The banking Crisis has only begun


Market forces June 12
The banking Crisis has only begun
The U.S. Federal Reserve has already lost control of interest rates as we predicted would happen earlier this week. They did not admit it outright but phrased it this way, "The FED is unlikely to boost purchases of U.S. Treasures and mortgage-backed securities when policy makers meet later this month amid rising bond yields."

Yesterday yields on 10-year Treasury notes hit 4% for the first time since October. The FED said they aren't convinced rates have risen enough to choke off borrowing and spending by consumers and businesses. They are now sure that stretching Treasury purchases out over a longer period of time can not avoid an end to low rates due to the massive inflationary money printing program needed to pay for the multi trillion dollar debt of the socialist Obama administration. Obama is creating the greatest debt expansion the world has ever seen. Treasuries now have the highest yield on a 30-year U.S. bond auction (4.7 percent) in two years because investors are now concerned that record government debt sales will lead to inflation. As rates increase the face value of the older bonds decreases. Ten-year yields have risen over 140 basis points since the Fed announced its $300 billion, six-month Treasury purchase program on March 18. The average 30-year mortgage rate jumped to 5.59 percent from 5.29 percent a week earlier. In total the face value of treasuries tumbled 6.5 percent so far this year, the worst performance since Merrill Lynch & Co. began tracking returns in 1978.

Socialist president Barack Obama is quadrupling the budget shortfall to $1.85 trillion and raising the risk of inflation. The rise in yields is undermining Federal Reserve Chairman Ben S. Bernanke’s misguided inflationary efforts to pull the economy out of the recession. Yields on Washington-based Fannie Mae’s 30- year fixed-rate mortgage bonds were quoted at 5.07 percent, the highest since Nov. 24, the day before the U.S. central bank announced its plans to buy home-loan bonds, and up from 3.94 percent as recently as May 20.

The ability of homeowners to sell or refinance to avoid bankruptcy has been closed by reckless spending on nationalization of the auto and financial industries. The banks will no see toxic assets grow exponentially and will face possible total nationalization and the total loss of shareholder equity. This coming crisis is no time to own bank stocks.

Americans' wealth drops $1.3 trillion
Fed report shows a decline of home values and the stock market cut the nation's wealth to $50.4 trillion.
Since socialist Obama was elected, Americans saw $1.3 trillion of wealth vaporize in the first quarter of 2009, as the stock market and home values declined, according to a flow of funds report by the Federal Reserve released Thursday. Americans' stock holdings plunged 5.8% to $5.2 trillion, while home values dropped 2.4% to $17.9 trillion.

Under capitalism, Family net worth had hit an all-time high of $64.4 trillion in the second quarter of 2007. Obama may yet turn this recession into an FDR Great Depression as FDR did before the Supreme Court forced FDR to halt socialist policies.

Household debt reduction also slowed to an annual rate of 1.1% to $13.8 trillion for the first quarter, after contracting 2% in the fourth quarter of 2008, the first time household debt shrank in many years.

The ability of the consumer sector to start spending again is what will pull the economy out of the recession, but consumer credit has plunged. It shows that either consumers are not able or willing to borrow to bail out failing socialist policies. Homeowners' equity fell to a record low 41.4% as equity continued to plunge. More than 20% of homeowners now owe more than their houses are worth, according to Zillow.com.

Businesses also decreased their borrowing 0.3% for the first time since 1992. The federal government, however, pumped up its borrowing by 22.6% in an attempt to stabilize the economy. Federal debt grew and is squeezing out the private sector.

Market Outlook
We continue the countdown and go very far out on the limb to estimate that the current market rally has at most four business days of life remaining.

The socialist Obama administration has already inflated the money supply more than all previous American administrations since 1790. The Obama socialists plan to run a deficit that is five times higher than the previous highest deficit in human history and to leave future American generations with more debt than the previous accumulated debt of all nations in the history of the world.

We reversed our former buy position on emerging markets and would now liquidate any investments in that area. We now have zero confidence in Red China, India, or the emerging markets.

We do not believe in Obama's socialism and all those who apparently hate American capitalism and feel compelled to apologize for American peace keeping efforts, technological creativity, human rights, and the most socially equitable society the world has produced to date.

Last night most Asian markets stalled. China’s was down -1.9%, Hong Kong up 0.5%, India down -1.1%, and Japan up 1.5%. Japan broke 10,000 which they first saw in their golden age in 1984 and which they broke again twenty years later in 2004. The socialist Obama administration and its redistribution of American worker wealth to the corrupt, the indolent socialist voters, and 12 million illegal immigrants could easily create a hole deep enough to take 20 years to get out of.

European markets are down today in a narrow range of -0.2% to -0.6% mid way through their day.

US futures indicate the American markets will be starting lower today. We could see a spike upward if weak handed bears capitulate. But a quick subsequent sell-off of up to 30% is becoming more probable now as investors realize this Obama crisis of socialism will get deeper and will last at least another one or two years.

Jim Cramer was wrong again pumping stocks to small investors at the peak while his mutual fund friends were dumping stocks. For quite some time the FED has said the economy would bottom and remain flat next year. The stock market historically rallies six months before the economy takes off, not six months before the economy begins a flat bottom like Jim Cramer believes. In a flat economy the stock markets normally trade in limited price ranges.