By Randolph Buss
• The US “bailout” is now fundamentally out of control— a fictitious $700 bn bailout has now turned into an “all sucking vortex” – some estimate $5 trillion.
• Within the last 4 months, new public debt within the US has increased $1.5 trillion with 2 Debt Limit ceilings raised (more inside this update)
• Under President Bush, the US public debt has doubled (100% increase) in 8 years from $5.7 trillion to $10.6 trillion (more inside)
• My last target for the DOW of 8000 has now been met, my ultimate lowish target is ~ 6000
• My long-held deflation theory with concomitant central bank easing rates globally has been verified—more easing underway although now an easing is not producing the desired results. Interbank rate spreads remain nearly 5x above normal
• US new home starts are down 40% and build permits have fallen to 1981 lows
• In previous issues I have reported that between housing and financial sectors, the US is very susceptible to large unemployment in a downturn—this will now accelerate
• My call for Swiss Franc accumulation on target but observing closely as Swiss also in downturn
economically ; may see short term weakness
• BEAR markets take 9—12 months minimum to resolve although this is now a “mama bear” - meanest and very nasty—I foresee 2009 as severe as Central Banks are “pushing on a string” as far as monetary policy easing is concerned.
• So-called Quantitative Easing (QE) is now the rage— Fed Governor Kohn mentioned the Deflation of Japan as a risk— we now hear louder the helicopters of Ben and world central banks—in $$$ drop mode
• Latest CPI figures do not look robust by any means
• Yet, official core inflation is still running at 4%+ ; unofficially more
• With real interest rates therefore negative, money markets are unattractive and banks actually lose money such accounts
• Mortgage and credit card rates remain cemented if not moving higher despite monetary easing ; consumers in debt + job loss fear
• I remain VERY skeptical of monetary easing “producing” a new wave of consumer optimism ; moreover, I see that monetary easing will create a larger wave of inflation later
• I foresee further major bankruptcies in banks, business and as I stated a year ago, a further contraction in corporate real estate
• Credit restriction from institutional side looks set to continue as turmoil continues along with risk spreads (% over US Treasury rates)
• And finally, I am starting to consider the SERIOUS risk of a US default and/or a major disruption in US Treasury auctions—buyers of US continued debt may simply start to walk away as the risks within the US market are increasing and non-transparent. This does not bode well for US Dollar holders.
• There has also been talk of the US nationalized private pension plans although this seems less likely unless a full-revolution is desired
Randolph Buss is Editor, DINL Newsletter & Service Publication
