May 25, 2022

Why Won’t My Loan Officer Answer the Phone?

Anyone trying to refinance or get a mortgage to buy a house may wonder why it is so hard to reach their loan officer.  Numerous emails and voicemails ignored and cell phone numbers not in service are annoying to any customer but at least the missing loan officer probably has a really good excuse – he just got fired!

The mortgage industry has always been a boom and bust business but the current environment is more brutal than anything ever seen.  According to the Mortgage Bankers Association (MBA), both purchase and refinance mortgage activity have seen a stunning decline from a year ago.

The Refinance Index decreased 8 percent from the previous week and was 68 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 14 percent lower than the same week one year ago.

For the average loan officer working strictly on a commission basis and doing mostly refinances, driving to the office costs more in gas than what he gets paid.  The response from the nonbank mortgage companies has been swift and brutal.

Why you shouldn't close your business to carry out a stocktake | Stocktaking.ie

Better.com, a major mortgage banker, which clumsily fired 900 people in December via a Zoom meeting and a further 3,000 employees in March, announced that another round of cuts will eliminate an undisclosed further number of employees.

Will things get better soon?  Not soon enough for those loan officers who were abruptly fired and even the MBA which usually spins optimism, seems to have a bleak outlook going forward.

The 30-year rate has increased 70 basis points over the past month and is 2 full percentage points higher than a year ago. The recent surge in mortgage rates has shut most borrowers out of rate/term refinances, causing the refinance index to fall for the sixth consecutive week. In a housing market facing affordability challenges and low inventory, higher rates are causing a pullback or delay in home purchase demand as well. Home purchase activity has been volatile in recent weeks and has yet to see the typical pick up for this time of the year.

Many mortgage companies facing a drastic drop in revenue from their only source of revenue face a serious risk of having to close their doors.  It may be time to approach your local FDIC insured bank for a mortgage going forward instead of a nonbank mortgage lender.  Banks are strictly regulated in terms of capital requirements whereas the regulations on “nonbank mortgage” companies are much more lenient.

Food Stamps For The Wealthy – Millionaires Meet Eligibility Requirements

Newt Gingrich started a food fight at the last Republican debate by calling Barrack Obama “The Food Stamp President” and suggesting that food stamps were creating dependence on the government.  Mr. Gingrich went on to say that he wanted to “help poor people learn how to get a job” so that they could get off the food stamp dole.

Although Mr. Gingrich’s pitch for individual self reliance and hard work resulted in a standing ovation from the Republican audience, the message may not play out as well across the broad spectrum of American society.

For decades, politicians have told the American public that they are entitled to all sorts of benefits and the public has grown to love them.  Promises of benefit cuts or austerity measures do not win elections. In this regard, Mr. Gingrich may lose more votes than he gains by trying to reduce the number of food stamp recipients.  (The food stamp program is now known as the Supplemental Nutrition Assistance Program or SNAP).

Courtesy: inquisitr.com

All well intentioned government entitlement programs expand exponentially over time.  The number of food stamp recipients has exploded to a record 44.7 million people and this is a voting bloc to be reckoned with.  Newt’s somewhat hostile message to food stamp constituents has probably lost him a considerable number of votes.

Mr. Gingrich, who has an incredible depth of knowledge on most topics, seems to be unaware that food stamps have become an entitlement not just for the poor, but also for many who are financially independent and chose not to work or have retired early.

Here’s an example I looked at for a married couple in Connecticut who both chose to retire at the age of 50 since they are financially independent with $5 million in liquid assets.  Since they will live off their savings until they start receiving pensions at age 60, the couple has no “earned income” and can therefore qualify for a decade’s worth of food stamp benefits.

Exactly how can multimillionaires qualify for food stamps?  The reasons lies in the lack of asset testing for SNAP eligibility.  Connecticut, like 34 other states, does not limit eligibility based on assets.  Most SNAP applicants, except for limited exceptions, do not have to report money in the bank, retirement assets, stocks or other assets.

According to the handy benefit calculator from the Connecticut Department of Social Services, the multimillionaire couple cited above are eligible for food stamps to the tune of $367.00 per month.

The food stamp program has grown not only due to tough economic times but to vastly widened eligibility guidelines.  The SNAP program costs the taxpayers over $75 billion per year.  Here’s a partial listing of who can qualify for food stamps.

  • Non-citizens
  • Unemployed
  • Retired social security recipients
  • Working people with low wages
  • Homeless
  • Legal immigrants
  • College students
  • Millionaires showing little or no earned income

The graph below from The Wall Street Journal shows the explosive growth in the SNAP program since 1970.

Courtesy: The Wall Street Journal

Mr. Gingrich drew some well deserved applause for trying to reassert the basic values of American free enterprise and self reliance.  However, based on the vast voting constituency that is now on the food dole, reducing or eliminating the food stamp program is a political impossibility.

More on this topic:

The Entitlement Society – Million Dollar Lottery Winner Feels Entitled To Food Stamps – “I have bills to pay.”

Can The Unemployed Afford A Mortgage Payment?

Government Determined To Keep Unwilling Homeowners In Homes

The FDIC announced a new initiative to reduce foreclosures on home mortgage loans held by failed banks that were acquired by another institution.   This new FDIC program goes far beyond previous government mortgage assistance programs such as the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP).

Whereas the HARP and HAMP programs require income verification and attempt to lower a monthly mortgage payment to a level that is reasonable in relationship to a homeowner’s income, the new FDIC forbearance plan will attempt to help homeowners who are currently unemployed.

FDIC Encourages Forbearance To Unemployed

As part of its loss-share agreement with acquirers of failed FDIC-insured institutions, the FDIC is encouraging its loss-share partner institutions to consider temporarily reducing mortgage payments for borrowers who are unemployed or underemployed. This program will provide additional foreclosure prevention alternatives to these borrowers through forbearance agreements that will give them an opportunity to regain full employment and avoid an unnecessary foreclosure.

“With more Americans suffering through unemployment or cuts in their paychecks, we believe it is crucial to offer a helping hand to avoid unnecessary and costly foreclosures. This is simply good business since foreclosure rarely benefits lenders and would cost the FDIC more money, not less,” said FDIC Chairman Sheila C. Bair. “This is a win-win for the borrower, who can remain in his or her home while looking for a new job, and the acquiring institution, which continues to receive payments on the loan. Ultimately, by reducing losses under our loss-share agreements, this approach helps reduce losses to the FDIC as well.”

The recommendation to loss-share partners applies where unemployment, or underemployment, is the primary cause for default on a home mortgage. In such cases, the FDIC is urging its loss-share partners to consider the borrower for a temporary forbearance plan, reducing the loan payment to an affordable level for at least six months. The monthly payment during this period should be established based on an affordable payment – given the borrower’s circumstances – and it should allow for reasonable living expenses after payment of mortgage-related expenses.

FDIC Plan Likely To Help Few Homeowners

The objectives of the FDIC’s forbearance plan are well intentioned.  Allowing an out of work homeowner time to find a new job may prevent an unnecessary foreclosure and eliminate the need for a costly foreclosure by the bank.  From a practical standpoint, the FDIC plan may ultimately benefit very few homeowners for the following reasons:

  • The program is only available to those homeowners who have mortgages with failed banks that were acquired by another institution under a loss-share agreement with the FDIC.
  • Under the forbearance agreement, the bank will accept only a portion of the regular mortgage payment.  The FDIC is asking for only a 6 month forbearance.  Given the prospects of a “jobless economic recovery” and the difficulty in finding new employment, the FDIC appears wildly optimistic about a quick change in fortune for an unemployed homeowner.   Banks do not want to foreclose, but very few banks now offer a forbearance plan to the unemployed since they do not expect them to quickly find a new job.
  • The mortgage foreclosure prevention plans currently in effect have had dismal success rates and these programs are limited to candidates who have income.  The HARP program, expected to help millions of homeowners had at the end of July approved only 60,000 refinances.   The government loan modification program (for those not qualified under HARP) has been plagued by very high re default rates ranging from 17% to 45%.
  • The FDIC recommends that the lender establish an “affordable payment” for six months, allowing for reasonable living expenses.  Many homeowners with jobs are struggling to make their mortgage payments.  Many states pay only a fraction of previous earnings in unemployment benefits.   Unless the homeowner has put aside some savings, unemployment compensation will usually cover only basic needs, leaving nothing for a mortgage payment.  It is likely that any payment (other than zero) will be too high for unemployed homeowners.
  • Recent statistics on the “cure rate” for delinquent mortgages show a stunning decline.  The cure rate is the percentage of borrowers who are able to catch up and bring a delinquent mortgage current again.  As of July, the cure rate for prime mortgage loans plummeted to 6.6% from an average of 45% during  2000 to 2006.  Some of the delinquent borrowers had lost their jobs but many were still employed.  This is a sea change in attitudes towards home ownership.   Many of those financially able to catch up apparently saw no benefit in doing so; either the burden of home ownership outweighed the benefits or there was no perceived benefit in continuing to make payments on a home with large negative equity.   Many homeowners may view foreclosure as the best “program” for getting back on their feet since they could potentially enjoy years of “rent free” housing before the bank ultimately forecloses.

Trapped Homeowners Want Out

Heavy Load

Heavy Load

Courtesy: laprogressive

Many Americans are apparently rethinking the “dream” of home ownership and acting accordingly by relieving themselves of the costly burden of mortgage payments, taxes and maintenance on what has become a depreciating asset.

While the government says “yes we can”, impoverished homeowners are saying “no we can’t”.  Perhaps this is why the massive government initiatives to prevent foreclosures are failing.   Trapped homeowners are doing what’s best for them and walking away, while the government vainly attempts to impose home ownership on those who now reject it.

Extended Unemployment Benefits Make Little Sense

Do Extended Benefits Reduce Job Seeker’s Motivation?

Excluding the depression of the 1930’s we are fast approaching a new official high in unemployment.  During the depths of the last worst recession of 1981, unemployment exceeded 10% vs 9.4% today.  If we include marginally attached and involuntarily part time workers in the unemployment numbers, the current unemployment rate exceeds 16%.

In response to the high level of unemployment and the difficulty of obtaining employment, Congress has enacted legislation that allows the unemployed in 24 states to collect up to 79 weeks of unemployment benefits.   The other states allow unemployment benefits  from 46 to 72 weeks.  In more normal economic times, the limit on unemployment benefits was usually up to 26 weeks.

Washington legislators are now proposing another extension of benefits for up to another 13 weeks that would cost up to $70 billion.  The additional extension of benefits was prompted by the fact that up to 1.5 million unemployed Americans would soon be losing their unemployment checks as they reach the current payment limits.

In addition, the duration of unemployment has reached new highs not seen since record keeping began.

Duration of Unemployment

Given the unprecedented level of unemployment, the duration of unemployment and well reasoned arguments on why unemployment will continue to increase, the entire concept of unemployment benefits should be reconsidered.

Should Unemployment Benefits Be “Free”?  –  Some Alternatives

  • Is the constant extension of unemployment benefits reducing the motivation of the unemployed to seek new employment?   In the past year I have tried to hire unemployed people for an entry level position in which the starting pay was comparable to or slightly above the level of unemployment benefits the job seeker was currently receiving.  In almost every instance, the job seeker declined the job offer, preferring instead to postpone employment until benefits ran out.  I have also heard this same story from other people.  To maintain unemployment benefits, many states require that a benefit recipient contact a certain number of employers per week to seek work – how many of the unemployed merely go through the routine of seeking employment to maintain benefit payments?
  • Should the economy weaken further and job losses continue, does it make sense for Congress to constantly extend costly unemployment benefits with zero obligation from the recipient?  Bill Clinton reformed welfare by requiring benefit recipients to work.  Why not do the same with the unemployed who are receiving benefits?   Many charities, local governments, hospitals and companies  could employ additional manpower in a variety of productive endeavors.   The unemployment benefits would still be paid by the government, but the benefits would have to be earned.  From a self worth perspective, getting engaged back into the real world would benefit the unemployed as well – sure beats watching television all day.
  • Instead of spending hundreds of billions on unemployment benefits and getting nothing in return, the government could establish job training programs or put the unemployed to work on infrastructure projects that the country sorely needs.  This was done in the 1930’s with the Works Progress Administration (WPA) and the country still benefits to this day from the roads, bridges, dams and buildings that were constructed.   The preferred way to do this would be for government bureaucrats to get out of the way and contract projects to private industry.  Paying people to do nothing accomplishes nothing.

Ideally, the economy recovers and private industry rehires many of the unemployed.  Realistically, the country may face continued massive job losses or at best a slow recovery where the unemployment rate remains in the 10% plus range for an extended period of time.   Maintaining an army of paid and unemployed workers to sit idle makes no sense.

More on this topic

When The Laid-Off Are Better Off

Would it surprise you to learn that survivors can suffer just as much, if not more, than colleagues who get laid off?  “How much better off the laid-off were was stunning and shocking to us,” says Sarah Moore, a University of Puget Sound industrial psychology professor who is one of the book’s four authors. “So much of the literature talks about how dreadful unemployment is.”

Cash Starved Consumers Stop Betting

People are no longer willing to wager their last dollar on the hope of striking it rich.   The AP is reporting that Connecticut casinos reported almost a 10% decline in revenue for January 2009.

UNCASVILLE – Slot winnings at Connecticut’s two Indian casinos were down in January from a year ago, continuing to slide with the economy.

The winning at the Mohegan Sun declined 8.7 percent compared to January 2008, the casino’s poorest year-over-year performance since October.

The Mohegan Tribal Gaming Authority, which manages the casino, said slot revenues totaled $62.4 million. The tribe sent $15.6 million to the state under Connecticut’s gaming compact.

Foxwoods Resort Casino and MGM Grand at Foxwoods reported January slot winnings of $52.9 million, 7.3 percent less than Foxwoods reported the previous January. But the performance was better than in December 2008, when Foxwoods’ slots win was off 19.3 percent.

Some months ago Connecticut’s two major casinos also instituted job cuts and wage freezes.  You know things are bad when the casinos show huge drops in business.

The big question – are consumers suddenly very cash poor or are they being sensibly frugal?  Consumers know what they must do and are acting accordingly.  The State of Connecticut has yet to recognize reality and needs to take a lesson from its citizens.

You Cannot Multiple Wealth By Dividing It

Tax Foundation – Connecticut 3rd Highest Tax Burden in Nation

Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2008, Connecticut taxpayers had to work until May 8 (the latest in the nation) to pay their total tax bill, 15 days later than the national Tax Freedom Day (April 23).

Connecticut’s State/Local Tax Burden Third-Highest in Nation
Connecticut, currently ranked 3rd highest, has risen 21 places over the last three decades and now holds a place among the nation’s highest-tax states.

Connecticut’s 2008 Business Tax Climate Ranks 38th
Connecticut ranks 38th in the Tax Foundation’s State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property.

Connecticut Levies Sales Tax above National Median; Gasoline and Cigarette Taxes among Nation’s Highest

Connecticut Residents Are Voting With Their Feet

The Connecticut State Data Center says figures from last year show the population growth in the state is very small.

The University of Connecticut-based center says Connecticut’s population grew by less than two-tenths of 1 percent last year.

There is a connection between high taxes, job losses and zero population growth.  Connecticut has become a very high cost state for both residents and employers.  If Connecticut really wants to increase jobs in the state,  attention should be focused on lowering taxes.

“A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned – this is the sum of good government.” Thomas Jefferson

Notable Links

Living Beyond Yours Means – California’s Economy Gets Worse

California’s Pain Is Only Beginning

BIG SUR, Calif. — As Sacramento squabbles over the state’s $42 billion deficit, Californians are getting a bitter taste of what’s to come after the steep budget cuts that are inevitable when legislators and Gov. Arnold Schwarzenegger finally hammer out a deal.

Some world-famous parks like Pfeiffer Big Sur State Park may not open this year. After-school programs in low-income areas are being scuttled, putting high-risk teens on the street just as police forces are being cut. Schools are closing classrooms, and some highway projects have ground to a halt. The state may not be able to monitor some sex offenders as required under law.

Other states face budget cuts too, but California’s budget mess stands out for its size. Its deficit is projected at $42 billion by mid-2010. Since Gov. Schwarzenegger declared a fiscal emergency 14 weeks ago, he and lawmakers have been deadlocked over how to close the gap. Democrats want tax increases and moderate spending cuts; Republicans seek deep cuts and no tax increases; the governor wants a combination.

The governor’s office warned Tuesday that if no budget deal is reached by Friday, the state would send layoff warnings to 20,000 workers. Gov. Schwarzenegger also said he intends to cut 10,000 jobs through layoffs and attrition to save $750 million over 17 months.

If it’s true that California sets the trend for the nation, we can all expect more economic pain.  California has discovered the limits of the theory that a government can borrow and spend its way to prosperity.  It will be interesting to see what outcome the state arrives at with its budget process.  Raising taxes would be self defeating and borrowing more would be total lunacy.  The last option result of cutting spending is already being deployed and will likely continue, putting a further drag on the state’s economy.  The era of reduced expectations is slowly dawning on California.

China Becomes Nervous Over US Debt Holdings

China Needs US Guarantee for Treasuries

Feb. 11 (Bloomberg) — China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.

The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,”  He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt.

Benchmark 10-year Treasury yields climbed above 3 percent this week on speculation the government will increase borrowing as President Barack Obama pushes his $838 billion stimulus package through Congress. Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s $1.95 trillion foreign reserves.

“In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”

“The biggest concern for China to continue buying U.S. Treasuries is that if Obama’s stimulus doesn’t work out as expected, the Fed may have to print money to cover the deficit,” said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., partly owned by Morgan Stanley. “That will cause a dollar slump and the U.S. government debt will lose its allure for being a safe haven for international investors.”

The Chinese are correct to worry about the value of their US Treasury holdings.  It is becoming more obvious by the hour that the huge spending proposals coming out of Washington guarantee that the Fed will be printing money.  The Chinese may currently not be able or willing to liquidate their holdings in Treasuries.  The one certainty here is that the Chinese appetite for additional US debt securities will greatly diminish going forward.

Real Estate Long Way From Bottoming

The Reality Behind Real Estate

by Michael Pento, Delta Global Advisors, Inc. | February 10, 2009

Much has been written lately about the beginnings of a recovery in the real estate market. Just last week housing bugs (investment “bugs” are not exclusive to those who only love gold) were cheering the latest data point which they claimed as evidence the market is making a comeback.

So with all this good news out there, why am I still projecting a continuation of falling home prices? Inventories, especially the key reading of vacant homes for sale. The reason the number of vacant homes for sale is more salient than those that are occupied is that a home sitting vacant is much more likely to stay on the market until it is sold, regardless of price (as opposed to occupied homes, with owners who might simply pull the listing if they don’t like the price). Because the owners of so many unoccupied homes are banks, they are especially motivated to hit the bid on a property.

The reason there is an intractable level of homes for sale clearly stems from the faltering economy, which is causing massive layoffs and skyrocketing unemployment. The rate is currently 7.6%, a 17-year high. This compels homeowners (many of whom owe more on their home than it is worth) to walk away from their properties. After all, how much motivation do home owners need to abort if they are already upside down on the home and now find themselves without a job?

Home prices and mortgages rates may have to fall well below historical levels in order to clear away the massive buildup in inventories, and it’s a condition which may need to exist for a protracted period of time before home price stability can occur.

Healing takes time, but that is not part of our new administration’s plan to fix the real estate market. Instead, like his predecessor George W. Bush, the Obama team feels it is better to artificially prop up home prices at an unsustainable level rather than have them retreat to a price that can be supported by the free market. But then again, isn’t this just more evidence that the idea of free market capitalism is being trampled—by both parties.

The Government will waste huge amounts of resources trying to fight free market forces and fail in the end.  Attempts to establish artificial market prices has never worked and it will not work now.

PIMCO Demands That Fed Print Money

PIMCO Says World Faces Second Wave of Economic Crisis

Feb. 11 (Bloomberg) — Pacific Investment Management Co., which runs the world’s biggest bond fund, said the global economy faces a “second wave” of turmoil unless governments adopt larger spending plans.

“The economic setback is still in its early stages,” Koyo Ozeki, head of Asia-Pacific credit research at Pimco’s Tokyo office, wrote in a report on the firm’s Web site. “Any further decline in housing prices could accelerate the downturn, intensifying the pernicious feedback loop and possibly leading to a second wave in the financial crisis in the next six to 12 months.”

Bill Gross, Pimco’s co-chief investment officer, said on Feb. 5 the Federal Reserve will have to buy Treasuries to curb yields as debt sales increase.

“To overcome that second wave, governments worldwide would have to spend vast quantities,” Ozeki wrote. “The resulting erosion in their finances would increase the risk of dangerous side effects.”

It sounds like the largest bond fund in the world is getting so nervous about their bond holdings that Bill Gross is calling on the Fed to print money via the purchase of Treasuries.   We are reaching a very dangerous point in the nation’s finances when there seems to a consensus that printing money is the only solution to our economic woes.  The free market solution of restructuring and bankruptcies is being avoided at all costs.  Expect a long drawn out economic nightmare.

What is the end result of printing money?   See The Zimbabwean Dollar – The Point of No Return – this may be our future.

Japan’s GDP Down 50% In One Year?

Titanic Sails Again to Sink Deck-Chair Economy

Feb. 11 (Bloomberg) — NEC Corp. started a trend that will forever change Japan.

The nation’s largest personal-computer maker on Jan. 30 said it will fire more than 20,000 employees. That announcement would have been shocking enough had it not opened the floodgates. Since then, Panasonic Corp. said it will cut 15,000 jobs. Nissan Motor Co. is cutting 20,000.

Even during the darkest days of the 1990s — deflation, bank failures, public bailouts — companies avoided mass layoffs. NEC’s precedent seems to have made it fashionable to do just that. What’s next? Sony Corp. firing 50,000 people in Tokyo?

The psychological blow to Japan’s already skeptical consumers is sure to deepen the recession at a speed few thought remotely possible just two months ago.

“Japan’s recent economic decline is faster than that of the U.S., which has been experiencing the worst financial crisis in a century,” Kazuo Momma, head of research and statistics at the Bank of Japan, said in Tokyo on Feb. 9.

Momma said the world’s second-largest economy may have shrunk at an “unimaginable” speed last quarter. Gross domestic product fell at an annual 11.7 percent pace in the fourth quarter of 2008, according to the median estimate of 23 economists surveyed by Bloomberg News. That would be the steepest decline since 1974.

At this rate, Japan’s GDP gets cut in half in about a year.  The social and economic devastation we are experiencing will test governments worldwide.  Based on the governmental “solutions” we have seen so far, I would not be optimistic.   See the next link for what our future may look like.

Is There A Possibility For Optimism?

Boomers – Your Crisis Has Arrived

by James Quinn
February 10, 2009

“There is a mysterious cycle in human events. To some generations, much is given. Of other generations, much is expected. This Generation has a rendezvous with destiny.” Franklin Roosevelt – 1936

President Roosevelt was correct. The generation he was speaking to was already dealing with the worst financial crisis in the history of the United States, the Great Depression. By 1945, over 400,000 of this generation had lost their lives. Another 600,000 men were wounded. Much was expected and much was sacrificed. Every generation has a rendezvous with destiny. The generation that won World War II passed the ultimate test and proceeded to produce the next generation, the Baby Boom Generation. Their rendezvous with destiny is underway. Will it be a rendezvous with history that results in World War III, the collapse of the Great American Republic, dictatorship, or a return to the original Constitutional principles upon which this country was founded?

Based on the foolish actions of most politicians in Washington over the last thirty years, I fear for the future of our country. I don’t think the politicians in Washington comprehend the state of affairs. I sense the mood of the country turning. Fear, anger and disillusionment are the prevalent themes. Change is coming, but it is not the change that Barack Obama campaigned for. It will be forced upon us by circumstances beyond any one person’s control. While we are hurtling towards our summit with destiny, Congress continues its path of pork barrel spending, short term solutions, party politics, and condemning our children and grandchildren to a lower standard of living. The “leaders” of this country are using the tried and true method of using fear to ram through their $900 billion tax on future generations. President Bush used the same fear tactics to launch his invasion of Iraq. I see a similar success story with the coming stimulus package. Maybe the coming crisis will ultimately lead to Great Leaders rising to the occasion.

Another insightful writing by James Quinn with some very profound thoughts – well worth reading the full text.

When Does Gold Break Out To The Upside?

Investors Bet Gold To Reach $1,000

Feb. 10 (Bloomberg) — Gold speculators have increased their bets this year by 24 percent that prices will reach $1,000 an ounce by April.

Open interest in options that allow the holder to buy gold at $1,000 by April surged to 9,934 contracts as of Feb. 6 from 8,005 at the start of the year on the New York Mercantile Exchange’s Comex division. Mounting financial turmoil is boosting demand for the precious metal as a haven. Since Jan. 15, the price of the option has almost doubled, outpacing the 12 percent gain in gold futures.

Gold has gained for eight straight years and soared to a record $1,033.90 an ounce in March as mounting bank losses and a declining dollar increased demand for the metal as a store of value. Financial turmoil may push the price above that record to $2,000 as traders buy the metal as a haven, said Eric Sprott, the Canadian money manager who last year predicted banking stocks would collapse.

“The focal point is $1,000,” said Philip Gotthelf, the president of Equidex, who correctly predicted in October crude oil would fall below $40 a barrel. Gold above $1,000 is a “warning signal to central banks that people have already lost faith in currencies,” Gotthelf said.

My only question is why gold is not already selling at $5,000.  Once the $1,000 barrier is decisively breached, expect a massive gold rally with up moves of hundreds of dollars a day.  Gold is a thin market and the price will move accordingly.



Job Cuts And Pay Freezes – The Downward Spiral Continues

Companies by the thousands are announcing large layoffs to their labor forces and, in addition, cutting or freezing the pay of those who remain employed.

AT&T Freezes Salaries of 120,000 Management Workers

NEW YORK (Reuters) — AT&T Inc Chief Executive Randall Stephenson will forgo his 2008 bonus payment, and the company will freeze the salaries of 120,000 managerial employees this year, as the telecommunications company prepares for a grim year.

Stephenson’s decision, which he sent to employees in a memo on Friday, comes after the largest U.S. phone company said in December that it would cut 12,000 jobs, or 4% of its workforce.

As bad as the job cuts are, freezing and/or reducing pay for those still employed carries even more significance.   The last time large numbers of companies reduced workers’ pay  was during the depression of the 1930’s.

What type of demand destruction for their products or services are these companies forecasting that is forcing them to freeze or reduce pay?

US businesses are cutting costs drastically to survive as demand for their products evaporate.  The chilling irony is that lower incomes will further reduce demand, thereby creating a self perpetuating downward spiral. The United States and the global economy are in a vicious de leveraging that will take years to resolve.   Even a well conceived stimulus spending plan will do little to reverse the major trends working against economic growth.   Those forecasting a quick economic turnaround are likely to be disappointed.

The Unemployment Rate – Is It 7.5% Or 18%?

Job losses continue to accelerate as thousands of workers lost their jobs today.

The latest numbers include:

CORNING INC     3,500
BOEING               5,500
STARBUCKS         6,700
AOL                       700
FORD CREDIT      1,200

Job losses for the day totaled 17,600.    Compared to 65,000 job cuts yesterday and considering that 143 million people are still employed in the US labor force, today’s job loss may seem minor.   None the less, at a rate of almost 18,000 layoffs per business day, the annualized total of job losses in 2009 would amount to 4.5 million jobs.   Total job losses last year came in at 2.1 million.

Companies that announce layoffs of up to 20% of the work force are not just fine tuning.   The size of the job cuts being announced imply that businesses see an unprecedented and major reduction in future sales and profits.

Despite the obvious increase in job losses, official government estimates may be drastically understating the true unemployment rate.  Consider the following:

The Birth/Death Model Defies Economic Reality

The birth/death adjustment made by the Bureau of Labor Statistics added over 900,000 new jobs last year when computing the unemployment rate.  The model attempts to estimate new job formation caused by the birth and death of businesses.  The model admittedly produces inaccurate numbers at economic turning points but we are far beyond that point.  Last year’s addition of jobs based on the model were ridiculous and had zero correlation with economic reality.  Accordingly, the official government statistics understated the unemployment rate last year due to the birth/death model distortions.

True Unemployment Rate May Be Twice The Government Numbers

The official unemployment rate may also be dramatically inaccurate based on the Bureau of Labor Statistics method of calculation.  Consider the chart below from Shadowstats.com

If the government was still calculating the unemployment rate using the same criteria and methods that had last been used during the Clinton administration, the “official” unemployment rate today would be closer to 18%.

Courtesy of Shadowstats.com

The SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated “discouraged workers” defined away during the Clinton Administration added to the existing BLS estimates of level U-6 unemployment.

The economy is always about jobs.  Regardless of the method of computation, the unemployment rate is growing dramatically.   As the affects of layoffs and deleveraging continue to ripple throughout the economy, expect to see an official unemployment rate of over 10% in 2009.