Foreclosures Still Rising, A Huge Bet on Gold, An Alternative Look at Jobs and More!

by Addison Wiggin & Ian Mathias

  • Foreclosures ramp up… which states have it worst, and how one state seems to have dodged the recession entirely
  • Jim Nelson with a place to hide when the stock rally runs out of steam
  • Gold fails to hold onto $1,000… but major gold producer makes huge bet on higher prices
  • Plus, Rob Parenteau with a little-known employment measure… and a 2010 jobs forecast


  Just in case you had any doubts, the U.S. foreclosure crisis is still alive and kicking. 358,471 American households recorded a foreclosure related filing in August, RealtyTrac proclaimed this week. That’s down just a smidge from July’s record high, but still up 18% year over year.

In other words, one in every 357 U.S. homes was in some stage of foreclosure last month. Ouch.

The usual suspects led the way… one in every 61 units in Nevada are in foreclosure, the highest ratio of any state. One in 137 Florida homes suffered the same fate. California, while still an absolute mess (one in 144 units in foreclosure), actually registered fewer foreclosure filings last month than in August 2008 — the first year-over-year decline there since the housing bubble popped. (With 92,326 foreclosure filings in August alone, by far the most of any state, we wonder if California’s data perked up simply because they are running out of houses to foreclose on.)

So how does your state rank? Behold, RealtyTrac’s nifty foreclosure rate heat map:

Did someone forget to tell North Dakota about this whole generational crisis? In the entire state, there were just 33 foreclosure properties in August. That’s a ratio of 1 to 9,410. They’ve got an unemployment rate of 4.2% — less then half the official national rate and the lowest of any state. As Chris Mayer’s readers know, the Bakken Formation has suddenly gifted them with 3-4 billion barrels of oil. They are mostly Wall Street-free and very land rich. And the state government has a $1 billion budget surplus! Budget surplus, in America!

Prevailing wisdom has those fiercely independent Texans pegged as the first state to attempt secession. We doubt North Dakota has the will to beat them to it… but with numbers like those, we wouldn’t fault them for trying.

  The U.S. national trade deficit jumped to $32 billion in July, the highest level in six months. That’s a 16.3% rise from June, the Commerce Department reports today, the biggest monthly percentage gain in over a decade. We’re on track for an annual trade deficit of around $355 billion.

The Associated Press assures us this is “evidence that the most severe recession since World War II was beginning to lose its grip on the global economy.” Heh… guess accelerating debt consumption is still a welcome sign of growth.

A 21.5% spike in auto and auto parts imports led the way, thanks to the “cash for clunkers” buildup.

  But the market rally rages on. The S&P 500 rose 0.8% yesterday. Buying seemed to be tempered only by the latest from the Federal Reserve, whose “cautiously optimistic” Beige Book outlook was not rosy enough for eager buyers.

The S&P is up 1.7% for the week, 14% for the year.

  If you’re looking for a place to hide out when the rally ends, think cheap knockoffs, says our income analyst Jim Nelson.

“As the market tanked last fall, only a small handful of companies were able to stay afloat. We know that companies like McDonald’s Corp. had a successful year. It ended the year up about 2.6%, while increasing its dividend during the fourth quarter. As more consumers watched their cash, ‘Mickey D’s’’ Dollar Menu started looking better and better.

“Bargain retail chains like Family Dollar Stores and Dollar Tree performed even better. From the beginning of 2008, Family Dollar is up roughly 70%, and Dollar Tree has more than doubled.

“These companies were able to do this by selling knockoff products at significantly discounted prices. This month, I told Lifetime Income Report readers to buy shares in the McDonald’s and Family Dollar of the tobacco industry. This dividend-yielding company has significant market shares all around the world, especially in the economy and value segments, and is the top player in booming regions like the Middle East and Africa.”

For the ticker, and a whole slew of dividend-yielding, solid long-term investments, be sure to check out Jim’s Lifetime Income Report.

  In spite of stocks moving higher, the dollar has managed to arrest its fall — for now, anyway. The dollar index is hovering around 77, a few tenths of a point higher than yesterday’s 2009 low.

  So higher stocks and a more stable dollar have put the kibosh on $1,000 gold. Once again, getting through that four-digit mark was easy, but gold has never been able to hang out there for long. The yellow metal is still holding tough at $990 as we write.

  Barrick Gold, the world’s largest pure-play gold miner, is about to make a very big bet on gold prices going higher. The company announced this week it will raise as much as $4 billion in a stock issuance and use the proceeds to pay off its gold hedges. In other words, Barrick is willing to give their shareholders the short-term shaft in order to rid themselves of all bets against gold.

“It’s nothing but bullish for gold,” says our resident mining watchdog, Byron King. Barrick evidently believes that the future price of gold is heading up. So Barrick wants to eliminate the drag of lower-priced hedges, presently covering 9.5 million ounces of future output.

“The math works out to about $370 per ounce, hedged. Barrick must think that it’ll make it all back in the future, out of higher gold prices — $1,350 per ounce and more.

“The other side of this golden coin is that Barrick still has to buy smaller mines and miners with which to replace its annual gold output of about 8 million ounces. There’s no way that Barrick can ‘discover’ this quantity of gold every year, using its own, decimated in-house geological and engineering talent.

“In other words, Barrick has to drill for gold on Wall Street and other stock exchanges of the world.


“I have nine suitable candidates for Barrick takeouts in the Energy & Scarcity Investor portfolio. And if Barrick doesn’t buy one or more of these guys, well… they’re all good companies going forward, digging and selling gold.”

For access to the ESI portfolio – and Byron’s latest special report – click here.

  The oil trade is seeing plenty of action today, thanks to various global cartels. The International Energy Agency has the bullish case — they bumped their 2010 forecast for global demand up by half a million barrels per day. OPEC took a neutral route, leaving production unchanged at their latest gathering. And the Fed (the world’s greatest currency cartel) helped the sellers with their cautious Beige Book. Toss all that — and a rising stock market — into the trading pits and $72 barrels get spit back out.

  Last, we note the U.S. jobs scene improved a tiny bit today. 550,000 Americans filed for jobless benefits last week, down 26,000 from the week before and much better than Wall Street anticipated.

Still, 6.1 million people are currently collecting unemployment, almost double the count this time last year.

“One of the more useful, but often ignored, parts of the employment report,” writes our macro sage Rob Parenteau, “tells us about the percent of private industries that are net offering jobs. Even when payrolls are shrinking in total, some industries are still net hiring — and, indeed, this is part of how markets facilitate the reallocation of productive resources during a recession, which, as the Austrian approach reminds us, is crucial to long term-growth prospects.

“This measure is called a diffusion index, and we prefer to look at the average in this series over the past three months to avoid too many miscues.

“As it stands, the breadth of private industries net hiring, though still at a lower level than the last recession, has consistently climbed from the March lows. The pace of broadening is even a bit stronger than what we observed in the last exit from a recession, which, as you may recall, was followed by a jobless recovery. If the slower pace of layoffs is all a sugar high from extreme policy measures, or if a double dip is about to open up before investor eyes, this is one of the places it should show up first.

“So far, this diffusion index is more consistent with an unemployment rate that peaks near year-end around 10% and begins to show some improvement in Q1 2010. We would also note while survey results still report perceptions of a very difficult job market, these measures have stabilized in recent months.”

  “For the two readers who said that they’re waiting for a gold correction to gobble up more,” a reader writes, “I think they’re both missing an important point. I too fully expect a significant drop in gold (and most commodities, for that matter) in the wake of a stock market sell-off and a temporary restrengthening of the dollar.

“But I added to my physical stash not long ago with gold at $930 and silver at $13. The reason? Given the unrelenting stream of truly horrific structural fundamentals that are highlighted daily in these pages, and if history is any guide, the next leg down in the stock market may well be a whopper that triggers a chain reaction of instabilities and gyrations in other markets, with chaotic and unpredictable results, possibly even in the ability to conduct certain transactions. ‘Helicopter’ Ben’s refusal to disclose the banks who received lending aid is prima facie evidence that a possible run on the banks has him shakin’ in his boots.

“Far, far beyond the investment value of owning physical gold and silver is the security and insurance policy that it provides during uncertain times. Balking at $1,000 gold may seem an embarrassing move in the gyrations ahead. My metals dealer apprises me of the slowdowns and delays at the U.S. and Canadian mints. It may not be so easy to get when you most need it and everyone wants it at the same time.”


Ian Mathias

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