Steve Christ - Angel Publishing

Zandi on Housing: "I think we are going see to another leg down"

Needless to say, when Mark Zandi said earlier this year that housing would find a bottom in 2009, I didn't count myself as one of the believers.

After all, as I had written time and time again, the bottom in housing was nowhere in sight.

In fact, in this article, I suggested why his forecast was on the optimistic side explaining why a bottom in 2010 would be much more likely.

Now as it turns out, even Zandi now admits he may have jumped the gun on this one.

Here's the story on that score from Bloomberg.

It's in an article by Kathleen M. Howley and John Gittelsohn entitled: U.S. Housing Recovery Delayed to 2010 as Market Wanes

"A recovery in U.S. housing will have to wait at least until next year.

The outlook for the home market dimmed this week as residential construction and mortgage applications fell and loan delinquencies reached a record.

"I don't think the housing crisis is over," Mark Zandi, chief economist with Moody's Economy.com, said in a telephone interview. "I think we're going to see another leg down."

Mortgage applications for home purchases fell to a 12-year low last week and foreclosures rose to record highs in the third quarter, according to reports from the Mortgage Bankers Association.

An index measuring November homebuilder confidence came in lower than the median forecast of 45 economists this week. The Commerce Department on Nov. 18 said residential building dropped 11 percent in October to the lowest level since April's all-time bottom.

The $8,000 federal tax credit for first-time buyers, extended by President Barack Obama on Nov. 6, drove existing home sales to a two-year high in September. At the same time, a 26-year high in unemployment is keeping many buyers out of the market and pushing existing owners into foreclosure.

"The thing that drives our business the most is job creation," Donald Tomnitz, chief executive officer of D.R. Horton Inc., said today on an earnings call. "If we look at the macro economic environment, it's not good for us."

U.S. companies have shed 7.3 million jobs since December 2007, the biggest contraction since the Great Depression, and the unemployment rate jumped to 10.2 percent in October, the highest since 1983, according to the Bureau of Labor Statistics.

The jobless rate probably will peak at 10.4 percent in 2010's first quarter, even as the U.S. economy continues an expansion that began in the third quarter, said Douglas Duncan, chief economist of Fannie Mae, the largest mortgage financier.

"You don't pay a mortgage with economic output — you pay a mortgage with a paycheck," Jay Brinkmann, MBA's chief economist, said yesterday.

Existing home prices probably will fall 12 percent this year to a median of $173,800, while the new-home median likely will tumble 8.7 percent to $212,000, according to a forecast on Fannie Mae's Web site."

Now I wonder if Jim Cramer will come clean on his bottom call...I'm not going to hold my breath on that one.

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U.S. Dollar Carry Trade

For the logically inclined, the action in the stock markets these days must be a riddle, wrapped in a mystery, inside an enigma.

That's how backwards things must appear as the unemployment rate goes higher and the markets jump right along with it. It makes no logical sense.

In fact if you compared the rise in the unemployment rate with the rise in the DOW. . . you would be hard-pressed to either explain it or believe it.

Yet as Rick Santelli pointed out last week, the correlation between the two is nearly 1:1. Amazingly, even as the unemployment rate hit 10.2% earlier this month, the Dow closed above 10,200. The strange part: the same thing also happened at 8% and 9% unemployment.

And while this seems like nothing more than an odd coincidence. . . you have to admit it is something of a head-scratcher.

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But you don't exactly need to be Winston Churchill to figure out what the game is here. The thread of logic in this case is simpler than it appears: Bad news, as it turns out, is good for the market.

With a constant stream of bad news washing ashore, the Fed won't even begin to think of raising rates anytime soon. In fact, the worse the waters become, the longer it will take Ben Bernanke & Co. to act.

You see, as bizarre as it may sound, the market is actually rooting for bad news to extend the Fed's zero interest rate policy (ZIRP). And if it manages to send the dollar even lower — that's something of an added bonus.

That is the twisted logic the U.S. dollar carry trade has now given us. Because when it costs you virtually nothing to borrow in dollars, you can plough them into other assets in a game with little risk.

The U.S. Dollar Carry Trade Explained

That's why the trade of the moment is still: short the dollar and long everything else.

All of which should work like a charm for Wall Street. Until the Fed decides to change its bias and raise the cost of money, it's game on.

You see, the carry trade is a strategy that enables investors to sell a currency with a low interest rate to buy a different currency yielding higher interest rates. In doing so, they automatically bank a profit by nothing more than earning the spread between the two.

I'll give you an example. In today's world, you could borrow one million dollars at very low interest rate (say 1%), featuring a carrying cost of just $10,000. You could then decide to invest that capital into an asset class with a higher yield (say 5%), earning yourself a quick $50,000. As a result of the interest rate spread between the two, you would earn a tidy $40,000 without moving a muscle.

What's more: If you pulled the same deal at 10 to 1 leverage, you could earn $400,000 for your troubles.

And the best part is that the lower the value of the dollar goes, the more you stand to make.

It's this wager — known as the dollar carry trade — that is undoubtedly one of the reasons the dollar continues to fall.

However, since the Fed has absolutely no control over where all of this liquidity will slosh, it usually flows into new asset bubbles. . . Which is why every other asset class has risen as the greenback takes a dive.

That's how we end up with charts like the one below; the DOW is inversely correlated to the U.S. Dollar (UUP) on nearly every single move. Take a look:

I don't mean to beat a dead horse here. But there is a method to this madness, as we have been pointing out for some time now.

The Risks to the Dollar Carry Trade

However, while the dollar carry trade seems like something you would find in a market Utopia, these wagers are as risky as it gets — especially when there is leverage involved.

The risk, naturally, is that the logic behind the entire trade will collapse once the dollar begins to rally.

When that change occurs, a market collapse won't be far behind. In fact, it will all happen very rapidly as everyone heads for the exits at exactly the same time.

Which is exactly what Nouriel Roubini correctly pointed out last month when he said, "There is eventually going to be an unraveling of this carry trade, When the snapback of the dollar occurs, it is not going to be 2% or 3%, it's going to be more like 15-20%. Then, everybody would be left to close their shorts on the dollar. You will have to sell these risky assets across the world and then you could have a huge asset bubble going into an asset bust. The crash will be as big as this bubble builds up to."

Of course, where it stops. . . nobody knows. Even Roubini admits the dollar carry trade could on for some time before the Fed decides to act. After all, creating asset bubbles is the one thing the Fed is actually quite good at.

In a way, it's the Fed's specialty. Think of it as lather, rinse, repeat.

The problem is that the current side show bears very little resemblance to what is actually going on all around us.

That's because our collective magic hat is fresh out of rabbits this time — something that wasn't the case in past downturns.

For instance, when you look back at previous recessions, the way out them was pretty evident at the time. There were tax cuts and falling interest rates in the 80s. The 90s gave us the tech revolution, while in 2000 there was room to expand housing.

Conversely, in today's world the answers to our troubles are nowhere in the picture.

Housing is falling. . . Interest rates have nowhere to go but up. . . Higher taxes are a given. . . and there is no brewing innovation with the same power that tech had to lift us out of our doldrums.

All that is left is a Keynesian policy response that cannot go on indefinitely. . .

What's worse, Americans have more than triple the debt they had in 1982 and less than half the savings. On top of that, a bigger share of them has no home equity, leaving them one pink slip away from financial ruin.

These are tough balls to juggle in an economy that relies on consumers for 70% of the total spend. These are the cold, hard realties that the government just can't fix.

But don't tell that to the market. . . bad news is exactly what it's looking for these days.

The only mystery left is how long this show can go on.

In the meantime, every investor willing to ride this wave should be looking at silver as a way to play the falling dollar. After all, as the carry trade drives the dollar lower, silver — just like gold — has nowhere to go but up.

And according to Hard Money Millionaire Editor Luke Burgess, investment in silver more than doubled last year — up 103%.

Luke has uncovered a new silver investment that he believes could return an instant 33% in the short-term and more than double over the next 18-24 months. You can read more about Luke's latest winner here.

In the meantime, don't think for a minute that the Fed will do anything to defend the dollar anytime soon.

After all, stupid is as stupid does.

Your bargain-hunting analyst,

Steve Christ, Investment Director

The Wealth Advisory

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The Shrinking Middle Class

I must admit there are nights when I find myself staring at the ceiling, wondering what happened. Everything used to be so different.

Most of time, I just shrug this off as old age.

But thirty years beyond my youth, I sometimes suspect that all we have earned ourselves is a place on the rat wheel—and it's spinning out of control.

If you doubt that, then you absolutely must watch this lecture given a couple of years ago by Elizabeth Warren.

Yes it is long... but it does explain the pressures faced by the shrinking Middle Class—-pressures that didn't exist back in the 1970's. You can ignore it if you like but you do so at your own peril.

Needless to say, this will be a vastly different country as the middle class recedes.

Besides, the fact is you may just recognize some of the people she's talking about.

It's an eye-opening look at what we've become by a very smart lady.

By the way, a few years later that insightful lecturer became the chair of the Congressional Oversight Panel created to oversee the bank bailout.

Not long ago she warned that "we have a real problem coming..." in regards to toxic assets.

To hear more from Elizabeth Warren click here

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Win Big When the Next Domino Tumbles

First there was housing... then the banks. And after that it was the automakers that came crashing down. Next up is a Commercial Real Estate Crash.

And unfortunately - just like the rest of them - the government's last-ditch efforts to prop up this domino are all doomed to fail.

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Meredith Whitney: "This is the most bearish I've been in a year"

Here's the Meredith Whitney interview from CNBC yesterday that has Jim Cramer so upset.

In fact, Cramer was so miffed by Whitney's bearishness that he called her "an embarrassment." in his most recent piece.

Even still, the markets did manage to peak yesterday when Whitney let on that she hasn't been this bearish in a year....

As usual, Meredith makes total sense.

By the way, According to a TransUnion report released today, 6.25% of all home loans are past due 60 days or more. That's up 58 percent from 3.96 percent a year ago.

What's more, TransUnion expects delinquency to rise to just short of 7 percent for the fourth quarter, compared with 4.6 percent for the 2008 fourth quarter.

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Gold Profits from Government Corruption

Bailouts, stimulus plans, rescue packages... whatever they call them, the result is inflation, and the rapid draining of value of the dollars in your wallet.

Meanwhile, gold - which can't be printed like Monopoly money - will only continue to appreciate as the Feds continue to dole out corporate welfare.

Fortunately for us, there's a new investment phenomenon that our resident precious metal expert calls "gold's doubling effect," which gives investors 2x gold's daily gains. In other words, you make $2 every time gold goes up $1.

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Ron Paul: Outlaw Fractional Reserve Lending

Here's another great video from Congressman Ron Paul.

Roll the tape....

Great stuff, Congressman Paul.

By the way, if you're interested in what the Federal Reserve does and why it was created, I have dusted off a series of old stories on the central bank I wrote two years ago.

The story, of course, is long one. In fact, when I wrote it, it turned out to be a six-part series.

But I wrote them because the truth is that very few people understand where the Fed came from, why it exists, and what it ultimately means for the dollar.

In fact, I always thought that this was kind of strange considering that the Fed Chairman is often touted as being the second most powerful person on earth behind the President. And yet, I don't remember spending more than 30 minutes on it school.

So when I began to really read about the Fed, I found it all to be pretty eye-opening.

Which is exactly, I think, what John Adams may have had in mind when he wrote the following long before the Federal Reserve ever existed:

"All the perplexities, confusion and distresses in America arise not from defects in the constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation."

-John Adams

And that I guess is why I've decided to post them again in this blog.

After all, the massive decline in the U. S. dollar hasn't happened in a vacuum. And neither has the inflation that will come along with it.

So here are the six stories that first ran Gold World on September 20, 2006.

You may be surprised by what you learn.

The Fed, the Dollar, and You

Born of Panic: The Crisis that Gave Us the Fed

The Creation of the Federal Reserve

The Fed: Uncle Sam's Magic Banker

A Good Deal If You Can Get It

The Fed, the Economy, and You

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FHA Approaches The Point of No Return

Here's a story that I've been following for some time now. It's interesting to me because I used to be in the mortgage business. That means I kind of know where the bodies are buried.

However, that's not why you should read it.

It should interest you because when this one blows up you will be on the hook for every single penny.

You see, subprime loans never really went the way of the dinosaur. In fact, your Uncle Sam has been using FHA loans to fund non-prime borrowers for some time now—all the way up to $729,750 in some cases That's how desperate we've become to prop up home prices.

The funny thing is that we are expecting different results this time.

However, the reality is the agency expects defaults on 24% of all loans insured in 2007, and 20% of those backed in 2008.

Those by the way, were the default rates that imploded the entire sub prime industry. Go figure.

As for the FHA it looks like it's only a matter of time now before it needs to be bailed out.

From MarketWatch by Rex Nutting entitled: FHA reserves fall below 2% minimum, auditor says

"A large increase in foreclosures has pushed the reserve fund at the Federal Housing Administration to a record-low level, according to an independent review of the federal agency's books released Thursday.

The FHA's reserves dropped to 0.53% of its total insured mortgages, less than the 2% required by law. The reserves measure how much capital the FHA has beyond the funds it has put aside for expected losses over the next 30 years.

As of Sept. 30, the FHA had $31.5 billion in total reserves, representing 4.5% of its insurance in force. Read the full FHA report.

Under most economic scenarios, the reserve fund would remain positive, the independent actuarial review said. The baseline scenario assumes that home prices will fall another 6.5%, leading to a significant increase in foreclosures.

The FHA has become a major factor in the housing industry, stepping in to guarantee about a fourth of all mortgages sold in the past year. As of the second quarter, about 50% of all first-time buyers had a mortgage insured by FHA.

By the way, I have no doubt that at its core FHA mortgages are a great program. Unfortunately, there is not much in the mortgage world that the foolishness of the housing bubble can't drag down with it.

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Chanos: The "cracking of state and local municipalities is coming"

If you want to take long dark look into the future borrowing power of the United States, you need to keep your eyes on California. After all, everything seems happen there first.

In that regard, it's kind of a preview of what's to come since the Golden State can't make ends meet either.

In fact, California is so broke that IOU's are the new state currency. As a result, the state has tried to sell $21 billion in municipal bonds over the last seven weeks alone.

The problem is there is so much of this paper on the market that yields have had to rise significantly to attract buyers. They are willing to lend, but only if the price is right.

Because of this the state recently had to pay a 4% tax-free yield on bonds maturing in 2013. That's significantly higher than just two weeks ago when the state paid a yield of 2.48% on similar bond.

Unfortunately, that's a future the United States faces someday when its lenders decide it's not worth the risk. At that point interest rates will go north in a hurry—just like they are now for Gov. Schwarzenegger.

In the meantime, the municipal bond market itself is starting to wobble a bit as one state government after another begins to feel the pinch of caviar dreams on a bologna budget.

Unlike their Uncle Sam, they just can't print their way out of their troubles.

At least not yet....Given enough time, some of them will be certainly be the next up begging for a bailout. In fact, without last year's stimulus it would have happened already.

Maybe that's why famed short seller James Chanos now has munibonds on his hit list.

"State and local municipal finance are a mess and going to get worse," Chanos told Barron's earlier this week, the "cracking of state and local municipalities is coming."

As for the states to keep an eye on, here is the list released by the Pew Center just yesterday.

It's in article on CNNMoney by Tami Luhny entitled: 10 states face financial peril

"Here's a summary of what Pew found is plaguing each of the states:

California: The Golden State's housing collapse — and resulting unemployment surge — has plagued the state's economy. The weakening economy prompted revenue to fall by nearly a sixth between the first quarters of 2008 and 2009. State lawmakers have limited ability to deal with California's massive budget gap due to several voter-imposed restrictions, including requirements that all budgets and tax increases pass the legislature by a two-thirds majority.

Arizona: The state depends heavily on a growing economy to bring in tax revenue, and lawmakers don't have a lot of leeway to address budget deficits thanks to voter-imposed spending constraints. Lawmakers relied on one-time fixes to balance its budget instead of making long-term changes.

Rhode Island: The Ocean State has among the highest unemployment rates in the nation and among the highest foreclosure rates in New England. High tax rates, big budget deficits and a lack of high tech jobs are hurting its chances to pull out of the doldrums. State government has a poor record of managing its finances

Michigan: The state never climbed out of the recession that started in 2001, and matters only became worse during the Great Recession. Two of the Big Three Detroit-based automakers went bankrupt in 2009, sending shockwaves through a state on track to lose a quarter of its jobs this decade. The recession accelerated drops in state revenue, and has left Michigan's government trying to deal with today's problems on a 1960s-sized budget.

Nevada: Nevada is one of the recession's big losers as its gaming-based economy suffered. Year-over-year revenue has fallen for two consecutive years, a record. But changing tax laws is tough because some are written into the state constitution.

Oregon: Oregon's leading industries, such as timber and computer-chip manufacturing, have been hit hard in the recession. Lawmakers have approved more than $1 billion in new taxes to keep it afloat. But voters in January will have the final say on another $733 million in new income taxes.

Florida: For the first time since World War II, Florida's population is shrinking — bad news for a budget built on new residents flocking to the Sunshine State. Lawmakers raised $2 billion in new revenue this year, but could face a similar shortfall next year.

New Jersey: The Garden State, which has been plagued by years of fiscal mismanagement, spends more than it collects in revenue. The collapse of Wall Street, which supports about one-third of New Jersey's economy, has only made matters worse.

Illinois: Since the last recession earlier this decade, the state piled up huge backlogs of Medicaid bills and borrowed money to pay its pension obligations. The state's current budget still relies heavily on borrowing and paying bills late.

Wisconsin: Wisconsin has a long history of budget shortfalls. It also borrows frequently to cover operating expenses, among other measures. Unemployment is climbing as manufacturing, the state's largest sector, sputters."

This is what happens when you would gladly pay someone tomorrow for a hamburger today.

Eventually, the bill comes due Wimpy.....

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Fibonacci Retracement

It goes without saying that it is the uncertainty about our investments that makes them so confounding.

Like a great mystery, they lay out before us. . . fuzzier than most people are willing to admit.

In this case, unease is the rule rather than the exception — especially in today's markets, which make about as much sense as David Blaine does when he levitates above the sidewalk.

Sure it looks amazing, but is it real? Our experience would tell us otherwise.

For investors with a penchant for technical analysis, that unease invariably ends with a trip into the past. For those who swear by it, the lines on those charts are much more than mere points on a graph.

Instead, they are windows into a world where the markets actually begin to make sense.

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You see, there really is something to be learned from the patterns that repeat themselves in the market. And while no two markets are exactly alike, the reality is markets tend to rhyme.

That, at its core, is what technical analysis is all about. For those who understand it, the markets are much more orderly.

And aside from the basics of using support and resistance to pick entry points, using Fibonacci numbers is one way traders can take the mystery out of the markets.

What Exactly are Fibonacci Numbers?

In many ways, Fibonacci numbers form the ultimate pattern, since they are found in things all around us — particularly in nature.

For instance, nearly every flower has a number of petals that is a Fibonacci number, while the construction of a pine cone is ruled by them. Even the dimensions of a strand of DNA are proportional to two consecutive Fibonacci numbers.

First recognized by Leonardo da Pisa, also called Fibonacci, these patterns are sequences of numbers that build upon themselves, beginning with the number 1. The sequence that follows is created by adding two consecutive numbers. . .

For instance, consider this sequence: 1, 2, 3, 5, 8, 13, 21, 34. . . and so on.

As you might have guessed, it's not as random as it looks. A closer inspection reveals that every number in the string is actually the sum of the prior two.

What's more, the ratio between two successive numbers is always the same: 1.618 — otherwise known as the golden ratio. Think of it as one of "nature's laws." This ratio can be found nearly everywhere you look.

For some odd reason, this includes the stock market; traders agree that Fibonacci numbers can be used to determine the critical points that can cause an asset price to reverse.

This phenomenon is known as a Fibonacci retracement, and it often gives the traders who track these numbers an opportunity to re-enter the market on a pullback before the move resumes.

These retracements usually occur at the 23.6 %, 38.1%, 50%, 61.8%, and 78.6% levels, which are ratios related to the Fibonacci sequence. It is at those specific points where the share price of a stock can either meet resistance or find support.

Why that is. . . no one knows for sure. I suspect it is because everyone is working from the same playbook.

Regardless, I've come across these numbers so many times that they are hard to ignore. Bull market or bear market, Fibonacci numbers create price targets across multiple time frames.

How to Calculate Fibonacci Retracement Levels

To calculate these levels and plot them on a chart, you simply calculate the price distance between a major peak and a major trough. Needless to say, there have been plenty of those lately.

For instance, let's take a look at the 12,012 point run-up in the Dow Jones Industrial Average from the October crash in 1987 until the peak of the bubble in 2007.

To figure out the corresponding Fibonacci levels, you would simply divide that amount by the ratio: (12,012 x .236 = 2834)

Finally, subtract that number from the swing point high: (14000 - 2834 = 11165)

That will give you your Fibonacci level.

Doing so you could have established the following levels of support:

A 23.6% retracement of 11,165 (the figure in our example)

A 38.1% retracement of 9,411

A 50% retracement of 7,994

A 61.8% retracement of 6,576

A 78.6% retracement of 4,558

Coincidently, if you look back at the DOW charts, you will see the first wave the downtrend bounced at roughly 11,100; the second wave of the down trend bounced at 7900; and the final wave of the downtrend bounced at exactly 6547.

The Road to Dow 11,000

That brings us neatly to today. As we mentioned earlier, Fibonacci numbers can also be used to plot targets in a bear market bounce.

In this case, we would measure the distance from the peak of 14000 in 2007 to the most recent trough of 6547.

Working from those figures would give us the following Fibonacci retracement levels on a chart of the DOW:

In turn, those figures would be our price targets marking what could be expected in a bear market rally off of the lows. So far, they have been pretty accurate.

That leaves 11,152 as the next upside target in the rally which would complete a 61.8% retracement of overall decline. Coincidently, that would bring us on a round trip back to September 2008 when the wheels basically came off the wagon. What's more: that would also bring us roughly to the top of the downtrend line drawn from the peaks.

But let's not get ahead of ourselves. . .

First, we have to see how the DOW handles the 50% level which was reached yesterday. That's often a sign the market may need to pullback to work off overbought conditions in the short term. Even still, we would expect the move to be shallow since the underinvested in this climb have been quick to take advantage of lower prices.

For what its worth, that's take a look at the crystal ball. That's why we're leaning bullish with our sights on Dow 11,000 at the moment.

After that, we suspect it's a whole new ballgame.

And if math is not exactly your thing, there's an app for that. Here's a link that will calculate Fibonacci retracements for you. It tends to be more accurate than my pencil-and-paper method and it's a bit easier.

Picking stocks in a market like this is whole lot tougher than one might think. That's why selecting the proper entry points is always the key to making winning trades. In fact, using methods like this one, The Wealth Advisory team has identified a biotech stock that we think will make a 66% run to the upside by May 1st. To learn more about this opportunity, click here.

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The Wealth Advisory

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Commercial Real Estate a Big Problem Mack Says

Here's a great interview from CNBC this morning featuring William Mack. He is the Chairman of the Board for the Mack-Cali Realty Corporation.

In it Mack declares that commercial real estate is somewhere between "an orderly massacre and a disaster."

Roll the tape...

Good stuff, Mr. Mack.

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Rosenberg: 13% Unemployment May Be Likely

According to the bulls and the party in power, unemployment is what's known as a "lagging indicator". They use that virtual mantra to convince the rest of us that all is well.

You see in their eyes it's always darkest before the economic dawn, which they insist is right around the corner. So when unemployment came in at 10.2% on Friday, talk of those figures being "rearview mirror" filled the airways.

But the larger truth is there is something to see in those figures and it's staring us down from front windshield this time not the rear.

That's because our collective magic hat is fresh out rabbits—something that wasn't true in past downturns.

For instance, when you look back at previous recessions the way out them was pretty evident. In the 80s there were taxes cuts and falling interest rates. The 90s gave us the tech revolution, while in 2000 there was room to expand housing.

Conversely, in today's world the answers to our troubles are nowhere in the picture.

Housing is falling.... Interest rates have nowhere to go but up...Higher taxes are a given....and there is no brewing innovation with the same power tech had to lift us out of our doldrums.

All that is left is a Keynesian policy response that cannot go on indefinitely.

In fact, it is complete folly to believe that trillion dollar deficits can be run up over the next couple of years—let alone the next 10. Most of us realize we cannot borrow our way to back to prosperity and in the end we won't, although it will be tried a little bit longer.

That is what makes unemployment a leading indicator this time since our gun is effectively out of bullets.

As a result, unemployment will likely get worse before it gets better. Moreover, it will linger much longer than it ever has.

How, after all, are we going to replace the 15 million jobs we have lost since the peak? And where exactly will they come from now that we've sent so many of them overseas?

In many cases, there is simply nothing to go back to.

What's worse, Americans have more than triple the debt they had in 1982, and less than half the savings. And a bigger share of them have no home equity, leaving them one pink slip away from financial ruin.

Those are tough balls to juggle in an economy that relies on consumer spending for 70% of the total spend. Those are the cold hard realties government can't fix.

What's more according to David Rosenberg, chief economist at Gluskin Sheff & Associates, unemployment may reach as high as 13%.

From Bloomberg by Vincent Del Giudice and Thomas R. Keene entitled: U.S. Joblessness May Reach 13 Percent, Rosenberg Says

"The U.S. unemployment rate may rise to a post-World War II high of 13 percent in the aftermath of the recession, said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto.

"This is going to be the mother of all jobless recoveries," Rosenberg said today in an interview on Bloomberg Radio. "At the beginning of the year, who was calling for unemployment to go up to 10 percent?"

Rosenberg said the recession, the deepest since the Great Depression, "is truly secular in nature" and said the economy is "in a post-bubble credit collapse."

A 13 percent unemployment rate would be the highest since monthly records began in January 1948, according to Labor Department data. The previous postwar high was 10.8 percent in December 1982. Yearly records, which began in 1929, show joblessness climbed to almost 25 percent in 1933 during the Great Depression.

The economy in the U.S. could rival Japan's so-called "lost decade" of the 1990s, Rosenberg said. "This has some prints of Japan in many respects," where growth stagnated for years and prices fell in the aftermath of speculation in real estate and equities, he said.

In the U.S., "20 percent of private credit is coming out of the system — and on a semi-permanent basis," as reflected in the record eight consecutive monthly declines in consumer credit through September, Rosenberg said.

Credit card, auto and other installment debt declined $14.8 billion, or 7.2 percent at an annual rate, to $2.46 trillion, according to Federal Reserve data released Nov. 6. The consecutive declines were the most since records began in 1943."

So when they tell you that there is nothing to see here and try to move you along, don't believe it for one second. The truth is staring us right in the face.

By the way, if we were calculating the unemployment figure the same way we did before it was changed by the Clinton Administration, the unemployment rate would be a hefty 17.5%.

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Warren Buffett on Investing in Gold

To learn more about Wealth Daily click here

Gold's Most Precious Secret

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Goldman Sachs Never Loses

I'll be the first to admit that this story isn't exactly news.

But with all of the negative press Goldman Sachs has received lately I suspect it is a story that most people are probably unaware of.

You see, from its permanent place in the catbird's seat, Goldman actually cleaned up as the housing market crashed.

So I have included a snippet of the story here, but if you're interested in how the vampire squid always manages to come out on top you should probably read the whole thing.

From McClathy by Greg Gordon entitled: How Goldman secretly bet on the U.S. housing crash

"In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."

McClatchy's inquiry found that Goldman Sachs:

Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they'd misled borrowers or exaggerated applicants' incomes to justify making hefty loans.
Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements.
Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.
Was buoyed last fall by key federal bailout decisions, at least two of which involved then-Treasury Secretary Henry Paulson, a former Goldman chief executive whose staff at Treasury included several other Goldman alumni."

The game is rigged and we are the stooges.

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Top Biotech Stocks

Editor's Note: Today's Wealth Daily focuses on a topic I've been writing about a lot in recent issues: the biotech sector. I recently had lunch with a CEO of a small — yet promising — biotech company, over which we chatted about the intensive process his company undergoes just to attempt to bring a drug to market. Find out what I learned below.

Today's issue also features Wealth Daily Editor Christian DeHaemer's piece on India and Mongolia gold. Chris is planning a trip soon to Asia to report on gold from this part of the world. Stay tuned for more news from his travels.

— Steve

———————————————————————————

Aside from a few failed characters in the auto industry and banking, it goes without saying that the average CEO is a pretty sharp business person.

Like most entrepreneurs, these overachievers see and do things that most people simply cannot fathom. They take risks, they work hard, and they drive their visions down roads that, in many cases, have not yet been paved — without sure answers.

Where it all ends, they can never be sure; but win or lose, they are ready to find out. That is why they make the big bucks.

The average biotech CEO is something of an even bigger outlier. Armed with a Ph.D. and advanced degrees from institutions like MIT, these guys are geniuses on top of being sharp-witted executives.

As a result, they're not just concerned with new business models, but with advancing medicine and curing disease — like cancer and AIDS.

Unfortunately, for all of their brain power, delivering a life-saving drug to the public is one of the toughest tasks out there. . . as is finding the market's top biotech stocks.

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Uncovering Top Biotech Stocks

In fact, it's just as one of these super-smart guys told me two weeks ago, as he patiently explained a promising new therapy to me over lunch. . .

"Steve," he said, "if all of these new drugs worked the same way in people that they do in mice, we would all be rich."

The reality is it takes an average of 12 years and over $350 million to get a new drug from the laboratory onto the pharmacy shelf. And of, say, 5,000 cures discovered in the pre-clinical stage, only about five will make it through the entire FDA approval process.

Therefore, companies have to cover not only the cost of successful development of a single drug, but of many drugs that never even make it to market.

Even still, the research-based portion of the industry currently invests some $12.6 billion a year in new drug development. That is a figure that historically doubles every five years, since developing blockbuster drugs is a risk/reward game.

The Biotech Roadmap

The gatekeeper in this case is the U.S. Food and Drug Administration (FDA), charged with making sure that drugs and biologics are safe and effective before they become available to consumers.

The process begins with the pre-clinical phase in which researchers identify and refine compounds that can be tested in animals and living tissue. Roughly three and a half years later, qualified candidates emerge and are granted Investigational New Drug (IND) status.

Once the FDA gives the green light, the "investigative" drug will then enter three phases of clinical trials:

Phase 1 uses 20-80 healthy volunteers to establish a drug's safety and profile. (timeframe: about 1 year)
Phase 2 employs 100-300 patient volunteers to assess the drug's effectiveness. (about 2 years)
Phase 3 involves 1000-3000 patients in clinics and hospitals who are monitored carefully to determine effectiveness and identify adverse reactions. (about 3 years)

The company then submits an application (usually about 100,000 pages), to the FDA for approval — a process that can take up to two and a half years. Once approved, the drug becomes available for physicians to prescribe.

Before hitting the shelves, each and every drug must clear every single hurdle, which makes investing in biotech stocks highly speculative in every sense of the word. . . no matter how promising a company may look on paper.

After all, as my friend the biotech CEO told me, curing a mouse is one thing. . . curing a human being is something else entirely. As a result, the share price of these companies moves accordingly, making these stocks highly volatile.

Even still, since 80% of growth for the 10 biggest drug makers came from the blockbuster drugs that debuted in 1990s, the "next great cure" is always on the top of the list for big pharmaceutical companies.

As a result, investors in the right companies stand to make the biggest gains.

That's because all of these big companies know that it will likely take three or four $300 million - $500 million drugs to replace the revenues they will lose when their blockbuster drugs go generic. What's more, many of them simply don't have the R&D capacity anymore to keep their pipelines full.

That's why tiny biotech research companies can be bought out in an instant these days, since they currently contribute 67% of all drugs currently in clinical trials.

Of the 320 currently publicly-traded biotech companies, a full 41% have market caps below $100 million. For investors, that means there are serious gains to be had when one of these super-smart CEOs delivers on his or her promises. . .

And despite the lengthy, involved, and expensive process behind pharmaceutical companies' making drugs available to those who need them most. . . they continue their research and work. In fact, we've just published a report about the company that might finally hand us a cure for cancer.

Biotech guys aren't your average CEOs — and neither are their companies, or the dreams they are chasing.

Your bargain-hunting analyst,

Steve Christ, Investment Director
The Wealth Advisory

Secret COP-15 Meeting Sparks Trillion Dollar Shift

According to billionaire venture capitalist John Doerr, COP-15 signifies. . .

"Nothing less than the reindustrialization of the whole planet."

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Mongolian Gold Rush Could Make Your Fortune
— Christian DeHaemer

The price of gold hit an all-time high yesterday with the announcement that India has recently bought 6.7 billion dollars worth of the heavy metal from the International Monetary Fund (IMF). As I write this, gold is a few dollars short of $1,100 an ounce.

Now, $6.7 billion is equal to a month's worth of U.S. military operations in Iraq, and doesn't even come close to any of the bailout packages awarded to U.S. financial institutions. . . but it was enough to purchase half of the total amount the IMF is selling this year. And $6.7bil is more than pocket change for India. . .

According to Yahoo Finance:

The sale to India was nearly half the 403.3 tonnes of gold that the IMF has targeted for sale over the coming years. . . The Washington-based IMF, which currently holds 3,217 tonnes of gold, is the third-largest official holder of the precious metal after the United States and Germany. India is the world's biggest consumer of gold, importing between 700 and 800 tonnes of the metal every year or 20 percent of global demand.

India's Initiative: A Bellwether for Government Gold Buying?

The amount of money that India's central bank spent on gold is not as significant as the fact that they bought gold at all.

For the past fifteen years, major governments like France, Russia, and Germany have been selling gold on the open market. This has obviously had a bearish effect on the price of gold.

This year, not only are none of the major holders of gold selling the metal, but up-and-coming countries like India and China are buying it. China recently reported that it was doubling its gold reserves to 1,054 tonnes.

Both of these countries are selling U.S. Dollars and buying hard assets. They simply believe that the dollar will continue to fall. The fact that the Fed announced today that they would hold the Fed Rate to 0.25% for the foreseeable future backs their argument.

Last week, I told you about a "double top" in the Russell 2000 and that you should buy puts on the corresponding iShare (NYSE: IWM). Those puts surged 59% the next day.

Today I'd like to take a look at the ten-year gold chart. . .

Pent-up Energy in Gold

I've circled patterns on the ten-year gold chart above. These patterns are called "coiled springs." The thinking is this: markets tend to go from trading for long periods of time in tight ranges. This is interrupted by massive breakouts. Sideways markets build energy like a weight on a coiled spring; when the weight is removed, the spring leaps forward.

The chart shows that after each sideways period (lasting roughly two years), the price of gold jumped an amount equal to that which it went sideways. This would suggest that this rally is going to push gold to $1,450 to $1500 an ounce.

And that's just for starters. . . I personally believe that the next liquidity-fueled bubble market will be in gold and other hard assets.

One of the most obvious ways to play this surge in gold prices is to buy junior gold miners — and I've been recommending those all year, to my readers' good fortune.

Go Down Stream

Another way to play the new gold boom is to buy companies that help miners mine the yellow metal.

You may not be aware of it, but there is a new gold mine in Mongolia. In fact, it is the world's largest — a mine bigger than the state of Ohio!

The spending on this mine will double the GDP of Mongolia. That's right — double. . . which means Mongolia will become to Central Asian minerals what Dubai is to Middle Eastern oil.

This boom all stems from a recent government corporate tax cut from a draconian 68% to a more modest 30% of profits.
And this is just the first deal. Mongolia is rich in mineral wealth. The floodgates have been thrown open.

This coming gold rush in Mongolia will flood the country with cash. Early investors will literally make their fortunes.

That's why I'm getting on a 26-hour flight this coming Monday — and braving the cold (the high on Sunday was 13°F), to find out the best way to play it. I've arranged to meet with the largest broker in Ulaanbaator and some well-connected ministers and politicians.

Believe me. . . my date book is stuffed with tours and meetings. I will be doing my due diligence with my boots on the ground. Look for my report in your inbox on January 1, 2010.

Stay tuned for more next week,

Christian DeHaemer
Editor, Wealth Daily
(and soon-to-be-launched Crisis and Opportunity)

Strategic Defaults: 588,000 Borrowers Say "Ciao Baby"

According to the National Association of Realtors (NAR), pending home sales rose again, marking eight consecutive monthly gain - the longest streak since measurement began in 2001.

That led NAR chief economist, Lawrence Yun, to confidently predict his fifth or sixth bottom in housing—but who's counting... besides me.

"Home values will stabilize sooner rather than over-correcting," Yun said, "That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery."

Of course, how solid that bottom may be depends largely on the mess the housing bubble left behind. Because for many of those that bought at its peaks, the dream of home ownership has ended in the road to ruin.

So much so that it makes more sense to turn in the keys these days , than it does to keep making the payments.

From USA Today by Stephanie Armour entitled: More walk away from homes, mortgages

"When Sharon Sakson was laid off recently from her job as a television writer and producer, she burned through her savings to pay the $2,400 monthly mortgage on her home. But she soon decided it didn't make sense: Her home was worth thousands less than the mortgage she carried on it.

The home had been appraised at $390,000 when she refinanced in 2006, but she estimates it's not worth the $320,000 it initially cost in 2004. So Sakson did what a growing number of homeowners are doing today: She stopped paying and decided to let the bank take her home.

"I'm walking away from my house," says Sakson, 57, who stopped making payments about six months ago on her home in Pennington, N.J. "The bank can have it."

What Sakson did is called a strategic default, or a voluntary foreclosure, and it's fast becoming a major challenge to the government's $75 billion effort to keep distressed borrowers in their homes. Walking away from a mortgage is serious business - it can knock 100 points off your credit score and make you ineligible for a new mortgage for seven years. Yet, about 588,000 borrowers walked away from homes last year, double the number in 2007, according to a recent study by credit-scoring firm Experian and management consultants Oliver Wyman. While home prices are rising, the increases pale compared with overall drops in home prices since 2005 that threaten to push millions more homeowners into Sakson's predicament, owing more than their homes are worth and seeing little chance of rebuilding equity soon.

More will walk away, which will hamper the housing recovery, reinforce lenders' tight credit policies and drag on the economy's recovery, economists say.

‘It's increasingly a more important factor driving the foreclosure crisis,' says Mark Zandi, of Moody's Economy.com. ‘As we move forward, the job market will stabilize, and the big thing will be strategic defaults. People are going to determine it doesn't make financial sense to hold on to their homes. That's going to be a significant problem. Strategic defaults mean foreclosures could be high for a long time.'"

By the way, according to Ivy Zelman, CEO of Zelman & Associates, the foreclosure wave could reach as high as 3 to 4 million distressed homes this year, since 3.7 million homes are either already in the foreclosure process or are at least 90 days past due.

That's an important distinction, since a recent analysis of foreclosure rates by the Amherst Group showed cure rates for these loans are practically non-existent. The Amherst data noted a near 0% cure rate of all loans in foreclosure, while loans 90 plus days past due were cured only 0.8% of the time.

As for loan modifications, you can practically forget them - 70% of all loans re-default within 12 months. You can add them to the total pushing the number even higher.

As for walk-aways, it's a business decision plain and simple.

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Buffett Buys Burlington Northern

A mere few weeks after Burlington Northern reported a 30 percent drop in third-quarter revenue, Warren Buffett decided that was a sign to jump in.

This morning the famed investor decided to buy the shares he didn't already own for $34 billion. If approved, it would be the biggest bet ever for Buffett's Berkshire Hathaway.

From the AP by Samantha Bomkamp entitled: Buffett's Berkshire buying Burlington Northern RR

"Warren Buffett's Berkshire Hathaway Inc. on Tuesday agreed to buy Burlington Northern Santa Fe Corp., making a $34 billion bet on the future of the U.S. economy.

Burlington Northern, the nation's second-largest railroad, is the biggest hauler of food products like corn and coal for electricity, making it an indicator of the country's economic health. The railroad also ships a large amount of goods — including everyday items such as refrigerators, clothing and TVs— from Western ports like Los Angeles, Long Beach, Calif. and Seattle.

Analysts say Buffett is planting both feet in an industry that is poised to grow as the economy gets back on solid ground. If approved, it would be the biggest acquisition ever for Berkshire Hathaway Inc.

Berkshire Hathaway already owns about 22 percent of Burlington Northern, and said it will pay $100 a share in cash and stock for the rest of the company, a 31.5 percent premium on Burlington Northern's Monday closing price. Shareholders have the option to convert their stock for a cash payment of $100 per share or receive Berkshire Class A or Class B common stock. Up to 60 percent of the deal is cash and 40 percent is in stock.

"Berkshire's $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry," Buffett said in a statement.

"Most important of all, however, it's an all-in wager on the economic future of the United States. I love these bets," he said"

Love him or hate him, you would have to admit the guy is pretty sharp.

That being said, a 30% premium seems pretty high on this one. Since when does a railroad merit a 20 P/E?

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Stiglitz: Recession "Nowhere Near" Over

Fresh off a decent GDP number, the bulls have had tough time gaining traction in the markets lately.

It may just be because the markets realize that the +3.5% gain in the third quarter was achieved primarily with assistance of smoke and mirrors.

After all, without a healthy push from Uncle Sam, the gains practically would have been non existent.

So while some cheerleaders have used the numbers to make the case that the recession is over, a closer look at the figures leaves them riddled with doubt.

That's the opinion of Joseph Stiglitz who recently said that we have much farther to go before we can claim victory over the downturn,

Here are the details...

From Bloomberg by Bob Willis entitled: Stiglitz Says U.S. Recession ‘Nowhere Near' End After GDP Jump

"Nobel Prize-winning economist Joseph E. Stiglitz said the U.S. recession is "nowhere near" an end and the economy's third-quarter growth rate of 3.5 percent, the first expansion in more than a year, won't carry into 2010.

While this week's figures on gross domestic product are "very good," the numbers would be "miserable" without stimulus measures enacted by the Obama administration, Stiglitz said today at a forum in Shanghai. He urged the U.S. and other countries not to pull back on efforts to shore up economies.

"When we look at if workers can get jobs, if they can work full time, if businesses are able to sell goods they produce, in those terms, we are nowhere near the end of recession" in the U.S., said Stiglitz, 66, the former chief economist at the World Bank. The U.S. job market is still "in very bad shape."

The U.S. unemployment rate reached a 26-year high of 9.8 percent in September and economists project it will exceed 10 percent by early 2010.

"The unemployment rate is likely to go up," Stiglitz told reporters two days earlier in Beijing. "Growth won't be fast enough to bring down the unemployment rate."

Stiglitz, a professor of economics at Columbia University in New York, said the growth rate of 3 percent to 3.5 percent needed to create enough jobs for new U.S. labor market entrants was unlikely to be sustained into next year.

It is too early for the U.S. and other countries to begin easing stimulus measures put in place a year ago to avert a financial market meltdown, Stiglitz said.

"For the world as a whole, it's premature to think about exiting stimulus," he said today in Shanghai. Stiglitz became a Nobel laureate in 2001, sharing the prize with George A. Akerlof and A. Michael Spence, both of the U.S., for their analysis of how markets function when buyers and sellers have different information about a product or service."

It will be interesting to see how the market reacts this week if we do get a 10% unemployment figure from the BLS on Friday.

By the way, while everyone was busy yucking it up at happy hour on Friday the FDIC was busy seizing banks. In all, nine failed banks were shut down potentially costing the FDIC some $2.5 billion in the process.

The failure of the nine banks brings the nation's total number this year to 115.

The bad news is there are about 500 more banks on the troubled list.

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Stiglitz Says Problems Have "Become Even Bigger"

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Moody's: No Housing Bottom Until Q3 2010

Despite the obvious problems associated with the homebuyer tax credit, the Federal government will apparently do anything to keep the housing ponzi scheme from collapsing any further.

That's why the program is set to be extended soon to cover the spring selling season. What's more, their proposal would also be expanded to allow higher-income Americans and some who already own homes to qualify for the tax break. Yippee more "free" money!!!

That's true even though the existing program has turned out to be exactly what you would expect from Uncle Sam: All smoke and dubious results.

In fact, according to estimates by Ted Gayer at the Brookings Institution, each additional home sale generated by the $8,000 first-time homebuyers' tax credit actually costs the government $43,000 for each additional sale.

It's madness I tell you.

Besides, according to Moody's this is one collapse that can't be stopped....

From Bloomberg by Jody Shenn entitled: Moody's May Downgrade Mortgage Bonds With New Outlook

"Moody's Investors Service said it's planning a review of U.S. home-loan securities that will likely lead to another round of rating changes based on a new view that property prices won't bottom until next year's third quarter.

The firm will boost its loss projections by "significant" amounts for prime-jumbo, Alt-A, option adjustable-rate and subprime mortgages backing bonds issued between 2005 and 2008, also after seeing higher losses per foreclosure than expected, Moody's said today in a statement. Recent data showing rising home prices doesn't prove the slump is over, the company said.

"The overhang of impending foreclosures and the continued rise in unemployment rates will impact home prices negatively in the coming months," New York-based Moody's said. Since the first quarter, the company has assumed in its mortgage-bond ratings that housing prices would bottom at the end of this year.

Ratings reductions typically boost the capital needs of bondholders such as banks and insurers and force some investors to sell debt. Moody's and Standard & Poor's, criticized by lawmakers for assigning top grades to mortgage debt proven too high by later defaults, have already cut ratings on hundreds of billions of dollars of notes in the $1.7 trillion market for so- called non-agency mortgage bonds, which lack government backing, lowering many securities multiple times."

Here's a bet home prices fall another 10%—-no matter how hard they try to prop them up.

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Home Buyer Tax Credit Gives Way to Fraud

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North Dakota Oil Boom Has Early Investors Making Fortunes

"The Bakken is clearly the biggest oil play in the U.S. I think we're seeing the investment come back, and 2010 should be a pretty amazing year." -- N.D. Petroleum Council President Ron Ness

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Third Quarter GDP Surprises To The Upside

According to the Bureau of Economic Analysis (BEA), the U.S. economy expanded at a 3.5% pace during the third quarter, delivering some faint hope to the idea the recession may be ending.

However, within the report we also learned that without the cash for clunkers program and the homebuyer tax credit, real GDP growth for the quarter likely would have been something closer to 1.9%.

That's less than the estimated 2% growth rate that is necessary to otherwise be left standing still.

Even still, it's hard to argue with the fact that +3.5% is much better than -6.4%.

Also from the BEA release:

• Real gross domestic purchases - those made by U.S. residents of goods and services produced anywhere - increased 4 percent in the third quarter, compared with a 2.3 percent decrease in the second quarter.

• Current-dollar personal income decreased $15.5 billion, or 0.5 percent, in the third quarter, compared with an increase of $19.1 billion, or 0.6 percent, in the second quarter.

• Personal current taxes increased $4.8 billion in the third quarter, compared with a decrease of $119.1 billion in the second quarter.

• Disposable personal income decreased $20.4 billion, or 0.7 percent, in the third quarter, compared with an increase of $138.2 billion, or 5.2 percent, in the second quarter.

• Personal outlays increased $148.2 billion, or 5.8 percent, in the third quarter, compared with an increase of $8.2 billion, or 0.3 percent, in the second quarter.

• Personal saving - disposable personal income less personal outlays - was $364.6 billion in the third quarter, compared with $533.1 billion in the second.

• Current-dollar GDP - the market value of the nation's output of goods and services - increased 4.3 percent, or $150.3 billion, in the third quarter to $14.3 trillion. In the second quarter, current-dollar GDP decreased 0.8 percent, or $26.8 billion.

You do have to wonder though how the economy will respond once all of these government programs come to an end.

After all, beneath today's numbers, the underlying problems still remain.

As for the much hyped Cash for Clunkers program, here's a post mortem on that fiasco.

From CNNMoney by Peter Valdes-Dapena entitled: Clunkers: Taxpayers paid $24,000 per car

A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site Edmunds.com.

The Cash for Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.

The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales. (emphasis mine)

In order to determine whether these sales would have happened anyway, Edmunds.com analysts looked at sales of luxury cars and other vehicles not included under the Clunkers program.

Using traditional relationships between sales volumes of those vehicles and the types of vehicles sold under Cash for Clunkers, Edmunds.com projected what sales would normally have been during the Cash for Clunkers period and in the weeks after.

Edmunds.com's estimate of the ultimate sales increase generally matches what industry experts had thought, said George Pipas, a sales analyst with Ford Motor Co."

By the way, according to the forecasts, the economy will likely grow at a 2.4 percent annual rate from October through December. GDP will also grow 2.4 percent next year and 2.8 percent in 2011, the surveys have showed, compared with an average of 3.4 percent growth over the past six decades.

The difference is significant.

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Wall Street's Energy Bombshell

Morgan Stanley --and a group of other high-powered Wall Street banks-- just

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Dollar Up, Dow Down

Dollar up.....Dow down. It's not much more complicated that that these days.

In fact, here's a look at the recent correlation between stocks and the greenback using the PowerShares DB US Dollar Index Bullish (NYSE:UUP) as a proxy for the dollar

First, in the long term....

....then over the last 5 days.

Any questions?

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Roubini Predicts a Dollar Reversal

Here's another great interview from Nouriel Roubini. He appeared on CNBC this morning explaining how the dollar carry trade has helped to inflate the markets —from stocks to commodities—to bubbly valuations.

The famed bearish economist told CNBC,"Now we are in the mother of all carry trades" noting that cheap dollars are pushing asset prices higher across the board.

The danger, he said, is when this trade reverses and the dollar inevitably heads higher. At that point, Roubini warned , there could be "a market crash all over the world"

Here are the cheery details.....

As for the dollar, the correlation with the rest of the market remains as strong as ever. In fact, when the dollar (UUP) rallied this morning the Dow (DJI)fell 200 points off the high.

Take a look:

Dollar up, Dow down....it is as simple as that.

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Home Buyer Tax Credit Gives Way to Fraud

If you needed any more proof that the homebuyer tax credit is nothing more than a government boondoggle here it is.

Not only is the program off the charts in terms of cost, but like most government plans it has been overrun by fraud.

From Bloomberg by Dawn Kopecki entitled: Four-Year-Olds Got Homebuyer Tax Credits, U.S. Says

"Children as young as 4 years old received first-time homebuyer tax credits as the U.S. failed to adequately screen filings, a Treasury inspector general told lawmakers today.

"Some key controls were missing to prevent an individual from erroneously or fraudulently claiming the credit and receiving an erroneous refund of up to $8,000," Treasury's J. Russell George told the House Ways and Means Committee's oversight panel.

More than 1.2 million borrowers through Oct. 9 have claimed almost $8.5 billion of the $13.6 billion set aside for "first- time" homebuyer tax credits this year, George said. The program is aimed at easing the worst housing slump since the Great Depression.

"Every time Congress creates a new refundable credit, meaning that individuals can get a check from the government whether or not they have actual tax liability, the incentive for fraud is magnified," Louisiana Representative Charles Boustany, the subcommittee's top-ranking Republican, said during the hearing.

The Internal Revenue Service has identified 73,799 claims totaling almost $504 million that may not be from first-time homebuyers. They also found that 582 taxpayers under 18 years old and ineligible to buy a home claimed almost $4 million in credits. More than one 4-year-old received the credit, according to George.

Linda Stiff, the Internal Revenue Service's deputy commissioner for enforcement, said her staff has identified 160 potential criminal cases, and 115 are now under investigation. In total, 8,000 claims have been flagged for potential criminal fraud, she said. "We are and will continue to vigorously pursue those who filed fraudulent claims for the credit," Stiff said.

Auditors found 19,351 taxpayers claimed more than $139 million in credits on homes they had not yet purchased. More than $20.8 million of the credits additionally went to 3,238 homebuyers who filed their taxes with individual tax identification numbers instead of Social Security numbers.

Such numbers are generally used by nonresident aliens and may indicate the borrower is illegally living in the country and not eligible for the credit, George said."

It is madness I tell you.

Government in action is not for the squeamish.

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