Legendary trader Vic Sperandeo sees serious risk of hyperinflation

This guy is not your average gloom and doomer (like me), he has been around the block and understands economics and monetary policy. He is sounding the same message I have been warning you about, that the potential is there for a hyper-inflationary event. Like me he says he hope he is wrong, let’s hope we are both wrong.-Lou

 

Victor Sperandeo warns of hyperinflation

He traded for George Soros and Leon Copperman during his 40 years in business and his Trader Vic books are the stuff of legend.

Victor Sperandeo has seen almost every kind of market, but he’s now preparing for something rarely seen.

He’s preparing for hyper-inflation.

Now don’t think Sperandeo takes any pleasure in his austere message, he doesn’t. The first thing he tells the desk is that he hopes he’s wrong.

But history suggests otherwise.

“If you research history there have been 30 occasions of hyper-inflation,” he says. “All the numbers that take place 100% of the time in the other 30 occasions are here.”

We know it’s scary stuff and somewhat extreme but Sperandeo makes the case in an easy to understand way without fear mongering.

It’s an interview we think you wont want to miss.  Get all the details. Watch the video now!

LINK

GDP Weakens to 2.4%

There never was a recovery, just a bit of stabilization when the government and the Fed injected over $ 3 trillion into the economy via bailouts and Fed buying of toxic assets from banks. If we are in “recovery” the GDP should be growing at 5% or better, not 2.4% (which will most likely be revised lower). I look for the 3rd quarter to be slightly negative and the 4th quarter to be -3%. Get ready for financial crisis, Part 2.-Lou

 

Recovery lost speed in the second quarterGDP reading of 2.4 percent most sluggish showing in nearly year

 

WASHINGTON — The nation’s economic recovery lost momentum in the second quarter as growth slowed to a 2.4 percent pace, its most sluggish showing in nearly a year and too weak to drive down unemployment.

Weaker spending by consumers, less growth coming from companies restocking shrunken stockpiles and a bigger drag from the nation’s trade deficits were the main factors behind the second quarter’s slowdown.

The Commerce Department’s report released Friday also showed that the economy grew at a 3.7 percent pace in the first three months of this year. That was much better than the 2.7 percent pace estimated just a month ago.

Still, the recovery has been losing power for two straight quarters. That raises concerns about whether it will fizzle out. Or worse, tip back into a “double-dip” recession.

The economy began to grow in the third quarter of last year after having suffered the worst recession since the Great Depression. And in the following quarter the economy’s growth surged at a 5 percent pace, the high water mark of the rebound.

Much of the expansion was driven by the government’s massive $862 billion stimulus package of tax cuts and increased spending. Also, companies helped energize growth with a burst of spending to replenish inventories that were cut down during the recession.

Now, as those forces are fading, concerns are growing as to whether the private sector can boost spending and investment enough to keep the recovery afloat.

Consumer spending, usually the lifeblood of economic activity, slowed in the second quarter. Such spending rose at an anemic 1.6 percent pace. That was down from a 1.9 percent pace in the first quarter and was the weakest showing since the end of last year.

The 2.4 percent growth rate logged in the April-to-June quarter was slightly less than the 2.5 percent pace economists were forecasting. It was the weakest since a 1.6 percent pace in the third quarter of last year, when a record streak of four straight losing quarters came to an end.

More…

My Appearance on “Better Connecticut”

loubetter hartford

Here is a link to the video of my appearance on “Better Connecticut” on WFSB in Hartford yesterday afternoon.-Lou

Watch Here

U.S. Debt As a Percent of GDP Is Soaring

This is one scary chart and one of the reasons I have been so gloom and doom. This debt is unsustainable and will keep the economy in the deep chill for a long time.-Lou

 

Expiration of Bush Tax Cuts Would Cost Families Thousands in 2011, Study Shows

Raising taxes now is economic suicide. Most families will feel the adverse effects of a tax increase in one way or another. Here is what is in store unless Congress acts this fall.-Lou


irslogo_tax_397x224

Expiration of Bush Tax Cuts Would Cost Families Thousands in 2011, Study Shows

Millions of families will be faced with thousands of dollars in tax increases if the Bush tax cuts are allowed to expire at the end of the year, according to estimates from the nonpartisan Joint Committee on Taxation.

A preliminary report obtained by Fox News shows that several tax increases would hit hard if Congress does nothing to minimize the damage before Dec. 31.

The study found that raising just the lowest income tax rate from 10 percent to 15 percent would cost 88 million taxpayers an average of $503 next year.

Lowering the child tax credit from $1,000 to $500 per child would cost 31 million families an average of $1,033 in 2011; the reinstatement of the so-called marriage penalty, a peculiarity in the tax code that forces some married couples to pay more for income tax than they would if they were single, would cost 35 million couples an average of $595 each, according to the preliminary numbers.

Those changes are among a slew of tax increases that are scheduled to go into effect if Washington does not act.

Income tax rates will rise for almost every bracket, with the bottom rate going from 10 to 15 percent and the top rate going from 35 percent to 39.6 percent. Dividends and capital gains taxes also are expected to rise.

The Obama administration, though, is pushing a plan to extend the income tax cuts for middle-class families while letting tax breaks for the top 2-3 percent of income earners expire.

Treasury Secretary Timothy Geithner said on ABC’s “This Week” on Sunday that the plan is the “responsible” route, arguing that it shows a commitment to reining in the deficit. The administration estimates that eliminating the top-tier tax break would save the government nearly $700 over the next decade.

A few prominent Democrats have questioned whether Congress should selectively halt some tax cuts, as Republicans claim ending the tax cuts for the top tier will hammer small businesses.

Democratic leaders, though, say the economy can spare higher taxes for the wealthy and plan for a showdown over the issue before November.

LINK

Banking Disaster Largely Ignored By Mainstream Media

This excellent piece by Greg Hunter describes the serious state of the FDIC and the banking system. Failures are accelerating and the cost to the FDIC is soaring at an alarming weekly rate. Soon it will be the taxpayer footing the bill replacing lost deposits with freshly printed money.-Lou

Banking Disaster Largely Ignored By Mainstream Media

By Greg Hunter

Last week, bank failures quietly passed the 100 milestone for the year.  I say “quietly” because the bank failure story has gone largely unreported or, at least, under-reported by the mainstream media.  Just to give you an idea of how fast the bank insolvency problem is accelerating, last year, at this time, 64 banks had been taken over by the Federal Deposit Insurance Corporation.  So far, this year, 103 banks have already been taken over by the FDIC.  There is no question the bank failures the FDIC will have to deal with will be greater than the 140 insolvent banks closed last year.  At this point, we just don’t know how many more, but dozens more than last year for sure.

One big bank negative I see is the loss of business in the Gulf because of the oil spill catastrophe.  I don’t think it is a stretch to say that the loss of revenue from fishing, deep-water oil drilling, tourism and spoiled coastal property will probably have a negative effect on the balance sheet of Gulf Coast banks.  Just 2 weeks ago, a Wall Street Journal story documented tail spinning Florida banks asking for a break from federal regulators.  It said, “Florida banks—already weakened by the real-estate bust and hit again by customers suffering from the BP PLC oil spill—are asking federal regulators for a reprieve from government-ordered capital raising as they struggle to stay alive.” (Click here for the more on the WSJ story.) There are currently 775 “problem” banks on the FDIC’s list, and I don’t think that list will be shrinking anytime soon.

In order for the FDIC to close the banks, it has to spend cash to make depositors whole.  It is also entering into what are called “loss share” agreements.  It is a way to keep problem loans and foreclosed property in a banking environment and not become the full responsibility of the government.  It also caps the loss for the buying institution.  Here’s how the “loss share” basically works.  The FDIC writes down the assets to an estimated value.  Then, the FDIC covers any potential losses in an 80/20 split, with the FDIC covering 80% of any potential loss.  These loss share agreements were used in the S&L crisis in the early 90’s.  Since this crisis began, there have been $173.5 billion of loss share agreements through May of 2010.  (The total now stands at more than $178 billion.)  According to FDIC spokesman David Barr, if loss share agreements were not used, the failed bank assets might sell for “pennies on the dollar.” The idea is to wait and sell the assets in the future when they might be worth more.  Barr told me just last week, “As the FDIC turns those losses into real losses when we sell those, then the loss at the failed bank is adjusted accordingly, some go up and some go down.”

More…

My Appearance This Morning on Fox Hartford

 

5,200 restaurants closed in the U.S. this spring

The restaurant business is tough in good times, these times are killing the restaurant business.-Lou

A closed sign hangs on the door of a Bennigan's restaurant July 29, 2008 in downtown Chicago, Illinois. The corporation that owns Bennigan's restaurants reportedly filed for bankruptcy today and closed all their restaurants except independently-owned franchise locations.

5,200 restaurants closed in the U.S. this spring

 

More than 5,200 restaurants closed in the U.S. this spring, dropping the total number in operation by 1 percent, according to market research by The NPD Group. The firm’s census showed that independent restaurant closings contributed to most of the decline, while chain units remained relatively stable.

The number of fast food restaurants declined 1 percent, by about 2,500 units. The number of full service restaurants also fell 1 percent, by 2,683 units. That data came from a survey conducted from April 2009 to the end of March 2010.

The closings came as diners pulled back their spending and ate at home more often. Visits to U.S. restaurants fell 3 percent in the year ending May 2010, and consumer spending at restaurants fell 1 percent. That was the first decline in dollars NPD has reported since it began tracking the industry 34 years ago.

“It’s been a difficult time for the restaurant industry with customer trafficdown over the past year,” said Greg Starzynski, director of product development-foodservice at NPD. “The unit losses we’re seeing in our latest census are a reflection of the weakness in the industry with the greatest impact on the independent restaurant operators.”

LINK

CARTOON: Obama’s New Taxes

The Death Of Paper Money

Another great piece by The UK Telegraph’s Ambrose Evans-Pritchard. Hyper-inflation is a nasty beast and may be lurking in our future.-Lou

 

The Death of Paper Money

As they prepare for holiday reading in Tuscany, City bankers are buying up rare copies of an obscure book on the mechanics of Weimar inflation published in 1974

Federal Reserve chairman Ben Bernanke, himself a scholar of the Great Depression, has indicated he would consider extra stimulus for the economy.

Federal Reserve chairman Ben Bernanke, himself a scholar of the Great Depression, has indicated he would consider extra stimulus for the economy.

 

by Ambrose Evans-Pritchard

Ebay is offering a well-thumbed volume of “Dying of Money: Lessons of the Great German and American Inflations” at a starting bid of $699 (shipping free.. thanks a lot).

The crucial passage comes in Chapter 17 entitled “Velocity”. Each big inflation — whether the early 1920s in Germany, or the Korean and Vietnam wars in the US — starts with a passive expansion of the quantity money. This sits inert for a surprisingly long time. Asset prices may go up, but latent price inflation is disguised. The effect is much like lighter fuel on a camp fire before the match is struck.

People’s willingness to hold money can change suddenly for a “psychological and spontaneous reason” , causing a spike in the velocity of money. It can occur at lightning speed, over a few weeks. The shift invariably catches economists by surprise. They wait too long to drain the excess money.

“Velocity took an almost right-angle turn upward in the summer of 1922,” said Mr O Parsson. Reichsbank officials were baffled. They could not fathom why the German people had started to behave differently almost two years after the bank had already boosted the money supply. He contends that public patience snapped abruptly once people lost trust and began to “smell a government rat”.

Some might smile at the Bank of England “surprise” at the recent the jump in Brtiish inflation. Across the Atlantic, Fed critics say the rise in the US monetary base from $871bn to $2,024bn in just two years is an incendiary pyre that will ignite as soon as US money velocity returns to normal.

Morgan Stanley expects bond carnage as this catches up with the Fed, predicting that yields on US Treasuries will rocket to 5.5pc. This has not happened so far. 10-year yields have fallen below 3pc, and M2 velocity has remained at historic lows of 1.72.

As a signed-up member of the deflation camp, I think the Bank and the Fed are right to keep their nerve and delay the withdrawal of stimulus — though that case is easier to make in the US where core inflation has dropped to the lowest since the mid 1960s. But fact that O Parsson’s book is suddenly in demand in elite banking circles is itself a sign of the sort of behavioral change that can become self-fulfilling.

As it happens, another book from the 1970s entitled “When Money Dies: the Nightmare of The Weimar Hyper-Inflation” has just been reprinted. Written by former Tory MEP Adam Fergusson — endorsed by Warren Buffett as a must-read — it is a vivid account drawn from the diaries of those who lived through the turmoil in Germany, Austria, and Hungary as the empires were broken up.

Near civil war between town and country was a pervasive feature of this break-down in social order. Large mobs of half-starved and vindictive townsmen descended on villages to seize food from farmers accused of hoarding. The diary of one young woman described the scene at her cousin’s farm.

“In the cart I saw three slaughtered pigs. The cowshed was drenched in blood. One cow had been slaughtered where it stood and the meat torn from its bones. The monsters had slit the udder of the finest milch cow, so that she had to be put out of her misery immediately. In the granary, a rag soaked with petrol was still smouldering to show what these beasts had intended,” she wrote.

More…