Tuesday, January 06, 2009

"It's a Wrap"

By Donald Hunt

Last year's Markets

Note: Since we do the numbers weekly, we will be taking Friday, January 2nd as the end of 2008, and, since there was a lot of change in the markets last Friday, our year-end numbers will differ from those using December 31 as the last day of the year.

Gold closed the year at $876.80 and ounce, up 4.0% from $842.70 for the year and 4.3% from $840.80 for the quarter. Oil closed at $46.35 a barrel Friday, down 51.8% from $96.16 for the year and 50.2% from $93.10 for the quarter. The gold/oil ratio closed at 18.92 Friday, up 116.0% from 8.76 for the year and 109.5% from 9.03 for the quarter. The dollar closed at 0.7183 euros Friday, up 5.7% from 0.6795 euros for the year and down 1.0% from 0.7255 for the quarter. The Dow Jones Industrial Average closed Friday at 9,034.69 down 32.4% from 13,365.87 for the year and 12.5% from 10,325.38 for the quarter. The yield on the ten-year U.S. Treasury note closed at 2.37 Friday, down 41.8% from for the year 4.07 and 34.2% from 3.60 for the quarter.

Here are some charts of the numbers going back to the beginning of 2005:

Last Year

The big news of 2008 was of course the long awaited the global economic collapse. Some of us, including Stef Zucconi, were surprised only that it took so long.

No-one saw it coming. Well maybe not quite no-one...

Back in 2001/2 a couple of friends were thinking about buying houses and asked for my opinion on the future prospects of the UK housing market

My take was that, even back then, the cost of housing was moving ahead of historical affordability levels and there was no way that house prices could keep rising faster than people's wage rises.

I guestimated that house prices would peak in the Summer of 2003, then fall back 10-20%, quite sharply

Which, of course, didn't happen or rather it did happen, but in nothing like my estimated timescale.

My mistake was that back then, before my full-on Conspiraloonery days, I assumed that the people responsible for our government and banks were not amoral sociopaths; fully committed to the path of deliberately wrecking millions of lives

Only an amoral psychopath would have encouraged the boom to continue beyond the 2002/03 levels, to a point where the inevitable economic correction would have to be so large it would become a national, and international, calamity

Make no mistake, a ghastly economic crash was a 100%, guaranteed, dead cert, inevitable consequence of the way our economy was being run, and anyone who says no-one saw it coming is either a liar or an [ ] idiot

Now, as it happens, I've concluded that only a minority of the people who claim that no-one saw it coming are liars.

The majority really are [bleeding] idiots; easily manipulated, greedy, dissonant, fearful idiots.

You can take pretty much anything you've even seen written or said in the mainstream media about economic and financial affairs over the last ten years and forget it. It was all Wrong and yet the people who earned a living peddling Wrong are still at their jobs peddling a new brand of Wrong.

The same also applies to millions of people employed in the service sector over the last decade. A ridiculous number of people have been [engaging in unproductive pursuits], playing silly games and kidding themselves that they were engaged in meaningful work. They enjoyed an undeservedly high standard of material living off of worthless IOUs paid to foreigners who've been working in sweat shops and fields on their behalf.

So preoccupied did the British become with getting rich (sic.) off the back of shuffling paper that we took to importing several million immigrants to wait on us and wipe our kids' arses

This was all bonkers and wrong on so many levels

And there came a point where you would have to be an idiot yourself to believe that no-one in a position of power saw the inevitable collapse coming

It is also worth remembering that the infrastructure for a full-blown police state was being rushed-in at the same time the debt bubble was being inflated to calamitous levels.

I now firmly believe that the people responsible for our governments and banks truly are amoral psychopaths, engaged in deliberate economic and social warfare against the rest of us, and the quality of my spooky predictive powers is now several orders of magnitude greater than it was seven or eight years ago

Put simply, if everything really was the result of a cock up rather than a conspiracy why is it that the apparent cock ups virtually always end up favouring the same class of people?

The following piece in Bloomberg surveys the damage of 2008 and provides some numbers to illustrate what happened. $30 trillion wiped out.

Journal of a Plague Year: Faith in Markets Cracks Under Losses

James Sterngold

Dec. 31 (Bloomberg) -- It has been a year of record misery: the largest bankruptcy, bank failure and Ponzi scheme in U.S. history; $720 billion in writedowns and losses by financial institutions; $30.1 trillion in market valuation wiped out.

The biggest loss and the hardest thing to recover, though, may be something that can't be precisely measured -- confidence in the markets and the firms that rely on them.

"The wholesale funding model lost its credibility," said David Hendler, senior analyst at New York-based CreditSights Inc. "That started the semi-nationalization of funding in the financial markets. It's a real chink in the armor of capitalism as supposedly the best process for allocating capital. The government is now deciding who gets access to capital."

For Paul DeRosa, a principal of Mount Lucas Management Corp., a $1 billion hedge fund in Princeton, New Jersey, most unnerving was that the credit crisis revived something that, like the bubonic plague, was supposed to be a relic of the past.

"We had what was for all intents and purposes a systemic bank run for the first time in 70 years," said DeRosa, whose fund is up 25 percent this year. "This ended our belief that financial panics were a thing of the past. That's why this is a transcendent event."

The price tag has been transcendent, too. Global stock markets lost about half of their value in 2008, or $30.1 trillion dollars. In the U.S., $7.2 trillion of shareholder value was wiped off the books, as the Standard & Poor's 500 Index fell 39 percent through Dec. 30 and the Nasdaq Composite Index dropped 42 percent.

Madoff Swindle

And if market losses weren't bad enough, as much as $50 billion went up in smoke when New York money manager Bernard L. Madoff confessed to authorities this month to what may be the biggest swindle in history -- an alleged Ponzi scheme that spanned the globe, claiming victims from Alicia Koplowitz, one of Spain's richest women, to filmmaker Steven Spielberg.

Institutions that seemed as solid as their Manhattan headquarters buildings crumbled. Lehman Brothers Holdings Inc., with assets of $639 billion, filed the largest bankruptcy in U.S. history on Sept. 15. Its creditors may have lost as much $75 billion, the firm's chief restructuring officer said.

Bear Stearns Cos. was taken over by JPMorgan Chase & Co. in March after a funding crisis triggered by losses from subprime- mortgage investments. Merrill Lynch & Co., facing a crisis of its own, sold itself to Charlotte, North Carolina-based Bank of America Corp. And the last two major investment banks, Goldman Sachs Group Inc. and Morgan Stanley, converted to bank holding companies and got capital injections from the U.S. government.

Bank Failures

In the largest U.S. bank failure, Seattle-based Washington Mutual Inc. collapsed in September with $307 billion in assets.

There were 25 bank failures in 2008, the most in 15 years, according to the Federal Deposit Insurance Corp. The combined assets of lenders that failed in 2008 exceeds the total of those that collapsed in the preceding six years.

New York-based Citigroup Inc., whose shares lost 78 percent of their value this year, needed $20 billion in U.S. bailout funds in November on top of an earlier $25 billion infusion of capital. The government also guaranteed $306 billion of the bank's troubled assets.

The wave of writedowns and losses that swamped financial institutions around the world reached $720 billion this year. It also eroded employment: 221,360 job cuts in the financial- services industry were announced.

Wall Street bonuses became so rich in recent years that $1 million was referred to as "a buck." This year, chief executive officers including Lloyd Blankfein of Goldman Sachs and John Mack of Morgan Stanley have said they will get no bonuses at all.

The Amex Securities Brokers/Dealers Index hit a high of 267.69 on June 1, 2007; as of Dec. 30, it stood at 74.26.


The U.S. government was forced to rescue the world's largest insurance company, American International Group Inc., with a $152.5 billion package of investments, loans and capital infusions. It had to start purchasing corporate commercial paper to give companies the capital they needed to meet payrolls and conduct routine business.

Overall, the federal government has committed $8.5 trillion in trying to jumpstart a shrinking economy. General Motors Corp. and Chrysler LLC will get $13.4 billion in federal loans to stay afloat until President-elect Barack Obama's administration can devise a rescue plan of its own.

The paralysis of credit markets sent ripples through many of the businesses that had flooded Wall Street with profits over the past decade. U.S. corporations raised $4.54 trillion issuing securities in 2008, down from $5.14 trillion in 2007. Global merger activity fell to $2.5 trillion in deals announced from a record $4.1 trillion the previous year.

Loss of Faith

Hedge funds lost 18 percent of their value for the year through November, the worst year since record-keeping began in 1990, according to Chicago-based Hedge Fund Research Inc. Morgan Stanley estimated that, by year end, at least 620 hedge funds will have closed.

At bottom, the debacle amounted to a loss of faith, especially for individual investors. They pulled $215.7 billion from stock mutual funds in the first 11 months of the year, according to Investment Company Institute, a Washington-based association. That compares with a $91 billion inflow of funds for the same period of 2007.

As a result of those withdrawals and market losses, the total net assets in all types of mutual funds fell by $2.67 trillion in the first 11 months of 2008, the institute reported.

While the fear may pass, it will leave permanent changes in its wake. Few believe Wall Street will emerge as anything like the freewheeling industry it was over the past few decades.

"I see this as a Darwinian event," said Mount Lucas Management's DeRosa. "You find out which specimens of the species are genetically fit. I'm reasonably sure that things in 2009 will get better, but they'll get materially worse before they start to look up."

In other not surprising news, more evidence surfaced of U.S. military planning for the suppression of domestic economic unrest:

Unrest caused by bad economy may require military action, report says

Diana Washington Valdez

El Paso Times


EL PASO -- A U.S. Army War College report warns an economic crisis in the United States could lead to massive civil unrest and the need to call on the military to restore order.

Retired Army Lt. Col. Nathan Freir wrote the report "Known Unknowns: Unconventional Strategic Shocks in Defense Strategy Development," which the Army think tank in Carlisle, Pa., recently released.

"Widespread civil violence inside the United States would force the defense establishment to reorient priorities ... to defend basic domestic order and human security," the report said, in case of "unforeseen economic collapse," "pervasive public health emergencies," and "catastrophic natural and human disasters," among other possible crises.

The report also suggests the new (Barack Obama) administration could face a "strategic shock" within the first eight months in office.

Fort Bliss spokeswoman Jean Offutt said the Army post is not involved in any recent talks about a potential military response to civil unrest.

The report become a hot Internet item after Phoenix police told the Phoenix Business Journal they're prepared to deal with such an event, and the International Monetary Fund's managing director, Dominique Strauss-Khan, said social unrest could spread to advanced countries if the global economic crisis worsens.

Javier Sambrano, spokesman for the El Paso Police Department, said city police have trained for years so they can address any contingency, but not with the military.

"The police (department) trains on an ongoing basis as part of its Mobile Field Force Training," Sambrano said. "As a result, the police will be able to respond to emergency situations, such as looting or a big civil unrest. The police (department) does not train with soldiers."

Earlier this year, Pentagon officials said as many as 20,000 soldiers under the U.S. Northern Command (NORTHCOM) will be trained within the next three years to work with civilian law enforcement in homeland security...
Last Week

Oil prices shot up 23% last week after Israel's criminal attack on Gaza. World stock indexes rose last week, bolstering optimism that stimulus plans by governments around the world will reignite the global economy. How there can be optimism while Israel is doing its best to start World War III is hard to imagine.


The markets this week
Previous week's close This week's close Change% change
Gold (USD) 869.60876.807.200.83%
Gold (EUR)619.99629.799.801.58%
Oil (USD) 37.7046.358.6522.94%
Oil (EUR)26.8833.296.4123.86%
USD / EUR0.7129 / 1.40260.7183 / 1.3922 0.0054 / 0.01040.76% / 0.74%
USD / GBP0.6857 / 1.45840.6874 / 1.4548 0.0017 / 0.0036 0.25% / 0.25%
USD / JPY90.810 / 0.0110 91.830 / 0.0109 1.020 / 0.00011.12% / 0.91%
HANG SENG 14,18415,0438596.05%
US Fed Funds 0.05%0.06%0.0120.00%
$ 3month -0.01%0.08%0.09na
$ 10 year 2.13%2.37%0.2411.27%

United States

Manufacturing crashed in the United States in December, falling by the most in almost 30 years. Many large retailers will likely go out of business in 2009:
Earnings at U.S. retailers will fall 20 percent this year, according to analysts' estimates. The International Council of Shopping Centers in New York predicts 73,000 U.S. stores may shut in the first half of 2009 after what may have been the worst holiday-shopping season in 40 years. That's after about 148,000 stores closed last year, the most since the 2001 recession, according to the trade group.

"You'll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains -- either multi- regionally or nationally -- go out," said Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York.

AnnTaylor Stores Corp., Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations as consumers tighten budgets. More than a dozen U.S. retailers filed for bankruptcy in 2008, including Circuit City Stores Inc., Linens 'n Things Inc. and Sharper Image Corp.

Wal-Mart Stores Inc., the largest retailer, may report a 6 percent profit increase this year by offering lower prices to consumers seeking bargains, according to estimates.
Western Europe

The European Central Bank is preparing to cut interest rates again to fight deflation. In the European Community "Retail sales fell for a seventh month in December, manufacturing shrank at a record pace and lending to the private sector stagnated, reports showed in the past week."

In the U.K., the Governor of the Bank of England, Mervyn King, is adopting the Ben Bernanke policy of throwing unimaginable amounts of money at financial institutions.

In Germany, the two major parties in the ruling coalition, the Social Democrats and the Christian Democrats are coming closer to agreeing on a stimulus plan.

Eastern Europe

The Russia-Ukraine dispute over natural gas continued over the weekend, making the Europeans nervous.


Half of Asia will probably be in recession this year as a $700 billion drop in export earnings causes economies in Japan, Hong Kong, Singapore, South Korea and Taiwan to shrink, according to Macquarie Group Ltd.
Despite that, Asian stocks gained ground last week on optimism about world-wide government stimulus packages.

In South Asia, India announced another stimulus package and stocks rose there, too

Latin America

Venezuela increased its dollar reserves to deal with declining oil prices. Brazil announced a sharply declining trade surplus in 2008. It could have been worse but for high commodity prices in the first half of 2008. For that reason, 2009 looks worse for Brazil, by far the largest economy on the continent. Lower commodity prices are hammering Chile as well, pushing its currency down.


South African stocks rose for four consecutive days last week.

Australia/New Zealand

Stocks gained in Australia and New Zealand as did their respective currencies.



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