Globalization – Get With the Program

REVENUE BREAKDOWN – Obama’s Spending Spree

by Stephen Wellman
September 5, 2009

 

This is for the week of August 31, 2009. As an American, do you know where your DEBT is? If not, then click HERE …

The most common mistake people make when they give up their power is to believe they have none … And with that I offer the next link about our current government. What sort of government is running America now? HERE are some clues …

US TREASURY DAILY STATEMENT

We are now coming into the final stretch for FY 2009. This is the last month in the fiscal year. In October FY 2010 will start. As you may know FY 2009 was a transitional year where part of FY 2009 was on the Bush tab, from October to January 20^th was Bush, but from then on it was all Obama. We now 25 calendar days left in FY 2009 as of today, September 5^th.

The total Presidential campaign promises made by Obama is 516. Out of that 516 he has kept a total of 41. Go HERE if you want to see the list and look at the promises he has kept and the ones he has not kept. According to my calculations Obama was telling the truth 8% of the time during his campaign for President while “misrepresenting” or “distorting” the truth 92% of the time. This proves that politicians are experts at only one thing … “getting elected”! If they tell us what we want to hear then they will get elected.

Okay onto the report … This week has been HUGE for spending and US DEBT. I have a feeling each week we get closer to the end of FY 2009 we will see more and more spending.

August 28, 2009 – The US Treasury’s annual cash flow is short $160.9BIL USD today! No worries, like Mises say, “No nation need fear not having enough money.”

So on that note the US Treasury issued another $180BIL USD of “non-marketable” securities known as Government Account Series. They crossed the $41TRIL mark.

August 31, 2009 – The US PUBLIC DEBT took a turn for the worse and jumped up another $95BIL USD in one day, closing at $11.755TRIL USD.

Interesting that the gross US PUBLIC DEBT is now at $11.812TRIL USD, but certain parts of the PUBLIC DEBT is exempt from the Statutory Debt Limit. Here is one of those line items entitled “Federal Financing Bank” (FFB). What is that you may ask? Well, HERE it is. My first thought when I saw this link was, “Who needs the US FED then?” Why use a “middleman” for loans? The FFB is open for business and is already making loans.

Look whose loans they guarantee like the FDIC … National Credit Unions Administration which is the credit union version of the FDIC. So there is $18.6BIL USD worth of US government guaranteed loans at the National Credit Union Administration. Looks as if there are guaranteed loans for the Postal Service as well, close to $6BIL USD worth.

HERE is the latest financials for August 2009 …

Also look at the long list of guaranteed loans out to US Utility companies and look at the interest rates and maturities listed. On average the rates on these loans run from 2.5% to 4.5%, but the maturity dates on these loans run out to year 2043.

FFB August 2009

Program July 31, 2009 June 30, 2009 10/01/09-7/31/09 10/01/08- 7/31/09

Agency Debt

U.S. Postal Service $5,916.7 $6,367.1 -$450.4 -$1,283.3

Nat’l Credit Union Adm. $18,559.1 $18,563.3 -$4.2 $17,449.9

September 1, 2009 – Holy Cow, some $14.5BIL USD spent on Medicare today! That’s a lot! Just look at the list of other entitlement spending today, its huge!

It is very rare that I see the line item “Supplemental Security Income Benefits” but here it is today to the tune of $2.4BIL USD. The total for FY 2009 is nearly $30BIL.

Those line items listed with (EFT) are the Trust Funds that the Government Account Series securities refer to. Not all but quite a number of them and to have them all appear on one day as line items is rare.

Look there Unemployment Benefits, another $818MIL USD spent today.

September 2, 2009 – Well the big number today is at the Defense Vendors, worth just over $2BIL USD, usually this line item, runs at $1.5BIL per day, so I notice when it is higher, rarely is it ever lower.

There is more for Unemployment Benefits, another $673MIL USD today.

Looks like more US taxpayer funds are going to shore up the FDIC, every day now, some $99MIL today! Banks are failing every week.

September 3, 2009 – WOW … huge for Social Security benefits. The US Treasury spent $22.2BIL USD in one day for the disabled and retirees.

If you add in Medicare and Medicaid the total for all three line items is $25.12BIL USD! In gold terms the US Treasury could have bought over 25.1million ounces. Now as of Friday, September 4^th the total COMEX gold ounce dealer and customer inventory sat at 9.17 million ounces, so what the US Treasury spent on Social Security and Medicare on Thursday alone could have bought all the gold at the COMEX 2.7 times over. Maybe the US Treasury should ask Social Security recipients if they would prefer gold over their paper checks.

See those numbers on the far right? Those numbers are the total for FY 2009 up to September 3^rd. Let’s add those up and see where we are with the major entitlements. I get a total of $1.223TRIL USD … That’s “T” for TRILLION! The Obama Economic team and the CBO are thinking healthcare will cost $1TRIL. I think that is a low ball number. Remember, this is the US government, since when have they ever been right about costs? They always “lowball” number so that they can sell their agendas to the public. I worked for 20 years in Public Works construction projects and none of these government projects ever came in on time and under budget. They were always extended due to “unforeseen” changes … So if they cannot estimate a $20MIL Public Works Project then what makes them think they can estimate a $1TRIL project accurately, especially one tied to the whims of “sick people” … HA … I’ll bet you thought I was talking about hospital patients, nah, I meant the US Congress!

Alright let’s take a look at where we stand with the two mystery line items entitled “Other” and “Unclassified”. Here they are and it look like they are growing …

The total for FY 2009 now sits at $2.169TRIL USD. Now let me remind newcomers here that there is an “Other” detail, showing a breakdown of costs, but I have never been able to get the two totals to add up for one single day. Here it is for September 3^rd …

Totals	539	1138	110,934

Now look up at the “Total Other Withdrawals”. According to today’s withdrawals for the day the US Treasury spent $1.938BIL but the breakdown detail only shows $539MIL USD spent, where’s the missing $1.399BIL? For the month the total is $23.978BIL USD but the detail breakdown only reports a total of $1.138BIL, where’s the missing $22.840BIL? Then the yearly total is reported at $1.652TRIL while the detail breakdown only reports $110.934BIL USD, so where’s the missing $1.541TRIL? Is this the best “accounting” we can get out of the US Treasury? Don’t we deserve better since we have to pay for it?

Then look at “Unclassified” … $517BIL, over a half a trillion, of spending that there is absolutely “no detailed breakdown” for. Treasury doesn’t even bother to pretend on this one! I still have not heard back from my Senator Daniel Akaka(D:HI) on this issue. Whatever it is we spent $1.4BIL on it today …

Now let’s look at the US DEBT for September 3^rd. The US Treasury reports the following US DEBT “issues” …

Today, September 3^rd the US Treasury issued $88.8BIL of Regular Series, “marketable”, Treasury Bills, with maturities of one year or less. Total Treasury Bills issued for FY 2009 as of September 3^rd is $4.831TRIL USD.

Now let’s look at the “unmarketable” Government Account Series securities the US Treasury issued today …

There it is $196BIL USD worth of “unmarketable” IOUs going into various Public Trust Funds, like the Social Security Trust Fund. Look at the total for FY 2009 so far, $42.1TRIL. How can we as citizens who depend on these funds when we retire be sure all our contributions have been accounted for? Do you or have you been keeping track of all your contributions you have paid into Social Security and Medicare over your entire life? I admit I have no clue what I have paid in. I have worked for maybe twenty different employers my entire life and I don’t know where any of those funds went. I assume my employer turned them in otherwise I would have heard about it when I filed my 1040. What if the US Treasury cannot repay that IOU? Then what? We can’t even “market” them because like derivatives there is no market. The answer to those concerns is that the US Treasury will pay those IOUs at the rate they deem as payable at the time. They could be absolutely worthless or only worth a dime on the dollar. There is no way to really know, because the maturities lie in the future.

I have been wondering if there are any other countries with similar problems regarding tax revenues. I decided to look up the Swiss National Bank to find out.

LINE ITEM REVIEW

LABOR DEPT PROGRAMS

This line item can be found on the US TREASURY DAILY STATEMENT every day. Here it is for September 3^rd … Look, for FY 2009 Treasury spent $12.6BIL.

HERE is the Department Of Labor (DOL) website. It’s a very busy home page. Shock of shocks the DOL is hiring! Notice the sideboard with all the labor related data like Unemployment, etc.

As you can see there are numerous sub=departments and services the DOL offers. I will mention one which is the Pension Benefit Guaranty Corporation (PBGC) and HERE is their website. Let’s go look at some of the US corporations that US Taxpayers are having to pay off their under funded pensions. HERE is the list. Scroll down the right side.

I found one … TWA (Trans World Airline). For the youngsters here it used to be an airline that went out of business in 2001 via a merger, but prior to that TWA filed bankruptcy in 1992 and again in 1995 and TWA finally merged with American Airlines in 2001, but under the deal American Airlines wanted to socialize the debt and pension burden, so it ended up at the PBGC.

US Taxpayers are paying for some 29,444 TWA ground employees and some 2,753 TWA pilots, with a maximum monthly benefit payment, for age 65, of $3,392USD. HERE are the PBGC maximum monthly payment tables for various years; since the PBGC took over the TWA pensions in 2001 you have to scroll down to 2001. If you look at 2009 the maximum has gone up to $4,500USD for the age 65 group, that is a 33% increase since 2001 or just over 4% per year. So you can see even though we never see any TWA flights leaving LAX we still pay for them!

The PBGC is not without scandals. Former Director, Charles Millard took the fifth in May this year to avoid answering Senate questions about his conflict of interest with Wall Street investment banks like JP Morgan, Goldman Sachs and BlackRock. HERE is the info on the Senate hearing. The controversy was that he allowed these banks to advise him on shifting PBGC portfolio investments out of low risk Treasuries and into high risk stocks and real estate right before the 2008 market crash. Due to this poor advice the PBGC portfolio lost nearly 25% of its value.

HERE is a further more detailed dichotomy of the PBGC scandal …

• Average investment return of global stocks over the past decade, as of February: -29%
• Average investment return of government bonds over the same period: +80%
• Value of funds under Millard’s management: $64 billion
• Value of funds Millard’s overhaul proposed to shift from bonds to stocks and real estate, in a move that effectively outsourced their management to Wall Street investment banks: $25.6 billion, or 55% of the nearly $50 billion portfolio.
• 2008 return on PBGC’s stock market investments reported before September 30, 2008: -23%.
• PBGC’s portfolio losses since September 30, a period during which the S&P 500 index has fallen 24%: Unknown.
• Number of calls Millard placed to BlackRock Capital during the months leading up to the announcement of the fund: 45
• Number of calls Millard placed to J.P. Morgan during those months: 95
• And to Goldman Sachs: 45
• Value of fees awarded to the aforementioned three investment banks by the fund, estimated over 10 years: $100 million
• Value of one “investment partnership” awarded to Goldman Sachs: $700 million
• Number of emails dated prior to the award of aforementioned partnership documenting the efforts of a senior Goldman Sachs official to assist Millard in his search for employment: 29.

In their letter to the OIG urging them to pursue a criminal investigation of Millard, the four senators provided a sad coda to Millard’s job hunt:

After the Goldman Sachs executive confirms on November 12, 2008 that several executives are interested in meeting Mr. Millard, he responds “Ur grt. Tx. Will send info soon.” Mr. Millard later e-mails several executives at another investment firm about their interest in him. He did not hear back for a period of weeks due to one of the executives’ illness, until the Goldman Sachs executive e-mailed him, “[The Executive] said he really likes you and if times were better he would have hired you already… He definitely likes you — is just not in a rush due to the terrible markets. Hope that helps.”

Once again Wall Street proves that their ethics have no place in government. I think we need a Constitutional Amendment separating “Banks and State”, like “Church and State”.

SWISS BANKS

Now I have long considered Swiss banks as the base of Switzerland’s economy and I consider the Swiss the consummate bankers of the World otherwise the BIS would not be there. In the 1970s the Swiss Franc was considered as good as gold, well that reputation has been tarnished since then, mainly due to the Swiss banks like UBS falling into the same traps as US Banks and European banks in terms of risk assessment. Multi-national governments are now after Swiss banks to report hidden assets in an effort to repatriate tax revenues due. I say it is a futile effort since tax revenues in the USA are as low as to almost be immaterial in terms of restoring fiscal sanity to the US Treasury.

But a review of Swiss banking data at the SNB(Swiss Central Bank)shows some catastrophic revenue depletion and what is more catastrophic is the huge drop in taxes that Swiss banks pay to the Swiss government, which translates to a big drop in Swiss tax revenues coming from banks.

This report was published June 2009 and is quite lengthy but I am within pages 140 and 150, where it shows ALL SWISS BANKS and foreign branches. HERE is some of the data:

All info is quoted in Swiss Francs and compares FY2007 to FY2008 (annual basis).

- GROSS PROFIT (pg 141/17) – Down from $24.2BIL to $8.6BIL (65% drop)

- TAXES ALL SWISS (pg 142/23 – Down from $3.4BIL to $595MIL (83% drop)

- TAXES FOREIGN BRANCHES (pg 150/23) – Down from $93.1MIL to $19.8MIL (78% drop)

SWISS EXTERNAL DEBT (Q1/2009) =$1.448TRIL CHF

That’s an increase of $60BIL CHF, nearly 5% from Q4/2008

Per capita it’s around $180,000CHF per Swiss citizen

That’s 4.16 times more than USA external debt per capita.

SWISS INTERNAL DEBT (2009B) = $222BIL CHF

Per capita that is around $32,000CHF per Swiss citizen

This data is under H1 and R4a at the SNB link HERE.

So it makes sense that if Swiss bank revenues are showing a 65% drop in gross profit then taxes would also drop and these are taxes the Swiss government can no longer depend upon, especially when tax revenues to the Swiss government from Swiss banks have dropped on average over 80% from FY 2007 to FY2008. What must tax revenues be like in 2009 since the UBS issues did not take effect until this year?

In terms of DEBT, both INTERNAL and EXTERNAL Switzerland today looks nothing like the banking giant it was in the 1970s. Then you have to ask how can such a small country with such a small population accumulate that much debt? Well, it’s not about government being fiscally responsible. The external debt is abysmal and reflects poorly on trade balances. What happened?

That’s one aspect of mounting pressures on the Swiss government which would lead to downward pressure on the Swiss Franc at some point. Like any other government they must decide whether to cut services to the Swiss citizens or increase debt loads to cover the tax revenue gap.

The issues are the same globally … DEBT RULES. What are the per capita DEBT numbers for both PUBLIC and EXTERNAL DEBT in Switzerland and how do they stack up against the USA and Australia. In terms of lesser of evils the CIA handbook reports that the USA is by far the worst debtor with Switzerland ranking at higher debt levels than Australia per capita.

Where have I seen this chart before?

A 140% increase since 2008. Below are the tables showing the dollar amount and the percent increases in the monetary base of the SNB. It starts in 2008 and ends in July 2009 where I indicate “2009/07”. It really took off at the beginning of the third quarter 2008.

2009/07

SWISS ASSETS

If Switzerland sold off all its “assets” listed above valued at $214BIL CHF then per capita each Swiss citizen would receive $27,792CHF. That’s not enough to even pay off the internal debt at $32,000CHF per capita much less the external debt. This means that Switzerland is bankrupt based on SNB assets and liabilities. The lost tax revenues from the Swiss banks are causing much more strain on the Swiss government. This is similar to America and its collapsing tax revenues.

SWISS GOLD RESERVES (IN MIL SWISS FRANCS AND USD)

The latest data HERE shows the SNB listed with 1145 tonnes of gold roughly valued around $842USD per ounce. So here we have the austere and conservative Swiss Central Bank using a valuation of $842USD per ounce and the US FED using an antiquated $42.22 USD per ounce. Could it be that the US FED remains steadfast because a revaluation of US gold reserves based on Swiss values will show clearly how much debasement the US Dollar has suffered at the hands of the Gang Of 535 and the US FED? HERE is a copy of the current US gold reserves as reported on July 31, 2009.

SWISS DEMOGRAPHICS

Populations and rank:

USA = 307mil ranked #3

AUSTRALIA = 21.9mil ranked #53

SWITZERLAND = 7.7mil ranked #94

So there are more people in Los Angeles metro than all of Switzerland.

Land mass by country and rank:

USA = 9.6mil sq km ranked #4

AUSTRALIA = 7.7mil sq km ranked #6

SWITZERLAND = 41.2thousand sq km ranked #133

Switzerland is a little bigger than the state of Maryland.

In terms of population density Switzerland is the clear winner, ranked #65. The USA is ranked #177 and Australia is ranked #232, one of the least densely populated countries in the World.

Obviously Switzerland has a much smaller land mass and a very small population compared to the USA and Australia.

What’s up with Switzerland? Why all this debt for such a small population?

The research I posted here is purely fundamental and as we know in the global markets, especially the FX, fundamentals are not the sole criteria to base trades on. If they were then US DEBT would be rated junk! But then you need to talk to the S&P and MOODYS about that issue.

GEITHNER STAND-UP

Well, the Chinese students are bound to be howling in the aisles over at the Beijing Improv with Geithner’s latest “stand-up” act … HERE is some:

“Geithner urges G20 to consider leverage restraints …” HA!!

Has anyone seen the US TREASURY DAILY STATEMENT … what a perfect model of “restraint”!

Here is some more…

“The U.S. Treasury chief said the global economy has been pulled back “from the edge of abyss” in the past year and was showing early signs of resuming growth …”

What a comedian …Rodney Dangerfield is rolling over in his grave! I suppose next he’ll start talking about a STRONG DOLLAR POLICY!

Ahhhh … look…

“We have moved exceptionally early in the United States to put out broad proposals and detailed legislative language on comprehensive reforms to create a system that provides much stronger consumer protection and the prospect of a much more stable and less vulnerable financial system,”

Oh my God … stop it … I can’t take any more!! HA!! Okay dude, you got us … As soon as you’re done at the US Treasury you got a job waiting for you at Saturday Night Live, Lorne Michaels loves your skits!

Oh … no not more…

“These are global markets and our reforms here will not be effective…unless they’re complemented by sufficiently ambitious efforts by the rest of the other major economies.”

You mean like CHINA canceling derivatives? HA!!

What, they were too complex to understand? Whew …

So that’s what the globalization punch line was!!! Dazzle us all with complex fraud! Ahhhh!! Okay … we get it!! My Sweet Lord, what incredible … H-U-B-R-I-S??? Hey, it’s an EMPIRE thing!

“Every nation, whether rich or poor, powerful or feeble, can at any hour once again adopt the gold standard”-Ludwig Von Mises

“GOVERNMENT IS ONLY AS HONEST AS ITS MONEY” – ME

What It Takes for a Small Manufacturer to Make It

It’s getting to be sink or swim time for small and medium-size manufacturers (SMMs). Those that keep seeing globalization as a threat, constantly retrench and try to slash prices to compete are probably going to lose their place in the supply chain in coming years. “Traditional supply chains are morphing under the pressure of a globalizing economy. Manufacturers adhering to old supply chain rules are putting their businesses in jeopardy by not adapting to new rules,” warns a new report by the Manufacturing Institute, the research arm of the National Association of Manufacturers.

Link to article:

http://kiplinger.com/businessresource/recommend/archive/2008/manufacturing-chain-nam.html?kipad_id=60

Planet Water – Think Investment

Planet Water
By Chris Mayer

I recently picked up Steve Hoffmann’s new book, Planet Water: Investing in the World’s Most Valuable Resource, which seemed irresistible to a water bug like me. Hoffmann is well-known in water circles. He’s the founder of WaterTech Capital, a private group focused on water investing. He’s also the creator of the Palisades Water Index, which many water funds use as a benchmark.

His book has some good information and research on water issues, if dryly presented. Still, it’s nice to have it all between the covers of one book. There are certainly many opportunities in the water sector for investors. It’s one of the most exciting areas of the market to be a part of.

For one thing, it is an incredibly large sector. Water is the third- largest industry in the world, behind only oil and gas and electricity generation. For another, some of the drivers of water use are only getting bigger as this human drama unfolds. Hoffmann points to these three, among others:

Industrialization. As a country develops, its water use expands even faster. As people earn more money, they wear better clothes and buy more consumer products. All of these things have a high water content. Not too many people understand how much water we use to make a pair of bluejeans, for instance. (It’s about 5 gallons.) Yet this water use is all too real. Then there is the matter of diet. As people make more money, they shift to eating foods that have a much higher water content or that take more water to produce – fruits and vegetables and meats.

So all of this is a tremendous source of growth for water demand. India, for instance, expects water demand to double between now and 2025 – and industrial water demand to triple.

Urbanization. More and more people around the world live in cities. In 2007, more than half of the world’s population lived in cities for the first time in history. Our cities are also bigger than ever. For example, some 9% of the world’s population lives in cities of more than 10 million people.

Well, people in cities use more water than those not in cities. To support all that water use requires a lot of pipes, pumps and more. As Hoffmann writes, the infrastructure needed to support urban water use is “staggering.”

Globalization. When goods can more easily travel across borders, water use tends to increase. Suddenly, you can build cities in areas where older human societies would never have thought to build a large city. Basically, we’ve created a sort of virtual water trade.

“Countries with a relative abundance of water,” Hoffmann writes, “can grow food and trade it to water-stressed countries.” The sheiks in Dubai are grateful, no doubt.

As I’ve pointed out, water is big business. And Hoffmann goes through a variety of sectors, highlighting the issues facing each and compiling tables of companies in each space. Let’s walk through a few of them.

The biggest part of the water industry – and the one everybody thinks of first – is the water utility group. There was a time when I liked the water utilities. Also, I can actually say I’ve never lost money on a water utility. For years, investing in water utilities was an easy way to beat the market. But things are changing.

I’ve come to think that the water utilities have to support an enormous investment going forward. And they have to do that in a political environment not favorable to water price increases. As you might imagine, that’s a bad mix. Hoffmann agrees. “Public policy will dictate rate increases,” he writes, and “water utilities will then [see] increasing pressure on profit margins.”

I’d pass on the water utilities.

Water treatment, though, is another matter. As Hoffmann writes: “The fundamentals of the [water] treatment sector… are extremely compelling. Virtually all global water quality issues come down to treatment in one form or another.” Water treatment means taking raw water and purifying for some use, either industrial or for human consumption.

Another sector Hoffmann devotes a chapter to is the water infrastructure sector. This is one of my favorites, because it is easy to understand and there are several good ideas in the space. Infrastructure covers all the pipes, pumps and valves and more that make up the physical framework that supports water delivery. As Hoffmann says, the importance of this sector “cannot be overemphasized.”

One interesting angle Hoffmann writes about is the cost of water leaks. In the U.S., 15% of the water produced never reaches its destination because it leaks out somewhere along the way. Globally, it’s like 20-30%. Even small leaks are incredibly costly. As Hoffmann writes:

A water leak just one-fourth inch in diameter can result in a loss of almost 15,000 gallons per day. If undetected for a month, over a half million gallons can be lost. Even a pinhole leak can mean an average loss of 18,000 gallons of water per quarter, equaling the average demand from a residential consumer.

That is a huge loss on the system, borne by society. And this is just one little slice of the losses poor infrastructure causes. It’s why Hoffmann can write, “This under-recognized segment of the water industry is poised for above-average growth” for years to come.

That’s just a look at a few sectors. There are many others – analytics, desalination, resource management, irrigation and more. But we’ll have to save those discussions for another day…

I’m always alert to good water opportunities, and I expect we’ll add another name to our Blue Gold Portfolio before the year is out. Watch this space.