a musing

“Despair is most often the offspring of ill-preparedness.” – Don Williams, Jr.

Latest letter from Martin Armstrong dated August 23, 2010

For immediate release:

Click here for Martin Armstrong’s latest letter dated August 23, 2010 entitled Australia and the Current Account Deficit (5 pages).

Martin Armstrong explains what the current account deficit and surplus really mean. Very enlightening. He also uses examples from the past to verify how this process works and how investors have been taking advantage of it forever. He defines Current Account, the one we hear about all the time and Capital Account, the one we don’t hear about all the time.

The more attractive a nation becomes to foreign investment, the larger the overall surplus will appear in the Capital Account while the investments appear as an outflow through the Current Account and that means deficit. (page 5)

Indeed, if the USA moved into a big Current Account Surplus, it would be the rats abandoning ship. (page 5)

Regarding Australia, if Australia’s current account has a deficit, it is time to buy that currency/country. If a country has a surplus, it means that investors are selling the assets of that country and taking that money to their home country or another nation.

He also talks about how the GDP formula is flawed, basically counting government employees twice.

While Martin is away, John Williams with shadowstats.com is an excellent source for the real stats, like real GDP. You pay for the information, but it worth every penny.

Data for March 2010 Australia’s current account. Click here. If you view the charts toward the bottom of the page you will see that the chart went lower in 2008, at the time of the US crash. Does the US chart have a surplus? Click here. Unites States has been rising toward surplus territory since 2008. Looking at charts, not just a number, it is easier to see the trend of buying or selling.

That means investors are selling US and buying Australia or any other country based on natural resources and selling any country based on debt-based paper financial transactions.

Commerical Real Estate imploding

As you may already know, the commercial real estate industry is imploding and will continue to do so for a while. Of, course this could cause a huge trigger for the next downturn or just add to the pressure of so much negative economic data. At the very least, the government will have to bailout at least half of the$1.4 trillion. Will they have the ability to bailout that much in 2014? If half of it is underwater now, we can only imagine what it will be in 2014.

Of the $1.4 trillion of commercial-real-estate debt coming due by the end of 2014, roughly 52% is attached to properties that are underwater, according to debt-analysis company Trepp LLC. And as the economic recovery sputters, owners of struggling properties are realizing a big property-value rebound isn’t imminent.

Owners of commercial property have an easier time walking away than homeowners because commercial mortgages are typically nonrecourse. That means the biggest penalty for walking away is the forfeiture of assets and cash flow they may generate.

There will be another banking crisis at some point based on this information alone.

So, we are looking at major residential real estate implosion thru at least 2012 (with the need for so many refinancing of option-arm and other low-down-payment/adjustable mortgages), then followed by commercial real estate implosion after that in 2013-2015. Apart from any currency crisis, we are looking at a 10-year economic contraction, that began in 2007. With a currency crisis, it could be longer. Be prepared.

Why you should buy gold and silver

Here is a great weekly wrap-up on kingworldnews.com. A must-listen. Click here.

“We are seeing a massive transfer of wealth from the unknowing to the knowing.”

Several charts from Jesse’s Cafe Americain. Click here.

The last 2 charts shows that we in the very beginning of a bull market in gold and silver. At the very least, we will meet the percent of gain as in the 1970’s, it is possible to surpass that gain. Also, take a look at gold/silver compared to the DOW as percent of gain in the 1970’s. It’s not that you will not have a possible gain in the DOW, provided you pick the right stocks, but gold and silver will be better. During a massive devalue of currency, physical gold and silver will always end up keeping the purchasing power of your money, stocks will fall a little short, because it is paper.

The last chart is another reason that groovygirl sees hyperinflation by 2015.

Summary for the week

From John Williams at shadowstats.com (you pay for the detail, worth every penny):

– Second-Quarter GDP Revised to 1.6% from 2.4%
– Deteriorating Economic Data Eventually Should Disrupt
U.S. Financial Markets

May groovygirl remind everyone, because MSM certainly will not (this is the crap you will see there), that the banks’ stress tests of 2009 are based on at least 2.5% growth. We have not had that, the banking system WILL come under stress again. Be prepared.

From Trader Dan at jsmineset.com:

I repeat – if lasting prosperity could be created by printing money and giving it away, previous generations that were wiser and more frugal than ours would long ago have stumbled upon this axiom.

And even the Fed is worried about a loss of confidence and the inflationary pressures that it might cause:

However, uncertainty about the quantitative effect of securities purchases increases the difficulty of calibrating and communicating policy responses. Another concern associated with additional securities purchases is that substantial further expansions of the balance sheet could reduce public confidence in the Fed’s ability to execute a smooth exit from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might lead to an undesired increase in inflation expectations.

Click here for full article.

Eight banks down last week, what will this week hold? The FDIC must be on summer vacation, too (or waiting for another loan).

Gold holding at $1236-fighting for $1240.

Silver over $19, looking for a breakout.

Groovygirl, like trader Dan at Jim’s website, is truly amazed that the DOW can be over 10,000 with the economic data we have seen this week and the less than positive language from the Fed’s meeting. The only explanation is robot traders on extremely low volume (everyone is on vacation) falsely pumping up stocks.

Another post in Chris Martsenson’s resilience series

Click here for part seven of Chris Martenson’s Resilience Series. This time about protecting your wealth. If you read groovygirl regularly, you will read more about what you already know (and hopefully, already have done). Although, Chris is not in the hyperinflation camp…yet, his advice is great for deflation, inflation, or hyperinflation.

A note about Treasury Bills: Chris mentions Treasury Bills as a short-term, very liquid asset. Groovygirl agrees. But we will have a panic in all things Treasury, security, bond related at some point in the future, so keep an eye on that and move money when necessary. If you don’t want to pay too much attention, just keep no more 10-20% of your net worth in a Treasury under a month and roll over.

Groovygirl looks at short-term Treasury bills as “the other bank” or an additional bank if you are very wealthy. If the entire banking system should collapse (or go on vacation), you would be able to get some cash money from your Treasury bills. Or put money from a sale in Treasury Bills until banks reopened. This is a good option for businesses that need cash to keep going during an extended bank holiday. However, Treasury Bills are not a place to put all your money for an extended period of time and don’t count on being able to get it all back during a crisis. The gov could limit with drawls.

If groovygirl had a lot of cash that she needed to keep very liquid (meaning she could get it in under a month), she would have some in 3-4 different American banks, some in one-month Treasury Bills, and some overseas in an non-American bank. If she didn’t have a lot of money, she would just use the 2-3 different American banks and some cash at home for emergencies. BTW, the banking crisis is not solved, we still have the potential for a banking collapse and/or bank holiday.

Side musing: even Tony Robbins has issued an economic warning. Click here. Tony mentions the winter “season” or cycle. If you are not familiar with that, it is the K-wave winter cycle. Click the page under about me entitled k-wave for more information. I explain a little bit about what to expect in the winter cycle and how you might protect your investments during that time.

It seems that more people (and MSM) are moving from denial to fear about the economic situation. As groovygirl said before, we will be in full fear mode by the end of 2010. Talk to people that will listen, don’t talk to people who won’t. Don’t panic, but continue to prepare. You will sleep better.

Harvey Organ on gold and silver

Click here for Harvey Organ’s latest post. Interesting stuff. Also a note from Jim Willie. This is a very important read.

Side musing: I am not sure about timing, but the system continues to break down. It is anybody’s guess when the government will have to make drastic moves in reaction to the events Harvey talks about. Their reactive move will cause lots of problems, not a solution. Groovygirl thinks 2015, BUT she is in position now, just in case….

Another opinion on hyperinflation

Here is a long post on hyperinflation.

http://www.zerohedge.com/article/guest-post-how-hyperinflation-will-happen

I disagree with the author’s timeline of the start…..this fall or 2010. The government still has room to print money and buy more Treasuries directly. And I think that the Treasury bubble pop could have a couple of false falls or “flash-crashes” before it happens like he really says it will.

Although I disagree with the timeline, the events that unfold are accurate. I, like the author, am looking for a collapse in Treasuries to signal a hyperinflationary event, but I think it will take longer.

He also mentions a possible reactive move by the government to hyperinflation with more money printing. I agree that this is a possibility. It is also possible that the USDollars outside the US take a while to be dumped on the US. This would be a “double-dip” hyperinflation. Where you have a dollar collapse, a stall for a few weeks/months, and then further collapse.

Side musing: we basically have a triangle going on here with US Debt. The Federal Reserve gives the US Government cash and sells bonds to cover that cash outlay. The Big Banks borrow money from the US Government and buy the Fed’s bonds. This is set up for collapse and there is no good solution to get out of this triangle. Having said that, this game could go on for a long time or longer than anyone thinks it can go. There are a lot of potential triggers to collapse this Ponzi scheme, but one thing is clear, it is not sustainable.

Update: the author apparently got the same reaction groovygirl did (put this on a chat board  for discussion and people went wildly into denial)….click here for How Hyperinflation Will Happen, part II.

Real Estate Market update

Regardless of the F-TV talking heads, real estate is not coming back anytime soon.

Click here for a graph of the gold to median price house ratio.

This graph shows you when to invest in gold and when to sell that gold and buy real estate. Housing market has a ways to go. It is groovygirl’s opinion that the ratio will be below 1 before it hits a low. And it has the potential to bottom bounce for years because of the huge derivative market on mortgages. That derivative market still has no solution, it was papered over. It is waiting to rear its ugly head again.

John Williams on kingworldnews

Click here for a GREAT interview with John Williams of shadowstats.com on kingworldnews.

No need to throw jelly donuts, the good news is you know what we are facing and you can prepare for it. We listen to the wise words and real stats of John Williams, because we can then prepare.

Groovygirl highly recommends the shadowstats.com subscription. It is invaluable. If you don’t know the real stats, you can not make informed economic decisions.

The legend of squit.