Bob Chapman | June 30, 2010

Last week the Dow fell 2.9%; S&P 3.6%; the Russell 2000 3.3% and the Nasdaq 100 fell 3.9%. These numbers should make for a lower opening on Monday. Banks fell 1.7%; broker/dealers 2.2%; cyclicals 3.5%; transports 4.3%; consumers 4.1%; utilities 4.3%; high tech 4.6%; semis 5.2%; Internets 4.2% and biotechs 1.7%. Gold was unchanged; the HUI fell 0.2% and the USDX fell 0.4% to 85.32.

Two-year T-bills fell 8 bps to 0.61%; the 10-year notes fell 11 bps 3.11% and the 10-year German bund fell 12 bps to 2.61%.

The Freddie Mac fixed rate 30-year mortgage fell 6 bps to 4.69%, the lowest rate since 1971. The 15’s fell 7 bps to 4.13%. The one-year ARMs fell 5 bps to 3.77% and the 30-year jumbos fell 6 bps to 5.52%.

Fed credit rose $6.3 billion, up $108 billion YTD, or 10.1% and 16.6% YOY. Fed foreign holdings of Treasuries and Agency debt rose $10.1 billion to a new record of $3.090 trillion. Custody holdings for foreign central banks increased $135 billion YTD, or 9.5% annualized and YOY $326 billion, or 11.8%.

M2, narrow, money supply fell $37.5 billion to $8.564 trillion. It increased $52 billion YTD and YOY 1.4%.

Total money market fund assets rose $12 billion to $2.818 trillion. YTD they have fallen $476 billion, a one-year decline of $891 billion, or 24%.

The Fed Chairman Ben Bernanke tells us the American recovery is struggling because of European austerity. Does he really expect us to believe that? There is no question austerity in Europe will lead to a deflationary depression. Unemployment will rise quickly, which means major cuts in government spending and lessened revenues. Beside the public those affected the most will be towns, cities and states, many of which are on the edge of insolvency surprisingly even in Germany. The PIIGS unbelievably say their instability and debt is the result of the deflationary economic policies of the richer euro zone members. Germans and others are saving, agreeing to low salaries, producing more and not increasing debt. On the other hand the PIIGS and others were headed in the other direction. This is why the euro is doomed. After destroying their economies with one interest rate fits all, they are quick to blame others. Then again the bankers should never made the loans they did either. The result is deflationary depression, which is just getting underway. It is proper for Europe to use austerity, but it is a big mistake to raise taxes. That leaves little for the populace to spend to keep the economy going.

The US is determined to take the opposite tack. No austerity and full steam ahead. This in spite of the fact that the economy is faltering, especially in real estate, both residential and commercial. It is so bad that they have obscure government agencies buying mortgages. These new buyers plus Fannie, Freddie, Ginnie and FHA have been buying 95% of mortgages. Without massive stimulus and or Fed monetary expansion we will definitely see negative GDP growth in the last quarter of 2010. The indicators are in place and the tell tail signs of retrenchment abound. Wall Street is about to give up the ghost and see a test of the March 2009 lows. We are sure there will be rallies as the Fed unleashes trillions more in money and credit that as well will produce much higher inflation. This could produce $5,000 or more gold and a 5,000-point Dow.

As you are now well aware Fannie and Freddie are going to punish people who have stopped paying their mortgages, who can pay them, and who are paying other bills instead. This leaves lenders with foreclosures and much more inventory than they ever imagined. This additional problem will bring on the double dip that

Wall Street and Washington so fear. As a result of this and other failures we are about to experience the worst economic collapse sine 1348. The stock market is topping out readying itself for its most disastrous fall in history. The fall will be followed by years of depression, all of which has been deliberately created to bring the world economically and financially to its knees in an attempt to bring about world government by Illuminists. Some market analysts understand where the market is headed, but most who do understand, write and talk about the mundane observable trappings and not what the situation is really all about. We have several analysts talking about a market collapse. They do not talk about the real forces behind our misfortune. We recently watched an interview of a man who wrote about the Bush family. His only admission was that they were players in the game controlled by other forces, which he refused to mention. He wouldn’t say what they were up to and who they were. This shows you how terrified writers are who are confronted by the power of the Illuminists.

There are always these lone voices in the wilderness, which at best – some 15% of the populace – listens too. You had better listen this time because it could well cost you not only your assets, but your life, especially when another war is being prepared for you to engage in. Nothing is really as it seems to be and there are no coincidences. You are about to enter a world of chaos from which few will survive unscathed. A world of no banks, no public facilities, no food and rampaging gangs of desperate people. Unemployment of 50% and little law and order. Violence will be rife. This is not a pretty picture, but we have spared you the details. The world had better wake up fast so they’ll be prepared to deal with what is to come. If you were not aware of it the dark side really exists. We also want to remind you that for more than 20 years we have been almost totally right, and we have made some stupendous calls.

We are now entering the next to last phase of our journey. The wanton creation of wealth, inflation and perhaps hyperinflation, which will rob you of your assets. A stealth attack on what you have left by the people who control your government. Such monetary creation is the only way these people can keep the game going. They know it won’t last, but they proceed anyway. For awhile they’ll keep the multitudes at bay with extended unemployment and food stamps, but that will fade in time for lack of financial control, as the system begins to break down.

You already see all fiat currencies under fire, as is sovereign debt. Can it get any worse? Of course it can, and it will. Implosion is the word everyone is going to discover and understand. An event that cannot be hidden by zero interest rates and endless supplies of money and credit. That word implosion will describe what will happen as a result in the machinations of the Federal Reserve.

Now that you have seen a glimpse of your future we will move on to the deteriorating world that we now live in.

CNBC and the mainline media tells us all is well irrespective of a failing recovery, climbing unemployment, which has just recently been assisted by trillions of dollars in stimulus. The question is what comes next? More of the same, of course. There is no other avenue to pursue even though Mr. Bernanke knows such stimulus is not going to get the desired results. These players behind the scenes know history. They know what we know. They depend on 98% of the people not discovering what they and we know, and that is where this is all headed. The important people in Wall Street, banking, insurance and in transnational corporations know, but they are not about to tell you. The market doesn’t like what it sees, but it knows it cannot do much about it.

Americans are fighting back as millions have not made mortgage payments for a year and are living for free in their homes. As an antidote Washington is now considering charging them rent, something they should have done four years ago. If you add in the disaster that is commercial real estate, personal and corporate debt, and sovereign debt, you have an insolvable problem that can only end in great grief. The choice to expose Greece’s weaknesses from behind the scenes looks to be a fatal mistake. The elitists never envisioned the firestorm that the exposure has led too. Greece is about to explode, not because of the reduced socialist benefits, but because the people are finally realizing that they and others have been taken for a ride by the bankers and others behind the scenes and from within their own government. Discovery by the Greek people and others is not something the illuminists expected. They now are forced again to expedite their programs - when they have to do that they make mistakes, often-big mistakes, which gives us pursuers an advantage we could never hoped to have had. After their latest mistakes the bankers are scrambling to preserve the current system. It is not to be. There are far to many who now know what they are up too.

Europe is still struggling in an attempt to bailout the PIIGS, which if they take the loans they will live in financial bondage and depression for the next 30 years. We told the Greek people in a TV documentary last week to default, leave the euro, create the new drachma, lower taxes, make sure the rich pay their taxes, cut expenses in government by 30% and do not under any circumstances sell off any Greet assets, such as islands and utilities to foreign Illuminists for 20 cents on the dollar. The bankers created the money they lent out of thin air, so why should they be repaid. In addition they knew the risks and should have never made the loans in the fist place. The Illuminist-Bilderberg PM should be impeached for trying to destroy the country.

There is talk of a new northern euro to replace the current unit. Such a unit would need gold backing. Germany asked for the return of their gold from the US about a year ago. As far as we know they haven’t received it. The question then is, how do they back such a currency? France has sufficient gold, but they are in serious economic and financial trouble. We don’t think a northern euro is viable. Denmark is mentioned as a partner, a country that twice has rejected the euro. They also have serious problems. If the 5 PIIGS default how much bad debt will these nations be stuck with - $1 trillion or $2 trillion? That certainly is a salient factor in any new currency decision, and it is very possible default could become reality. Deficit reduction and austerity are not solutions without tax cuts. That is unless you want years and years of recession/depression. The public has to have money to spend to keep economies going. That isn’t a purge, but it is as close as you are going to get for the present.

Just headlines: "the audit board violates constitution, Supreme Court finds." As Reuters explains: "At stake in the case is how corporate America is audited and a key provision of the Sarbanes-Oxley corporate reform law adopted in 2002 in response to the Enron and WorldCom accounting scandals. If the Supreme Court strikes down the board, the ruling will put pressure on Congress to revisit the law, opening it up for potential changes in the reporting duties of companies." Then again, who even pretends we have remotely credible filings anymore? With FASB indefinitely locked in the basement and companies allowed to report their numbers on a mark-to-unicorn basis, it is all lies anyway.

Legislation to overhaul financial regulation will help curb risk-taking and boost capital buffers. What it won’t do is fundamentally reshape Wall Street’s biggest banks or prevent another crisis, analysts said. A deal reached by members of a House and Senate conference early this morning diluted provisions from the tougher Senate bill, limiting rather than prohibiting the ability of federally insured banks to trade derivatives and invest in hedge funds or private equity funds. Banks ‘dodged a bullet,’ said Raj Date, executive director for Cambridge Winter Inc.’s center for financial institutions policy. The overhaul, which still requires approval from the full Congress, won’t shrink banks deemed ‘too big to fail,’ leaving largely intact a U.S. financial industry dominated by six companies with a combined $9.4 trillion of assets. The changes also do little to solve the danger posed by leveraged companies reliant on fickle markets for funding, which can evaporate in a panic like the one that spread in late 2008.

Fannie Mae will temporarily deny new loans to borrowers who deliberately default and walk away from their homes. Borrowers who have the means to make mortgage payments and don’t work with lenders to restructure loans will be banned from obtaining new mortgages backed by Fannie Mae for seven years from the date of foreclosure, the company said. Fannie Mae, along Freddie Mac, own or guarantee more than half of the $10.7 trillion U.S. mortgage market.

Californians don’t see much evidence that the worst economic contraction since the Great Depression is coming to an end. Unemployment was 12.4% in May. Lawmakers gridlocked over how to close a $19 billion budget gap are weighing the termination of the main welfare program for 1.3 million poor families or borrowing more than $9 billion in the bond market. Far from rebounding, the Golden State, with a $1.8 trillion economy that’s larger than Russia’s, is sinking deeper into its financial funk. And it’s not alone. Even as the U.S. appears to be on the mend finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities. ‘States are going to have to cut back spending and raise taxes the same way Greece and Spain are,’ says Dean Baker, co- director of the Center for Economic and Policy Research.

May personal income rose 0.4%, the PCE price deflator rose 1.9% and April personal income was revised to 0.5% from 0.4%. Spending rose 0.2%, real disposable income rose 0.5% and savings rose to 4%.

The Chicago Fed Activity Index was 0.21, down from April’s 0.25 and way down from 0.32 expert estimates.

The June Dollar Fed Manufacturing Index was minus 4%, down from May’s 2.9% and a 3.2% expert estimate.

The Friday Night FDIC Follies made a repeat when three more banks closed to total 86 YTD. We could get close to 100 by the end of the year.

Fannie Mae and Freddie Mac, the housing-finance companies supported by U.S. taxpayers, should take advantage of demand for government-backed mortgage debt and sell their holdings, according to Pacific Investment Management Co.

“Since the government’s going to want to unwind them at some point anyway, why not do it at the best levels ever?” Scott Simon, the mortgage-bond head at Newport Beach, California-based Pimco, manager of the world’s biggest fixed- income fund, said in a telephone interview. “It’s good for taxpayers, good for stakeholders, good for everybody.”

The average price of the $5.2 trillion of so-called agency mortgage bonds guaranteed by Fannie Mae and Freddie Mac or federal agency Ginnie Mae rose last week to an all-time high of 106.3 cents on the dollar, according to Bank of America Merrill Lynch’s Mortgage Master Index. The Federal Reserve said today it would replace its contracts to take delivery of certain bonds with other debt, reflecting a lack of supply in the market.

Legislation to overhaul financial regulation will help curb risk-taking and boost capital buffers. What it won’t do is fundamentally reshape Wall Street’s biggest banks or prevent another crisis, analysts said.

A deal reached by members of a House and Senate conference early this morning diluted provisions from the tougher Senate bill, limiting rather than prohibiting the ability of federally insured banks to trade derivatives and invest in hedge funds or private equity funds.

Banks “dodged a bullet,” said Raj Date, executive director for Cambridge Winter Inc.’s center for financial institutions policy and a former Deutsche Bank AG executive. “This has to be a net positive.”

Hashed out almost two years after the worst financial crisis since the Great Depression, the legislation shepherded by Senate Banking Committee Chairman Christopher Dodd and House Financial Services Chairman Barney Frank places limits on potentially risky activities such as proprietary trading or over-the-counter derivatives and gives regulators new powers to seize and wind down large, complex institutions if needed.

For the last several months, Princeton professor Paul Krugman has become increasingly agitated about what he feels is a disastrous mistake in the making -- a sudden global obsession with "austerity" that will lead to spending cuts in many nations in Europe and, possibly, the United States.

Krugman believes that this is exactly the same mistake we made in 1937, when the country was beginning to emerge from the Great Depression. A sudden focus on austerity in 1937, it is widely believed, halted four years of strong growth and plunged the country back into recession, sending the unemployment rate soaring again.

In Krugman's view, the world should keep spending now, to offset the pain of the recession and high unemployment--and then start cutting back as soon as the economy is robustly healthy again.

Those concerned about the world's massive debt and deficits, however, have seized control of the public debate, and are scaring the world's governments into cutting back.

Californians don’t see much evidence that the worst economic contraction since the Great Depression is coming to an end.

Unemployment was 12.4 percent in May, 2.7 percentage points higher than the national rate. Lawmakers gridlocked over how to close a $19 billion budget gap are weighing the termination of the main welfare program for 1.3 million poor families or borrowing more than $9 billion in the bond market. California, tied with Illinois for the lowest credit rating of any state, is diverting a rising portion of tax revenue to service debt, Bloomberg Markets magazine reports in its August issue.

Far from rebounding, the Golden State, with a $1.8 trillion economy that’s larger than Russia’s, is sinking deeper into its financial funk. And it’s not alone.

Even as the U.S. appears to be on the mend gross domestic product has climbed three straight quarters -- finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution. State spending is 12 percent of U.S. GDP.

Louisiana Economic Development Secretary Stephen Moret sent a letter to SBA Administrator Karen Mills complaining that the SBA is using its normal loan approval processes even though the circumstances are extraordinary, and that the agency is turning down far too many Louisiana businesses because of "credit concerns" or because they can't prove they'll be able to repay quickly.

Moret wrote that hundreds of the 21,000 claims filed with BP for losses due to the oil spill come from struggling small businesses, and most of them need the SBA loans to carry them through until they receive payment from BP.

But, he noted in the letter, SBA has informed him that 70 percent of those applicants have been denied.

Moret wrote that his office has been trying to work with SBA officials and was told that the federal agency could change its usual policy to soften underwriting guidelines and to consider the promise of future BP payments "in lieu of SBA's normal process for assessing credit history and repayment ability."

But that apparently hasn't happened. Moret noted that a similar process was used by SBA to help businesses after the Exxon Valdez tanker spill in Alaska in 1989.

SBA Assistant Secretary Jonathan Swain told The Times-Picayune that his agency typically approves more disaster loans as it goes along, and with a 30 percent approval rate now, SBA is already approaching its five-year average of 35 percent.





Uninspiring consumer income and spending data have pushed US stock futures ever so slightly into the red, as uneasiness over the US economic recovery lingers in the minds of investors. With less than 30 minutes before opening bell on Wall Street, all leading indices are nearly flat with the DOW off 0.06%.





Market sentiment remains fragile despite the weekend pledge by G20 leaders to reduce national deficits and debt. While waning off stimulus spending is looked upon highly by the investors, the fragility of the economic recovery is in the front of everyone’s mind with fresh austerity measures possible interfering with positive growth prospects. And as lackluster data continues to pour in from the US, investors are now questions the durability and pace of the recovery in the world’s largest economy with whispers of a double dip recession being heard more and more often.

Eight individuals were arrested Sunday for allegedly carrying out long-term, "deep-cover" assignments in the United States on behalf of the Russia, the Justice Department announced today. Two additional defendants were also arrested Sunday for allegedly participating in the same Russian intelligence program within the United States. Some of the Russians adopted Irish names in their spy work, including using the names Murphy and Foley.

Information they were seeking was pretty broad based but it included at least one report about gold. Moscow relayed back to the spies that the gold report was "very valuable" and reported that it was passed on to Russia's finance minister.

Also, according to the complaint, one spy, "Cynthia Murphy," was developing a relationship with a prominent New York financier. The financier is apparently a big political money raiser and has a close friend in the Cabinet.

The most interesting question is, of course, what kind of information could the spies have turned over about gold that Moscow deemed as "very valuable"? And let the guessing game begin as to who the "prominent New York financier" is.

It should also be noted that this decade long investigation was publicly revealed just days after Obama and Russian President Medvedev shared hamburgers together.