I have been warning for weeks that the stock market was losing steam and that the Fed induced bear market rally was on it’s last legs. Since January 19th the Dow is down 7.6% and looks like it wants to go much lower. There is much going on to concern investors, not the least, fears of sovereign debt default potential in southern Europe. Greece, Portugal and Spain are seeing credit insurance on their debt skyrocketing as fears they are over leveraged and in danger of defaulting. These countries are members of the European Union and can’t print money like the good ole US of A. They have to make huge spending cuts and their citizens don’t like it one bit. Look for social disorder in the days ahead, especially in Greece. We are heading into oversold territory in the U.S. stock market so a bit of a bounce would not surprise me but the main direction will be down.-Lou

Dow closes below 10,000 for first time in 3 months

NEW YORK (AP) — The Dow Jones industrial average closed below 10,000 for the first time in three months Monday on nagging concerns about debt loads in Europe.

Shares of big banks pulled the market lower, extending a slump that has led to four straight weekly losses.

Mounting deficits in weaker European economies including Greece, Portugal and Spain have raised questions about the health of the global financial system.

Greece’s finance minister said Monday the government is preparing to boost some taxes to shore up its finances. But civil servants opposed to cutbacks have pledged to strike on Wednesday.

The questions about finances in Europe are only the latest blow to investor confidence. The market began to stumble in mid-January after China announced plans to contain economic growth and as the Obama administration proposed rules to restrict trading by large financial institutions.

That interrupted a 10-month climb in stocks, which hit 12-year lows last March. The Dow is down 817 points, or 7.6 percent, since closing at a 15-month high of 10,725.43 on Jan. 19.

Brett Hryb, a portfolio manager withMFC Global Investment Management in Toronto, said the latest concern is that the financial troubles in a country like Greece, whose economy is small compared with the rest of Europe, will spill into other countries.

“Clearly Greece itself is nothing. It’s just a blip. It’s what the contagion could be,” he said.

According to preliminary calculations, the Dow fell 103.84, or 1 percent, to 9,908.39. On Thursday, the Dow traded below the psychological barrier of 10,000 for the first time since November. It hadn’t closed below that mark since Nov. 4.

The broader Standard & Poor’s 500 index fell 9.45, or 0.9 percent, to 1,056.74, while the Nasdaq composite index fell 15.07, or 0.7 percent, to 2,126.05.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.58 percent from 3.57 percent late Friday.

The dollar fell against other major currencies, while gold rose.

Crude oil rose 70 cents to settle at $71.89 per barrel on the New York Mercantile Exchange.

Jerry Webman, chief economist at OppenheimerFundsInc., said he doesn’t expect that problems with rising debt loads in Europe will cascade into other parts of the world’s economy, but he remains cautious.

“Right now, when anybody says the word ‘contained’ I start to tremble,” he said, referring to his skepticism about those who downplay worries about Greece.

Webman is also concerned by the shrugs that have greeted corporate earnings reports. Three out of four of the companies in the S&P 500 index that have reported results for the fourth quarter have posted stronger sales and profit numbers than analysts forecast, according to Thomson Reuters.

“The market is obviously not that enthusiastic about these good bottom-line and good top-line numbers,” Webman said, adding that he sees that as a reason to be concerned about the direction of stocks.

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Social Security and Medicare are doomed. There will have to be massive benefit cuts in the years ahead to even attempt to keep them viable.-Lou

Rash of retirements pushes Social Security to brink

WASHINGTON — Social Security’s annual surplus nearly evaporated in 2009 for the first time in 25 years as the recession led hundreds of thousands of workers to retire or claim disability.The impact of the recession is likely to hit the giant retirement system even harder this year and next. The Congressional Budget Office had projected it would operate in the red in 2010 and 2011, but a deeper economic slump could make those losses larger than anticipated.

 ”Things are a little bit worse than had been expected,” says Stephen Goss, chief actuary for the Social Security Administration. “Clearly, we’re going to be negative for a year or two.”

 Since 1984, Social Security has raked in more in payroll taxes than it has paid in benefits, accumulating a $2.5 trillion trust fund. But because the government uses the trust fund to pay for other programs, tax increases, spending cuts or new borrowing will be required to make up the difference between taxes collected and benefits owed.

 Experts say the trend points to a more basic problem for Social Security: looming retirements by Baby Boomers will create annual losses beginning in 2016 or 2017.

“The moment of truth has arrived,” says Rep. Paul Ryan, R-Wis., top Republican on the House Budget Committee. “This is a wake-up call.”

JOBS AND THE ECONOMY: Rebound in 2010?

Social Security took in only $3 billion more in taxes last year than it paid out in benefits — a $60 billion decline from 2008, according to federal data. The slide in revenue occurred sooner than Social Security actuaries had expected, for three reasons:

• Payroll tax revenue that was growing at a 4.5% average annual clip along with wages flattened out in 2009 because of rising unemployment and pay raises that largely disappeared.

 • The number of retired workers who began taking benefits increased by 20%; those taking disability jumped by 10%.

 • Monthly benefits were raised 5.8% because of a spike in energy prices the year before.

Social Security was saved from bankruptcy in 1983 by a bipartisan deal that increased payroll taxes, taxed some benefits and gradually raised the retirement age to 67. That was supposed to keep the system solvent at least until 2058, but the projection has slipped to 2037.

The impact of the recession shows that “for all these projections, unexpected things happen,” says Maya MacGuineas of the Committee for a Responsible Federal Budget.. “Money has to be found to repay those trust funds.”

President George W. Bush proposed voluntary private retirement accounts in 2005, but the effort stalled in Congress. President Obama has proposed giving Social Security and other thorny fiscal issues to a bipartisan commission.

 LINK

Listen to this past Sunday’s “The Financial Physician” radio program on WOBM AM 1160 in New Jersey.

We had some major technical difficulties with the XM show and had to switch to a re-run so that show will not be available this week.

Listen Here

Now it begins to slowly come out. Goldman Sachs is portrayed as the major villain in the collapse of AIG. This comprehensive article is worth your time to read in it’s entirety.-Lou

Testy Conflict With Goldman Helped Push A.I.G. to Edge

By GRETCHEN MORGENSON and LOUISE STORY New York Times

February 7, 2010

Billions of dollars were at stake when 21 executives of Goldman Sachs and the American International Group convened a conference call on Jan. 28, 2008, to try to resolve a rancorous dispute that had been escalating for months.

A.I.G. had long insured complex mortgage securities owned by Goldman and other firms against possible defaults. With the housing crisis deepening, A.I.G., once the world’s biggest insurer, had already paid Goldman $2 billion to cover losses the bank said it might suffer.

A.I.G. executives wanted some of its money back, insisting that Goldman — like a homeowner overestimating the damages in a storm to get a bigger insurance payment — had inflated the potential losses. Goldman countered that it was owed even more, while also resisting consulting with third parties to help estimate a value for the securities.

After more than an hour of debate, the two sides on the call signed off with nothing settled, according to internal A.I.G. documents and an audio recording reviewed by The New York Times.

Behind-the-scenes disputes over huge sums are common in banking, but the standoff between A.I.G. and Goldman would become one of the most momentous in Wall Street history. Well before the federal government bailed out A.I.G. in September 2008, Goldman’s demands for billions of dollars from the insurer helped put it in a precarious financial position by bleeding much-needed cash. That ultimately provoked the government to step in.

With taxpayer assistance to A.I.G. currently totaling $180 billion, regulatory and Congressional scrutiny of Goldman’s role in the insurer’s downfall is increasing. The Securities and Exchange Commission is examining the payment demands that a number of firms — most prominently Goldman — made during 2007 and 2008 as the mortgage market imploded.

The S.E.C. wants to know whether any of the demands improperly distressed the mortgage market, according to people briefed on the matter who requested anonymity because the inquiry was intended to be confidential.

In just the year before the A.I.G. bailout, Goldman collected more than $7 billion from A.I.G. And Goldman received billions more after the rescue. Though other banks also benefited, Goldman received more taxpayer money, $12.9 billion, than any other firm.

In addition, according to two people with knowledge of the positions, a portion of the $11 billion in taxpayer money that went to Société Générale, a French bank that traded with A.I.G., was subsequently transferred to Goldman under a deal the two banks had struck.

Goldman stood to gain from the housing market’s implosion because in late 2006, the firm had begun to make huge trades that would pay off if the mortgage market soured. The further mortgage securities’ prices fell, the greater were Goldman’s profits.

In its dispute with A.I.G., Goldman invariably argued that the securities in dispute were worth less than A.I.G. estimated — and in many cases, less than the prices at which other dealers valued the securities.

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If everything is improving, why do the world’s Central Bankers have to meet at a secretive location? Something is not right.-Lou

Secret summit of top bankers

THE world’s top central bankers began arriving in Australia yesterday as renewed fears about the strength of the global economic recovery gripped world share markets.

Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet tomorrow at a secret location, the Herald Sun reports.

Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.

Speculation that the chairman of the US Federal Reserve, Dr Ben Bernanke, would make an appearance could not be confirmed last night.

The event will be dominated by Asian delegations and is expected to include governors of the Peoples Bank of China, the Bank of Japan and the Reserve Bank of India.

The arrival of the high-powered gathering coincided with a fresh meltdown on world sharemarkets, sparked by renewed concerns about global growth and sovereign debt.

Fears countries including Greece, Portugal, Spain and Dubai could default on debt repayments combined with disappointing US jobs data to spook investors.

Australia’s ASX 200 slumped 2.4 per cent, to a its lowest close since November 5, echoing a sharp fall on Wall Street.

Asian share markets were also pummelled, with Japan’s Nikkei 225 down almost 3 per cent and Hong Kong’s Hang Seng slumping 3.3 per cent.

The damage was also being felt by European markets last night with London’s FTSE 100 down sagging 1 per cent in early trade.

Sovereign debt fears rippled through to the Australian dollar which was hammered to a four-month low of US86.43 and was trading at US86.77 cents last night.

“This does feel like ‘08 and ‘07 all over again whereby we had these sort of little fires pop up and they are supposedly contained but in reality they are not quite contained,” said H3 Global Advisors chief executive Andrew Kaleel.

“Dubai should have been an isolated incident and now we are seeing issues with Greece, Portugal and Spain.”

It wasn’t all bad news with the RBA yesterday upping its Australian growth forecasts and flagging more interest rate rises this year.

The central bank estimates the economy grew 2 per cent in 2009, and will expand by 3.25 per cent in 2010, and by 3.5 per cent in 2011.

The outlook for global growth is likely to be a key theme of the high level central bank talks.

The gathering also comes at an important time for the BIS as it initiates an overhaul of the global banking system which will include new capital rules applying to banks and more stringent standards regulating executive pay.

A key part of the two-day talkfest will be a special meeting of Asian central bankers chaired by the governor of the Central Bank of Malaysia, Dr Zeti Akhtar Aziz.

Influential BIS general manager Jaime Caruana is also expected to take a prominent role in the talks.

Federal Treasurer Wayne Swan will address the central bank officials at a dinner on Monday night.

LINK

CLICK ON VIDEO TO ENLARGE

It is a stressful thing when you lose your job, but this guy really goes off the deep end. Tough economic times make people go postal. Would you act like this guy if you found out you lost your job. The poor girl gets hit in the head with the computer monitor and the guy doesn’t even care.-Lou

Interesting article.-Lou

How Japanese Hyperinflation Could Turn The Dollar Into Toilet Paper

Investors are completely unprepared for Japanese hyperinflation.

That’s because hyperinflation seems inconceivable for a nation that has been battling deflation ever since the bust of its stock and property bubbles two decades ago.

Such complacency is made clear by the fact that investors are happy to buy ten year Japanese government bonds with just a 1.32% yield.

They’d be completely blind-sided if Japanese hyperinflation became a reality.

Hyperinflation rapidly makes any currency worthless.

This would be particularly shocking in the case of Japan since many central banks hold yen as a portion of their reserves.

They’d be hit hard by their past decision to diversify away from the U.S. dollar.

“Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.”

If what was previously seen as a ’safe haven’ currency suddenly lost substantial value, markets would be shaken as many investors suddenly realized they’re carrying far more risk in their yen-related investments than they expected.

Keep in mind that Japan’s bond market is the second largest in the world.

As Japan’s retirees age and run down their wealth, Japan’s policymakers will be forced to sell assets, including US Treasuries currently worth $750bn, or Y70 trillion eight months worth of domestic financing.

 At nearly 10% of the outstanding US Treasury stock, this might well precipitate other government funding crises.”

More…

The number will be closer to 300 this year and more in 2011.-Lou

Bank failures to keep rising in 2010, despite GDP rebound

SAN FRANCISCO (MarketWatch) — The continuing fallout from bad loans made in good years means even more U.S. banks will fail in 2010 than 2009, despite a recovering economy.

That’s the prediction of bank analysts who see as many as 200 institutions closing this year, at a potential cost of more than $50 billion to taxpayers, as risky loans approved in 2006 and 2007 take their toll.

And that represents a projected 43% increase in closures from 2009, which saw 140 failures, the most since 1992 when the U.S. was recovering from the savings and loan crisis.

Gerard Cassidy, a banking analyst at RBC Capital Markets, reckons 175 to 200 banks will fail this year and the number may keep climbing, making 2011 or 2012 the peak year for the current cycle.

“We still see hundreds of bank failures over this cycle, and we’re not certain when the cycle will end,” he said. “If you assume that the cycle lasts five years and that bank failures began in late 2007 or early 2008, it will be 2013 before we can say it’s over.”

Cassidy was among the first bank analysts to warn about a jump in failures in the spring of 2008. Read about Cassidy’s predictions.

A rebound in economic growth won’t help institutions weighed down by troubled loans made at the height of the credit boom several years ago.

“There’s an old saying in the industry that bad loans are made in good times,” said Fred Cannon, a bank analyst at Keefe, Bruyette & Woods. “The problem loans causing bank failures today were made in 2006 and 2007, at the peak of housing boom.”

“Unless home prices double or commercial real estate values go up 50% in the next 12 months, a couple of points on GDP isn’t going to make a bad loan good,” he added.

In January, 15 banks failed, and Cannon expects the 2010 total to exceed the 140 institutions that were shut down by regulators last year.

Closures in 2009 cost the Federal Deposit Insurance Corp. an estimated $36.4 billion as the regulator covered losses on bad loans before selling institutions to other banks. The failed banks had assets of $171.9 billion, for an average loss rate of 21%, according to KBW data.

The cost of January’s 15 bank failures was higher, with average estimated loss rates of 33%, KBW noted this week.

If the average bank that fails in 2010 has $1 billion in assets and it costs the FDIC 28% of those assets to shut it down, that means failures could cost $49 billion to $56 billion this year, Cassidy estimated.

MORE…

Tell me how the unemployment rate delines from 10% to 9.7% when the January jobs report showed that 20,000 more jobs were lost and December was revised from 85,000 to 150,000 jobs lost? The weekly first time claims for unenemployment benefits have been rising recently. The only way their could be a  decline in the unemployment rate   is if hundreds of thousands left the workforce due to discouragement. More BS from the BLS.-Lou

January unemployment rate drops to 9.7 percent

January unemployment rate drops unexpectedly to 9.7 percent; employers cut 20,000 jobs

WASHINGTON (AP) — The outlook for jobs remains bleak despite January’s unexpected decline in the unemployment rate, which fell to 9.7 percent from 10 percent in December.

A Labor Department survey of households found that 541,000 more Americans had jobs last month. But most of those gains were attributed to seasonal adjustments to the data. Without those adjustments, which account for reduced hiring during winter, the data show fewer people had jobs last month.

A separate survey of businesses found that employers shed 20,000 jobs last month. Excluding the beleaguered construction industry, the private sector as a whole added 63,000 positions.

The unemployment rate fell to its lowest level since August. John Silvia, chief economist at Wells Fargo, said the decline wasn’t a result of a shrinking labor force, which has held the rate down in previous months.

“It simply was, people found jobs,” he said. The report is “consistent with continued improvement in the labor market.”

But the department revised its past estimates to show that job losses from the Great Recession have been much worse than previously stated. The economy has shed 8.4 million jobs since the downturn began in December 2007, up from a previous figure of 7.2 million. That’s the most jobs lost in any recession, as a percent of total employment, since World War II.

Analysts think the economy might generate 1 million to 2 million jobs this year. And they say it will take at least three to four years for the job market to return to anything like normal.

The employment figure for November was revised higher to show a gain of 64,000 jobs. That was initially reported as a gain of 4,000.

January’s report offers hope that employers may start adding jobs soon. Aside from November’s gain, January’s job losses were the smallest since the recession began and are down from the huge loss of 779,000 jobs in January 2009.

The manufacturing sector added jobs for the first time since January 2007. Its gain of 11,000 jobs was the most since April 2006.

Retailers added 42,100 jobs, the most since November 2007, before the recession began. Temporary help services gained 52,000 jobs, its fourth month of gains. That could signal future hiring, as employers usually hire temp workers before permanent ones.

The average work week increased to 33.3 hours, from 33.2. That indicates employers are increasing hours for their current workers, a step that usually precedes new hiring.

The number of part-time workers who want full-time work, but can’t find it, fell by almost 1 million. That lowered the “underemployment” rate, which also includes discouraged workers, to 16.5 percent from 17.3 percent.

The federal government has begun hiring workers to perform the 2010 census, which added 9,000 jobs. That process could add as many as 1.2 million jobs this year, though they will all be temporary.

But job cuts at the state and local levels canceled out those gains, as government employment fell by 8,000.

Most of the 75,000 jobs lost in the construction industry came from the commercial building sector, the department said. Construction lost more jobs than other sector.

Still, jobs remain scarce even as the economy is recovering: Gross domestic product, the broadest measure of the nation’s output, has risen for two straight quarters. GDP rose by 5.7 percent in the October-December quarter, the fastest pace in six years.

Many economists say businesses are reluctant to add workers because it’s not clear whether the recovery will continue once government stimulus measures, such as tax credits for home buyers, fade this spring.

The debate over health care reform and the scheduled expiration of some Bush administration tax cuts at the end of this year may also hold back some employers, many economists said.

“Until some of these uncertainties from Washington get cleared up, businesses, particularly small businesses, are going to be loath to do any additional hiring,” said Hank Smith, chief investment officer at Haverford Investments.

High unemployment could restrain consumer spending, which has led most recoveries in the past. That’s why many economists think the current rebound will be weak.

Public concern about persistent unemployment has forced President Barack Obama and members of Congress to shift their attention to jobs and the economy and away from health care reform. The Senate will begin working Monday on legislation that would give companies a tax break for hiring new workers, Majority Leader Harry Reid said Thursday.

The budget plan Obama released this week projects unemployment will still be very high — 9.8 percent — by the end of this year.

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