By the pricking in my thumbs

This summer felt like a waiting period, a hiatus during which everything slowly got a little worse but nothing major happened. Now, however, it's September, and things feel foreboding.

I'm hearing rumors again about banks and hedge funds that are in trouble (Morgan Stanley, Wells Fargo, and Cerberus). This reminds me of last fall, when a slew of banks were teetering. Sub-prime may be old news, but the commercial real estate implosion is just getting going. Mish writes that 1 in 6 construction loans is in trouble.

Unemployment is still ticking up. Officially it's 9.7%, except that doesn't include the long-term unemployed or those who need full-time work but can only find part-time jobs. Including those folks the unemployment rate is 16.8%, but even this is seen as a low-ball estimate because the government plays with the numbers and makes a lot of ridiculous assumptions. Economist John Williams has the real unemployment rate at 21.1%.

Meanwhile, in at least 18 states the money has run out for unemployment benefits, and they are borrowing from the federal government to make payments. California pays out $80 million per day to the unemployed. As Ilargi writes in States of Shock:

At state level, a mountain of trouble is brewing in America....

There are lots of political fights ongoing.... In some cases, parties are rolling over the floor for budget cuts of 2-3-4 percentage points. Whoever is involved in any of those fights is up for a rude sunrise, since in many cases, tax revenues are already off by 10-20%. I haven't seen one state that doesn't admit to at least a few hundred million in budget deficits, with losses predicted to grow rapidly in years to come....

There is no doubt that all states, with perhaps 1 or 2 exceptions, will go into the next fiscal year with a budget that is far too optimistic. This is how politics works. Whatever can be made tomorrow's problem will be. And tomorrow's problems are set to be huge....

We are about to see a huge increase in the issuance of state bonds and other forms of borrowing. Kicking all your cans down all the roads that you can find. Many states are in the process of opening some kind of gambling den or another.

And then down the line will come the tax increases, stealthily at first, more openly later. But raising taxes on a population that is getting poorer fast is a stillborn idea, especially at the lower levels of government, where people know where you live.

To understand the underlying justification for budget cuts that are way too meagre, for not properly tackling problems and for issuing even more debt, you only need to look at the White House and its message of recovery and 3.5%-4% economic growth right around the corner. That message undermines the need for more unpopular measures at the state level, even as revenues are falling much faster than that.

On another note, as I've written about recently, the stock market looks set to have another major fall in the next month or two, which will cause further havoc with pension plans, university endowment funds, and 401k's. Insider buying & selling activity (e.g. if the CEO of a company wants to sell some of his stock in that company) must be reported to the authorities. For most of August the insiders were selling 31 times more than they were buying. In the last week in August this shot up to 62 times. For every $10 worth of stocks they purchased, they sold $620. This is important because major market moves happen in three steps:

1. The smart money buys (sells).
2. The big money buys (sells).
3. The dumb money buys (sells).

The dumb money is the public. We're just here to buy at the top, sell at the bottom, and generally get fleeced by the big boys.

Currently, the "smart" money (insiders) and some of the "big" money (funds, money managers) are getting out. When stock prices are going up it's usually on slow, low-volume days. When they go down, though, they go down on busy, high-volume days. This is indicative of the big guys starting their exodus.

I do think the dollar will be okay for the next little while, because most people don't know about gold and silver, and when stocks fall and they panic, they run straight back into Treasuries and dollars in the bank. That makes dollars and Treasuries in hot demand and supports their value. But somewhere out there, and quite possibly just a few months away, we could see one of these "black swan" events and the dollar could tank. Most dollars in existence are not in the United States. Once the rest of the world decides they don't want our dollars, there is nothing the Fed or the government can do to keep the dollar from losing much of its value.

I increasingly find that people are very cynical and tired of the government / Goldman manipulation of markets, commodities, and currencies. People still trade in the markets, but it's partly based on their understanding of what the government / Goldman gang will do, e.g. "They always shove stocks up starting at 3:30 on Fridays" or "They always smash gold when the market opens in New York." Wall Street is becoming a bit of a joke. Too much more corruption and our foreign friends will pack up and go home, taking their investment money with them.

Should be an interesting fall.