Market Ticker often posts this graph of total debt (public and private) in the US:

We can see from that graph that the trend is now changed to “down” after 50 years of “up”.  The Federal government has been unsuccessfully attempting to offset the decline in private debt with increases in public debt.  With the trend to more austere budgets, the growth rate in Federal debt will also begin to decline, accelerating the decline in total debt.  What does this mean for interest rates?  A shrinking supply of total debt means there is a shrinking supply of debt securities in which investors can invest.  All other things held constant, this implies that debt prices will  be bid up and interest rates down.  In the case of US Treasury debt, we can expect a significant fraction of it to be monetized – bought by the Federal Reserve and paid for with Dollars that don’t cost the Treasury any interest.  This monetization process will not increase the total amount of dollars available, but it will further reduce the supply of interest bearing debt instruments available for investors to buy – resulting in still more upward pressure on Treasury prices and downward pressure on rates.  There appears substantial probability that long term Treasury Bond rates could be cut in half (from 4 to 2%) within 18 months.  Only when the private economy begins to recover with real, non-government financed growth will we have significant risk of a rise in interest rates.

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John Authers at FT has a good piece about long term price to earnings ratios. The bottom line is that:

…last year stocks were never nearly as undervalued as they had been at the previous great bear market lows.

…the Shiller data still suggest that stocks needed to get much cheaper than they did at last March’s low before they could start a true renewed bull market. His cyclically adjusted p/e fell to 5.8 in 1932, and 6.6 in 1982. Last year, it started to rebound at 13.3. Surely this is not the compelling cheapness that is needed for a new bull market?

Perhaps earnings will have risen some before the next test of the March 09 low (if there is one) so that the next time the p/e will be closer to the 6 or 7 required for a true bull market.  We’ll cross that “brideg when we get to it…

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TPC has a good post from Comstock, as summarized below:

So let’s sum this up.  Even in this big “recovery” that is being spun so heavily on financial TV, employment is still down 5.2%, retail spending 8.4%, new single-family home sales 73.3%, core new durable goods orders 19.6% and industrial production 11.5%.  Since the numbers have moved up slightly we suppose that by definition it’s technically a “recovery” rather than a recession, but it does seem like a distinction without a difference.  And remember this is all we’ve gotten from the stimulus plans, the first-time home-buyer credit, cash for clunkers, the foreclosure moratoriums, zero interest rates, unprecedented quantitative easing, mortgage-backed security purchases, Treasury bond purchases, virtual government takeover of the housing market  massive aid to the GSEs and record deficits.  As we have previously pointed out all we have done is shift private debt burdens to the Federal government.  With all that, it is still doubtful that the economy can stand on its own once these artificial supports are removed.  Nevertheless the debts will remain, eventually to be resolved either by future inflation or default.

The last sentence is intriguing… When an obligor’s income (ability to repay) goes up as a result of newly printed money making its way to them, then monetary inflation can make that obligor’s debt easier to be paid back.  But the newly printed money MUST make its way to the obligors.  Suppose the new money goes to the stock or commodities markets to bid those prices up, but the obligors don’t own any of those types of assets – rather they own real estate (i.e. houses).  Then the obligors are no better off despite the inflation.  This is the case for the average consumer.  On the other hand, the banksters benefit handsomely from the government inflation handout.  They will be able to easily pay off their debts…once they sell off their stock and commodity assets…  The one thing that remains to be seen is what that liquidation by the banks will do to stock and commodity prices.

Some dire predictions for private health insurance are here.

WHAT WILL REALLY HAPPEN
A) Oh yes, please look at the 2014 stipulations as well. Employers will ultimately drop their coverage and stop offering it if they employ more than 50 employees. Think about it, they will cut costs significantly in the form of premiums (they will have to pay a $750 fee per employee fee when not offering a plan) and will be able to tell their employees that they have health care available through the government exchange plan. — You don’t think they’ll do it? Right now, most employers pay 1/2 of the health plan costs per employee, just assume that that is $200 a month of a total of $400 a month. The break-even is just at 4 months. Cash strapped employers will absolutely push their employees off into the new plan.

B) Over the course of the next 3 years, people will sue the federal government and it WILL be declared unconstitutional to require a person to enter into a contract with a third party to obtain insurance.B) In that 3 year period, private insurers will have had their business margins slashed and profitability will have been destroyed. With the high court ruling that the health reform act is unconstitutional, we will see a final destruction of these firms as the trend to buy insurance will be broken and good healthy clients will drop policies, while sick folks will retain them.

C) As a result of the court action, the federal government will step in with the only solution – a national health plan that is a one payer system (GOVERNMENT HEALTH PLAN). This will be the only fix as the collapse of private insurance plans will be complete.

It sounds ominous and sounds like a conspiracy doesn’t it? The answer is clearly “YES” it does and guess what, it is all planned. Remember, the administration says they don’t care what gets passed, just as long as it is passed. This is the gateway for the end goal of national health care.

Bottom line? If these predictions are correct, one thing stands out: Stock prices of private health insurers in the US will be toast — it’s a question of exactly when. Long term puts on health insurance providers may be a good bet…

More on this topic (What's this?) Read more on Health Insurance at Wikinvest

Dave Callaway tells Market Watch the market was looking for a relief rally. It appears we now need a “cash for Christmas” government program to keep us going…

Denninger has been labeling the failure of our government to close bad banks earlier to minimize the 40% and 50% level catastrophic losses the taxpayer has been having to eat the last couple of years as “malfeasance”:

How can anyone possibly believe, given the overwhelming history of the last two years in this crisis, that the nation’s banks are claiming and carrying their assets at anything close to their actual value when we continue to see, week after week, losses to the deposit insurance fund proving that close to half of the claimed “asset value” in these seized banks is a pure, unadulterated fiction?

We agree.  But there’s more to it than that. The fact that banks’ asset values are being misrepresented is indeed the reason why the banks aren’t being closed closed in a timely fashion.  But the real important issue relates to what ultimately causes the banks to go belly up and be closed… despite their fictionalized balance sheets.  The answer is cash flows.  The ultimate proof of insolvency is inability to pay obligations as they come due.  Denninger’s post of an analyst’s demonstration that the cash available to JP Morgan/Chase has deteriorated substantially helped lead him to conclude that a credit lock-up may be imminent.  We believe that without the government’s recent systematic enabling of large bank trading incomes, the cash flows of large banks would have already been insufficient to meet their obligations.   The TBTF’s massive “speculation” is made sure through special access to information, manipulation and socialization of any losses.  Their trading cash flow appears to be the only thing standing between the big banks and the abyss.  Can they keep this up?

From Sky News:

It is a store that has always had the reputation for selling something a little different for those willing to splash their cash.

Harrods gold

Anyone got a spare £248,000? Maybe head to Harrods…  So despite enduring the worst recession in decades, shoppers to the luxury Knightsbridge shop Harrods can now buy “off the shelf” gold bars.  The price of gold has soared in recent weeks as the dollar weakens, reaching another record high of US$1,063.60 an ounce on Thursday…Chris Hall, head of Harrods Gold Bullion, said: “The financial environment has kindled a new demand for physical gold amongst private investors in Britain.

But, as Business Week points out, you don’t get a really good deal at Harrods:

But as any serious shopper knows, don’t expect a bargain at Harrods. The store says its premium on Krugerrand gold coins is currently set 11% above spot price—more than twice the average mark-up already paid by retail investors using typical U.S. and European coin dealers.

And it is also possible that the price of gold has peaked for now – when the “shoeshine boy” is giving tips…

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A recent article in the WSJ talks of “China Nurtur[ing] Futures Markets in Bid to Sway Commodity Prices“:

Chinese leaders are concerned that their nation’s enormous economic expansion is becoming an excuse for foreign suppliers to inflate commodity costs. So, they hope to use their three futures exchanges to fight back.

Government officials say the country is positioning its futures markets to be major players in setting world prices for metal, energy and farm commodities. By letting the world know how much its companies and investors think goods are worth, China hopes to be less at the mercy of markets elsewhere.

Its easy to see why China would want to protect itself from recent large fluctuations in commodity (mainly oil) prices, when they spent $180 billion importing oil last year. They won’t have a very easy time doing it, however. China is still a communist government and they do not have a legal system in place to support futures contracts. None of them would be enforceable. There is also a huge policy bias towards large state-owned enterprises like China Oil. The Shanghai Futures Exchange won’t be an open, competitive, and effective market until small players in the exchange can get equal rights. The authoritarian Chinese Government policy makers (dictators) only allow the economy cake to grow on the condition that the largest piece is received by their friends in high positions at giant state-owned enterprises.

Unfortunately, just as the Chinese economy is manipulated by a small group of people, the US (and world) economy is manipulated in the same manner by the FED and entities like Goldman Sachs. China should be setting it’s sites on getting rid of Goldman Sachs instead of setting up its own pitiful exchanges. There is not much of a link between the HUGE fluctuations in oil prices and China’s steady increase in demand for oil (and other commodities). The true culprit and beneficiary behind these things is (government sponsored) Goldman Sachs. GS manipulated who would be rescued by with its immense amount of government cronies in Washington, successfully killing off its competitors, and then rode the energy curve up and down gaining huge rewards in the mean time.

If China’s goal is control and manipulate the biggest economy in the world (it is), all it has to do is take a look at the US’s Federal Reserve. We do it much better here in the states! We set up an authoritarian entity, claim that its “private” and separate from any form of oversight, then let it freely give out trillions of tax payer dollars to support whatever manipulative policy it desires! All without any of its skeletons coming back to haunt any elected officials.

Zero Hedge ran a post today about the fact that subscribers can pay for a 3 minute advance look at the Chicago PMI before it is released to the “general public”. The Chicago PMI “indicates how vibrant regional manufacturing activity is. An index value of 50 or higher indicates increasing busi-ness activity; below that indicates decreasing activity”. Today the PMI for September came in at 46.1 which was below the estimate of 52. The market tanked exactly 3 minutes before the PMI number was released to the general public.  Bespoke Investments says it all:

While there appears to be nothing illegal taking place, it does provide another example of how the market is stacked against the individual investor.

Chicago PMI

While it is true that there is nothing currently illegal taking place —–it should be made illegal. Imagine if a company CEO said he was going to sell subscribers to his newsletter a 3 minute advance look at his company’s sales, orders or earnings? Yet the firm that compiles the Chicago PMI (Kingsbury International) gets to sell market moving information in advance to a select few well heeled folks…  The SEC will probably start it’s own advance-look-at-information vending arm soon…like the NYSE has already done.  It’s a hell of a set-up the crooks have built for themselves.

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