Episode-869- The Real State of the Economy – Right Where I Said it Would Be in 2009

Today the Dow is once again nearing all time highs, the spin machine tells us that unemployment is dropping and the economy is really picking up steam, Mike Gasior would call it a “wonderful fiction”.  So what do I think, I think we are right where I said we would be back in early 2009, on our way to the glorious false recovery.

Join Me Today as We Discuss…

  • A quick listen of some of my statements from 3-9-09
  • The unspoken reality of current silver and gold prices
    • The price of one share of the Dow in silver and gold
    • The price of a 150,000 dollar home in silver and gold
    • The value of a dollar in silver and gold
    • The value of four 1964 quarters
    • Buying a house with 2012 vs. 1964 quarters
  • More cities talk about bankruptcy like Stockton, CA and Providence, RI
  • What happens when “someone pulls the thread”
  • What will people do when the system fails
  • Does anybody win when the system fails
  • Is there a way out, does it hurt us even more if it happens

Resources for Today’s Show…

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48 Responses to Episode-869- The Real State of the Economy – Right Where I Said it Would Be in 2009

  1. Outstanding!

  2. If you look at it from the Gov’s side and do their math, all looks good, but in real life, It’s half way through a avalanche with nothing but the American people to stop it… We need to vote out the career political people and put in non-lawyers or anyone who has held office before….the first thing is the Constitution of the US it must be foremost in their minds and not to try and change it, to satisfy their own agenda, but that of the majority of voting Americans …

  3. @Jack,

    VITAL point made today regarding people who think that things will get better if the system(s) fail. EXACTLY.

    I’m glad you put that to words today, because that’s one thing that was running around my head after Chris’s interview. He talked about things falling to its lowest level of competency (in his case I think he was referring to state or local governments). I think there is SOME truth to that, and in fact, that would be very good in some ways, but in other ways I think it is fantasy.

    For that to happen the higher levels of (current) power would have to be willing to let it go. People in power don’t let it go. AND that power won’t evaporate overnight.

    The LEAST likely thing in my view is that those in power say “OH, I’ve seen the light–all these things we’ve been doing are harmful, so we’re going to do things right now.” I’d expect Aliens to come and cure cancer before that happen.

  4. Why is anyone willing to sell the gold, silver, and copper they have, to citizens like myself, instead of keeping it for themselves? Why do they want my Dollars if they’re soon to be worthless?

    • Modern Survival

      @Patsy Keim, you are assuming they keep all your money and never convert the profit into silver or gold for themselves. Why does anyone sell anything? They do so to make a profit. Also there is a difference in someone who…

      A. Sells gold, silver, copper or platinum or anything to a willing market

      vs.

      B. Says your money will soon be worthless so buy this now.

      That to me is the difference between Say Apmex.com who simply says here is what we sell, what do you want? VS. Say Goldline who runs ads using what I consider scare tactics about the stability of the currency.

      You in your comment above is decidedly short sighted because it lumps everyone in together.

  5. Cities and retirement plans. Do you mean most cities don’t have that money sitting in an account somewhere set aside for just that purpose?

    Most Texas cities put money into a site wide retirement system, TMRS, along with the employee’s contributions.

    However that doesn’t tell me whether that money is safe, whether the cities borrow against their own account, or what it is invested in. I understand how cities can reduce benefits, no raises, etc to save money.

    Understanding that it is best to save money in more than one place/form, but what would be the best way for anyone, whomever their employer, to understand how safe or shaky is their retirement plan?

    • Pension money is not sitting in an account. To meet the payout needs of a pension, pension trusts have to invest the funds money. This includes state pensions (CALPERS is the biggest). Pension funds plan on a certain return on their money, but of course its a ‘made up’ amount.

      Almost all pension money is invested in ‘paper assets’, typically stocks and bonds. Organizations at all levels ‘borrow’ from their pension funds (FedGov on down).

      So to answer your question. Pension money is not ‘safe’. Pensions are not ‘guaranteed’. And historically they’re one of the first piggy banks to be looted. They have the added disadvantage that they are based on dollars, so as the dollar declines, the value of the benefits provided by them declines.

      You can say ‘they have to meet there obligations and do x..’ but you can’t get blood from a stone. When there’s no money (or its valueless) there’s no money.

    • Depending on the pension fund, there are laws that limit the types of investments that can be entered into. So called ‘safe’ investments (AAA etc.)

      Unfortunately, one of the largest categories of ‘safe investments’ pension funds invested in was ‘Mortgage backed Securities’. Needless to say, that ain’t goin’ so well.

  6. The Geography of Government Benefits
    http://www.nytimes.com/interactive/2012/02/12/us/entitlement-map.html

    In case you’re wondering ‘how bad’ your county might get.. these are government numbers. and slightly old.. so you probably want to add a bit.

  7. traderspartan

    This “economic recovery” is nothing more than a public relations campaign. I think you are right Jack, we in the middle of the false recovery. Which is a good thing, if the collapse came in 2009, I’d be in a heap of trouble. I much more prepared than I was 3 years ago, but am also nowhere near where I would like to be.

    I think the plan is to draw baby boomers back into the market one last time before the crash it and take what is left of their savings.

  8. Even though the stock market is getting closer and closer to its all time high the market volume is down year over year. It appears that a buld of the trading is probably computer high frequency trading and big banks. Is Mom and Pop even in the market anymore other then their pensions which are traded on their behalf.

    http://www.zerohedge.com/news/nyse-volume-new-decade-low

    • bulk of the trading. Not buld.

    • traderspartan

      The market has gone up in a very tight range since the Long-term refinancing operations (LTROs) in Europe. This coincided with Federal Reserve currency swaps to Europe. In essence, the Federal Reserve printed money, “loaned” it to the European Central Banks, who then loaned it to their banks. WE bailed out Europe. The problem is, since the collateral for these swaps are European Bonds, the quality of the Federal Reserve’s balance sheet is further degraded.

    • yes, mom and pop are still in the market. I’m sure there are statistics that show how many people put money into 401K plans, or IRA’s every week because that is what they are told to do. Many of these are supposedly diversified (but not really) either bond mutual funds or equity funds. Or better yet they are invested into a target retirement date fund. Many of them sat on their investments through 2009 until now, which they are now thinking that the market moves a lot but it is still trending up overall. They believe there money will continue to grow in the market over time. I personally believe that the markets are no longer investment mechanisms but trading vehicles. What is the real value of company X? who knows undervalued vs. overvalued vs. What?

      • Someone must have been pulling money out of the market.

        From ZeroHedge:
        Retail Investors Pull $132 Billion From Domestic Equity Funds In 2011, 33 Of 34 Sequential Weeks Of Outflows

        http://www.zerohedge.com/news/retail-investors-pull-132-billion-domestic-equity-funds-2011-33-34-sequential-weeks-outflows

      • I don’t disagree, money did come out. I did accounting for mutual funds and saw it in the works. Redemptions were through the roof and the mutual funds were forced to sell shares of equities, but much of this was institutional selling. Not to mention ” fund of funds” Equity funds that purchase other funds, similar to 529′s. 20% of this may have been regular Joe but most wasn’t.

      • Hi Cooper,

        How much money did you see being shuffled in 401Ks from Equities to Treasuries?

      • I couldn’t say exactly, I did accounting only on a select few mutual funds. However, The subscriptions of the Large Bond mutual fund portfolios were growing like crazy. Side note, there are many different classes within a mutual fund, and what I was saying is that most of the activity was in the institutional classes. Which we then allocate down to the other classes, which reduces the total fund share.

      • I guess the question is since stock market volume is down 50% going back to a decade and 50% – 70% of the market is being traded by high frequency computer trading, who is driving the market up other then the Fed? It certainly is not going up on demand like it did with the Dotcom bubble. Back then everyone I knew was trading or investing in the market and there was no real high frequency trading going on back then. Now I hardly know anyone who is active in the market other then in their pension or maybe in their 401k.

        http://www.zerohedge.com/article/what-percentage-us-equity-trades-are-high-frequency-trades

      • I only put money into my 401K because it is a small portion of my net worth and monthly savings. If I am wrong on my gloomy predictions and the we end up in a world of Unicorns and Rainbows, I’ll be successful either way.

        I’m pretty sure I’m not wrong though. The USA isn’t behaving in a way that will allow us earn success and prosperity.

  9. Raymond "Shorty" Butler

    Great show today brother, but I fear we are going to have to repeat the past and fight for this country all over again. Those in power will not simply let go, in all honesty, as they believe that they are doing the right thing. We as a people have gone to sleep at the wheel and the car is crashing. Now we are left with a car in the ditch with limited resources to remove it. What do you do? Call a friend (or several) to help pull it out, call a wrecker or just leave the damn thing there? Then the cop comes by and the real trouble starts, you had a wreck, ticket, driving recklessly, ticket, fell asleep, ticket, … I know this sounds negative, but it is reality as I see it, but in boxing, when you get pushed into the ropes long enough you start to fight or the match is called. Here there is no ref, no timeout, no calling mommy here there are only the governments rules grinding us into the soil. At this point we can’t say that’s not fair cause no one on the opposing force cares bout your struggles cause they have their own. I am not about to listen to them tell me to settle down just so they can rob and rape me again and again and … They are not going to listen to me wine and cry bout the big bad government, because as they see it it is their job to do those things. I see little room to maneuver and no place to take cover, which leaves few options, just a matter of who is willing to take the first blow.

    Great day

    Shorty

  10. How do you do you think actions like this will affect the dollar?

    http://rt.com/politics/brics-medvedev-syria-aid-732/

  11. I know I will get called an “ass clown” for asking, but how is buying silver and gold different than buying realestate was a few years ago? I mean you were considered stupid if you did not buy realestate during the bubble – all it could do was go up. I am worried that gold and silver are in a bubble like realestate was. Could someone help me understand how and why they are different? Both gold/silver and realestate have intrinsic value.

    Thanks, Confused

    • Confusion is fine, no one expects/wants you to take an action without understanding the ‘why’.

      The short version (because there’s plenty of great videos online that go into better/more detail):

      Silver and gold are monetary instruments. They provide a means of exchange, a store of value, can be easily bought & sold (provide liquidity), are easy to transport and identify, are durable, hard to counterfeit and easy to store.

      What was most emphasized in this episode was that they are a ‘store of value’. So they can be used as long term ‘insurance’ against the inflation of the dollar.

      What you’ll find when you start watching videos online is that many people also have good arguments for why they will also prove to be good to fantastic investments over the long term.

    • traderspartan

      First off, at a minimum, you could consider an investment in gold or silver as an insurance policy if the economy implodes, or if this is a period of high inflation. You don’t buy fire insurance hoping your house burns down. Buy a little every month. I things go bad, just as with the rest of your preps, you’ll be glad you had some. If you never have to use it, its a good gift to leave to your grand kids.

      Secondly, I don’t agree with your comparison between the real estate bubble and precious metals. How many people do you know that even have 5% of their net worth in gold or silver? Most of what we are seeing with the “cash for gold” stores popping up is dumb money selling their gold. Much of this gold, once it is refined, is shipped to India or China.

    • RationalHusker

      Another key difference: the real estate bubble was fueled by debt and the fact that people that could not afford homes were buying them with credit. The best/safest way to use metals as “insurance” is not to use leverage, but by the physical and put it somewhere safe (how that’s done is another tough decision that is up to each individual).

      Also, homes, by nature, are consumable goods, not durable. They fall apart, need maintenance, require payment of property taxes solely for the “priviledge” of owning them, etc. Metals have none of those liabilities.

  12. Jack,

    Your predictions don’t scare me, but they are sobering.

    I’m so glad I took money out of the market.

    I still have skin in the game, but something JUST doesn’t feel right.

    I may cash out the bulk of my retirement in the near future. and put it into other things/investments. We shall see.

    Call it GUT instinct…but something just doesn’t seem right…

  13. Jack,
    Will hold you up to dancing naked on your roof if silver goes below $12/ounce. I really don’t want to see you do this but I will take your word for it.

    Great show!

    • I think the naked dance threshold was @ 6/oz. Youtube gold if it happens

      • I’m still attempting to get the mental image out of my head ;-) I was hauling a tandem axle load of fence posts when I heard that, and began laughing pretty hard endangering the lives of many Hoosiers!

      • See i am trying to better the odds of “Naked Jack on the Roof Dance”.

  14. Chris pointed out the other day that a 1/10 oz of silver denarius is believed by scholars to have been a Roman soldier’s daily pay.
    And a daily salary of a (1/10 oz of silver in a 1861 dime) has been true until 1900. I checked that a civil war soldier got .35 oz/day,
    which was a excent pay in 1861.
    If you take the annual salary of a Private in the Army of todat at 17,600 / 365 = $48 day.
    It would take the current $3.20 price of a 1/10 oz silver and multiply it by 15 to equal $48.
    They say the dollar has lost 93% of it’s value since the Fed was introduced in 1913.
    Now take $1 / 15 = .067 or 7% of a dollar. Kind of adds up, so maybe silver really is 32 * 15 = $480.

  15. I live like a hour and half outside Detroit and we get to watch every night on the news how Detroit city council uses racism in there meetings all the time.. They can use that language but dont let it be a white person talk like that..My wife gets mad at me because I am normally yelling at the tv with some of my own racial comments LOL.. Yeah there mad because because our governor is going to bring in a Emergency Manager to get them back on track good luck with that LOL, since the Governor is white, its the white man trying to take there city ughh.. Then you see all these citizens of Detroit show up bitching about any thing and every thing and I think to myself where were you when the last criminal of a mayor was in office they loved him, but now they have a black businessman in there trying to do the right thing and they hate him ughh.. I will never understand these people, take that back I do understand them but wont talk about it here, I cant wait for Detroit to go under, I guess I will get to watch the city burn kinda like the 60′s..

  16. I think Jack said he would do the dance on the roof if it hit $6.00 a ounce LOL I would do the dance to, good thing I bought my home stead in the woods because no one wants to see me do that eighter LOL Heating the house right now with wood and I think I threw to much on the fire 75deg in here wow its warm in here, got to go always enjoy the show jack..

  17. Jack, our Federal Budget came out here yesterday and the Old Age Security pension ages is going to be moved from 65 to 67 starting in 2023, so anyone younger than 51 will have to wait two more years.

  18. Great show Jack. In the podcast you talked about how the lies by the Central banks are holding it all together. One of the great lies over the past year has been that there has been huge demand for Treasuries. Unfortunately banks and foreign countries are no longer financing the US’s debt. According to a recent Opinion piece in the WSJ by Lawrence Goodman, a former treasury employee and Managing Director at BofA, the Federal Reserve purchased 61% of all Treasuries that were issued last year. “The Fed is in effect subsidizing U.S. government spending and borrowing via expansion of its balance sheet and massive purchases of Treasury bonds. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit. Similarly, the Fed is providing preferential credit to the U.S. government and covering a rapidly widening gap between Treasury’s need to borrow and a more limited willingness among market participants to supply Treasury with credit.” If you are a subscriber to the WSJ you can you read the full article here: http://online.wsj.com/article/SB10001424052702304450004577279754275393064.html

    • Modern Survival

      @David Clark, oh so they are printing money. LOL. God all you can do is laugh because the reality is so truly horrifying.

  19. I only listened up to the 1:59 mark and had to fully agree with your passion regarding the 2012 crap LMFAO…

    My only question, is will they have the next apocalypse doomsday event on the marketing docket before 12-22-12, or will they reveal it to us when we wake up that day and the earth is still here?

    Should there be a betting pool on what the next big end of the world scare and History Channel / Discovery Channel agenda will be post-2012?

    • Modern Survival

      @Adam not likely, just like Y2K they will have to wait to find something. Personally all then need is the US Debt clock though.

  20. Best episode to date!

  21. Jack, sorry to rain on your parade, but I had the exact phrase “If it’s too big to fail, then it’s too big to bail!” in my signature line at the Absolute Write Dot Com web site for over two years starting back in 2008. And I came up with that phrase myself.

  22. Awesome (and awful) explanation of the silver-DJIA correlation. Hadn’t thought of it and it blew my mind! Really scary to look at it that way. I had jumped back into the market with my IRA and thought I was doing ok…

  23. Pingback: Honest Money Revistited Primal Aspects | Primal Aspects

  24. TheMidwesterner

    @Modern Survival, your explanations of relative values would make a great video with some graphics. It seems like commodities like metals and oil reflect their true values relative to each other versus the dollar – as evidenced by the gallon of gas for a 1964 Quarter example. I wouldn’t be surprised if “industrial” metals also reflect this (Copper, Aluminum, etc.). What was stark for me was that while the DJIA shows being up about 10% over the last four years in Dollars, it’s down over half in Silver. Know any graphic artists/animators?