The Anatomy of a Perfect Storm

Today, Wednesday, October 6, the market flirted with 11,000 and gold also flirted with $1300 per ounce.  I really believe the market is being controlled by financial spin doctors, with more than a helping hand from the Fed and the US Treasury.  But as in Depression 1, is this the calm before the second storm, the storm that overwhelms our global economy?

I happen to believe that this is exactly what is happening.  I base my conclusion on the facts that the financial community doesn’t want you to look at the real threats to the market and currencies.  Why? Because a leopard doesn’t change it spots, they are poised to make another killing on sovereign credit facilities.  Just watch Spain, Greece, and Italy in the next few weeks and see how the bankers extract the final life out of those economies.

As with all storms, when analyzed, bad storms, killer storms happen because of a unique infrequent combination of elements.  Here are some of the elements I believe can lead to “intensifying” the coming financial storm.

US will likely lose another 39,000 jobs this month.  Given that we should be generating at least 125,000 jobs just to meet emerging people to the job market, you can say we have another 164,000 people without jobs this month.

Lenders across Europe and the US are facing a $4 trillion refinancing hurdle in the coming 24 months and many still need to recapitalize, The IMF,the Washington-based organization, said in its Global Financial Stability Report.  Here you can say BOHICA, another major bailout on the way, but from where?

The IMF report – “Will It Hurt? Macroeconomic Effects of Fiscal Consolidation” – implicitly argues that austerity will do more damage than so far admitted.  There will be a rise in VAT from 21pc to 23pc, and a freeze in pensions and projects.

The former chief economist of the World Bank and a Nobel  prize winner, Joseph Stiglitz said that the different needs of countries with high trade surpluses, particularly Germany, and those running deficits such as Ireland, Portugal and Greece, meant that the single currency, the Euro, was under intense pressure and may not survive.  Now, just ask yourself the question being currently held by the 800 pound gorilla in the room.  If the Euro fails and EU  nations revert to local currencies, what happens to trillions in contracts and financial instruments currently floating in Euros??

Major mortgage lenders Bank of American, JPMorgan Chase and GMAC have in recent days announced they were suspending tens of thousands of foreclosure processes across the country due to apparent improper handling of documents.

China is pouring another $7bn (£4.4bn) into Brazil’s oil industry, reigniting fears of a global “land grab” of natural resources.

Paul Volcker spoke at the Chicago Federal Reserve Bank on September 23rd, as part of a symposium co-sponsored by the IMF.  He said: “The financial system is broken. We can use that term in late 2008, and I think it’s fair to still use the term unfortunately. We know that parts of it are absolutely broken, like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government.”

Goldman Sachs Group Inc. said the U.S. economy is likely to be “fairly bad” or “very bad” over the next six to nine months.

“The Greek deficit and debt figures will be revised upwards, the figures will be bigger,” said Amadeu Altafaj Tardio, the spokesman for the bloc’s economic affairs commissioner Olli Rehn.

The number of Americans receiving food stamps rose to a record 41.8 million in July as the jobless rate hovered near a 27-year high, the government said.

The recession put a 3.1 percent dent in the personal incomes of New York state residents, who endured their first full-year decline in more than 70 years, according to a report released Tuesday.

In the UK, spending cuts may be delayed because of their impact.  There is no doubt that most of the £32bn of spending cuts and tax rises set for 2011-12 will still be implemented, but the fiscal consolidation might be delayed without undermining the government’s ambition to eliminate the current structural deficit before the next election, scheduled in 2015.

Middle-class Americans made their deepest spending cuts in more than two decades, slashing spending on such discretionary items as restaurant meals and alcohol during the recession.  Households in the middle fifth of the population sliced their average annual spending to $41,150 in 2009, the Labor Department said Tuesday in its annual spending breakdown. That was down 3.1% from 2007 and 3.5% from 2008, the steepest one-year drop since records began in 1984.

Now I ask you, am I crazy or are those some ugly looking storm clouds on the horizon?  I leave it to you to decide, but I am going to dig out my boots and slicker!