button i’m not pushing or thenumber of words per line? a setting hiddendeep within the tool bar someplace? what?next thing someone is going to ask for is capitalletters at the beginning of sentences? sheesh…i have a philosophic and practical argument thatprevents me from conforming to that norm. rightor wrong, it seems entirely trivial but the”womb transplant” story abounds with deep anddisturbing cultural import! the key seems tobe short circuiting the blood supply. thereis a perversion that i thought only a centralbank would attempt in public. ? curious anddisturbing how far we have come / gone wrong.transplanting wombs! think about that one.i guess as i get older i just get older andmore older in a fashion. transplanting wombs?transplanting ….what is wrong with us?really , what is , what! wombs?are there not enough people yet?the desperate struggle for greater stupiditycan never be satisfied. it seems.

GuestNovember 3rd, 2009 at 2:13 pm

Bertrand Russell, commenting on punctuation, stated that he tossed in commas after every few words just to give the reader a breather.What works for one, may not work for another. But… life is work, we deal with it…

GuestNovember 3rd, 2009 at 3:38 pm

Blindman,I always immediately recognize your posts (they are incoherent within just a few words)……and skip them.

PeterJBNovember 3rd, 2009 at 3:48 pm

Speaking of “worsity” and analogies:try “digestion” (and perhaps sometimes indigestion) as the analogy for the dynamics of emergent phenomenon, or if you prefer, evolutionary life (as we know it – and life does evolve – weird that, isn’t it?)) and it is Anubis who be Judge. Why the Jackal? For it is he that buries the ripped flesh of the hunt and buries it and eats it not, until, until, the few moments before it putrefies and ‘comes of poison. Who better to be of Judicial Authority but he who lives or dies in judgement.The Court that judges the wretch,You know they are not lenient,On the day of judging the miserable,In the hour of doing their task.It is painful when the accuser has knowledge,Do not trust in length of years,They view a lifetime in an hour!It has been said that it is we that are the dead,and we are here, in our state, the earn the right;to live.Aye, Har’e be tygers ;-)>Ho hum

o.k., no more.November 3rd, 2009 at 12:39 pm

How all becomes clear and simple when one opens an eye on the within, having of course previously exposed it to the without, in order to benefit by the contrast..Perhaps that’s what I feel, an outside and an inside and me in the middle, perhaps that’s what I am, the thing that divides the world in two, on the one side the outside, on the other the inside, that can be as thin as foil, I’m neither one side nor the other, I’m in the middle, I’m the partition, I’ve two surfaces and no thickness, perhaps that’s what I feel, myself vibrating, I’m the tympanum, on the one hand the mind, on the other the world, I don’t belong to either.(Samuel Beckett (1906-1989)

The AlarmistNovember 3rd, 2009 at 1:04 pm

The Doom & Gloom business must be booming, but he didn’t have to spend the money … he has all this great market strategy advice in this very forum …Roubini Plans to Hire 17 to Expand RGE’s Market-Strategy Team Nov. 3 (Bloomberg) — Roubini Global Economics, Nouriel Roubini’s research and advisory firm, plans to hire about 17 people to expand a new team that advises investors on stocks, bonds, interest-rate products, commodities and currencies.RGE’s market research and strategy group will grow to about 20 people from three currently, said Arnab Das, who joined RGE last month to lead the team from London. The strategists will provide recommendations on broad asset classes and analyze “systemically important” companies such as banks and utilities, Das said. RGE will build the group gradually and will be “flexible” on the final number of strategists, he said.

MorbidNovember 3rd, 2009 at 2:02 pm

Regarding AEI Subprime VI: Roubini Presentation 22 Oct 2009

So damned if you do, and damned if you don’t.And the policy path that gets you to do the exit and do it right is a very narrow-edged, razor-edged and difficult. And the risk, especially in an election year, of making a policy mistake on one side or the other is significant.

Again I inquire, “Why would NOT DOING ANYTHING – a middle ground – have been the wiser approach?”

MorbidNovember 3rd, 2009 at 2:23 pm

PSWould NOT DOING ANYTHING – have meant – BLESSED because we let the criminal elite take their lumps?

blindmanNovember 3rd, 2009 at 4:07 pm

m,i agree. it is always smarter, wiser and in accordance with everything that is to donothing when you do not know what to do.but this was not the case, context. it isall about the illusions of value, power anda paradigm of exploitation of labor and otherpeoples sacrifice, natural abilities and integrity.capturing value at a distance. they know exactlywhat they are trying to do but they no longer havea mechanism to do it. the veil has been stretchedtoo thin.they are destroying the fetish ( dollar ) andunhinging the public imagination in the process,most likely by design. womb transplants requirea perverted blood supply.or it is simply a naked power transfer.a public birthing of ugly in broad daylight.” what she’ done, you can’t give it a name ” t.w.i agree, “nothing” would have been much better, much better.90% of americans thought so more than a year ago.” we are all born insane, some remain so “. s.beckettor something like that.

GuestNovember 3rd, 2009 at 2:11 pm

We are all dead consumers, workers, investors walking…October 20091In November 2007 we wrote an article entitled “Surreality Check… Dead Men Walking”, in which we discussed the early warning signs of the impending credit crisis and highlighted companies that were looking particularly troubled to us at the time.We identified General Motors with a book value of negative $74 per share that boasted a market cap of $15 billion. (Ask your friendly neighborhood Chartered Financial Analyst to explain that one to you). Two years later? Following a $50 billion government injection, GM declared bankruptcy on June 1, 2009 and reemerged on July 10, 2009 with new owners consisting of: the US Treasury (60.8%), the Crown in Right of Canada (11.7%), previous GM bondholders (10%) and the UAW Health Care Trust (17.5%). GM stock went to zero.We identified Fannie Mae, which, at the time, had a market cap of $40 billion and owned/guaranteed $2.7 trillion of mortgages – or about a quarter of all residential mortgages in the United States at the time. Fannie’s leverage ratio was a sobering 67:1. Two years later? Fannie Mae and Freddie Mac have both been nationalized. On September 7th, 2009, the US Treasury announced the two mortgage giants were being placed into a conservatorship run by the FHFA and pledged up to $200 billion each to back their crumbling balance sheets.We highlighted Citigroup as a candidate for collapse under the weight of its subprime portfolio. One year later? $25 billion from the TARP program, a massive US government guarantee on $306 billion in residential and commercial loans and a cash injection of $27 billion into Citigroup for preferred shares. It was a de facto nationalization.Why the walk down memory lane? The equity market performance in November 2007 masked the underlying problems plaguing the financial system at the time, and it’s blindingly apparent that it is doing the same again today. The government has assumed most of the financial system’s liabilities in a giant game of ‘kick the can’. The calls for a new bull market are coming fast and furious. Market participants are bidding up the stocks of companies that are demonstrably bankrupt, and government balance sheets have ballooned to unforeseen levels. As respected market commentator David Rosenberg recently wrote, “the stock market is divorced from economic reality”.1 It’s time for another surreality check, but this time it isn’t the publicly traded companies that deserve attention, it’s the governments that have saved them. Make no mistake – the dead men are still walking – they’re just a lot bigger now than they were two years ago, and they don’t generate earnings – they print money and tax their citizens.By: Eric Sprott & David FranklinSPROTT ASSET MANAGEMENT LPSurreality Check Part Two…1 Rosenberg, David (October 13, 2009). Market Musings & Data Deciphering – Breakfast with DaveDead govern t men2In case you failed to catch it in our previous articles this year, we thought we’d state it outright for ourreaders this month: the United States Government is on a trajectory to default on their obligations. Inits current financial condition, it will not be able to fund its forecasted budget deficits and unfundedSocial Security and Medicare promises on top of its current debt obligations. This isn’t official yet, andwe don’t know when the market will react to it, but there is no longer any doubt about the extent of theirtrajectory. There simply isn’t enough taxing power, value creation or outside capital willing to support itsegregious spending.Stating the obvious may be construed by some as fear mongering, ‘talking up our book’ or worse, butour view is not as severe as you might think. In the Federal Reserve Bank of St. Louis’ Review fromJuly/August 2006, Lawrence Kotlikoff stated that “partial-equilibrium analysis strongly suggests that theU.S. government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context,are current and future generations to whom it has explicitly or implicitly promised future net paymentsof various kinds.” 2 He went on to suggest that the US should immediately close the Social Securityprogram to reduce future liabilities (could you imagine?), use a voucher system for Medicare to limitcosts, and replace personal, corporate, payroll and estate taxes with a single federal sales tax. Allthis, published in an article from 2006, well before the credit crisis and subsequent meltdown hadeven begun!Three years later, the financial condition of the US government is completely untenable. The projectedUS deficit from 2009 to 2019 is now slated to be almost $9 trillion dollars.3 How on earth does anyoneexpect them to raise this capital? As we stated in a previous article, in order to satisfy US capitalrequirements, all existing investors would have had to increase their US bond purchases by 200%in fiscal 2009. Foreigners, however, only increased their purchases by a mere 28% from September2008 to July 2009 – far short of what the US government required.4 The US taxpayer can’t cover thedifference either. According to recent estimates, tax revenue from all sources would have to increaseby 61% in order to balance the 2010 fiscal budget. Given that State government income tax revenueswere down 27.5% in the second quarter, the US government will be lucky just to maintain its currentlevel of tax revenue, let alone increase it.5The bottom line is that there is serious cause for concern here – and don’t be fooled into thinkingthis crisis will fix itself when (and if) the economy recovers. Just how bad is it? Below we outline theobligations of the US Federal Government from 2004 to 2009. We present two sets of numbers,as government accounting can vary widely depending upon the source. In column A, we outline theTotal US government Obligations, using actuarial reports from the Social Security Administrationand the Medicare Trustees Reports. In column B we identify Total Federal obligations according toGAAP accounting provided by Shadow Government Statistics, calculated on a US fiscal year endbasis with estimates for 2009. The differences in the absolute amount of total obligations ($114.7trillion vs. $74.6 trillion in 2009) are a function of timing, the calculation timeline for Social Securityand Medicare, and other obligations included under GAAP rules. Either way we choose to calculateit, the total number is preposterously large. From 2004 to 2009, US unfunded obligations increasedby an average of almost 50% over this six year period under both calculation methods, while USgovernment revenue increased by only 12%.6 No company or government can increase its liabilitiesby more than four times the rate of its revenue and stay solvent for an extended period of time.2 Kotlikoff, Lawrence (2006) Is the United States Bankrupt? Federal Reserve Bank of St. Louis Review JULY/AUGUST 2006. Retrieved on October20, 2009 from: http://research.stlouisfed.org/publications/review/06/07/Kotlikoff.pdf3 Congressional Budget Office.The Budget and Economic Outlook: An Update (August 2009). Retrieved on October 20, 2009 from: http://www.cbo.gov/4 Department of the Treasury. Treasury International Capital System. Major Foreign Holders of Treasury Securities (July 2009). Retrieved onOctober 20, 2009 from: http://www.treas.gov/tic/mfh.txt5 Hart, Jerry and Selway, William (October 15, 2009). State Revenue Falls Most Since 1963 on Incomes, Sales (Update2). Retrieved on October 20,2009 from: http://www.bloomberg.com/apps/news?pid=20601015&sid=aFbiGWsXmkyU6 US government revenue for fiscal 2004 was $1,880,279 million and for fiscal 2009 was $2,104,613 million. Historical revenue retrieved on October20, 2009 from http://www.gpoaccess.gov/USbudget/fy09/pdf/hist.pdf Revenue for 2009 was downloaded from http://www.fms.treas.gov/mts/mts0909.pdfOctober 2009And as the numbers imply, the hole that the US government is digging is getting deeper by theminute. On a GAAP basis, US government unfunded obligations increased by more than $9 trillionfrom last year alone! That represents ten years of projected deficits added in a mere twelve months.How can this be happening? The numbers are surreal, and we must ask ourselves how much longer theworld will continue to support this spending frenzy.The Federal Deposit Insurance Corp. is another major problem for the US. The FDIC’s DepositInsurance Fund, which had $10.4 billion at the end of June, has spent so much covering bank failuresover the last three months that it is now completely out of money. This means there is no capital setaside to insure the $4.8 trillion of deposits and $320 billion worth of FDIC-guaranteed debt that USbanks and other financial companies have issued. The real shocker that we discovered some timeago is that the FDIC ‘funds’ were never even held in a segregated bank account – the fees collectedfrom the banks are accounted for as a part of the government’s general revenues that go towardsmilitary spending, bailouts, interest costs and other government programs. The FDIC ‘fund’ merelyconsisted of IOU’s from the general revenues accounts. And now that the Deposit Insurance Fundbalance as of September 30, 2009 is negative13 the FDIC wants the institutions to prepay theirassessments for all of 2010, 2011 and 2012. In effect, the FDIC wants to borrow money from thebanks it provides insurance for. Does this not strike you as surreal? Why would anyone have anyconfidence in anything the FDIC guarantees?37 We used January 1 valuation date for Social Security Medicare and US Debt Outstanding. GAAP estimates are provided by Shadow GovernmentStats using fiscal year end.8 Social Security Administration, Office of the Chief Actuary (August 2009) UNFUNDED OBLIGATION AND TRANSITION COST FOR THE OASDIPROGRAM by Alice Wade, Jason Schultz and Steve Goss. Open group unfunded obligation for the infinite future projection period beginning atvaluation date. Retrieved from: http://www.ssa.gov/OACT/NOTES/ran1/9 U.S. Department of Health & Human Services. Centers for Medicare and Medicaid Services. Taken from Medicare Trustees Report for each year.All figures through the infinite horizon. Retrieved on October 20, 2009 from: http://www.cms.hhs.gov/ReportsTrustFunds/10 Treasury Direct. The Debt to the Penny and Who holds it. Calculated for January 1st in each year. Retrieved on October19, 2009 from: http://www.treasurydirect.gov/NP/11 Shadow Government Statistics (October 9, 2009). No. 250 General Outlook and Trade Data Update. Retrieved on October 20, 2009 from: http://www.shadowstats.com/12 Estimate from SGS13 Federal Deposit Insurance Corporation (September 28, 2009) Special Assessment, Restoration Plan and Proposal for Maintining Fund Liquidity.Retrieved on October 20, 2009 from http://www.fdic.gov/news/board/Sept29no1.pdfOctober 2009Chart AValuationDate7Social SecurityUnfundedObligations8Medicare TrustFunds A,B,DUnfundedObligations9TOTALUnfundedObligationsUS Debt10COLUMN ATotal USGovernmentObligationsCOLUMN BTotal FederalObligations(GAAP) fromShadowGovernmentStatistics112009 $15.1 $88.9 $104.0 $10.7 $114.7 $74.6[12]2008 $13.6 $85.6 $99.2 $9.2 $108.4 $65.52007 $13.6 $74.3 $87.9 $8.6 $96.5 $59.82006 $13.4 $70.5 $83.9 $8.1 $92.0 $58.22005 $11.1 $68.1 $79.2 $7.6 $86.8 $53.32004 $10.4 $61.6 $72.0 $7.0 $79.0 $49.5Comparison of US Government ObligationsOctober 200914 FEDERAL RESERVE statistical release z.1 Flow of Funds Accounts of the United States Flows and Outstandings Second Quarter 2009. Retrievedon October 20, 2009 from: http://www.federalreserve.gov/releases/z1/Current/z1.pdf15 Xie, Ye and Worrachate, Anchalee (October 13, 2009) Central Banks leaving greenback in the lurch. Retrieved on October 20, 2009 from: http://www.smh.com.au/business/central-banks-leaving-greenback-in-the-lurch-20091012-gu2i.html16 Fisk, Robert (October 6, 2009) The demise of the dollar. Retrieved on October 20, 2009 from: http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.htmlWe do not mean to pick on the United States alone. The proclivity to overspend has spread to mostgovernments throughout the developed world. According to recent estimates, the countries that makeup the G20 will face a combined budget deficit of 10.2% of GDP in 2009, the biggest since WorldWar II. The US leads this ‘rogues gallery’ of government spending on a percentage of GDP basisat 13.5%, followed closely by Britain and Japan at 11.6% and 10.3%, respectively. If governmentschoose to continue down this path, it must be questioned where all their funding will come from, notto mention the impact it will have on their respective currencies.Hemingway wrote that a man goes broke “slowly, then all at once”. We believe the same sentimentcan be applied to governments. If fiscal abuses continue unabated, confidence eventually erodes untilinvestors just stop lending. It happened famously to Lehman in September 2008, and it is happeningnow to the US government. The Q2 Flow of Funds Report published by the Federal Reserve revealedthat the Federal Reserve purchased as much as half of the newly issued treasuries in the secondquarter.14 This means that the Federal Reserve isn’t merely supporting the market for US treasuries…it is the market for US treasuries. Printing new dollars to support an almost $9 trillion dollar budgetdeficit that stretches out over the next ten years puts the US on the road to ruin, and the majorgovernments of the world have noticed and are taking action.How could they not after all? Most of these countries have historically supported their own currenciesby stockpiling an average of 63% of their foreign currency holdings in US dollars. Recently, however,it was revealed that the US dollar now makes up only 37% of new foreign reserve holdings.15 Thereis also little doubt that the USD is now a hot topic in central bank circles. A recent article in Britain’s“Independent” revealed secret meetings held between the Arab states, China, Russia, Japan andFrance to replace US dollar transactions for oil with transactions made in a basket of major currencies- including the euro, the yen and the Chinese yuan. Officials in several of the participating countriesdenied the talks or any knowledge of them, but that didn’t stop the US dollar from selling off whenthe story broke.16 We interpret these actions by foreign governments to be evidence of this erosionof confidence. We don’t know when this will translate into a failed auction for US debt, a currencycrisis or other significant event, but the signs that the world is losing economic confidence in the USgovernment are becoming more pronounced every week.So what can be done to avert catastrophe? As Will Rogers’ once said, “if you find yourself in a hole,the first thing to do is stop digging” Put simply, the US government must reduce its spending. It isthe only effective way to directly address its unfunded obligation issues. Closing Social Security tonew entrants and using vouchers to reduce the cost of Medicare, as recommended by Kotlikoff,are economically valid options that should be considered. Unfortunately, neither Congress nor thePresident have shown a willingness to heed Will’s advice thus far.We believe the US government’s current trajectory presents one of the greatest macro-economicrisks at play today. The Federal Reserve and the US government have assumed the toxic financialtrash that brought the banking system to its knees a year ago. By monetizing debt to support theirbudget deficit and ‘save the system’, both entities have chosen to walk a well worn path traveled byso many governments before them. Like dead men walking, the US government is merely biding itstime until the moment of truth. Unlike Fannie Mae, General Motors or Citigroup, however, there is noone left to grant a reprieve.Sprott Asset Management LP

GuestNovember 3rd, 2009 at 3:12 pm

Just curious, did you do a “preview” before posting this? If so, did it look readable? It is nearly impossible to read as it posted 🙁

VladNovember 3rd, 2009 at 7:34 pm

How about cutting the military and intelligence budget by 90% for beginners instead of going back to the nakedly Darwinian capitalism that has no chance anyway to make it?

GuestNovember 3rd, 2009 at 11:27 pm

Without that 90% TPTB won’t be able to maintain their rule, which means that That won’t happen! :-(And please people, stop abusing Darwin’s position on things. Capitalism sucks, but in no way do Darwin’s theories correlate to this suckism. Darwin actually pointed out that cooperation within a specie was prevalent, that it was competition outside of the specie, with other specie, that was, in essence, the dog-eat-dog scenario. Yes, there’s a pecking order within every specie, but that does not correlate with dog-eat-dog.

GSOHNovember 3rd, 2009 at 2:31 pm

I think we are heading into the Abyss and this time the air hoses are gonna be severed and we are all doomed. What a false economy! This has got to be the biggest Rip Off to man kind.Only way out is a Global War or Disaster on such proportions mankind will be all together different.God Help Us

GuestNovember 3rd, 2009 at 6:27 pm

is WAR all USA can think to solve the problem? it is time for USA to stop terrorize the whole world and start behave responsible financially. it is time for USA to stop sending troops to kill and murder innocent people around the world.

GuestNovember 3rd, 2009 at 2:41 pm

Gold had a big day:Gold prices surged to a record high Tuesday after the International Monetary Fund said it had sold 200 metric tons of the precious metal to India’s central bank.November gold was up $24.40 to $1,077.80 an ounce, after climbing to a high of $1,079.70. The previous intraday record was set Oct. 13, when gold rose to $1,069.70 an ounce.The IMF said Monday that it had sold 200 metric tons of gold to the Reserve Bank of India for $6.7 billion. The sale was part of an ongoing IMF plan aimed at selling over 400 metric tons of gold.The move eased some concerns that such a big influx of supply could weigh on prices. It also raised speculation that China, which many analysts had expected to be the main buyer, will absorb much of the remaining gold in the IMF’s stockpiles.”The market was expecting the sale to happen over several years,” said Tom Pawlicki, a precious metals analyst at MF Global in Chicago. “It’s pushing gold higher because it means that gold won’t come onto the open market.”Gold prices were also supported by news that Barrick Gold Corp. bought back 1 million ounces of gold in its hedge book during October.The mining company said Monday it expects to unwind its remaining gold hedges, totaling 1.9 million ounces, by September 2010.The rally came despite a slightly stronger U.S. dollar. The dollar index, which measures the dollar’s value against a basket of currencies, rose to a one-month high earlier Tuesday.Gold and other commodities that are priced in dollars often fall when the greenback strengthens. But demand for gold remained firm Tuesday as investors focused on the IMF sale.

GuestNovember 3rd, 2009 at 3:02 pm

There goes conventional wisdom right out the door (again)!WHY is India buying up gold? Perhaps this will equate to less purchase of US Treasuries? Does anyone know what currency is used to purchase gold from the IMF?The IMF would use this money for what, exactly? To help bail out collapsing nations? The poor get crappy fiat money (OK, they actually won’t GET the money, just have their ledgers “adjusted”), and the rich (India) will get gold.Picture seems pretty clear to me.

PeterJBNovember 3rd, 2009 at 4:13 pm

Speaking personally:”Berkshire Hathaway (BRK.A) is paying $100 per share for the rest of the railroad company it does not already own, in a move that is “an all-in wager on the economic future of the United States,” Buffett said. @ @”@ son ot the paul on 2009-11-03 10:40:34I believe that railways are where it is at for the future globally – are you not aware that there are advanced plans to extend from Alaska to Russia? and then connect, are connecting, all the little bits to Singapore, via India and China and all in between to London and beyond and Australia, South America, Africa: a truly global high speed rail link.:Timing: My guess 100 to 150 years, but it has started.:Technology: We have the technology and it is well proven:Political will: After we purge / puke / digest this lot, it will accelerate:Diplomacy: Money and wealth distribution will level the employment fields and lower the distortions:Centre of Gravity: Perth Australia to Vladivostok, Russia which includes Tokyo, Seoul, Shanghai, Hong Kong, Manila, Bangkok, KL, Singapore, Djakarta, to Perth.:Perth supplies the iron ore and copper, Vladivostok is the Primary Loading point, and the cities in between handles the cash transactions.:All on the same times line +/-Makes sense to me and a great place to soak up all that liquidity and make some more – on, on, on towards the future… “to Infinity and Beyond” (Buzz Lightyear ;-)Ho hum

GuestNovember 3rd, 2009 at 11:32 pm

High speed rail for what? For all the unemployed?No, we’re talking freight rail. Freight rail WILL become more heavily utilized; well, OK, more heavily utilized than other current forms, perhaps not more utilized than the peak (due to excessive consumption). Not to say that the owner of the freight tracks won’t look to exhort money from any other users of the lines.

PeterJBNovember 3rd, 2009 at 4:34 pm

“Blindman,I always immediately recognize your posts (they are incoherent within just a few words)……and skip them.”@ Guest on 2009-11-03 15:38:38Mr Guest, it appears that you have achieved the perfect score and have available outstanding credentials for a unparalleled “leadership” position so, may I ask, on behalf of the committee of lesser men (COLM), after Obama is done, would you care to run for President? Yourself joining our team would ensure that we could maintain those high achievements of office developed over the past decade of so.RSVP (this means, ‘let me know’)Ho hum

FEDupNovember 4th, 2009 at 6:45 am

Incoherent vs coherent? To me, the invasion of Iraq, Pakistan and now Afgahnistan is incoherent. The bailing out of TBTF while allowing 10 million plus homeowners and small businesses to fail is incoherent. The record amount of spending adding to record debt is incoherent. Allowing globalization and oligarchy capitalism to thrive is incoherent. Using up all natural resources is incoherent. 10-20% unemployment rate in a country where we have more multi-millionaires and billionaires is incoherent. Living in a democracy where 90% of the policies out of Washington are incoherent. Yes, there are many incoherent things in the world, but what are we going to do about it-skip over them?!

Nnet EdicateNovember 3rd, 2009 at 10:26 pm

Ever wonder why there are fewer and fewer “named” posters while there are more and more “guest” posters?This is why.You would never say that to someone’s face, yet your words are just as strongly felt as if you had.

GuestNovember 3rd, 2009 at 11:36 pm

Ever wonder why there are fewer and fewer “named” posters while there are more and more “guest” posters?Nope, that’s not it! It’s because of the hate-mongering right-wing types that I don’t toss a name out there (to be repeatedly attacked with pure BS). The other folks actually provide some really good things to think about (which generally pisses off the right-wing types- they prefer to stick on message to what they’ve been programmed with).

The AlarmistNovember 4th, 2009 at 5:38 pm

Sorry, but as a self-identified right-winger, I must say that I have seen most of the venom coming from the view of the left, and most of that from Guest or Anon.

methinksNovember 3rd, 2009 at 11:45 pm

I always appreciate the links to interesting articles and thoughtful comments.Let’s not forget the Feds are all over the net sowing discontent and demoralization. The last thing they want is for us to educate each other outside the channels they control.Here is an article a little off the topic yet relevant in our search for the truth. It speaks to what drives medicine and research and is worth reading. The title is: “Does The Vaccine Matter.” http://www.theatlantic.com/doc/200911/brownlee-h1n1

ChignosNovember 4th, 2009 at 11:09 am

The article offers nothing new to a thinking physician. All you have to know from it is the following sentence:”some top flu researchers are deeply skeptical of both flu vaccines and antivirals”But that’s not all you need to know. The rest is:Don’t believe anything you hear and only half of what you see.

GuestNovember 3rd, 2009 at 11:47 pm

PeterJB, this one’s likely to make you really scream!Australia Retail Sales Unexpectedly Fall, Driving Down Currency

Australian retail sales unexpectedly dropped in September, driving down the nation’s currency as traders added to bets the central bank may pause after two successive interest-rate increases.

One day they’re puffing that next year’s outlook appears good, and the next the “unexpected” thing happens…It’s a circular function. No one to really soak things up. Raise interest rates and get more money flowing in but then can’t really do anything with it! Not like you can increase production and sell more when the world’s consumption is dropping.All that’s going on in the world today is consolidation. No one’s innovating for the future… maybe because, with everyone being heavily in debt, there’s no markets out there? Start to innovate and one of the few big Goliaths will just stomp you into the ground: too big to let anyone else succeed!

PeterJBNovember 4th, 2009 at 4:09 am

Speaking of “the unexpected”:If you scan (or Google, whatever) the word “unexpected” or “surprised” or “startled”, you will find if you are a diligent researcher of things random, that these terms are actually ubiquitous today throughout institutional establishments such as “economics, physics, cosmology, astronomy, politics, statistical agencies, etc., etc. Their pervasive use is actually trending… LOLIts a bit like magic is ahappening everywhere – er, for some.Ho hum

PeterJBNovember 4th, 2009 at 3:57 am

Speaking of “leadership”:”Where’s the face you need addressed? I’m having trouble locating that.”@ Guest on 2009-11-03 22:38:26I have the impression that you would have trouble locating your own sexual glands and anything attached thereto, such as your brains…Ho hum

PeterJBNovember 4th, 2009 at 4:33 am

It could also be the “everyone for him/her/self” moment: the dreaded quiet before the panic?Gold is still escalating while becoming harder to actually get your hands on.Ho hum

ChrisLNovember 4th, 2009 at 6:17 am

Take a look at this chart of GOLD vs S&P500 over the last 30 months :$GOLD:$SPXThere were two other occurences when this index crossed and moved above its 200 days moving average :. early August 2007, it then moved from 0.45 to 0.82 within the next 7 months (more than 90% gain). mid September 2008, it then moved from 0.66 to 1.38 within the next 5 months (more than 100% gain)So, if the same repeats itself, we could see $GOLD:$SPX move from 1.04 to close to 2.00 within the next 5 to 7 months.$GOLD:$SPX = 2 ?That could mean an ounce of GOLD at $1600 and the S&P500 at 800Or GOLD at $2000 and the S&P500 at 1000Or GOLD unchanged at $1090 and the S&P500 at 545 !Who knows ? But chances are that in the comming 6 months Gold will hold its value much better than equities.What do you guys think ?

11b40November 4th, 2009 at 8:23 am

“Who knows” is the right question. Since I took profits when it crossed over $1K, my foresight is questionable. One thing for sure, there are plenty of opinions. Here is a small portion of Simon Mairhoffer’s:Is Gold a Superior Investment?Die-hard goldbugs swear by gold, while numbers-savvy investors frown upon gold as an investment. As always, there are three viewpoints: one side of the argument, the other side of the argument and the truth, which usually lies somewhere in-between. The Wall Street Journal reports that gold has been one-third more volatile than the Standard & Poor’s 500 stock index over the past four decades, and yet has delivered a lower return: an annualized 8.4% versus 9.1% for the S&P. Gold’s record as an inflation hedge is less than stellar. After reaching a record high of $850/oz in January 1980, gold’s price fell over 40% in two months. It didn’t revisit the $850 level again until January 2008,meaning it was flat while inflation rose 175% over nearly three decades.Accounting for inflation, the January 1980 high of $850 would equal $2,206 in today’s dollar. Thus, some argue that gold is still more than 50% below its all-time 1980 high watermark. Additionally, anti-goldbugs will be quick to point out the following drawbacks: 1) The Internal Revenue Service considers gold a collectible, not an investment. As such, gold is ineligible for the 15% maximum federal long-term capital gains tax – the rate for gold is 28%, 2) Unlike stocks and bonds, gold pays no dividend or interest, 3) Buying physical gold as coins or bullion is (almost) always linked to a mark up. On the other hand, unlike stocks and real estate, gold has held its value over the past ten years. Goldbugs were spared the anguish caused by the dot.com, real estate, and financial bubbles and their subsequent bust.Is$1,000/ozsustainable?This is a loaded question. In short, gold is likely to gain importance as the financial system continues to unravel. Before that happens, however, investors should get a chance to buy gold at a discount of 20-40% compared to today’s prices.We’ve learned numerous times in the past that extreme optimism surrounding the future of any asset class indicates lower prices ahead. When it comes to gold and other precious metals, investors currently express an outright sense of entitlement for future profits.A rise in gold prices has become a foregone conclusion. Barrick Gold, the world’s biggest gold producer, just announced that it plans to eliminate all of its gold hedges. Gold hedges are futures contracts that commit a company to selling the metal at a set price. Such hedges protect producers against falling prices and limit profits in an environment of rising prices. Barrick Gold intends to spend $3 billion to eliminate and pay off all current hedges. In essence, Barrick is going “naked” long on gold. Declining gold prices will result in a loss much greater than the $3 billion spent to neutralize their hedges.More than just corporations are anticipating higher gold prices. The SPDR Gold Shares (GLD) had net inflows of 347.21 metric tons in the first quarter of 2009. Globally, gold ETF holdings have surged 42%, or 16 million ounces, since the beginning of 2009, according to research done by UBS. ETFs now hold a total of 54.23 million ounces of gold, close to last year’s total world production! Just in time for the next run on gold ETFs, a new ETF began trading last Wednesday, the ETFS Physical Swiss Gold Shares. Bullion purchases for 2008 reached 862 metric tons, twice as much as in 2007. The US Mint, the federal agency in charge of making America’s coins, has had to step up its production as well. This year’s sales have already exceeded the 794,000 American Eagles peddled in all of 2008 by a large margin. Earlier this year, it had to freeze sales of some of its gold items due to an order backlog.RisksofGoldOwnershipGold is extremely durable. Gold bullion found on Spanish ships that sunk over 500 years ago was in perfect shape, while everything else had rotted away. Unfortunately, gold’s robust and durable properties cause certain inconveniences when it comes to storage and transport. Gold is a very dense metal and thus very heavy. A one kilogram gold bar (=32.15 troy ounces, worth $32,150) measures only about 3.3 x 1.6 x 0.75 inches, smaller than an iPhone. If stored at home, there is the risk of theft. Is gold stored in a safety deposit box safe? One would thinkso.Unknown to many Americans, the U.S. government has the right to confiscate precious metals held in a safety deposit box. In fact, President Roosevelt exercised this right in April 1933. After declaring a banking holiday, FDR announced the following, as per the authority given to him by Section 5(B) of The Act of Oct. 6th, 1917: “Pursuant to the above authority, I hereby proclaim that such gold and silver holdings are prohibited, and that all such coin, bullion or other possessions of gold and silver be tendered within fourteen days to agents of the Government of the United States for compensation at the official price, in the legal tender of the Government. All safe deposit boxes in banks or financial institutions have been sealed, pending action in the due course of the law. All sales or purchases or movements of such gold and silver within the borders of the United States and its territories, and all foreign exchange transactions or movements of such metals across the border are hereby prohibited.”Compensation in the legal tender of the government meant that citizens were paid the official price of $20.67/oz. Following the confiscation, the dollar was devalued by 40% and the price of gold was readjusted and fixed to $35/oz. We do not know whether history will repeat itself, but it doesn’t hurt to keep this precedent of confiscation in mind when formulating a gold ownership strategy.Independent Contractor

GuestNovember 4th, 2009 at 10:14 am

Gold is NOT an investment! It’s a wealth maintainer, not wealth gainer. Call it a hedge if you must, but it’s NOT an “investment.”

GuestNovember 4th, 2009 at 7:57 pm

Why isn’t it an investment? Because some professor told you it isn’t? Frankly, if I bought in at $950 last summer and it’s now almost $1100, there’s no counter party risk, the government can’t track (tax) it, supply is way outstripping demand, every central bank is monetizing their fiatscos with no end in sight……………….it sounds like a pretty damn good investment to me.

PeterJBNovember 4th, 2009 at 6:29 am

And… Does this represent a “paradox – a thing that cannot exist?”The only obligation which I have a right to assume is to do at any time what I think right. It is truly enough said that a corporation has no conscience; but a corporation of conscientious men is a corporation with a conscience. Law never made men a whit more just; and, by means of their respect for it, even the well-disposed are daily made the agents of injustice.” — Henry David Thoreau (1817-1862) Source: Civil Disobedience (1849)Ho hum

blindmanNovember 4th, 2009 at 7:39 am

pjb,what the individual may think is right mayactually lead to activity that creates thecondition of injustice, the conscience canbe wrong. law can institutionalize theconditions that lead to systemic injustice.one more thing, why would individual menbelong to a corporation other than to extracta benefit for sacrificing their individuality.rationalizing, in good conscience, that theyhave not sacrificed their integrity, or perhapsconcluding the sacrifice is worth the benefit..we cry out to have others define us so weare not responsible for the world and itsmess. the world always has a definitionon the shelf, ready to go.perhaps duality not paradox.

GuestNovember 4th, 2009 at 7:30 am

time for city and state to enter BK court to sort out all these mess. trouble lurking in muni bond market, when cities and states rush into BK court room?

GuestNovember 4th, 2009 at 9:13 am

I have found its best not to listen to those who hate gold and call it a Barbaric Relic. Why intelligent people like faith based currencies is as strange as faith based religion IMO. History often goes like this, when the myth becomes reality, right the myth.Having sold my gold in anticipation of a pullback was not smart. By the way, we all knew the IMF was selling 400 tons of gold, so why did the news of India buying 200 tons get the credit for sending gold up?hlowe

ChrisLNovember 4th, 2009 at 1:00 pm

Maybe because the fear that the IMF might be selling a big chunk of its 400 tons on the open market had negatively influenced the sentiment of gold traders then.If, when the IMF announced that they would sell 400 tons, they had also said, “and the Indian central bank will buy half, and (for instance) the Chinese central bank will buy the other half”, the news would have had zero effect on Gold prices (as the prices of those sales remain unknown). But the IMF didn’t indicate who the buyers would be, so it’s logical that the news that the Indian central bank is buying a big chunk of it positively affects the price of Gold.

ChrisLNovember 4th, 2009 at 1:34 pm

Fed decision imminent…It’s amazing to think that the whole financial world, Wall Street, The City, Dubai, Sinagapore, etc… seems to be so nervous about what the FOMC is going to say today. It really makes this whole notion of “free markets” a comical farce. Free ? Or entirely manipulated by a small clique of people ?Everybody knows that they’re not going to hike rates today, nor in the near term. But what all these Wall Street executives, traders, fund managers, who are going to be making themselves an absolute FORTUNE this year, are asking themselves : how much time do we have before they take away the punch bowl ? How much time do we have to rip off the rest of the people and fill our coffers ?For how long are these parasites of society going to be allowed to suck its blood ?And because markets can’t be manipulated forever, at some time, with their personal coffers full, they’ll reset the clock, send the bill to the rest of the people and leave to live a life of Nabab somewhere in the sun.

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