States’ Day of Reckoning, A Sign of Life for Housing, Gold Buy Signal, The Great Depression II and More!

by Addison Wiggin & Ian Mathias

  • A day of reckoning… on eve of fiscal new year, states scramble to fill record budget gaps
  • Have we dodged a Greater Depression? Chris Mayer with a compelling chart
  • U.S. housing shows signs of life… a turn in the charts, and The 5’s caveat
  • Should you buy gold today? Jeff Clark presents a historic signal


  Today, June 30, 2009… another financial reckoning day.

Midnight tonight marks the end of fiscal 2009 for 46 states in the U.S, and various state constitutions require 45 of ’em to have a final budget by tomorrow morning.

Thus, 10 states are facing a true blue crisis — California, Connecticut, Pennsylvania, North Carolina, Delaware, Illinois, Ohio, Indiana, Mississippi and Arizona do not have budgets in hand on the eve of the new fiscal year.

Of those 10, California and Arizona are looking particularly dire. Arizona faces a $3 billion budget shortfall, or around 30% of its annual budget. California needs to fill a whopping $24 billion gap, roughly 26% of its annual tab. Gov. Schwarzenegger says without a budget, he’ll be forced to start writing IOUs tomorrow to the state’s creditors… scary stuff. Once one of the richest states, California now has the worst credit rating of them all.

  “Whenever I talk about the Great Depression and compare it with what is going on today,” says Chris Mayer, “I get a lot of skepticism. I hear a lot of people say, definitively, ‘This isn’t as bad as the Great Depression.’

“What you have to remember, though, is the Great Depression unfolded like a train wreck in slow motion. It took awhile before it became the Great Depression. It wasn’t like someone flipped a switch and poof! — bread lines, Hoovervilles and hobos.

“Another point to remember is that the Great Depression was a global economic event. It wasn’t just confined to the U.S. You have a take a wide-angle view of the global economy to get a better sense of the breadth of the slump. And so it is today.

“Take a look at this chart, from economists Barry Eichengreen and Kevin O’Rourke. In terms of industrial output, we’re tracking the Great Depression’s path pretty closely.

That’s just one of several charts Chris recently shared with his readers. Unfortunately, we have neither the time nor space to run them all.

But for just $1, you could have Chris’ best advice for one month. We’ve been dishing out $1 one-month trials for Mayer’s Special Situations for the last 30 days, and at midnight tonight, we’re taking the offer off the table. If you’re even the slightest bit interested, it might be a long time before you get an offer on MSS this sweet… check out our $1 trial, here.

  Geesh… even the Queen is running out of money!

According to a report today from Sir Alan Reid, “Keeper of the Privy Purse” for Queen Elizabeth, her majesty will run out of reserve funds by 2012 — her 60th year as Britain’s monarch.

Keeping Britain’s monarchy afloat cost the Queen (in reality, British taxpayers) $69 million in the fiscal year ending in March. That’s a $2.5 million bump from last year. What’s more, new expenses and decreased income “forced” the Queen to pull $10 million from her reserve fund. Should the status quo remain, that well will run dry in less than three years.

  The U.K. economy shrank 2.4% in the first quarter, its worst showing in 50 years. Like the U.S., the British government finalized its first-quarter GDP this week. But unlike the States, Great Britain revised its numbers down, to the worst quarter since 1958. Year over year, the U.K. economy shrank 4.9%. That’s the worst contraction since at least 1948, when British bean counters started keeping track.

  Back in America, a cause for celebration, albeit a very subdued one: The U.S. housing market has finally stopped accelerating into the abyss. Check out the latest from Case-Shiller:

Both home price indexes delivered an annual return of negative 18% in April, S&P and Case-Shiller report today. While that’s still a lousy number, it marks the third month in a row of flat-to-rising annual rates of return… neither the 10- or 20-city index has set an yearly record decline since January.

We hasten to note that home prices are still falling — S&P/Case-Shiller say home prices are down roughly 33% from their 2006 peak. But at least “the pace of decline has moderated,” as S&P likes to say.

“Every metro area, except for Charlotte, recorded an improvement in monthly returns over March,” adds David Blitzer of S&P. “While one month’s data cannot determine if a turnaround has begun, it seems that some stabilization may be appearing in some of the regions. We are entering the seasonally strong period in the housing market, so it will take some time to determine if a recovery is really here.

“The stock market bottomed in March and measures of consumer confidence have turned upward. This report shows that these better spirits are also appearing in the housing market.”

Funny Mr. Blitzer should mention consumer sentiment. The Conference Board’s measure of consumer confidence unexpectedly fell in June, the group reports today. Their index of consumer vibes slipped to 49.3, from a downwardly revised 54.8 in May… the Street was expecting a slight increase to 55. That’s the first fall in consumer confidence since April.

  Stocks advanced about 1% yesterday. While we’ve seen some big moves up and down over the last week, trading is range bound and volume is pretty light heading into the three-day weekend. In fact, for all of June, the S&P 500 has registered a measly 0.05% loss.

  Heh, feel like watching a fight? Then head over to AIG’s HQ for their annual shareholder meeting today. We suspect there might be an unhappy investor or two in attendance.

  The dollar index remains in a tight range. Yesterday it dwelled just below 80. Today, thanks to perverse market reasoning, the dollar index is up to 80.1… falling consumer confidence would suggest coming consumer withdrawal, thus the value of cash inches up.

“Dollar action is still the key driver for commodities,” writes our resource trader Alan Knuckman. “After a modest rise in the past two weeks, the dollar index has moved below 80 once again. A test of the December lows at 78 can lead to a BIG BREAK to last summer’s lows of 72. Rates are not going up anytime soon, and the dollar is still heavy, with continued new Treasury issuance scheduled to finance government projects and spending.

“This all bodes well for commodities, which, for the most part, are priced in U.S. dollars.

“Dollar goes down, commodities go up and energy prices will lead the way higher. Not to a destructively high price that chokes economic recovery, but to levels that send energy stocks on a bullish move and support the stock indexes with increases in their share prices.”

  Oil’s down two bucks today, back to $69 a barrel.

  If history is your guide, you might want to buy some gold today — this last day of June.

“In our current eight-year bull market,” writes Jeff Clark for Casey Research. “June has seen the lowest return for gold. In other words, it’s been, on average, one of the best times to buy.

“However, keep in mind that these are price tendencies, and not certainties. There were Junes when gold was up. Meaning, avoid using this chart for trading purposes or in anticipation of an immediate gain. Instead, use it to prepare for possible gold price weakness ahead. And if the weakness shows up, treat it as a buying opportunity and add to your holdings to position yourself for the next leg up in the bull market. Consider that this summer could be the last chance to buy gold for three figures.

“Don’t lose sight of where we are at this point in the recession — in an intermission in the bad economic news. When it becomes apparent that the good ole days aren’t coming back, sentiment — and markets — could move rapidly. And gold is one of the best forms of capital that can protect you in a financial Armageddon. That gold was up in 2008 is a reminder of its protective power.

“How much gold should you have? Continue to accumulate physical gold until you can honestly say you don’t care how many dollars Ben Bernanke prints.”

You can view Jeff’s full thoughts on the matter here. For our take, check out Byron King’s latest special report, Set for Life: Eight Keys to Getting “Miserable Rich” With Gold. He mentions some thinly traded stocks in this report, so we can only distribute so many copies… get yours before our virtual shelves are empty.

  Last today, a sign of the times: McDonald’s announced this morning its expansion in India. The world’s largest restaurateur has evidently dabbled in India with great success. Citing India’s rapidly growing middle class, McDonald’s now plans to add 25% more burger shacks. We’re especially impressed, since 70% of the world’s vegetarians live there.

  “I have at least a partial explanation for the numerous bank failures in my state,” writes a reader from Georgia, the state with the highest number of bank failures this year.

“For many years, Georgia had a law prohibiting a bank from opening a branch in an adjacent county. Hence, many small banks sprang up in every county and town in the state. The law no longer exists, and for decades, the rather tiny banks chugged along, but no more! They got caught up in the credit crisis, and defaults also, and thus are failing in large numbers. I would expect at least a few more. I don’t really know about the Atlanta housing market — things are not too bad here in Evans, Ga.”

  “I live outside Atlanta,” writes another. “From my understanding there are two main reasons why Georgia banks have failed in higher numbers.


“1) From my understanding, the banking/mortgage regulations in Georgia are very lenient in comparison to other states. I’ve heard it referred to as the ‘Wild West’


“2) Metro Atlanta was a huge spec home market and the builder/developer bankruptcies took the small banks down with them.”

The 5: We love those frontline perspectives. Thanks.

  “Your forecast yesterday made my jaw drop,” another reader writes, “with your comment about the Madoff victims… implying they were ‘fools’ with ‘sob stories.’

“That sort of commentary is not only sickening, but inaccurate. The people who trusted Madoff may not have been financial experts in their own right, but that hardly makes them fools. They were lied to, deceived, misled. Hundreds of people at all levels were fleeced, and none of them deserved it, and the fact that you weren’t among them makes you in no way superior. Show some compassion for very real people who lost everything.”

  “Wow, so it’s the victims’ faults in the Madoff rip-off!?” shouts another. “And every investor out there who has all those eggs in one basket (account) are ripe for the picking? Must be nice to sit on your high horse and wiggle your finger at all those who lost everything.”

The 5: Madoff victims have our pity. We take no pleasure in their demise. And it’s been a long time since we’ve ridden any kind of horse, let alone a tall one.

But sorry, we aren’t budging on this one.

“We cannot ensure success, but we can deserve it,” John Adams once wrote. That’s a theme tossed around our offices quite a bit, and the inverse is just as true.

Thanks for reading,

Ian Mathias

The 5 Min. Forecast

P.S. We say again — this is your last chance to pick up a $1 trial month of Mayer’s Special Situations. At midnight tonight, the deal’s off. Really, it’s just a dollar for a month of Chris Mayer’s advice… why not give it a shot?


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More