When Silence Isn't Golden

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Global terrorism reared it ugly head again with the horrific attacks in Mumbai in the last two days and the foiling of a plot to blow up Long Island railroad trains in New York City. One reason Mumbai seems to have been targeted is that it is the financial capital of India. If they had their way, the forces behind the terrorist threat would establish a totalitarian theocracy that would bring us back both socially and economically to the Middle Ages. It is not surprising that they would want to destroy the symbols of opulence created by capitalism. Unfortunately, the government-financial complex of the world's industrial economies has done more in this regard in the last few years than the terrorists could ever do.

The forces of ignorance though have not been extirpated in the U.S. by any means and I have a personal experience that took place at the same time to confirm this. An economics blog that is part of a well-known 'educational' site quoted an entire paragraph commentary of mine (my name was not mentioned) dealing with how people need to know the truth about the credit crisis and the state of the economy. This economics 'expert' for this site replied to my claims with the assertion that people who make such negative statements and predictions (doesn't matter whether or not they are true apparently) are helping to cause the economic problems the U.S. is experiencing! If markets and democracies can function without people having access to the truth, I am unaware of it. And of course, if you extend this logic, the less bad things the public knows about a company, the better off the investors will be (Enron actually made claims similar to this by the way).

Despite my best efforts at trying to spread reality throughout the land, the recently released U.S. consumer confidence number increased slightly from last months record low. Apparently it was falling energy prices that caused the slight uptick. Consumer views of current conditions however worsened even further in the November report. The October durable goods report didn't help create a rosy picture either. There was a 6.2% plunge following a 3.3% drop in September. On the consumer side, September was the month when purchases of asset backed paper for credit cards literally came to a halt - meaning no ability on the part of the big banks to fund any additional credit card debt to keep the American economy going (hence the sudden change in emphasis for TARP that was announced recently). Year over year delinquencies in credit card payments rose 17% and charge offs 45%.

Investor confidence in the state of the economy seems to have fallen to new lows if you consider that corporate bonds in the U.S and Europe have the highest yield ever relative to government debt. And while Citigroup is busy imploding, it just issued a report on its predictions for the gold market in the next two years. Citi is predicting gold could rise to $2000 an ounce (something New York Investing predicted many months ago). Their reasoning is that all the liquidity being pumped into the financial system is going to be highly inflationary (something New York Investing first said in September 2007). Rumors that China might increase its gold holdings from 600 to 4000 tons in order to help reduce its large dollar holdings (something else New York Investing mentioned as a possibility many months ago) seems to have contributed to Citi's bullish call on gold. All in all a clear pattern seems to be emerging - if only New York Investing would just shut up and stop making predictions, none of these things would happen and everything would just be fine - not!

NEXT: Synchronized Contractions Give Birth to Global Recession

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Economic Predictions for 2008

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

The December 12, 2007 meeting of the New York Investing meetup focused on the likely economic scenarios for the coming year. A video, entitled 'Economic Predictions for 2008' summing up these predictions can be found on You Tube at: http://www.youtube.com/watch?v=bZLsD2DHvLw.

The most important themes cited for 2008 were inflation and recession. Even though inflation is and has been under reported by the U.S. government since the 1980s, it was our opinion the even the manipulated numbers, let alone the real ones, would start to become noticeably higher. We predicted that as inflation was climbing, that the U.S. economy was likely to be gripped by recession (with negative job creation in each of the first 3 months of 2008, it now looks like the U.S. economy was in recession in the first quarter of the year). We also pointed out that it was unlikely the government would be reporting that we were in recession (the government GDP figures are unreliable, just like the inflation figures) until the recession was well under way or even over.

A widening out of the credit crisis with credit card debt, car loans and student loans being impacted was also mentioned in the talk (defaults in all of these loan types were rising significantly in the first quarter of 2008). A big drop in commercial real estate and a continuing weakness in residential real estate were also predicted (foreclosures continue to hit multi-year highs).

Special mention was made of the problems with bond insurers (monolines) and how their condition would continue to deteriorate, but the rating agencies might fail to lower their ratings appropriately because of political pressure (the official lowering of the ratings of these companies could lead to financial chaos). Bond insurer SCA's credit rating was lowered substantially in March 2008, but the rating agencies were still mostly maintaining ratings on the industry leaders MBIA and Ambac.

More bailouts of banks and broker-dealers with the assistance of the Fed was also predicted. The behind the scenes purchase of Country Wide Financial by Bank of America as the secret behest of the Federal Reserve (something denied by Bank of America) was given as an example. The Sovereign Wealth fund purchases of parts of major U.S. financial institutions, certainly with the knowledge and approval of the federal authorities, was also cited as a type of bailout that would continue to take place. Citibank in fact received just such a bailout (for the second time) in mid-January. Of course, the Bear Stearns bailout in mid-March was the most spectacular example of the of the accuracy of this prediction.

Finally it was predicted that the U.S. dollar would continue to drop and this would eventually lead to some form of currency intervention by the G7 countries (most likely late in the year, particularly after the election). Unless the Fed choices to raise rates substantially, this intervention will fail.

NEXT: The First Four Trading Days of 2008

Daryl Montgomery
Organinzer, New York Investing meetup

For more about us, please see our web site: http://investing.meetup.com/21.