From the Desk of Craig Griffin.
“Is there a real danger that the government won’t raise the debt ceiling? I can’t see that happening, until, raising the debt ceiling doesn’t matter anyway! Yes, I believe there will come a time when raising the debt ceiling won’t make any difference! Why? Because there will come a time when no one will buy our debt (U.S. bonds) any longer!
Do we know when that time will be? No, not really but I feel confident it isn’t going to happen this time around. They will not fail to raise the debt ceiling, not for any significant period of time anyway. I have felt this way all along and I am almost disgusted by the incessant reporting of the press.”
I wrote the above paragraphs two days prior to the October 15th deadline, but since the parties have kicked the can a little further down the road to February 2014, I think they are still pertinent.
To me it has seemed obvious that the press was being encouraged to put forth as much coverage and fear regarding the situation as tolerable to the American public. However, when anyone in a responsible position speaks, particularly the President or the Federal Reserve Chairman, they are not just speaking to the citizens of the United States; they are speaking to the world.
Below is a question I have been asking myself over the past weeks:
Could it be that new legislation may be coming down the road to once again make the debt ceiling increases automatic without the need of congressional approval?
With debt now near $17 trillion it seems the debt ceiling discussion is rolling around a little more frequently. Are the powers that be programming us to accept this conversation as meaningless? – Ah shucks, don’t worry about the debt ceiling; it always gets worked out……Until it doesn’t!
I think that the markets aren’t really concerned about the threat. If the market felt there was a real danger it would be telling us so. A failure to raise the debt ceiling for any significant period of time would make the Great Recession look like a picnic. The stock market would be plummeting and gold would be soaring. And the dollar might finally meet its maker. Pun intended!
THE FIAT MONEY SYSTEM
I began writing about the U.S. Dollar losing its reserve currency status in 1998, not because I thought the end was imminent but in my mind the long term fate of the Dollar seemed to be sealed, even then. I am more convinced today than ever that that prediction will come true. I don’t think it is a matter of if but when. As I have pointed out previously, the British Pound/Sterling was the world’s reserve currency up until the mid 1940’s, but they went down the same road the United States is rolling down, building up huge debts and deficits until they totally destroyed its currency!
Now it doesn’t take a rocket scientist to judge the action of the stock market as bullish or positive but every downturn or bear market that I have ever been through was preceded by amazing action to the upside in the stock market and robust economic growth! As Richard Russell has said so many times the job of a bear market (and/or recession) is to eradicate the excesses of the past!
The problem is identifying when the stock market has breathed its last bullish breath and I don’t mean for a few months or a few years. What I am talking about is when the stock market tops out for the count like it did in 1929.
On September 03, 1929, the Dow reached 381 points before the crash and ensuing bear market and the Dow did not cross that level again for 25 years. On October 24 (Black Thursday), the market lost 11% of its value. By its close on October 29, 1929, the Dow had dropped to 230 points. In 26 days the Dow had lost over a third of its value but the headlines were still positive!
I used to go to the public library here in Phoenix prior to the advent of the internet. I loved to go back and read the Wall Street Journal and the New York times from the 20’s and 30’s. One front page Wall Street Journal headline from a day or two after the crash still stands out in my mind today, “Everyone in a responsible position from the President down says, ‘There is no recession in sight!”’
Well I guess they were right, there wasn’t a recession, no, just what became known as the GREAT DEPRESSION! Of course this was a recession that turned into a depression but you get my gist, and here is something else to think about; the Dow after some fits and starts continued to decline arriving at a temporal bottom on November 13, 1929, of 198.60 points. It was from this date that the stock market began a secondary recovery and rally which concluded on April 17, 1930.
This was the sucker’s rally that drew investors back into the market who believed that the worst was over, but they were wrong. The Dow continued its decline into the summer of 1932, dropping 89% from its September 1929 peak of 381 points.
Now here is a concern of mine; we have not experienced a secondary reaction from the rally that began on March 09, 2009. Historically this is something one can count on and yet we haven’t seen one after four and a half years. If this secondary correction is yet to come it could be a real doozy!
Gold continues to rally back as it did in 1975-1976 and 2008. In 1975 -1976, gold declined over 41% before rallying over 670% over the next 3 and half to four years. Gold also took huge hits in 2008 dropping over 33% before it embarked on a climb that took it up over 250% by November 2011!
Now, during gold’s most recent correction, the precious metal declined just over 35%, not much below the 33% lost in 2008 and under the 41% decline in the mid 70’s. So, “Don’t throw the baby out with the bath water” just because some analysts on Wall Street say gold is a relic. Historically it is normal for gold to take these types of corrections and historically during the last two bull markets for gold they were followed by huge gains price, which is a very positive sign for the long-term future!
So remember, “It would be foolish to acquire gold for the short term but it would also be unwise not to own some gold for the long term!”
News from Around the World:
There has been some major economic disappointment for at least two members of the Federal Reserve. It seems our economy has been stuck somewhere between low gear and reverse for far too long. So think New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart.
In a foreboding question Mr. Lockhart asked at a leadership summit in New York, “Is America losing its economic mojo?” In response to his own question he stated, “There is some evidence to the affirmative.” He went on to note that business data indicates there are less and less business owners that are expanding their labor base and fewer employees are moving on to better jobs.
Read the article:
Default Vexes Postal Service
With all the noise and commotion about funding the government and Obamacare, it would be easy to miss the little story about the difficulty the Post Office is having with their Retiree Health Benefits. The difficulty involves a default to the tune of $5.6 billion in payment for health benefits for retirees.
It is not as though it has come as a big surprise to anyone. In a report to the Senate Committee on Homeland Security and Government Affairs, the Postmaster General, Patrick Donahue, informed them of the then unavoidable default that would take place on September 19th of this year.
Read the article:
India Temples Wary Of Government Eyeing Their Gold
In a move that has the Indian temples on edge, the Indian central bank has requested detailed information from the richest temples as to the amount of gold stored, etc., and in spite of its interest, claims there is “no proposal under its consideration to convert idle gold into bullion at this juncture.”
The amount of gold in question is no paltry amount. Some estimate it to be one half the gold reserves held at Fort Knox. The government maintains that it’s interest is merely academic and what amounts to no more than data collection. They are just curious so nothing to see here citizens, move along.
Read the article:
World Growth Prospects Not So Good Says IMF
Even before the International Monetary Fund meets with the World Bank in Washington the IMF has released a statement in which their expectations for the global recovery have been downgraded from its meager prediction of 3.2% economic expansion to to a plodding 2.9%.
Talk swirls around the debt ceiling and other “fiscal accidents” that could, in the words of the IMF’s Research Director, Oliver Blanchard, “If there was a problem lifting the debt ceiling,” he warned, “it could well be what is now a recovery would turn into a recession — or even worse.”
Read the article:
The Neighborhood Just Got Scarier
Just in time for Halloween the housing market has gained a few new and somewhat frightening characters. May I introduce the “Vampire” and “Zombie” foreclosures. Be careful, try not to get too close, they just might bite.
For the uninitiated a “Vampire” foreclosure is one where a property has been taken back by the bank but the owners continue to live there. This may occur for a number of reasons from the bank allowing the occupants to remain there and thus escape maintenance cost to the resident outright fighting the foreclosure.
Zombie foreclosures on the other hand are properties that the owner has forsaken and left for dead. They sit there with vacant expressions, mouth open, occasionally drooling and leering at the normal ones around them.
Read the article: