Britannia Radio

Friday, July 3, 2009 An unfortunate jobs report crushes hopes of a recovery... Businesses that should have failed are kept alive by the gov't... Thank God for the always-entertaining Arnold Schwarzenegger... Bill Bonner warns: it's NOT safe to go back in the water...and more! --------------------- Special Offer --------------------------- With Gold, Who's Laughing Now? With all the flak you've taken for singing gold's praises, wouldn't it be nice to laugh back? Well, today's your lucky day... an opportunity to make up to 20X your money. We have only our LAST spots remaining - get in now! --------------------------------------------------------------- When Zombies Attack by Bill Bonner London, England Big news yesterday: "Jobs report dashes hopes on recovery," says the International Herald Tribune this morning. Oh? Yes, dear reader...once again, we're right and they're wrong! You'll recall from yesterday, the feds said that their monster stimulus program would hold unemployment below 8% in 2009. The year's not half over and the rate is already 9.5%. Then, they said the numbers were getting better each month - inevitably leading to a recovery by the end of the year. They predicted a loss of 365,000 jobs in June - considerably fewer than in May. Instead, the figures - even after they had beaten them up - said 467,000 jobs had gone, which was considerably more than May's figure. The important thing is that the trend that economists thought they were watching - which was leading to a recovery - has been broken. Instead of fewer job losses, we have more. Ha ha...we laugh at them. We mock them. We turn up our noses to show our contempt. We turn our backs and point to our...oh, never mind... But wait a minute. What are we saying? Hold the self-satisfied congratulations, please. Yes, we were right: there ain't no green shoots. But we're not vain and stupid enough to think we know what is actually going on. Only morons think they know what is going on. And the more sure they are - the bigger dopes they are. Where, exactly, is this economy headed? How is it going to get there? When? Damned if we know. (And damned if we don't!) Okay, now...shush...now that we've thrown the jealous gods off our case...we whisper to you: well, we actually DO have an idea of where this economy is going...which we will reveal to you, dear reader, in hushed tones, little by little. For starters, you have to realize: this is a depression. It is not a recession. In a recession, an economy gets a cold and has to take a little bed-rest. In a depression, an economy drops dead. Businesses go broke. The whole structure of the economy changes as the corpses are dragged away and new enterprises take their places. And in a depression, your survival strategy needs to be a bit different than what you plan for in a recession. Get our full depression survival strategy - including seven "super shields" to help protect your money - by clicking here. Economists were 100,000 off on their jobless predictions because they still don't really understand what is going on. We knew the predictions of a recovery were dumb. This is a depression - meaning, it is a major change of direction...not merely a pause in an otherwise healthy economy. After more than half a century of debt expansion, debt is contracting. Businesses, households, investors and the government need to adjust. And that takes time - a lot more than the 20 months of recession we've had so far. It would happen a lot faster of course, if the feds weren't fighting it every step of the way. "Rise of the Zombies," is a headline in today's Financial Times. It tells a familiar and predictable story: the feds have propped up businesses coast-to-coast. Instead of being allowed to fail, they are kept alive by the government...and continue to take resources that could be redirected to more promising competitors. But don't bother telling the feds that. They don't care. The old, worn out zombie businesses still make campaign contributions and employ voters. The businesses of tomorrow don't. The present votes. The future does not. More news: The 5 Min. Forecast is off today, so we turn to our intrepid correspondent Byron King for insights into the world market. "What's going on in Iran? When the old guard starts shooting the young people, that's not a favorable sign for the long term," says Byron. "Last time Iran had a revolution, in 1979, it ushered in turmoil in the oil (and gold) markets for several years. Of course, the invasion by Iraq in 1980, and subsequent war, had something to do with it as well. "After 30 years, the Iranian theocracy - and well-connected family and friends - has pretty much taken over that nation's economy. Most everything that's worth owning - oil facilities, banks, industrial facilities, etc. - has some 'revolutionary' connection. And these folks are not going to walk away from it without a fight. "There are clearly a series of major disconnects within Iranian society. Young versus old, middle-class versus theocrat, reformer versus revolutionary. And then there's the oil problem. Mr. Depletion and Ms. Rust. "Iran is suffering from its own version of Peak Oil. Iranian net exports of oil are falling. Iran's oil infrastructure is aging. According to the U.S. National Academy of Sciences, the trend is that Iran will be exporting ZERO oil by 2014, which is a mere five years from now. That means almost no serious money will be coming in for the Iranian leadership and government. "So if you think that they're rioting in the streets of Iran now, just wait awhile. Iran is headed for national insolvency and penury. It'll get even more exciting. Then again, the Iranians may have nuclear weapons. Pretty depressing, huh? Better buy that gold while you can." For a limited time, Byron is offering his Energy & Scarcity readers a golden opportunity - the biggest and best chance to get rich with gold this century. There are only a few spots left - so get in now. See here for all the details. And back to Bill, with more thoughts: Investors are wondering if the forecasters know what they are talking about. "Stock markets disoriented by the uncertainties of the recovery..." says an awkward headline in today's French financial news. The Dow itself lost 212 points yesterday. Oil fell to $66. Even gold dropped $10 as people fled back to the only asset they know they can count on - the U.S. dollar. Or more precisely, U.S. debt denominated in U.S. dollars. Come Hell or high water, the Treasury will come through. When it's time to pay the coupons, they'll have the cash. You can count on it. But what you can't count on is how much that cash will really be worth. And there lies the great trap for the lumpen investoriat. The lumpen, as you know, get their investment ideas from TV and the newspapers. The poor rubes are the last to buy in a boom and the last to sell in a bust. A day late and a dollar short, they always get the worst deals. When the papers tell them there's a recovery - they believe it. When the Fed chief tells them to use adjustable rate mortgages...the silly clumps do it. When a governor of a Federal Reserve banks urges them to "go out and buy an SUV" they head for the dealers. But thank God for these patsies. Without them, where would we get candy? And where would the U.S. government get its trillions? The lumpen - along with the sophisticated fund managers who pretend to know what they are doing - are financing the biggest government- borrowing spree in the history of mankind. You don't have to dig too deeply to figure out why that won't work. Financing a little spree of borrowing may turn out well; financing a big one is asking for trouble. Each dollar you lend weakens the borrower's balance sheet. By the time he has gotten to the 12 trillionth dollar...you might as well be throwing the money down a well. And thank God for Arnold Schwarzenegger. What an entertainer! He had it all. Money. A good wife from a bad family. A nice hairdo. And what did he do? He gave up a promising career in the motion picture business to launch himself into the slimy world of politics. And now the poor man is groveling. Begging. Imploring the banks to take his state's IOUs. He says they are "rock solid." California is the world's 6th largest economy. But it was a world-beater when it came to debt-based bubble illusions. And now its economy is falling apart. Economists can lie about the inflation rate. They can fudge the GDP. They can torture the unemployment numbers. But when the revenues come in, all they can do is count them up. And revenues are falling. Especially tax revenues. The feds and the states are losing income. When businesses lose revenue they cut back expenses. But governments - at least those that are modern popular democracies - find that they need to increase spending. They have more people asking for help. And they have programs that become automatically more expensive - such as unemployment benefits - when the economy softens. Let's see. Expenses down, income up = happiness. Expenses up, income down = misery. See how simple it is? Keep reading for today's essay, below. But first check out Strategic Short Report's Dan Amoss's latest report, which details a strategy that has crushed every asset class - and thrives when panic grips Wall Street. Seems like a good time to implement this strategy, no? Get it here. --------------------- Special Offer ---------------------------- The "Forever Oil Crash" Has Already Begun The era of "cheap oil" is long gone...but there are two investments that could give you a powerful shield against the fallout ahead - and have the potential to soar, despite the current market turmoil. Keep reading... --------------------------------------------------------------- The Daily Reckoning PRESENTS: So many things changed this week. It started off innocently enough, with Madoff being sentenced, and the rally cries of the economic recovery being heard far and wide. But then yesterday, the news did an abrupt about-face. Bill Bonner explores, below... Stay Out of the Water by Bill Bonner London, England This week began with shrieks of joy. First, a federal court came down on Bernie Madoff like a brick on a baldhead. Madoff, convicted of lying to investors, drew a sentence that only a sea turtle or a swamp oak could complete. Then, like children playing in the sea, investors were teased by one wave of good news...and tickled by the next. Bloomberg reported that "Wall Street's largest bond-trading firms say the worst may be over for investors..." Then, General Electric's CEO, Jeffrey Immelt and famous investor George Soros both said that the crisis is "behind us" and that growth will begin again next year. Finally, analyst John Dorfman opined that the stock market would be a safe place for their money at least through the end of the year. And now comes the big American holiday - July 4th. Investors pack their suntan lotions and head off to the beach for Independence Day. With Jaws in a cage, they had judged it safe to go into the water. But then came Thursday's news. Instead of going down as predicted, the number of job losses for June went up. Another 467,000 people became unemployed last month. The figure even surprised us; we didn't think there were that many people who still had jobs. And so...this weekend, investors walk along the beach deep in thought. Is it safe to go back into the water...or not? They should listen carefully. That gurgling sound they hear is not mermaids singing, it is the world economy, drowning. As we reported in this space, the feds' bailouts, boondoggles and bankers' bonus plans aren't working. At the end of last year, they predicted unemployment over 8% in 2009 - if the stimulus plan were not enacted. But it was enacted. Unemployment is at 9.5% already and it is still rising. It will be over 10% before the end of the year. Global trade is collapsing; exports from Germany and Japan are down about 40% from a year before. Prices are going down too - with a report this Wednesday that the entire Eurozone has slipped into negative inflation. And from Britain came data showing a contraction of 2.4% in the first quarter, bringing the year-to-year decline to nearly 5%. "Economy shrinks at 1930s rates," said the headline in Wednesday's Telegraph. When we look at America's employment numbers, we feel like a school doctor. We would call the authorities, except that it was the authorities who should be arrested. After the feds got finished with them, the numbers told of a better-than-expected drop in May U.S. payrolls. The key to this uplifting news was not a genuine improvement, but new and improved techniques in torture. Water-boarded with seasonal adjustments and birth/death models, the numbers began to see jobs everywhere. As for "discouraged workers", meaning those who gave up looking because they couldn't find a job, these unfortunate souls disappeared from the jobless figures altogether. John William's Shadow Government Statistics reports that without these twists, the numbers tell the same story they've been telling all year - unemployment is still getting worse, at about the same pace as earlier in the year. "The unadjusted annual decline in May payrolls was the worst since May 1958," says Williams. And if they were allowed to speak freely - as they did in the '30s - the figures would show real unemployment at over 20% of the workforce...or about 30 million people. That approaches Great Depression levels...and we're still only in 1930, not 1932. As for those still working, an additional 1.5 million U.S. workers have been "forced into part time work" according to the Financial Times. Analysts compare these sharp drops in trade, prices and employment to what happened after WWII. Come 1946 and the world had little use for so many soldiers, machine guns and artillery shells. Millions of young men were 'de-mobed' and joined the unemployed. And smokestacks suddenly stopped smoking. But that was at the very beginning of 62-year period of credit expansion. Consumers had pent up demand for houses, cars, and other goods and services...and they had the wartime savings to buy them with. Even so, it took three years of adjustment after the war before the stock market began to turn up. Now, we are at the other end of the cycle - the beginning of a major credit contraction, with no pent-up demand, no savings, and too much capacity to turn out too much stuff that too many people don't have the money to buy. "This weekend, investors walk along the beach deep in thought. Is it safe to go back into the water...or not? They should listen carefully. That gurgling sound they hear is not mermaids singing, it is the world economy, drowning." Meanwhile, housing prices are still going down in America...and with housing goes the lenders' collateral. U.S. residential property prices have fallen 33 months in a row. So many houses are "underwater" that the United States is beginning to look like the lost continent of Atlantis. More foreclosures are coming. U.S. mortgage loans typically call for "down the road modifications" that lead homeowners into a kind of financial cul de sac with no way out except foreclosure. According to a study by T2 Partners, there are three more big waves of foreclosures still ahead - including those in 'prime" loans, home equity lines of credit, and in commercial real estate. "When [these mortgage loans] start adjusting upward it will turn millions of homeowners into over-levered, underwater renters, and ensure housing is a dead asset class for years to come," says Mark Hanson of the Field Check Group. With incomes falling and house prices weak, consumers will miss payments, default, and cut back spending. Business earnings will decline; bankruptcies will increase. This economic undertow is treacherous. Investors should stay out of the water. Enjoy your weekend, Bill Bonner The Daily Reckoning P.S. Our annual Agora Financial Investment Symposium in Vancouver, British Columbia is rapidly approaching...and this year marks the 10th anniversary of The Daily Reckoning. So, this July, the Symposium will be focused around a "Decade of Reckoning"...four days that will help you to gain greater insight on how to turn investment ideas into the profit opportunities of the next decade. This event is already 70% sold out...secure your spot now. Click here for all the info: The Agora Financial Investment Symposium: July 21-24 Editor's Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of the national best sellers Financial Reckoning Day: Surviving the Soft Depression of the 21st Century and Empire of Debt: The Rise of an Epic Financial Crisis. Bill's latest book, Mobs, Messiahs and Markets: Surviving the Public Spectacle in Finance and Politics, written with co-author Lila Rajiva, is available now by clicking here: Mobs, Messiahs and Markets --------------------- Special Offer --------------------------- Only 63 People Know Why These Six Tiny Companies Will Change the World... You're #64 - and about to become ultra-wealthy. This will go down in history as the "story of our era..." Most importantly, you'll be rich because you took decisive action in 2009. See the full report here.   The Daily Reckoning - Special Reports: Gold: The Truth About Gold History of Financial Disasters: Will you be Wiped Out? Introducing the Single Best Way to Make Sure You'll Never Run Out of Money...