On June 28 last year, I wrote a post titled Important Battle at Four Dollar Copper. Shortly thereafter, copper surged half a buck but then dropped by one-third to $3. With global money-printing picking up and hopes that only a minor European recession and mild Chinese growth slowdown would let the party resume, copper rebounded- but stalled precisely at the $4/pound mark that I tagged last summer as the key price level. It is now heading south today (and recently) along with the main four precious metals. Deflation, anyone?
The lack of hyperinflation and ongoing reversal of deflation-resistant areas of the economy is well shown by a CNNMoney article out today titled Colleges slashing tuition, offering 3-year degrees. Here is the lede:
A growing number of colleges are taking extreme measures to attract more students by cutting tuition or speeding up the rate at which they graduate.
While some private colleges are introducing double-digit percentage cuts in tuition or freezing prices altogether, other schools are offering three-year degree programs or four-year graduation guarantees.
In part, these schools are responding to consumers’ concerns about the rising cost of college, said Tony Pals, spokesman for the National Association of Independent Colleges and Universities. “These types of initiatives have been used to some degree in the past, but have become increasingly prevalent since the economic downturn — and we expect to continue to see them spread,” he said.
This is consistent with the future that was envisioned by Reinhart and Rogoff in their 2009 book This Time Is Different. Their forecast at that time for the next few years looks prescient. They projected the “biflation” that the U.S. has experienced despite the massive ongoing Federal deficits that they said should be expected based on the history of other banking-economic collapses; said biflation involving falling housing prices despite ongoing inflation as a policy measure to escape the crisis.
The market action the past several days supports the ECRI view of a looming U.S. recession, or something close to it. Gold has sold off toward the $1600 level that was resistance last summer. The 30-year Treasury yield backed right back up to the 3.5% level that was the key support level coming out of the bond bull market in early 2009 and again in late 2010. Then in 2011, that level was resistance (peak of rates). If it again is successful as a resistance level, I would take that action as supporting the Japanese hypothesis that I and many others have written so much about.
Reinhart and Rogoff analyzed the history of financial crises. By their objective criteria, the Great, Global Financial Crisis of 2008-9 was the worst since the Great Depression. I have more than once noted that the degree of bank insolvency in the recent crash far exceeded that seen in the U.S. in that Crash and Depression. Given all that and the immense leverage in today’s financial markets, it simply is no surprise to see ongoing price-deflationary pressures despite unprecedented action from the central banks of developed countries.
There are always winners and losers in business and the economy. At various times in the post-2008 cycle, gold and Treasurys have moved together, at other times separately. The only time in the past ten years when Treasurys have been truly strong in price when gold has been in a major bear move was in the second half of 2008, when deflation reared its head as a mild recession turned vicious. Given the structure of the gold and interest rate charts, if the 2012 recession calls for the U.S. prove correct, even if the recession proves mild, we easily could see a reprise of that scenario.
One reason for the above comment is how non-mainstream these recession calls are. Dr. Achuthan of ECRI responded to an interview question a few months ago about the historical accuracy of ECRI’s recession-recovery calls. He claimed it was running 85% accurate. OTOH, the money manager Doug Kass, writing Monday for the Street.com, lowered his 2012 recession risk from 5% to zero.
Given this fundamental divergence of views on the course of U.S. economic activity in the months ahead, even what might prove to be a mild recession may have just as extreme reaction in the financial markets as did the mild 2001 recession. Right now I’m watching to see if $4 copper and 3.5% on the long bond mark the tops. If so, I give ECRI’s and Jeff Harding’s 2012 recession calls lots of respect and in fact have taken the recent bond market sell-off to take some trading profits in the stock market and have moved more toward income vehicles.
Brilliant though Doug Kass clearly is, anyone who in March can confidently say there is no chance of recession for the entire calendar year has a degree of confidence in his forecasting abilities that far exceeds mine in anyone’s, including and especially my own.
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The bankers used predatory lending on college students to the tune of almost $1 Trillion Dollars, but now they have run out of greater fools, so it’s time to change the game again in order to keep the Ponzi going till the last nickel from the American Treasury is gone. I can’t wait to see what comes next.
Could you describe the type of “PREDATORY lending” these Talibans were subject to?
[...] ECONOMY/WORLD/HOUSING/BANKING Jobless claims fall 5,000 to 348,000 – MarketWatch More Deflation Pressures Seen – Daily Capitalist ROSENBERG: ‘Over 40% Of Job Growth Was Weather-Related’ [...]
I don’t bother with anything from the BLS because it’s all fairydust and ruby-red-slipper-clicking in order to make the sheeple double down with more debt so that the bankers can steal the last nickel from the American Treasury. Let me guess that last week’s number was revised higher, as is the usual procedure?
The BLS and the Bankers colluding together, that is a new conspiratorial twist (or was it Operation Twisted Sisters)…
We have inflation in things we must have to survive, and deflation in everything else we formally wanted. These conditions are ongoing since 2007 and will continue for the duration of this bubble. The FED is merely filling in holes in the dam with it’s money printing.
Hey Tim, are you still on the inflation bandwagon, or have you come to your senses?
Home Prices Miss Large On 9th Consecutive Downward Revision
http://www.zerohedge.com/news/home-prices-miss-large-9th-consecutive-downward-revision
This comes from MyBudget360, and ties in nicely with your post. Sounds like more deflation ahead when nearly half say, “screw it”.
A costly lesson in student debt for young Americans – 34 percent of all student debt saddled to those under the age of 30. 47 percent of student loan borrowers appear to be in deferral or forbearance.
http://www.mybudget360.com/costly-lesson-student-debt-young-americans-student-debt-loans-make-up-third-loans-student-debt-defaults/
No Country: Quite a statistic!
Hans, absolutley. You are 18 years old, and everyone says you must have a college education to get ahead so as to live the glorious American Dream. You don’t have the capital to go to college because those costs have run at or near double digit increases for many years because of the student loan racket. Not to worry because the govt. and their masters the bankers are there to help you out. Borrow what you like for damn near anything you want. This college stuff is great until you graduate, and the job that you thought you would get, and they said would be there, is no where to be found. Now you have tens of thousands of dollars in student loans that must be repaid, and can’t be discharged in bankruptcy.
As a backdrop to this, we have lenders and the govt. desperate to show an increase in consumer credit by hook or by crook, pun intended, and these young mush mellons fit the bill nicely. Nevermind that the bankers and govt. know that these loans can never be repaid and that the bankers and govt. have completely done away with any kind of fiduciary duty to shareholders, depositors and taxpayers. I have more, but hope this answers the question of predatory lending.
Hans, the question I have is what the Hell is going on with the 10 year note when the PDs are loaded to the gills with more paper bought in 2 months than in all of 2011. Add to this Operation TWIST which is still ongoing, and I smell trouble in Bond Land. The 10 moving up in yield by 15% in less than 10 trading days is flashing a big fat red warning light to all markets.
DoctorX, I thought so as well, but I’m not really surprised, as I have been following student loans closely as it seems to be the mechanism to increase credit while everything else deteriorates. You know they are at the bottom of the barrel when they go after kids coming out of high school in order to expand credit. My question is what’s next, as this bubble seems ready to implode based on the link I provided? What’s left that is unencumbered except 401Ks and other retirement vehicles?
Hans, the BLS and other alphabet soup agencies are owned by the bankers. The last 5 years proves this beyond a shadow of a doubt. Where is a modern day Pecora Commission to throw the thieves in jail?
The answer is that there will never be a Pecora Commission, as Both political partys are nothing more than perfectly legal crime syndicates that receive tribute from those they protect. I wonder why Goldman Sucks and JP Morgue are both big contributors to El Presidente’?
Hans, this is just for you. Two charts to show how predatory lending destroys a productive economy.
Guest Post: The One Chart That Says It All
http://www.zerohedge.com/news/guest-post-one-chart-says-it-all
I call the second one, “the slope of doom”, and it’s from Market Ticker. Pay particular attention to the degree of slope together with each time period for each degree of slope. Notice anything special?
Pardon for not posting the link to the second chart.
http://market-ticker.denninger.net/akcs-www?get_gallerynr=2772
Hans, why should the BLS be any different than the SEC or the CFTC who are too busy watching porn on our dime to do any real work for taxpayers? I wonder how the statisticians did things as The Roman Empire collapsed? Nothing new under this Sun, as the Good Book says. Just an observation with no conspiracy involved, but rather just cold hard reality.
Talking about conspiracies has me thinking of why clients of MF Global will at best get $0.915 on the dollar when the CME should of stepped in to make the clients of MF (what I could do with those initials) whole, as they are supposed to have a fund for such calamities. Maybe that has been rehypothecated as well? Calling CFTC…calling CFTC…come in. Oh never mind, as they are glued to the newest porn of 2012.
And things were going so swimmingly:
“Eurozone Slides Back Into Recession” Says Markit PMI News Release; Sharp Decline in German Export Business; Misguided Decoupling Theories
http://globaleconomicanalysis.blogspot.com/2012/03/eurozone-slides-back-into-recession.html
Well now, I just mentioned MF (what I could do with those initials), and Jesse’s Cafe’ just threw up an article on what amounts to intitutionalized criminality (my words, and not his).
Did the SEC Facilitate the Fraud at MF Global?
http://jessescrossroadscafe.blogspot.com/
AHHH Yes! Why don’t College Graduates have job opportunities that would enable them to pay for their studend loans?
Could it be that we have a President that is too busy dismantling America to create his Socialistic Utopia out of whatever may be left of America after he is finished.
I feel deeply for Graduating Students. My parents could not afford to for college. But I was able to find a full time job working nights that let me take classes during the day. I could pay for tuition, fees and books if I only took 2-3 classes a semester. Took me 61/2 years to get my degree.
Bob
We hit the magic number, so what’s our prize?
Student loan debt tops $1 trillion
March 22nd, 2012
http://online.wsj.com/article/SB10001424052702303812904577295930047604846.html?mod=googlenews_wsj
You get to cry some more.
Bob, the sad truth is that the bankers and govt. have inflated the price of a college education through their lending racket to the point where these kids will be on the credit wheel for the rest of their lives.
Is this really what we want for our children? We are allowing and even encouraging our children to take on debt that will weigh on their lives like a 500 lb. ball and chain.