November 15, 2009, iTulip

by Joost de Jong

As a European investor, the DJIA has lost 44% over the past ten years, and that’s not the worst of it.

It was hard to miss the DJIA returning to the glorious level of 10,000 first achieved more than ten years ago, in March 1999. Recently various stock market pundits came together to celebrate the regaining of that level with a flood of uninformed cheer the airwaves and cable channels exhorting, We’re back, baby! Time to pay bonuses! In Goldman we trust! From our European vantage point, things look a little different.  More …

November 5, 2009, iTulip
Uncle Sam as Landlord

In 2005, as we saw tracts of homes spring up all over South Florida, Nevada, Arizona, and California, we guessed that in the aftermath of the housing bubble, the federal government was eventually to own not only the securities that backed the mortgages on these homes, and then the mortgages, but eventually the homes themselves. We envisioned Uncle Sam as landlord, renting houses and condos built by Toll Bros. and other major home builders. That day has arrived.

Fannie Mae to rent out homes instead foreclosing
November 5, 2009 (AP)

Fannie Mae to allow troubled borrowers to hand over deeds to homes, let former owners rent

Thousands of borrowers on the verge of foreclosure will soon have the option of renting their homes from Fannie Mae, under a policy announced Thursday.

The government-controlled company, through its new “Deed for Lease” program, will allow borrowers to transfer ownership to Fannie Mae and sign a one-year lease, with month-to-month extensions after that.

AntiSpin: During the 1980s, the federal government sought to replace public housing with private housing made available to lower income families via affordable, government-backed mortgage loans. But the fact is, not everyone can afford to buy a home or condo. Now the process of privatization of public housing begins to run in reverse.  More …

August 19, 2009, iTulip

by Janet Tavakoli, president of Tavakoli Structured Finance

Chicago is beautiful in the summer for lucky people like me. It offers outdoor symphony concerts, boat trips on the lake, bike outings, outdoor festivals, art fairs, hiking and more. But the picture would not be complete if I didn’t mention that I believe the city budget is running out of money, and crime is on the rise. I believe this increased violence is related to the economy, and it is not mere crime, it is civil unrest.

Chicago news shows have provided little coverage up until now; but at least one community—Chicago’s Uptown area—is forcing the issue. This video was shot by a frightened citizen during recent gang violence at Leland and Sheridan, a neighborhood in the process of gentrifying:  More …

June 23, 2009, iTulip

Why did the government take so long to comment? Why did government representatives say so little? Why were the perpetrators Japanese? Why did the Italian authorities let them go? Why has the mainstream media said so little about it? No secrets revealed!  More …

June 18, 2009, iTulip

What happened: In a time when public trust in government and media are at an all time low, conspiracy theories flourish, creating a broad platform for demagoguery. The recent story of the $134.5 billion in fake U.S. bonds is a case in point.

In News of the Weird: June 10, 2009 we were the first U.S. website to cover the case of the $134.5 billion in fake U.S. government bonds after one of our readers located the story on a German site. We posted the first video about it the same day, June 10. Other sites picked it up the next day and put various conspiracy spins to it. Since then the story has been picked up by hundreds of sites around the world. Conspiracy theories quickly took the limelight.  More …

June 2, 2009, iTulip

Back when we started talking up gold in August 2001 when the metal traded at $270, if we suggested that some day a large insurance company will buy hundreds of millions of dollars worth of gold to “hedge against further asset declines” we’d have been laughed off the Internet. And then…

Northwestern Mutual Makes First Gold Buy in 152 Years
June 1, 2009 (Bloomberg - Andrew Frye)

Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines. 

AntiSpin: Today, with this announcement, gold officially exited the Early Adopter stage of market development and entered the Early Majority stage.  More …

May 29, 2009, iTulip

Throwing new potential buyers into the maw of ARM resets and rising interest rates is a formula for a second housing disaster

We receive frequent reports that housing is “recovering” and hear anecdotal stories about potential home buyers looking to take advantage of “low” housing prices and the government’s tempting $8,00 HUD tax credit for new home buyers. Readers are reminded that government subsidy of the housing industry is what got us into this mess in the first place, and luring unsuspecting new buyers into a falling market will not correct the trust problem created by years of permissive lending.  More …

April 28, 2009, iTulip

Mexico City taking cover as deadly swine flu outbreak hits
Saturday, April 25, 2009 (The Dallas Morning News - By LAURENCE ILIF)

Mexico City Mayor Marcelo Ebrard said public and private mass events would be suspended in coming days but suggested that nightclubs or similar private businesses would not be affected.

“I’m asking the population to avoid contacts to the extent possible and activities with agglomerations of people. We are not going to suspend economic activities, but we are trying to avoid greater contacts,” he said at a news conference.

“What we have to do is avoid the propagation of the virus, its exponential growth, because it’s a new virus,” he said.

“The next 10 days will be strategic in order to win the battle.”

AntiSpin: The Mayor in his statement repeated that phrase “economic activities” at least six times in his one minute speech. In doing so he made his government’s priorities abundantly clear: public health risk be damned, tax revenue generating economic activities must go on.  More …

January 24, 2009, iTulip

Japan’s post bubble economy is held up by many economic commentators as a model of America’s deflationary future. Aside from major differences between the US and Japanese economies, the assertion that Japan has experienced a continuous deflation does not hold up to examination of the evidence.

Looking at the actual changes in the money supply, inflation, and economic growth after application of monetary and fiscal injections, rather than only whether CPI or GDP were positive in Japan, is key to understanding what happened in Japan over the past 18 years since the stock market and property bubbles collapsed there. In fact, the response of the economy to stimulus offers a far more relevant lesson for anyone looking to Japan for lessons on deflation and inflation.  More …

November 3, 2009, iTulip

ASPO-US Conference Denver 2009 Trip Report and analysis

In October I attended and was a speaker at the annual Association for the Study of Peak Oil and Gas in Denver, Colorado. Approximately 500 attendees watched 70 speakers present on the geology, economics, and politics of peak oil. In this two-part report I synthesize what I saw.

For readers who are not familiar with the theory, peak oil refers to the process of total world oil production reaching a peak and then declining on a global scale as occurred in net oil exporting countries, such as the U.S. until the 1970s, the UK until the year 2000, and Norway before 2001.

My own interest in the topic started in the early 1970s when I read the 1972 book on energy and resource limits, Limits to Growth. I majored in Natural Resource Studies at the University of Massachusetts in the early 1980s, and later graduated with a BS in Resource Economics. My first iTulip writing on the topic was Energy and Money in March 2006.

I presented at the ASPO conference on the outcome of inflation versus deflation debate, and participated in a panel on energy and the economy with author Kevin Phillips, Adam Robinson of RBS, and Dave Cohen of ASPO. My presentation is available to ASPO members and to iTulip Select members in Part II.

Before we discuss the controversial issues raised at the conference, we review and update the basics of the peak oil argument.  More …

October 26, 2009, iTulip

For the past ten years we could run ourselves ragged trying to counter the gold disinformation machine. For example, the lead story in the Markets section of today’s Wall Street Journal “Odd Couple: Stocks, Gold Share Same Ride Higher. �

Let’s look at the key assertions in this opening paragraph in the context of actual data, the price of gold and of the S&P over the past ten years since iTulip opened shop and we started buying gold. We also correlate the data with the political economy of the FIRE Economy that drives gold and stock prices.  More …

October 9, 2009, iTulip

“Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.”
“I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.” - Alice in Wonderland

For over ten years we’ve debated a dozen analysts who forecast an extended price deflation here in the U.S. They keep coming back, even though the deflation they repeatedly predict year after year never arrives.

When a new challenger joins the debate, we are Bill Murray in Groundhog Day. For them the day is new. Anything can happen. Maybe the U.S. economy will fall into a liquidity trap and deflation spiral, and goods and service prices will plummet as the purchasing power of our money surges. The idea appeals to those who want to believe impossible things.

We concluded a decade ago that governments can always make money worth less by printing it faster than we, its citizens, can increase its value by our industry. For us it’s the same day over and over again: crash after crash, yet no deflation spiral. Instead we see a slow, steady destruction of the purchasing power of our income and savings via currency depreciation–a gradual, perpetual, stealthy dollar debt default. We call this stealth default, hidden in plain sight, The Game.  More …

September 18, 2009, iTulip

When the people lose faith, they do not then believe in nothing. They believe in anything.

For a change of pace, today we present our two-part analysis as an interview of yours truly by an old friend of iTulip who has reported for several major news publications for more than 20 years. Our interviewer goes by the initials ND. If readers like the format, we’ll do it again.

ND: Where will the inflation show up?
EJ: It already has. It’s all around us in its all its nefarious forms. Most people thought that when the inflation started this year—the inflation that we forecast last year to start in the second half of this year—it would arrive with fanfare, with interest rates spiking up and double digit increases in food prices. Interest rates are rising gradually, as are some producer prices, but nothing dramatic. So far it’s a slow grinding away of purchasing power.

Inflation is the erosion of the purchasing power of income and savings. It can result from many causes. A decrease in supply of goods relative to demand or an increase in the supply of money relative to demand, to name two. This way of looking at inflation takes into account currency depreciation, productivity gains and losses, and the distribution of personal expenditures on domestic and imported goods and services. The inflation question is, What can your income and savings buy today compared to last year?  More …

September 11, 2009, iTulip

An eight-year-old bull market in gold has spawned more erroneous theories and timing calls along the way than you can count. We break it down to the Top Eight Myths and recount the consensus opinion on gold since the bull began in 2001.

Here are eight popular myths about gold that we have collected since 2001 when we put 15% of our portfolio into the yellow metal (with the iTulip counter-argument in parentheses):

A. Earns no interest. (Gold has out-performed stocks and bonds every year since 2001 in real terms.)

B. Performs poorly on the long term. (True, unless the currency is in long term decline due to structural economic imbalances and negative interest rates are maintained for extended periods to stimulate economic growth of the imbalanced economy.)  More …

August 30, 2009, iTulip

Pension fund shortfalls were problematic for most companies even before the financial and economic crisis. Low stock valuations and interest rates have increased the number of pension funds that are not 100% or better funded from 67.6% in FY 2008 to 92.7% in FY 2009 ending in June. The median funded level has fallen to a mere 46%.

By law, companies have to bring these funds up to 100%. Unless both stock prices and interest rates rise, they will have to make up shortfalls out of operating cash flow rather than of investing in growth, such as in hiring and capital expenditure.  More …