Eric Sprott On The Tape With What Sounds Like An Outlandish Prediction…The Only Problem Is Eric Sprott Does A Lot Of Market Related Homework, Manages $8 Billion Dollars And Doesn’t Have A History Of Being A “Pie In The Sky” Kind Of Guy!

Posted By on January 28, 2011

Remember…..we’re just the messenger here, this isn’t our prediction!

Eric Sprott of Sprott Asset Management with $8 B as in billion dollars in money under management, has an unbelievable interview with Eric King of King World News.  Eric says that Gold (currently $1338.40/ounce) could be $2,150 and Silver (currently $28.01/ounce) $50.00 by spring….sounds hard to believe, unless the Dollar collapses or the Middle East blows up taking Oil to the moon…. come to think of it, those two go hand in hand.  But hey, Eric Sprott is another of those Top 10 smartest guys in his area of expertise.  Actually we would put him at #1 or 2.

Interview: www.kingworldnews.com

Iran, Tunisia And Syria Have Imposed Internet Restrictions In Attempts To Quell Opposition

Posted By on January 28, 2011

The move by Egyptian authorities to seal off the country almost entirely from the Internet shows how easily a state can isolate its people when telecoms providers are few and compliant.

“Virtually all of Egypt’s Internet addresses are now unreachable, worldwide,” Jim Cowie, chief technology officer of U.S.-based Internet monitoring firm Renesys wrote on the company blog.

“Every Egyptian provider, every business, bank, Internet cafe, website, school, embassy, and government office that relied on the big four Egyptian ISPs for their Internet connectivity is now cut off from the rest of the world.”

More at: http://www.cnbc.com/id/41311587

Jim Grant Of Jim Grant’s Interest Rate Observer Has Some Choice Words For Fed Chairman Ben Bernanke

Posted By on January 28, 2011

Jim Grant is well known and respected in interest rate market circles, but he has some harsh words here….he’s letting off some steam on Ben Bernanke.  Pay attention everyone, Jim is one of the big ten….that is one of the smartest 10 guys around.

Jim Grant appeared on Bloomberg TV, telling Margaret Brennan upfront that Bernanke owes the world an apology. Grant’s criticism of the Fed should really start to grate on the Fed Chair: “I think what would be very good for the Fed if there would be a confession, the Fed should confess that it has sinned grievously, and is in violation of every single precept of its founders and every single convention of classical central banking”. Quantitative Easing is a symptom of the difficulties that the Fed has created for itself. The Fed is running a balance sheet which if it were the balance sheet attached to a bank in the private sector would probably move the FDIC to shut it down. The New York Branch of the Fed is leveraged more than 80 to 1. Meaning, that a loss of asset value of less than 1.5% would send it into receivership if it were a different kind of institution…The Fed is now in the business of manipulating the stock market.” Jim also has some very critical discussions on how the Fed never settles up on the $3.4 trillion in custodial debt on its books.

Listen to Jim Grant’s interview here: http://www.zerohedge.com/article/jim-grant-fed-now-business-manipulating-stock-marketshould-confess-it-has-sinned-grievously

Egypt Updates

Posted By on January 28, 2011

Sounds like Egyptian President Hosni Mubarak is just buying some time….before heading out the back door!  In the past, most exits around the Middle East seem to lead to France, Great Britain or the U.S.

Updated 5:31 p.m. (0031 in Egypt) Egyptian President Hosni Mubarak says he has asked the government to resign, and that he will appoint a new government Saturday. He gave no indication that he would step down or leave the country.

Updated 5:27 p.m. (0027 in Egypt)] President Hosni Mubarak said he is “on the side of the people” and vowed to take steps to guarantee the rights and freedom of Egyptians, develop job opportunities and to “stand by the poor.”

More at: http://news.blogs.cnn.com/2011/01/28/clashes-erupt-in-cairo-elbaradei-told-to-stay-put-cnn-camera-confiscated/?hpt=T1&iref=BN1

WikiLeaks Rival Launches New Platform Called “OpenLeaks”

Posted By on January 28, 2011

How timely…..just as the World Economic Forum meets in Davos of all places!

DAVOS, Switzerland — A former WikiLeaks spokesman launched a rival website Friday, saying he planned to give whistleblowers more control over the secrets they spill.

The new platform, called OpenLeaks, will allow sources to choose specifically who they want to submit documents to anonymously, such as to a particular news outlet, said Daniel Domscheit-Berg.

“We’d like to work with media outlets that have an interest in informing the public,” he told reporters on the sidelines of the World Economic Forum meeting of top business and political leaders in the Swiss resort of Davos.

The difference between his group and WikiLeaks, he said, would be that his group leaves reviewing the material up to the publication or advocacy group chosen by the source to receive the information.

Domscheit-Berg said giving more professional journalists and analysts the opportunity to receive and sift through documents would speed up the process while making OpenLeaks less of a target, as it would not be publishing any of the material itself.

“We are not going to get under the same kind of scrutiny from governments and big corporations as WikiLeaks is currently,” he said.

More at: http://www.washingtonpost.com/wp-dyn/content/article/2011/01/28/AR2011012801980.html

Stratfor Watch Report: Unconfirmed Reports of Military, Police Clashing in Egypt

Posted By on January 28, 2011

 

January 28, 2011

Unconfirmed reports from Al Jazeera on Jan. 28 say the army and police forces are clashing in Cairo. These reports have come after reports from state-owned Egyptian satellite Al-Misriyah TV saying army leadership extended the curfew from 6 p.m. to 7 a.m. local time to the whole country.

www.stratfor.com

Wall Street Rocket Scientists Try To Revive CDO Derivatives

Posted By on January 28, 2011

Warren Buffett calls them weapons of mass destruction for a reason….they almost took down the world in 2007-2008….Folks, we have some slow learners here…

This period is more degraded than that of Sodom and Gomorrah. Pompei was kindergarten compared to the sociopaths of Wall Street.

The problem is that the present day demons own the place. Who needs enemies when you investment bankers.

                                                     Jim Sinclair

FCIC Publishes Report; Goldman Got $2.9 Billion on AIG Bets

The Financial Crisis Inquiry Commission, tasked with determining the causes of the financial crisis, released its report yesterday in Washington, simultaneously publishing a 545- page book.

Among its findings, the report said Goldman Sachs Group Inc.  received $2.9 billion for its own account as a taxpayer bailout enabled American International Group Inc. to make good on credit-default swaps linked to mortgages.

The money was included in about $3.4 billion in swap- related payments, most of which AIG made following the government’s bailout, the FCIC said. That was in addition to about $14 billion that Goldman Sachs collected from AIG and passed to other counterparties, according to the report.

Syria Shuts Down Internet Service

Posted By on January 28, 2011

Dominoes falling….Syria has just shut down its Internet service.  We’ll see if it stays down!

www.zerohedge.com

Egypt Puts ElBaradei Under House Arrest

Posted By on January 28, 2011

The pot is starting to boil here……Egyptian security officials said Nobel Peace laureate Mohamed ElBaradei is under house arrest. 

Long Time Friend Gene Inger Reviews World Matters

Posted By on January 27, 2011

Gene Inger’s Daily Briefing . . . for Friday January 28, 2011:
 
Good evening;
 
Consider ‘global revolution’ . . . as rising beyond its infancy if Egypt, the largest of all Arab nations, overthrows the 30-year old Mobarek regime. As we first reported just a couple days ahead of the major news media, the President’s wife and son already had fled to London on separate flights (or seemingly fled, rather than a shopping trip).
‘Revolution’ in Egypt, likely led by Mohamed El Baradei (yes, the nuclear expert from Vienna who headed the UN nuclear watchdog agency, the IAEA, and is not extremist at all as far as anyone knows; thus might NOT welcome radical Moslem Brotherhood support), will be (if it goes thusly) a kind of change the United States should support. So would Israel, as there would be no reason for a challenge to mutual recognition as well as no reason to envision any radical effort to block or limit Suez Canal usages. It might be only monarchs down the Arabian Peninsula who will shake in their thrones.
If matters sour (given that El Baradei has arrived in Cairo so that exposes him to risk, should the Brotherhood extremists attempt to hijack the popular demand for reforms, and perhaps new governance), then all hell breaks loose, as this is a strategic issue. A million plus protest that succeeds or installs El Baradei, could be the best outcome hoped-for by both the Egyptian people overall, and the Western world in particular. It is not so relevant that Egypt is not a notable oil producer, but that much oil traverses the Suez Canal, as well as the Peace Agreement by which Israel allowed Egypt on the Sinai side of the Canal only based upon peace and respect between the parties.

If a radical group took control and seized Canal operations; you’d be facing a crisis in some aspects similar to the 1956 situation, which sparked the Anglo-French invasion to retake the Canal (a joint British / French project which Egypt’s Nasser nationalized) and which was opposed by both Russia and the United States (stupidly as we were it seems swept-up worrying about the Hungarian Revolution at the time and threats by the Russians to nuke London and Paris if the ‘brits and French didn’t retreat from the very success swift retake of what was their property. Frankly, it occurs to me that the successful takeover by Nasser of Suez, emboldened other Arab states to nationalize oil properties later, with the creation of OPEC ensuing (to create an illegal cartel that to this day is operating oil wells and facilities established by what now comprises the ARAMCO operations (Arabian American Oil Co. and so on). This was originally the so-called ‘five sisters; ie: Chevron, Standard of New Jersey (now Exxon/Mobile); and of course Mobile, Texaco and British Petroleum.

Now… to my point about ‘global revolution’. Lots of Americans (and others who are in a society which benefits from profit-motive objectives) want really honest free-market capitalism, not the elitist-semi-fascist (solely) pro multinational corporate cabals that’s been dominant for at least the last two decades, while (both parties allowed lengthy) dismantling of our manufacturing base was encouraged by absurd national policies. If this leads to a ‘default’ on the astronomic promises our (mostly) parents made during the immediate post-war decades, as were amplified by our baby-boomer generation, you could see the basis for getting out of the impossible ‘money-printing’ absurdity of the current era, which historically has not ended well for any (empire or nation) doing it. What started after World War II as growing personal or family net worth while being compassionate to others and maintaining a strong defense (today that might be what is advocated closest by ‘blue dog Democrats’ or moderate Republicans or Tea Party advocates, albeit not all of them) morphed into a twisted acceleration of excess greed that increasing made decisions based presumably on necessity and not on humanity.

Yours truly predicted this mess over 25 years ago as you know (warning shoe maker firms at two annual American Footwear Assoc. gatherings), because the government here was not replicating protective policies there, and in fact trying to help foreigners at the expense of the U.S., particularly with respect to facilitating the China opening. Of course it deterred confrontation, but invited degradation (intended or not) here for the U.S.A. Almost three decades later (more slightly) little has been done but finally it is recognized (right; after the most damaging collapse since the Great Depression as we forecast back in 2007). They would love to blame housing and leverage for it all; but the blame goes far deeper and absolutely relates to government tax/trade policy.  

Bottom-line: the nexus for societal discontent is something we’ve warned of from the May of 2007 ‘epic debacle’ call. Why then and not 20 years ago? Because creation of paper wealth, and perceived asset equity growth (like real estate) gave the illusion to the mass of the population to keep them content, and complacent about politics while the industrial base of the Nation was being persistently and perceptibly dismantled. A few commentators and writers addressed the subject, but generally the media acted as propaganda spokesmen for the various Administrations, with little journalism that addressed the implosion of the real capability of making most things we need here in the United States. Now we have a President (and we applaud the statement) saying we will do so here. But how fast and with what new policies? Even now there’s been no ‘urgency’ really impressed upon Congress, such as demanding a trade policy or tax reform bill on his desk within 3-6 months at the most. The clock is ticking on the American peoples’ patience; so now Washington gives this lip-service, but little more.

In the backdrop we think the Fed is in total panic (they won’t reveal that), as they now realize neo-Keynesian monetary policy did not work the way they implemented it (and just as I warned back in 2007 they would do, and said then don’t, as it won’t work). As we look at history, some of the biggest moves in financial history started slowly at first, then accelerated so rapidly, that once unleashed there was really no stopping it.

More at: www.ingerletter.com

Egypt Arrests Muslim Brotherhood Leaders

Posted By on January 27, 2011

This is getting nasty…..

CAIRO (Reuters) – Egypt rounded up members of the Muslim Brotherhood including at least eight senior leaders of the group ahead of planned countrywide protests on Friday.  

A security source confirmed that authorities had ordered a crackdown on the group overnight: “We have orders for security sweeps of the Brotherhood,” the source told Reuters.

Egypt Shuts Down Internet And Text Messaging Ahead Of Million-Man Protests

Posted By on January 27, 2011

Reports are emerging that Internet has gone down in Cairo and throughout Egypt, only hours before the largest planned protests get rolling.

More from the HuffPo:

According to a report from The Arabist, “Egypt has shut off the internet.”

The Los Angeles Times is reporting that BlackBerry Internet has been taken offline in Egypt.

New Report Details Wall Street Crisis In 2008

Posted By on January 27, 2011

“As a scholar of the Great Depression, I honestly believe that September and October of 2008 was the worst financial crisis in global history, including the Great Depression,” ….. Ben Bernanke.

The common thought out there is that this can’t happen again….WRONG! The causes have not been remedied.  All eyes should be on the economic road dead ahead from 2012 to 2014.  Risk of currency crashes, inflation, revolutions and food shortages among other problems will be unusually high during the next few years according to the Kress cycle.  It shows a potential period that may be worse then 2008.  Let’s hope it’s wrong, but by nature our best advice is to plan for the worst and hope for the best.  If things work out for the better, we’ll all be fine….if not, well you can see where this will be going.

Twelve of the 13 largest U.S. financial institutions “were at risk of failure” at the depth of the 2008 financial crisis…..and at least 50 hedge funds tried to capitalize on it, according to a report released Thursday by a U.S. panel investigating what happened to the financial system during the melt down in 2008.

The report for the first time quantifies a huge run on the bank at Morgan Stanley, describes the alleged trading practices of a secretive hedge fund and tallies the number of such funds betting against U.S. homeowners.

The 545-page report paints a picture of a financial system let loose by lax regulation and careening out of control. Regulators now are hammering out the details of a major financial-regulatory overhaul. 

“As a scholar of the Great Depression, I honestly believe that September and October of 2008 was the worst financial crisis in global history, including the Great Depression,” Mr. Bernanke said, according to the commission’s report.  Of the 13 most important U.S. financial institutions, “12 were at risk of failure within a period of a week or two,” the report continued.

Social Security May Run Permanent Deficits

Posted By on January 27, 2011

It’s the new math that’s the problem, nobody knows what the word “deficit” means….in a mathematics nutshell, it means “minus”…or in simpler terms “subtraction”.  Funny how everyone understood what “surplus”,  “plus” and “add” meant, especially in thier bank accounts and house supported ATM!

WASHINGTON (AP) – Sick and getting sicker, Social Security will run at a deficit this year and keep on running in the red until its trust funds are drained by about 2037, congressional budget experts said Wednesday in bleaker-than-previous estimates.

The massive retirement program has been suffering from the effects of the struggling economy for several years. It first went into deficit last year but had been projected to post surpluses for a few more years before permanently slipping into the red in 2016

This year alone, Social Security will pay out $45 billion more in retirement, disability and survivors’ benefits than it collects in payroll taxes, the nonpartisan Congressional Budget Office said. That figure nearly triples – to $130 billion – when the new one-year cut in payroll taxes is included.

Congress has promised to replenish any lost revenue from the tax cut, but that’s hardly good news, either, adding to the federal budget deficit. In another sobering estimate, the congressional office said government red ink this year will increase to $1.5 trillion, the most in U.S. history.

More than 54 million Americans receive Social Security benefits, averaging $1,076 per month.

Snowstorm Shatters New York City, Philadelphia Records

Posted By on January 27, 2011

Records are made to be broken,…..but the hope is (was) ‘not in our lifetime’.

New York City and Philadelphia are included in the mid-Atlantic storm that broke daily snowfall records on Wednesday. New York City set a new record for January,  the snowiest January in history.

With the storm grounding out, final snow tallies exceed a foot throughout the corridor from Philadelphia to New York City.

The recent storm total snowfall in New York City was 19.0 inches. The 12.3 inches that fell alone on Wednesday broke the day’s long-standing snowfall record of 9 inches from 1871.

The storm also pushed the month’s snow total to 36.0 inches in New York City and makes this January the snowiest on record, bypassing January 1925 and its 27.4 inches.

Top Earnings By Sport Including Endoresments

Posted By on January 27, 2011

The NHL had lowest top-earner of the group. Sidney Crosby salary of $9.0 million and endorsements of approximately $2.2 million has him well off the pace of the other athletes.

 

       

Read more: http://www.businessinsider.com/chart-of-the-day-the-top-endorsement-earners-in-each-sport-2011-1#ixzz1CGbjfsmy

George Soros On The Tape

Posted By on January 27, 2011

Billionaire investor and philanthropist George Soros said Thursday in an interview with CNBC’s Maria Bartiromo that the deficits facing U.S. municipalities will be the “drama of the next year.” Soros also said that what ever recovery we have will be finished by mid year and that interest rates will start to rise later in the year. 

Rising Price Pressures Spur World Wide Inflation Concerns

Posted By on January 27, 2011

Hey, what about us here in the USA, Uncle Sam says nope, no inflation here, you on social security get no cost of living raise….but our good buddies in Congress, well that’s another story.

Inflation is one of the issues on the agenda in Davos, as the prices of food and other commodities rise, reducing the disposable incomes of poor people and triggering street protests in North Africa.

NBA Team Values Increase 1% From Last Year On Average, But 17 Of The 30 Teams Lost Money

Posted By on January 26, 2011

Guess the contraction (subtracting teams from the league) issue is for real…so whitch teams will get the boot?   We can start with New Orleans….being that the NBA now owns them.

NEW YORK — The New York Knicks have overtaken the Los Angeles Lakers as the NBA’s most valuable franchise, and 17 of the 30 teams are estimated to have lost money last season, according to Forbes.

The Knicks’ value rose 12 percent from $586 million to $655 million, the magazine said Wednesday in its annual evaluation. The rise was attributed to increased ticket sales and sponsorships at Madison Square Garden.

The Lakers went up 6 percent from $607 million to $643 million.

Chicago was third at $511 million, followed by Boston ($452 million), Houston ($443 million) and Dallas ($438 million).

After signing LeBron James, the Miami Heat had the biggest percentage rise, a 17 percent increase to $425 million, good for seventh place. Following the loss of James, Cleveland dropped a league-high 26 percent to $355 million.

The average value of a franchise increased 1 percent to $369 million, down from $379 million two years ago.

Forbes estimated teams averaged $6.1 million in operating income. It said the total of teams that lost money is the most since the lockout-shortened 1998-99 season.


Copyright 2011 by The Associated Press

The Parched Hot Sun Does Funny Things To You!

Posted By on January 26, 2011

Excuse us, but we could have sworn that the president said things were getting a lot better and the recession was behind us…..or was that just a mirage in the parched desert sun!

The federal budget deficit will reach nearly $1.5 trillion in 2011 due to the” weak economy, higher spending and fresh tax cuts”, the CBO (Congressional Budget Office) said, in a stark warning!

Say What….How Much Did You Say That Nickel Was Worth?

Posted By on January 26, 2011

Yep, a nickel is worth 6.8 cents in metal value or 36% more then the $.05 it represents in spendable value!

Yes, it’s true; the value of a nickel is soaring, even as the value of a dollar is slumping. That’s because every nickel that rolls out of the U.S. Mint contains about 3.75 grams of copper and about 1.25 grams of nickel. Current metallic value: 6.8 cents per nickel.

We present this illustration merely to underscore the obvious: A small piece of imprinted paper contains less real-world value than a small piece of copper and nickel.

Furthermore, as pointed out in an edition of The Rude Awakening, “a U.S. dollar is a poor conductor of electricity and combusts near an open flame. It contains no measurable quantity of any element on the Periodic Table, nor any resource whatsoever that could contribute to any industrial application. Rather, a dollar contains little more than a politician’s IOU.”

www.thedailyreckoning.com

Judicial Emergency Declared In Arizona

Posted By on January 25, 2011

We’ve never heard this before…..except maybe in Mexico!

Federal court officials declared a judicial emergency Tuesday in Arizona, allowing courts to delay criminal trials up to six months because of a shortage of judges worsened by the shooting death two weeks ago in Tucson of the state’s chief jurist.

Arizona federal courts were already overwhelmed by a 65% increase in criminal cases in the last two years and two judicial vacancies when U.S. District Judge John M. Roll was killed in the Jan. 8 attack that also severely wounded Democratic Rep. Gabrielle Giffords.

Natural Gas….No Shortage Here!

Posted By on January 25, 2011

This article explains why natural gas is so cheap.  Oil companies used to just burn off the natural gas in the Gulf of Mexico  because they didn’t know what to do with it.   Who has been harking on this subject for years, yep….Oklahoma farm boy and self made billionaire T Boone Pickens.  He says we need to take advantage of the current supply situation on natural gas….it will solve many of our energy problems and make for a cleaner environment.

The world may have twice as much natural gas than previously thought, according to the rich nations’ think tank the International Energy Agency (IEA). The world may have 250 years of gas usage at current levels thanks to “unconventional gas” from shale and coal beds, Anne-Sophie Corbeau, senior gas expert at the IEA told BBC News. Estimates may even be revised upwards.

Studies are underway into newly-recoverable sources. In 2009 it had become the world’s biggest gas producer. This is phenomenal.

The U.S. achieved the change through a technological breakthrough in which firms found a way of using tiny explosions to free gas previously trapped in a common rock – shale. Other nations were now rushing to replicate the U.S. success by exploiting gas currently trapped in various types of rock where it was thought to be impossible to access.”

A New Superabundance of Game Changing Shale Gas Will Provide 250 Years of Natural Gas

Internet “Kill Switch” Back On The Table

Posted By on January 25, 2011

Hmm….There is a new push to give President Obama an Internet “Kill Switch”.

Portions of the Lieberman-Collins bill, which was not uniformly well-received when it became public in June 2010, became even more restrictive when a Senate committee approved a modified version on December 15. The full Senate did not act on the measure.

The revised version includes new language saying that the federal government’s designation of vital Internet or other computer systems “shall not be subject to judicial review.” Another addition expanded the definition of critical infrastructure to include “provider of information technology,” and a third authorized the submission of “classified” reports on security vulnerabilities.

Obama To Call For Freeze In Nonsecurity Government Spending

Posted By on January 25, 2011

Inquiring minds want to know how you can have growth with a spending freeze?   Right, you can’t!

Obama will call for a five-year freeze on nonsecurity discretionary spending in his State of the Union address “as a down payment toward reducing the deficit,” a White House official said.

The president will propose some new spending in certain areas that address the speech’s theme of “How We Win the Future”: innovation, education and infrastructure. But those increases will be proposed within the context of a proposed partial budget freeze.

We’re In Deep Demographic Poop, With No Help As Far As The Eye Can See!

Posted By on January 24, 2011

It’s hard to have substantial economic growth when you don’t have population growth.  So, real estate will have a hard time bouncing very far, and the same goes for other asset classes that the U.S.Fed has artificially stimulated like stocks and commdities for an example!

Fitness Guru Jack LaLanne Dies At 96

Posted By on January 23, 2011

We probably all grew up watching Jack LaLanne on TV…..

Jack LaLanne, who died Sunday at age 96 at his home in Morro Bay, Calif., opened a string of gyms in the 1930s and went on to host “The Jack LaLanne Show,” syndicated nationwide.

Cheerful and distinctively dressed in a jumpsuit and ballet slippers, Mr. LaLanne was fond of slogans like, “First we inspire them, then we perspire them.” But behind the glib exterior was a philosophy of exercise and whole foods that was decades ahead of its time.

Postal Service Looking To Close Thousands Of Post Offices

Posted By on January 23, 2011

Why not just give them all to UPS (United Parcel Service) and Fed Ex….Presto, they would get it figured out in a nanosecond!  But lets remember who we’re dealing with here….Because it’s the government, this could cost many millions of dollars, require multitudes of committees and take years based on the past history of similar decisions.

The U.S. Postal Service is reviewing more than half of the nation’s post offices, all of which are operating at a deficit, and lobbying Congress to allow it to change an archaic law so it can close the most unprofitable ones.

Commercial Real Estate In A Nut Shell!

Posted By on January 23, 2011

It looks like the calm before another storm created by CRE loans in the next 3 years. We know vacancy rates remain high and we know values have not recovered. LTV ratios look to be very tight for many a bank CRE loan. As mentioned below, we crescendo in terms of CRE loan maturities between now and 2013.

Don’t Tune Out the Commercials

 

by Brian Pretti

It’s easy to do, especially in today’s world of electronic wonders whereby one either has the choice to electronically whiz right past advertising media’s best and brightest creative offerings of the moment, or simply revert to the old school mental technique of “tuning them out”. You remember the catch line or the musical jingle, but you just can’t seem to remember exactly who was advertising exactly what – you know how this goes. In our world of 24/7 media and information barrage, it’s easy to do the same in investment decision making. To the point, do you tune out news and information regarding real estate these days? After all, you’ve been bombarded with residential and commercial RE “information” for years now. There’s a real tendency with repetitive information flow to lose the significance of immediacy, so to speak.

Anyway, it’s time for a very quick check in on some commercial real estate highlights. Important why? Because it just so happens that 2011 will see the largest magnitude of U.S. bank commercial real estate mortgage maturities on record. And this is before 2012, which should be a top tick record setter for bank CRE maturities looking both backward and forward over the half decade ahead at least. Will this be an issue for an industry that has been supporting reported earnings growth in part by reduced loan loss reserves over the recent past? We’ll see. It’s the magnitude of the numbers that tells us it’s probably a good idea not to tune out the commercials ahead.

We know the banks will be sitting on impaired residential real estate assets for years to come. Probably the same will play out with commercial real estate, but CRE reality in the year and years ahead is pictured in the chart below. In 2010, approximately $250 billion in commercial real estate mortgage maturities occurred. In the next three years we have four times that much paper coming due. The result of extend and pretend. Extension time is up, so also is the pretending time? Question for the big dogs in the financial sector this year – can the banks and greater financial sector show continued improved reported earnings as has been the case in the recovery to date with this wall of maturities dead ahead? Moreover, we know full well that the U.S. government has become the de facto key provocateur of the extension of the multi-decade U.S. credit cycle in the current environment as the private sector, necessarily and importantly inclusive of the financial sector, retrenches. This cannot and will not continue indefinitely. Point being, will CRE woes, published or unpublished, further restrain private sector credit creation ahead via the commercial banking conduit?

us commercial mortgage maturities

You know and we know that one of the keys to improved reported bank earnings in the current cycle, and especially over the last year, has been a meaningful reduction in loan loss reserves. Is it the calm before another quiet storm created by CRE loans in the years to come? We’ll find out, but we know vacancy rates remain high for now and we know values have not recovered. LTV ratios have to be incredibly tight (or beyond) for many a bank CRE loan. As mentioned, we crescendo in terms of CRE loan maturities between now and 2013 as is seen below. And as the bottom clip of the above chart shows us the U.S. banking system proper has the bulk of exposure.

us commercial re mortgage maturities

Below is a look at the rate of sequential growth in CRE loan delinquencies (middle clip). Bank stocks usually respond bullishly to a quarterly decline in the delinquency growth rate for loans as per total cycle movement. This is what history has to teach us. So looking ahead and knowing the wall of CRE loan maturities to come is very large, is the drop in delinquency growth temporary? We’ll find out. Probably the more germane question is whether the regulators will force the large banks to show any increase in loan impairment. Again, given the incredible political clout of the financial sector, I doubt it. But it’s an issue to be aware of and monitor, as this could put at least a temporary dent in the macro corporate earnings expansion story given that the reported financial sector operating earnings recovery has been a very big piece macro S&P earnings growth story.

Enough as I know you get the point. We know the very significant central bank liquidity will continue at least through June of next year. For the ECB we may just be getting warmed up. At least as per the rhythm of Fed liquidity injections and equity market direction, liquidity has been the key driver of equity market outcomes since March of 2009. But a key perceptual support to higher prices engendered by this liquidity has been theoretically ever more attractive equity valuations as reported corporate earnings have continued to expand, supporting those valuations. For one of the most restrained and fragile macro US economic recoveries on record, we have experienced one of the most robust corporate profit recoveries on record over the last half century. We know reported financial sector earnings are questionable at best, but the regulators will do absolutely nothing to change that.

commercial real estate loan delinquencies

Final comment as the story is really told graphically. I continue to believe a small business recovery is crucial to domestic macro economic health. To be honest, a small business recovery may also be integrally important to commercial real estate. Remember, the small business community has been the domestic economy jobs creator historically. The reason we do not have a domestic jobs recovery is that small business optimism just registered its 36th straight month of a recessionary reading (their words, not mine). A jobs recovery = square footage demand in the world of CRE. So in one sense, is it a small business recovery that would indeed help bank solvency issues via helping to heal CRE? The linkage appears clear. Unfortunately everything the US has done to heal the economy over the last three years has been focused completely on the financial sector.

So once again we find ourselves in a period of Fed sponsored asset appreciation. The thought, of course, being that if stock prices levitate so will consumer confidence. Which, according to Mr. Bernanke will lead to increased spending and a virtuous circle of economic growth. Oh really? The final chart below tells us consumer confidence is not driven by higher stock prices, but by job growth.

consumer confidence present

More at: http://www.financialsense.com/contributors/brian-pretti/dont-tune-out-the-commercials

Education-Based Inequality Increased In 2010

Posted By on January 23, 2011

By Michael Mandel

Jan 23, 2011

Education Based Inequality Increased In 2010

This chart shows median weekly wages for full-time wage and salary workers, adjusted for inflation, and indexed to 2000 (the data comes from the BLS   ”usual weekly earnings” series). There are three things to take away from this chart.

*First, the wage gap between holders of advanced degrees and everyone else widened in 2010.

*Second, workers with advanced degrees have done much  better than everyone else over the medium run,  both since 2000 and since the Great Recession started in 2007. For example, since  2007,  real weekly wages for advanced degree holders have risen by 3.8%, compared to a 0.1% decline for holders of bachelor’s degrees only.

*Third, over the past ten years, the pay for a bachelor’s degree has more or less tracked the pay for high school grads.

Now, within advanced degree holders, the pay inequality has widened as well. Take a look at this chart. The top decile–that is, the dividing line between the top 10% of advanced degree holders and everyone else–has risen 13% over the past ten years.  The median and the third quartile (top 75%) has risen by 3-4%, while the bottom 25% of advanced degree holders is actually down since 2000.

Education Based Inequality Increased In 2010

More at: http://wallstreetpit.com/58383-education-based-inequality-increased-in-2010

Listen Up Everyone…This Is Important! … You Will Likely Have But One Chance To Get This Right!

Posted By on January 23, 2011

We have followed Clif Droke for a number of years, and his record with the Kress Cycles is one step ahead of most others.

The Kress cycles will take on the financial markets, and by extension the economy from 2012-2014.  This will come as a shock for the most optimistic observers.  The final “hard down” phase of the extremely powerful 30-year, 40-year and 60-year cycles will begin to exert a distinctly negative impact against market prices across the board as we head closer to the end of this year.  Indeed, the coming Kress Cycle Tsunami will most likely eclipse anything we’ve seen in the prior years (2008 comes to mind) of the credit crisis.

The months ahead and whatever remains of the recovery should be used to prepare for the final (and worst) part of the deflationary “winter” season dead ahead of us. 

An Economic Recovery Unto Death
      By: Clif Droke

In the Bible there is a reference to a “sin unto death.”  In the realm of U.S. economic policy a situation is developing that could easily lead to a “death” of the current recovery.  Ironically, this brewing economic destruction is springing from the same policies that are responsible for the recovery (call it a “recovery unto death”).  These policies are supposed to lead the U.S. out of recession and into a “new tomorrow” but as we’ll discuss here, the end result is likely to be something far short of what policy leaders envision. 

By now you’ve probably had your fill of the pronouncements in the media that the economic recovery is advancing and everything is “on the right track.”  Articles which ballyhoo the recovery have been appearing with startling regularity in recent weeks, including a number of features in Time, Newsweek, Businessweek and other mainstream publications.  Less talked about is the likelihood that 2011 will witness the apex of the recovery that began in March 2009, and the further possibility that the years 2012 through 2014 will see another recurrence of the financial turmoil of 2008. 

An example of the bullish outlook that mainstream media reporters have embraced is found in a recent edition of Businessweek (“For the U.S., the Future Suddenly Feels Brighter”).  BW spotlighted the Goldman Sachs 2011 forecast for the U.S. economy, which it lifted to 3.4 percent from 2 percent.  This forecast is significant when you consider that Goldman Sachs economists have long been bearish on the country’s economic prospects. 

The leading service sector companies which are most sensitive to changes in the business economy, including Fed-Ex, Amazon and Monster Worldwide among others, have collectively been forecasting an improvement in the U.S. retail economy for over a year.  As recently as last week the New Economy Index (NEI), a composite of the leading retail and business sector stocks, reached a new recovery high as seen in the following chart. 

Yet what’s good for the international “new” economy isn’t necessarily an accurate representation of the challenges faced by the everyday Main Street economy.  Small and micro-cap businesses are still experiencing a hiring freeze and smaller independent companies haven’t fared nearly as well in the last two years compared to their larger multinational counterparts. To get an idea how the current small business outlook compared to that of the last recessions, in the first 12 months following the recession that ended in November 2001, small businesses added 81,000 workers.  After the latest recession began, companies eliminated nearly 500,000 during a comparable time period, according to data from ADP Employer Services.  In prior downturns, small firms have accounted for much of the initial job growth coming out of a recession.  But this time around most of the recovery has been led by much larger companies which, despite cutting their employment rosters, have been able to increase productivity and exploit the efficiencies of technology combined with a smaller workforce. 

Larger U.S. companies with an international presence aren’t the only ones which have benefited from the recovery — a recovery which has been largely based on the loose money policy of the Federal Reserve.  The Fed has embarked on its second round of “quantitative easing (QE) with plans to purchase $600 billion of long-term Treasury securities through June.  The Fed’s QE program has unquestionably helped sustain the financial market recovery with some spillover effects into the retail economy.  It has also had the unwanted effect of raising commodity prices, which is going to come back to haunt the U.S. and the global economy with a vengeance later this year.

As Rich Miller and Simon Kennedy observed, “The Fed’s actions are designed to make credit more available in the U.S. and stoke a recovery.  Yet a chunk of that money will end up invested in emerging markets, which are struggling already to absorb billions in foreign capital, contain inflation, and keep their currencies competitive.  The reluctance of China and other emerging-market economies to rein in growth too much is boosting demand for commodities and jacking up the cost of energy worldwide, including in the U.S.” 

Yet in spite of the obvious dangers posed by rising consumer prices in what is by all accounts a fragile economic recovery, Miller and Kennedy observed, “In the U.S., sustained the economic momentum is the priority for now [among policy makers], not tamping down inflation.”  This short-sighted obsession on economic “recovery” at all costs will eventually lead to a resumption of the same set of problems that brought us the financial crash of 2008.  And the straw that broke the camel’s back at that time was rising energy costs.

For the better part of two years U.S. consumers and producers alike got a reprieve from the brutally high energy costs that dominated the economic landscape in 2007-2008.  The runaway oil price of those years ultimately choked off economic growth and fed the financial fires of 2008.  Hedge fund speculation was as much to blame as anything for the price spike but once again we find the usual suspects hard at work in the crude oil futures market.  To be sure, they learned enough from the 2008 debacle to be more subdued with their speculative fervor.  But with the Fed priming the pump in the past year, these interests have taken their cue and the speculative juices are starting to flow again.  Indeed, a repeat of the oil price run-up appears imminent and many oil analysts are forecasting $100-a-barrel oil or higher this year. 

The former president of Shell Oil has also made a high-profile prediction that the gasoline price will reach $5 a gallon by the end of this year.  That’s more than $2 per gallon above the current average price of gas.  The economic recovery will have a hard enough time surviving $4/gallon gasoline let alone $5/gallon.  If this prediction comes close to being fulfilled the recovery will be dead by the year’s end. 

While visiting a coffee shop recently I overheard a conversation between two customers which pretty much summarized the prevailing mood on Main Street about the recovery.  Asked to give her opinion of the economy, one customer replied, “As soon as the economy gets better and we start making a little more money, prices start going up and we end up giving it all back.”  Her ironic conclusion was that we would probably do just as well without a “recovery” in terms of the cost of living, a belief undoubtedly shared by many. 

Some 2,200 years ago the Greco-Roman historian Polybius wrote, “What use is a [policy maker] if he is incapable of seeing how and why events begin, where their origins lie?  It follows that there is nothing we should be more aware of, nothing we should try harder to discover, than the causes of every incident.  For the most critical matters have trivial origins, and it is always easiest to correct impulses and remedy beliefs at the beginning.”  

The Federal Reserve sets U.S. monetary policy and since the Great Depression, the official mandate of the U.S. central bank has been to keep prices stable and promote a level of output consistent with reasonably full employment.  As Paul Seabright observed in his latest article in Foreign Policy, “The weight given to price stability increased in most countries over the postwar period, except in Germany, where it had already been high because of the memory of the Weimar hyperinflation.  Price stability also came to be seen as the permanent goal of central banking, whereas maintaining output came to be considered a matter for occasional firefighting rather than permanent tinkering.”

It would be better for everyone concerned if the Fed’s policy was more in tune with the needs of productive, taxpaying Americans instead of the desires of big business.  A monetary policy which tied the Fed funds interest rate to long-term yields and allowed inflation/deflation to takes its natural course instead of fighting both ends of the economic long wave would be far superior to the current policy.  If policy makers think that the health of IBM, Coca Cola and the usual list of U.S. multinationals ultimately takes precedence over that of the millions of individual Americans which comprise the backbone of the economy, they are sadly mistaken.  It’s the multitudes of productive, working class citizens whose decisions to buy or not to buy ultimately determine the strength or weakness of the U.S. domestic economy.  

As it stands the Fed has committed itself to preventing the natural tendency toward deflation from manifesting itself.  In doing so it is setting up a series of artificial price spikes in key commodities in the months ahead.  If the dramatic price increases that many producers and analysts are predicting are realized, it would indeed be miraculous if the economy could absorb them without upsetting the recovery.

As one hedge fund manager has commented, “The stimulus and recovery of 2009-2011 has done little more than paper over the structural problems that led to the credit crisis in the first place.”  His statement may yet prove to be prescient.  As these structural problems haven’t yet been properly addressed, it remains for time (i.e. the cycles) to eventually reveal and correct these problems. 

The toll that the Kress cycles will take on the financial markets, and by extension the economy, in 2012-2014 will come as a shock for the most optimistic observers.  The final “hard down” phase of the extremely powerful 30-year, 40-year and 60-year cycles will begin to exert a distinctly negative impact against market prices across the board as we head closer to the end of this year.  Indeed, the coming Kress Cycle Tsunami will most likely eclipse anything we’ve seen in the prior years of the credit crisis.

The months ahead and whatever remains of the recovery should be used to prepare for the final (and worst) part of the deflationary “winter” season. 

Gold

The gold price recently violated its 60-day moving average and as of Jan. 19 is on top of its dominant interim 90-day moving average.  Gold and silver stocks have been under intensive selling pressure lately and have born the brunt of the upcoming dominant short-term cycle bottom.  If the gold price can establish support above the 90-day MA this week and close back above the 30-day MA we’ll have a confirmed bottom and a potential re-entry point for gold.  Gold’s technical position will be updated in the next commentary.

www.clifdroke.com

Ireland Throws A Wrench Into The “Euro” Works!

Posted By on January 23, 2011

Ireland is out to make things interesting, with a sledge hammer……and everyone thought Europe’s problems were going away!  Hmm!

The BBC has just reported that the Irish Green party has pulled out of the ruling coalition with Fianna Fail which is “expected to bring forward the general election from 11 March.” In other words suddenly the entire Irish “rescue”, taken for granted for over a month, will have to be reexamined, once the new ruling party, which will certainly be from the current opposition reevaluates the terms. Elections are now expected to come some time in mid-February. Look for peripheral bond spreads to go whooosh tomorrow.

www.zerohedge.com

This Will Become A Popular Headline Going Forward, The Time To Plan Ahead For Everyone Is Now!

Posted By on January 23, 2011

So, 5% of the New York state public work force will just go away……California should hope to be so lucky.

Headline: N.Y Governor Cuomo Weighs More Than 10,000 Layoffs

New York Gov. Andrew Cuomo is weighing plans to lay off more than 10,000 government workers, rivaling the number of pink slips handed out by his father a generation ago, according to individuals familiar with budget discussions.

While Mr. Cuomo has not settled on a figure, the governor in recent days has told lawmakers and other officials that he is looking at dismissing 10,000 to 12,000 workers, or more than 5% of the state’s public work force, the individuals say.

Who Is The Second Largest Contributor To GDP…..If You Said State And Local Governments You Get A Brownie Button!

Posted By on January 22, 2011

From John Mauldin’s “Thoughts From The Front Line”

As this budget cutting works its way through the economy, and as inventories are no longer being built (they are already at adequate levels), the growth from the current stimulus (both QE2 and payroll and federal government expenditures) the economy will have to stand on its own in terms of organic growth. And as the year wears on it will become apparent there is less true organic growth than currently meets the eye.

State and Local Spending

A few more thoughts on state and local spending. First, Congress needs to go ahead and authorize a bill allowing states to file for bankruptcy. At the very least, this send s very clear message to the states that the federal government will not come to their aid. It is not fair to ask states that have done what they need to do to keep their fiscal houses in order, to support states that have overspent, typically by trying to fund their pensions and run other well-intentioned but underfunded programs.

Second, states need the ability to force public unions to come to the table. Many states have overpromised, and they are simply in a very deep hole and need concessions. Private workers have had to take the brunt of the recent crisis, and meanwhile government workers get far more on average than private employees.

California Declares Fiscal Emergency

Posted By on January 21, 2011

Jerry Brown, California’s governor, declared a state of fiscal emergency on Thursday for the government of the most populous US state to press lawmakers to tackle its $25.4 billion budget gap.

The 72-year-old governor also wants the legislature to back a ballot measure for a special election in June that would ask voters to extend tax increases expiring this year to help fill the state budget’s shortfall.

Brown needs a handful of Republican votes to put the measure to voters.

Republican leaders in the legislature have said they doubt those votes will come.

A Short Neurological Test

Posted By on January 21, 2011

Let’s Get Started Here:

1- Find the C below..
 
 
Please do not use any cursor help.

OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
OOOOOOOOOOOOOOOOOOOCOOOOOOOOOOO
OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO

2- If you already found the C, now find the 6 below.

99999999999999999999999999999999999999999999999
99999999999999999999999999999999999999999999999
99999999999999999999999999999999999999999999999
69999999999999999999999999999999999999999999999
99999999999999999999999999999999999999999999999
99999999999999999999999999999999999999999999999

3 – Now find the N below. It’s a little more difficult.

MMMMMMMMMMMMMMMMMMMMMMMMMMMMNMM
MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM

If you were able to pass these 3 tests, you can cancel your annual visit to your neurologist. Your brain is great and you’re far from having a close relationship with Alzheimer. 

Congratulations!

An Economic System On Steroids!

Posted By on January 20, 2011

A chart is worth a thousand words, or a couple hundred billion in real, incremental dollars.  This is why things have been getting (slightly) better of late, but when it ends…not if, look out below.  2012-2014 look to be very tough years, if we survive the end of the Mayan Calender (Dec 21,2012) that is!

www.zerohedge.com

States Looking For A Way Out To Escape Debt Burdens

Posted By on January 20, 2011

Hmm…They’re really getting serious about this.  These pensions will never survive in the current form.  Only a matter of time!

Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.

Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.

More at: http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html?_r=2&src=busln

Zillow Says Home Price Drop (26%) Exceeds The Great Depression

Posted By on January 20, 2011

By Al Yoon

NEW YORK (Reuters) – Home prices fell for the 53′rd consecutive month in November, taking the decline past that of the Great Depression for the first time in the prolonged housing slump, according to Zillow.

Home prices have fallen 26 percent since their peak in 2006, exceeding the 25.9 percent drop registered in the five years between 1928 and 1933, the housing data company said in a report on Monday. Prices fell 0.8 percent over the month.

It is a dubious milestone for the U.S. housing market which has failed to gain much traction despite a host of government programs to reduce delinquencies and encourage demand with temporary tax credits and lower interest rates. Many economists expect further price drops, even if there are some anecdotal signs of growing demand, such as in pending home sales data.

“For the next six to nine months, the larger factors affecting the housing market that will produce more home price declines will be the excess inventory of homes, high negative equity and foreclosure rates, and weakened demand due to elevated employment, Stan Humphries, Zillow’s chief economist, said in a blog post.

Declines are accelerating, and it will take a while before falling unemployment and other signs of economic improvement support the market, Zillow said.

Stratfor’s Annual Forecast For 2011

Posted By on January 20, 2011

Stratfor’s Annual Forecast ….Here are some examples of this year’s themes:

- The U.S. is unlikely to withdraw from Iraq as promised in 2011.
- The U.S. economy will grow.
- In Europe, more countries will need bailouts.
- Russian-German relations will strengthen.
- Japan will rot, but it will rot in seclusion.

Here are some pieces:

While Washington looks to extricate itself from Iraq without leaving power in the region unbalanced, farther east China is struggling with its own economic imbalances. STRATFOR has long been perceived as bearish on the Chinese economy. We are less bearish than realistic, and the reality is that the longer an economic miracle continues to be miraculous, the more likely it is to end its amazing run. We cannot help but notice the similarities between China and its East Asian economic predecessors: Japan, South Korea and the Southeast Asian “Tigers.” The Chinese have shown great resilience, but the global economic crisis revealed the weaknesses of China’s export-based model. While government investment now makes up the lion’s share of the Chinese economy, Beijing is walking a very difficult path between rampant inflation and rapid economic slowing.

As China’s leaders search for a solution and try to avoid the social consequences of a slip in either direction, they are also focused on the next major generational leadership transition, slated to begin in 2012. This discourages any radical or daring economic policies, and stability will remain the watchword as the politicians jockey for position. But given the status of the Chinese economy, and the continued effects internationally of the global slowdown, daring policies and ideas are perhaps what China needs. While Beijing is likely to procrastinate in making any radical economic policy changes, and thus avoid the likely short-term chaos that could entail, the longer the leaders delay fundamental action, the worse things may be when the system starts to unravel.

The Global Economy:

The United States will experience moderate to strong growth in 2011. Unlike in other major economies, consumer activity comprises the bulk of the U.S. system — some $10 trillion of the $14 trillion total. That $10 trillion is approximately half of the global consumer market. (The combined BRIC states — Brazil, Russia, India and China — account for less than one-third of that amount). As the U.S. consumer goes, so goes the world.

When measuring what the U.S. consumer is going to do, STRATFOR consults three sets of data: first-time unemployment claims (our preferred method for evaluating current employment trends), retail sales (the actual consumer’s track record), and inventory builds (an indicator of whether or not wholesalers and retailers will be placing new orders, which in turn would require more hires). As 2011 begins, the first two figures look favorable to economic growth, while the last indicates employment may be slow to recover.

STRATFOR pays close attention to two other measures on the economy: The S&P 500 Index indicates investors’ risk appetite, and total bank credit as made available by the U.S. Federal Reserve indicates how functional the financial system is. Because the 2008-2009 recession was financial in origin, STRATFOR pays particular attention to what investors and banks are doing and thinking. Both measures are strongly positive as 2011 begins.

But while the United States may be gearing up for a strong performance, the same is not true elsewhere in the world.

Europe faces a structural problem. The euro was designed for and by the Germans, who want a strong currency and high interest rates to keep inflation in check and to attract the capital required to maximize their high value-added system of first-rate education and infrastructure. The Southern Europeans, in contrast, have economies that do not add nearly as much value. They must remain price competitive to generate growth, and the only reliable means they have of doing that is to sport a weak currency. Put simply, people will pay more for a German car, but they will only pay so much for a Spanish apple.

Yet these economies (and others) are enmeshed into the eurozone. The financial crisis is depressing the euro, which would normally help the southern European states, but Germany’s presence in the eurozone is acting as a sort of life preserver, limiting how far the common currency can sink. The result is a midground currency, prevented from falling to levels that would actually stimulate the south while holding at weaker levels that make the already competitive Germans hypercompetitive. The result will be growth bifurcation, with the Germans experiencing their fastest growth in a generation, and Southern Europe — the region that needs growth the most to emerge from the debt maelstrom — mired in recession.

Consequently, the financial crisis that started sweeping Europe in 2010 is far from over, and STRATFOR forecasts that more states will join Greece and Ireland in the bailout line in 2011. In one bit of good news for the Europeans, STRATFOR projects that the systems the Europeans built in 2010 to handle the financial crisis will prove sufficient to manage Portugal, Belgium, Spain and Austria, the four states facing the highest likelihood of bailouts, respectively.

China:

In China, nearly every government throughout its history has at some point been brought down by social unrest of some kind. Recently, Beijing was concerned that rolling back stimulus policies enacted in late 2008 would put economic growth at risk, and with it employment. STRATFOR has learned that, given these circumstances, Beijing has decided to keep that stimulus intact. This will solve the employment problem, but it comes at the certain price of higher inflation. China’s challenge in 2011 will be to maintain sufficient services and subsidies to keep social forces in check at a time when the country’s economic model will exacerbate inflationary problems.

Germany:

The country where elites are in most trouble is in fact Germany. Berlin has not yet made the case to its own population for Germany’s central role in Europe, and why Germany needs to bail out its neighbors when it has its own economic troubles. In large part this is because if Berlin were to make this case domestically, laying out the advantages Germany gains from the eurozone, it would further breed resentment abroad. With seven state elections in 2011 — four in a short period in February and March — the first evidence of nontraditional political forces’ coming to the forefront could be in Germany. This could accelerate if Berlin is also called upon to rescue one of the other troubled economies within this intense electoral period in the first quarter.

www.stratfor.com