Rubber shortage increasing tire prices

Updated: 4:15 am

Published: 4:13 am

courtesy of Fox.xom

 

LITTLE ROCK, AR – A combination of supply shortage and raw material price increases means drivers are paying more for tires.  At All About Tire and Brake, Michael Wylie says it seems every 45 days the price of tires goes up. He says while he’s tried to eat as much of the cost increase as possible, to stay in business, he has to pass some of the price on to his customers. “Because of a lot of natural disasters in Indonesia, South America, and Asia, the production of rubber crop has been severely damaged. The tsunami in Japan had a huge impact.  “Customers are now trying to prolong the life of their tires and put off replacing them. For example, a set of average price tires on a medium size sedan has gone from an average of about $50 each, to now costing close to $70.With summer heat the number one enemy of tires, and summer being a travel season, drivers like Helen Crossfield can’t put off purchasing tires any longer. The higher cost does mean she’ll have to spend less money elsewhere. “It’s a little bit painful. I’m just glad I had enough to afford it.”

Investing in new tires now could save money later down the road, because letting tires wear too thin is dangerous.

Michael Wylie at All About Tire and Brake says worn out tires are a huge safety concern. “Tires are the only thing between you and the road.”

With so many sizes and varieties, Michael Wylie only stocks the most popular tires at All About Tire and Brake. He says with accurate tire pressure, not only will tires last longer, but drivers can get better fuel economy.

Prices of oil and steel have also driven steadily upward and show little signs of coming down. That means transport costs are also more expensive.

Rising Food Prices Push Millions Into Poverty, Study Says

A sharp rise in food prices since June has pushed 44 million people in developing countries into extreme poverty — having to live on less than $1.25 a day — according to a new study by the World Bank.

The bank’s price index soared 29 percent from January 2010 to January 2011 (15 percent just from October to January). Wheat, maize, sugar and edible oils have seen the sharpest price increases in the last six months, with a relatively smaller increase in rice. The rising prices have increased the vulnerability of economies, particularly those that import a high share of their food and have limited capacity for government borrowing and spending.

Link to full article

Lower Food Prices Hit Farmers, Help Grocers

By Ed Maixner, Editor, The Kiplinger Agriculture Letter

October 6, 2009

The drop in food prices is hitting farmers a lot harder than grocery stores. The grocers have lowered prices 2% on average from a year ago. But margins on raw farm products are rising, leaving farmers with smaller shares of the consumer dollar.

Farm prices are down much further—by more than a third for milk, 20% for livestock and 17% for crops. Of course, 2007 and 2008 were boom years on the farm—crop and livestock prices rose nearly 30% in that period. In fact, the average farm price of milk was breaking records at around $22/cwt. two years ago, but has been selling in the $12 to $13 range so far this year.

Farmers ramped up crop and livestock output for years to keep up with rising demand both at home and abroad. But demand eroded quickly as the recession, which began in December 2007, set in last year. Agricultural exports, for example, are down 21% so far in 2009. And domestically, there’s now an overabundance of commodities. No surprise, then, that the U.S. Department of Agriculture’s (USDA) September price index for all crops is down 18% from a year ago.

Complicating the lower prices received by farmers: Costs of supplies haven’t receded as much overall. Sure, some things are cheaper. The price farmers paid for fuel, for example, was 34% lower in September than a year earlier. But the price index for all farm expenses remains 16% higher than it was in September 2007. And that trend continues to gnaw at farmers’ bottom lines. With overall cash receipts down $40 billion and 2009 operating costs down $10 billion, farmers’ net cash income will be down by 30% this year.

Go to Article

Welcome to Zombieland

by Bill Bonner
London, England

Welcome to Zombieland…where the most amazing things happen…

Starring Ben Bernanke, Tim Geithner and a cast of millions…

The new movie – Zombieland – about a group of survivors in a world of zombies, was the biggest grossing film in America and Canada over the weekend. It must reflect the zeitgeist of the North American public…a deep feeling that we are living in a decaying world.

Maybe it comes from the growing awareness that the old bubble economy of the 2002-2007 period is dead. Now, survivors must defend themselves from the zombies.

Survivors are being attacked in the streets, in their homes, and at their workplaces. Zombie banks – kept alive by artificial stimulants provided by the feds – take their money and their houses. Living-dead companies block new competitors. And the zombies at the Fed and the Treasury department try to gnaw on their savings, encouraging inflation to eat away the purchasing power of the dollar.

As to this last point, the feds have gotten nowhere. They wear down their teeth for nothing. Prices are going down, not up. Houses are 30% cheaper than they were in 2006. Hotel rooms are 20% cheaper than last year. You want a luxury room? Just ask for an upgrade. Chances are good that no one is renting the luxury suites. Just make them an offer. Discounts are available almost everywhere. The Sony Playstation, for example, is now available – 25% off.

Stocks are cheaper too. They’ve been going up for the last seven months, but they’re still about a third less than they were in 2007.

Stocks fell again on Friday. Investors began to fret that maybe…just maybe…the authorities don’t have this zombie problem under control.

“Jobs news gets worse,” The New York Times tells us.

Since the stock market began going back up in March, the United States has lost 2.5 million jobs. It has lost jobs every month since December 2007. Now, unemployment – officially at one in ten workers – is the worst it has been in 26 years.

What kind of recovery is this? We don’t know, but if it continues much longer we’ll all be unemployed.

But not to worry, dear reader. Secretary of the Treasury Tim Geithner says the signs of recovery are “stronger” than expected.

We wonder what signs he’s looking at. Of course, this is the same doctor who was on the scene at the New York Fed when strange things began happening. The financial industry started acting funny in the bubble years…spending money like there was no tomorrow. And then, wouldn’t you know it, there wasn’t any tomorrow. They dropped dead in the crash of ’07-’08. But with huge injections from the Fed, they’ve turned into Zombies.

Of course, Tim Geithner missed the whole thing. So maybe he’s not the best source of recovery sightings.

A survey by Business Roundtable tells us that the ranks of the unemployed are likely to swell. Only 13% of employers have plans to hire more workers. The rest are either sitting tight…or turning workers loose.

Naturally, of all those people cut off from paychecks, more than a few are looking a little peaked. Their eyes sink back in their heads. Their skin turns grey. Soon, they’re starving for raw meat.

“Personal bankruptcies soar,” says The Wall Street Journal.

And not surprisingly, when they become desperate, they tend to default on their mortgages. We know already that auto sales drove off a cliff when the summertime ‘Cash for Clunkers’ program came to an end. Now, summer’s over. Housing sales should decline too – forcing more homeowners into default and foreclosure.

[What is happening in the US right now is clearly NOT a recovery, despite what the Feds would have you believe. This is more than misleading information - the US government is actually ripping you off as we speak.

REVENUE BREAKDOWN – Obama’s Spending Spree, August 7, 2009

REVENUE BREAKDOWN – Obama’s Spending Spree

by Stephen Wellman
August 7, 2009

 

This is for the week of August 3, 2009. As an American, do you know where your DEBT is? If not, then click HERE …

Well, the big news this week was the improving jobs market. Less people are losing their jobs according to the July results the BLS published on Friday. My response would be to look at US WITHHOLDING TAX REVENUES and they look really bad for July no matter what the BLS says.

The last work day in July and this is what we see for US Withholding tax Revenues, a complete rout! Over a 17% quarterly growth decline.

But somehow Unemployment benefits keep going up, up another $473MIL USD for the day, August 6^th, bringing the total for FY 2009 to $94.7BIL USD so far. I looked back to this same time last year for FY 2008 and total spent for the year was only $33.5BIL USD, so Obama is spending 2.8 times more than Bush did, so that means the unemployment rate must be 2.8 times more than in 2008 at this time. Back in August 2008 the official unemployment rate was 5.7%, so times that by 2.8 and based on spending alone the unemployment rate right now should be closer to 16%. The official rate of 9.4% does not look accurate when measured against outlays. I doubt benefits have gone up much, if at all, within a one year time span, so the cost of living adjustment(COLA) or inflationary adjustment would be negligible.

While we’re on “labor market” line items I also checked the data for Federal Salaries and Federal Employee Insurance Payments compared to 2008. Both are up as last year Bush spent $135.8BIL USD at this time on Federal Salaries and he spent $48.4BIL USD on Federal Employee Insurance Payments. The Wednesday numbers for those line items found Federal Salaries up about 9% at $148BIL USD and Federal Employee Insurance Payments up about 5.4% at $51BIL USD. No “deflation” there in terms of the number of Federal employees getting paid! So where are all the Obama government spending cuts?

As we found out last week Washington DC’s version of “Pay As You Go” is “GO” and then pay ten years later. I would rename that strategy “Don’t Pay As You Go Broke”! Is there any common sense left in Washington DC any more? How about “integrity”? Any “shame”? What does reside in Washington DC these days is the complete opposite of what this country needs in order to have a “real” recovery and that is fiscal and moral responsibility.

US TREASURY DAILY STATEMENT

July 31, 2009 – In one word … WOW! Massive debt would be an understatement for Friday, July 31, 2009. The biggest numbers were for the US PUBLIC DEBT, which rocketed skywards by $88BIL USD in one day! Let me repeat $88 BILLION! Not $8.8 but $88!! That is HUGE …

Next we get another HUGE number for Medicare, some $17.2BIL USD spent for Friday alone. If we add in Medicaid and Social Security and SSI the one day total is $20BIL USD.

Now look at the US military spending on Friday. If we add Defense Vendors and Military Active Duty Pay along with Veterans Benefits we get a one day outlay of $8.4BIL USD.

Then we can see we had to pay interest on Treasuries (US DEBT) of $3.5BIL USD on Friday.

Add in some $16BIL USD for the two mystery line items “Other” and “Unclassified” and the two line items total up to $2.04TRIL USD for FY 2009, that’s only ten months worth of spending.

August 3, 2009 – On last Friday the US Treasury spent $17.2BIL USD, now on Monday, August 3, its Social Security’s turn. The US Treasury spent $22.4BIL USD on benefits in one day, while Medicare got another $1.1BIL USD.

It seems to be “retirement day” as Civil Service Retirement Fund and the Military Retirement Fund got a combined total of $8.3BIL USD on Monday.

Housing and Urban Development(HUD)got $2.3BIL USD on Monday.

The two mystery line items “Other” and “Unclassified” append a combined total outlay of nearly $13BIL USD.

August 4, 2009 – The big spending was in Defense and the Dept of Education. On Tuesday the US Treasury spent $1.6BIL USD on Defense Vendors like Lockheed and they spent $1,7BIL USD on Education.

August 5, 2009 – More Defense spending for Wednesday, another $1.6BIL USD for the day. It seems Defense stays at the $1.5BIL level every day.

August 6, 2009 – Some $2.7BIL USD in outlays for Social Security, Medicare and Medicaid. Another $1.3BIL USD spent on Defense Vendors. Not much changes in spending.

The Thrift Savings Plan (TSP) sits at $17.5BIL USD in outlays for FY 2009 so far. See this in the line item review below.

There were some huge moves in the US DEBT department in terms of short term US Treasuries like Bills, which have maturities of one year or less. The Bills issued were Regular Series and Cash Management Series, which is where some, not all “sweep accounts” end up. Total issued was $131.788BIL USD and total “redeemed” was $131.790BIL USD, so practically the same amount of Bills were issued as there were redeemed, so which came first? That is not divulged by the US Treasury on the DAILY STATEMENT. Isn’t it interesting that we always hear in the financial media about the auction results but we never hear the stats on “redemptions”. To me that’s like buying a house and never meeting the seller or even the real estate agent! Are we supposed to assume that nobody ever redeems US DEBT or that they constantly roll it over?

I thought up this interesting scenario in my head about “sweep accounts”. These are accounts used for Wells Fargo checking and your ETrade or Charles Schwab accounts when your cash is sitting idly by. The sales pitch says that you should make interest while your money sits in a non-interest bearing account, which most checking accounts are and cash accounts for brokerages. It is a good benefit, but it also benefits the banks as it lowers their reserve requirements since a large portion of the deposit is swept outside the bank. One down side is that not all “sweep funds” are covered by the FDIC in an instance where the sweep bank fails. The FDIC does not cover those funds if they are in a commercial account.

The other side of this equation is the “money market funds” that receive these “sweep account funds” use those sweep funds to buy short terms US Treasuries so that they can pay you interest. Next week I will ascertain what percentage of those “sweep funds” make up the overall US Treasury Bills. I have a feeling it is a significant part, but how much?

.

September is the last month of the third calendar quarter but it is the last month of the fourth quarter of FY 2009, which ends September 30^th. On October 1^st the US Treasury starts FY 2010. We are less than 2 months from the end of FY2009. Perhaps now is a good time to look back to the first year of George Bush in 2001 and compare what Bush spent in his first year compared to the first year of Obama. Granted Bush did not face the monumental crisis that Obama now faces but some items like Medicare and Social Security do not really reflect the financial crisis, so lets look at those line items first.

YEAR	FY 2001	FY2008	FY 2009	%
	in $bil	in $bil	in $bil	INCREASE
	GB 1st YR	GB last full yr	BO 1st YR	2001-2009
Social Security	324.9	491.2	477.8	47.06%
Medicare	237.5	448.9	425.1	78.99%
Medicaid	129.3	198.9	208.5	61.25%
NOTE: Obama outlays as of 08/04/09

Clearly Medicare leads the pack, not so much on purely outlay levels but from an increased percentage basis. If Medicare was a private company it would be bankrupt.

As you can see there has been quite an increase in entitlement outlays from 2001 to 2009. While part of that is the Obama administration another part of the increase is what I call “embedded inflation” over a nine year period. This embedded inflation exists simply because of big government and its decades of promises and guarantees that has created a huge malinvestment in every American family. Now health insurance is like another house payment. What we now pay for car loans used to be a home loan and so it goes as people struggle to create enough income in order to just pay for basics. This means both parents must work, maybe even the kids as well. These DEBT ATTRITION circumstances eat away at the moral fabric and what’s left of the nucleus of the family. Many times the stress is unbearable and one of the two wage earners ends up sick in a hospital or injured or incapacitated in some way, either physical or mental. The root cause of family stress and the malinvestment of DEBT ATTRITION can be directly linked to the massive spending that is the hallmark of big government, crony socialism gone wild …

It is part of our conditioned belief system here in America that “prices always rise”. This has been true for 95% of my life. Look how much real estate has gone up over the last 50 years. Gasoline is up a lot and so is health insurance. Electricity cost more and so does food. Americans have been conditioned to believe prices always rise and they have. Ask any stock broker who works for Morgan Stanley and they will show you a chart of the DOW going back to 1900 and it is UP. In the few times in my life when I have seen prices go down, like they have been lately, people in America go into a panic mode. The government has to PRICE FIX or else they would be out of office on the next election. In essence that is what Obama and the DEMS and REPS are doing now is PRICE FIXING. They are trying to stop the downward spiral by using the only weapon they have and that is inflating the money supply. There really exist only two strategies the US FED will employ to deal with the money supply of America. One is NO BRAKES and the other is MORE GAS! How else could a Lobster Dinner cost me $45USD today when in 1939 it was 85 cents! Any guys here have any idea what it cost for a Filet Mignon Dinner Show at the Los Angeles Playboy Club in 1970, served by Bunnies? A grand total of $3.50USD! How about an oceanfront hotel room at the Outrigger Reef hotel in Waikiki Hawaii in 1970? $18USD per night … I was alive back then and I was 17 years old and if it weren’t for the Vietnam War and the likes of LBJ and Nixon, life would have been even better! Those of you alive back then may want to think back and consider if all this BIGGER government and BIGGER banks we have now is really worth it. I personally do not think it is …

LINE ITEM REVIEW

Last week I started a line item review, where we focus in on specific line items in more detail than just simply reporting the numbers. I selected line items in no particular order. Last week as you recall we started with the GSA line item.

This week we will focus on a reoccurring line item labeled THRIFT SAVINGS PLAN (TSP). This line item has nothing to do with the Savings & Loan crisis of the 1980s. Many of you get these mysterious e-mails from time to time that talk about how government workers do not have the same retirement funds we do, well this is one of those retirement plans. The Thrift Savings Plan website is HERE … The website has this brief description of those who participate in this plan:

“The TSP is a retirement savings plan for civilians who are employed by the United States Government and members of the uniformed services. The Federal Retirement Thrift Investment Board, administers the Thrift Savings Plan (TSP).”END

This is the equivalent of a 401k for federal employees …

In my research of the Thrift Savings Plan (TSP) I found out that the plans “asset administrator” who collects around 2% in fees is a foreign bank, Barclays, based in the United Kingdom. HERE is one of the six plans offered. This is “C FUND”, which invests in medium and large US company stock. The 12 month performance return is at a loss of (37%).

How Barclays, a foreign based bank (London, UK) ended up managing US Federal employees and US military retirement accounts is the classic US government story of failure. Prior to Barclays managing these funds the asset manager was Lehman Bros, who are now bankrupt. HERE is Barclay’s information.

As I pointed out previously pointed out US Taxpayers have contributed some $17.5BIL USD to the TSP so far for FY 2009. That is $17.5BIL USD that made some entity a 37% return, only it was a 37% loss for government workers and the US military personnel who invested as well as a 2% gain for Barclays so that they could manage the 37% loss. Who knows maybe Barclay’s shorted the fund?

When you retire from civil service you are paid through an annuity program for your pension. If you recall those of us Americans who were getting Social Security checks with a 2.3% COLA increase, during the October 2008 the following was reported for government retirees.

“The reaction was mixed last week when the government announced the highest cost-of-living increase since 1982 for Civil Service Retirement System annuitants. Margaret Baptiste, president of the National Active and Retired Federal Employees Association, told Government Executive she was concerned that short-term relief for COLA-eligible retirees would come with a hefty price tag down the road. She was worried, she said, that the 5.8 percent boost for CSRS employees and the 4.8 percent increase for Federal Employees Retirement System participants would invite scrutiny of federal employee compensation and sharp cutbacks on future COLAS.” END

Have these government employees forgotten who pays their salaries and for that matter who pays their retirement? Just like the big US Banks the federal employees are concerned about scrutiny of their retirement.

While most of us here subscribe to newsletters and follow certain financial blogs the federal employees have their own blog where they have a forum on issues that concern their well being. HERE is a link to FederalSoup.com …

It is interesting that I mentioned the C FUND and how it has lost 37%, well the G FUND is made up purely of US DEBT investments like US Treasury Bonds. It seems the G FUND is a huge source of the US governments potential IOU for trust funds and the federal employees see that HERE. The entire thread of the forum is about the TRUST FUND and the fears that it will be tapped as a “bridge loan” when the debt ceiling is reached. However what it really boils down to is the same issue I have covered here before under the “non-marketable” Government Account Series, this is the US Treasuries issued as IOUs on incoming TRUST FUND deposits.

Here is what one of the participants had to say …

“I think people misunderstand the various “Trust Funds” associated with entitlements. The government doesn’t have a way to do anything other than spend all the revenue coming into the government each year. People like to think of OASDI being somehow different from pensions because it pools and distributes and because the accounting is a little different. But, if you read the links carefully, you should have picked up on the accounting sheets and realized that all you are seeing is either “money” or “debt” movement. But it is all the same. The government spends the revenue and, if there is a surplus, a Trust Fund is issued bonds and securities to mark the spot on the paperwork. “FERS” is “pre-funded” simply means that the money is sent in the agency budget and then returned as a deduction from salary and from the agency budget, both of which are used to purchase US bonds and securities. The “money” itself is spent either way. That is why a trust fund is not found in a locked safe filled with gold for good keeping. My reading of TITLE 5, PART III, Subpart G, CHAPTER 83, SUBCHAPTER III, § 8348 is that the accounting paperwork creates tracks that show money flowing from the general budget to the agency and paycheck to the Treasury (who issues a government IOU to the sheet using government debt) and finally back to the general fund to be spent the same way all revenue from security purchases are spent. Note that each year Treasury also has to deduct and send to OMB? or someone the funds for current retirees, even if it means selling securities. The funds then accrue interest as a government security of whatever sort is purchased. Something notable, however, is the requirement that each year a status of solvency is required and, if Congress/Whitehouse changes anything that results in a greater liability, they must add this amount to the cash flow paperwork and actuarial solvency I described. (Or if I mis-stepped somewhere in the accounting, to whatever cash flow occurs.) Assuming this part of Title 5 is the most current, the actuarial balance is as accurate as they can make it and all is OK. GAO seemed satisfied as to this point, at least in 2000. It also appears that CSRS, in an accounting sense, may have some of the same legacy debt (pre-80s) similar to the legacy debt that arises from the windfall of early recipients of SS. Let’s not worry about that but just note that this is all future liabilities where the money put in today buys something like a bond that gets interest and must be redeemed tomorrow if the cash flow demands it. Long winded and longer than my reply to your actual post, but necessary. Which is – There is no money there to tap. They spend it in some way and issue bonds as it come in. When you hear that the G-fund or pension funds are being “spent”, it is, yet again, only an accounting gimmick as long as they eventually back issue the government securities. What happens is that, when the debt ceiling is close to being breached and the government needs to continue to operate, they will hold off part of the process and spend the money without increasing the debt by issuing the securities. The issuance of the securities is, after all, just a paperwork exercise. They would never permit this to be done by anyone but themselves. After they vote themselves a new and higher debt ceiling, they issue the securities at the rate the securities would have gotten had they recorded the purchase on the right date. Remember, you feel like “money” was deducted from your paycheck, but what really happens is that somewhere there is paperwork crediting you with that money. Money in the “Main Street” sense never really exists anywhere in these exchanges. Even if they turned it into money by sending it to you first so you could send it back, nothing in the relationship of “your” money as it relates to “your” pension would change. Just like your savings account at the bank it is an IOU until you ask that they give it back to you. Even at the bank, it’s spent as soon as possible as it comes in because the bank gives you 1% interest in exchange for them loaning it to someone else at 5% interest. Would that the government could profit like a properly run bank?” END

Well, is there such a thing as a “properly run bank”? So as we private citizens despair of our situation and how our government keeps taking what we earn and hands us IOUs in return, it seems the Federal employees feel that they are in the same boat.

Really we all hold a paper receipt, a US Dollar (FRN) for our years of hard work, we call accumulated wealth. In a World where everything including our money is “irredeemable” the value of our accumulated wealth is floating like the fiat currency markets (FX) where they trade. The true value of our accumulated wealth as defined by a fiat monetary system is truly esoteric, for if every man knew how valueless their remuneration becomes over time there would be a general uprising not seen since the French Revolution.

DEFENSE VENDORS LINE ITEM UPDATE

Readers of this weekly article already knew that Obama was outspending George Bush by 2 to 1 in military armament. The following chart was widely circulated at this week which verifies what I have been reporting via the US TREASURY DAILY STATEMENTS. What manufacturing the USA has left is mainly military related. Once again I will point out that if we were to eliminate US government contracts by shrinking the size of government, the Forbes Fortune 500 list would become the Fortune 5 list, surely the Defense industry would be eradicated under such circumstances.

What a massive divergence …

Let’s look at some more charts that show more massive divergence …

Here is another chart from the US FED St. Louis that puts the size of the banking crisis in perspective compared to the S&L Crisis.

Yes, 2008 was a bad year for a couple banks, mainly Lehman’s and Bear Stearns. This chart clearly shows the leverage that exists now as compared to the 1980s.

Imagine that Lehman Bros. was first founded in 1850 and it collapsed into bankruptcy in one year after 158 years … Bear Stearns was founded in 1923, so that is 85 years of business down the tubes in one year. Then there is AIG, founded in Shanghai, China back in 1919, now look at it.

Isn’t it amazing how long these banks were in business prior to the advent of derivatives? When does Congress investigate derivatives? As you recall Greenspan repeatedly told Ron Paul in Congress that the derivatives market needed no regulation.

We have all heard the comparisons to the Great Depression in various news articles but here is what the US FED St. Louis says in their very own inflation chart.

While some assets have deflated like real estate and 401ks I have yet to see any price deflation in consumables required for daily survival, like food, water, electricity, gas, telephone, health care, etc … Not even all “real estate” has deflated in price. Farmland for one still retains its value prior to 2007. Not all 401ks have lost value either. Also gold has held up pretty well had you have bought in 2007 prior to the real estate crash. With gold priced at an average of around $700US per ounce you would have had close to a 40% gain on Friday’s (Aug 7, 2009) close of $955USD. A worthy investment considering what many people have lost over that same time period by buying real estate or stocks.

IT IS WHAT IT IS …

“All present-day governments are fanatically committed to an easy money policy.”- Ludwig Von Mises (1940)

Commercial Real Estate Is a Ticking ‘Time Bomb,’ Maloney Says

July 9 (Bloomberg) — The $3.5 trillion commercial real estate market is a ticking “time bomb” that could lead to a second wave of losses at large U.S. banks, congressional Joint Economic Committee Chairwoman Carolyn Maloney said.

About $700 billion in commercial mortgages will need to be refinanced before the end of next year and “doing nothing is not an option,” Maloney, a New York Democrat, said in a statement at a committee hearing today.

This “looming crisis” in commercial real estate lending could lead to significant losses for banks, force shopping center and hotel owners into bankruptcy, push real estate prices down and impede economic recovery, she said.

Investors – Stay Out of the Water

Stay Out of the Water
By Bill Bonner

This week began with shrieks of joy. First, a federal court came down on Bernie Madoff like a brick on a baldhead. Madoff, convicted of lying to investors, drew a sentence that only a sea turtle or a swamp oak could complete. Then, like children playing in the sea, investors were teased by one wave of good news…and tickled by the next.

Bloomberg reported that “Wall Street’s largest bond-trading firms say the worst may be over for investors…” Then, General Electric’s CEO, Jeffrey Immelt and famous investor George Soros both said that the crisis is “behind us” and that growth will begin again next year. Finally, analyst John Dorfman opined that the stock market would be a safe place for their money at least through the end of the year.

And now comes the big American holiday – July 4th. Investors pack their suntan lotions and head off to the beach for Independence Day. With Jaws in a cage, they had judged it safe to go into the water. But then came Thursday’s news. Instead of going down as predicted, the number of job losses for June went up. Another 467,000 people became unemployed last month. The figure even surprised us; we didn’t think there were that many people who still had jobs.

And so…this weekend, investors walk along the beach deep in thought. Is it safe to go back into the water…or not? They should listen carefully. That gurgling sound they hear is not mermaids singing, it is the world economy, drowning.

As we reported in this space, the feds’ bailouts, boondoggles and bankers’ bonus plans aren’t working. At the end of last year, they predicted unemployment over 8% in 2009 – if the stimulus plan were not enacted. But it was enacted. Unemployment is at 9.5% already and it is still rising. It will be over 10% before the end of the year. Global trade is collapsing; exports from Germany and Japan are down about 40% from a year before. Prices are going down too – with a report this Wednesday that the entire Eurozone has slipped into negative inflation. And from Britain came data showing a contraction of 2.4% in the first quarter, bringing the year-to-year decline to nearly 5%. “Economy shrinks at 1930s rates,” said the headline in Wednesday’s Telegraph.

When we look at America’s employment numbers, we feel like a school doctor. We would call the authorities, except that it was the authorities who should be arrested. After the feds got finished with them, the numbers told of a better-than-expected drop in May U.S. payrolls. The key to this uplifting news was not a genuine improvement, but new and improved techniques in torture. Water- boarded with seasonal adjustments and birth/death models, the numbers began to see jobs everywhere. As for “discouraged workers”, meaning those who gave up looking because they couldn’t find a job, these unfortunate souls disappeared from the jobless figures altogether.

John William’s Shadow Government Statistics reports that without these twists, the numbers tell the same story they’ve been telling all year – unemployment is still getting worse, at about the same pace as earlier in the year. “The unadjusted annual decline in May payrolls was the worst since May 1958,” says Williams. And if they were allowed to speak freely – as they did in the ’30s – the figures would show real unemployment at over 20% of the workforce…or about 30 million people. That approaches Great Depression levels…and we’re still only in 1930, not 1932. As for those still working, an additional 1.5 million U.S. workers have been “forced into part time work” according to the Financial Times.

Analysts compare these sharp drops in trade, prices and employment to what happened after WWII. Come 1946 and the world had little use for so many soldiers, machine guns and artillery shells. Millions of young men were ‘de-mobed’ and joined the unemployed. And smokestacks suddenly stopped smoking. But that was at the very beginning of 62- year period of credit expansion. Consumers had pent up demand for houses, cars, and other goods and services…and they had the wartime savings to buy them with. Even so, it took three years of adjustment after the war before the stock market began to turn up.

Now, we are at the other end of the cycle – the beginning of a major credit contraction, with no pent-up demand, no savings, and too much capacity to turn out too much stuff that too many people don’t have the money to buy.

Meanwhile, housing prices are still going down in America…and with housing goes the lenders’ collateral. U.S. residential property prices have fallen 33 months in a row. So many houses are “underwater” that the United States is beginning to look like the lost continent of Atlantis.

More foreclosures are coming. U.S. mortgage loans typically call for “down the road modifications” that lead homeowners into a kind of financial cul de sac with no way out except foreclosure. According to a study by T2 Partners, there are three more big waves of foreclosures still ahead – including those in ‘prime” loans, home equity lines of credit, and in commercial real estate.

“When [these mortgage loans] start adjusting upward it will turn millions of homeowners into over-levered, underwater renters, and ensure housing is a dead asset class for years to come,” says Mark Hanson of the Field Check Group.

With incomes falling and house prices weak, consumers will miss payments, default, and cut back spending. Business earnings will decline; bankruptcies will increase. This economic undertow is treacherous. Investors should stay out of the water.

Investment Suggestion – Agriculture

The Best Investment Opportunity of 2009
By Chris Mayer, editor of Mayer’s Special Situations

“Investing in agriculture today will be like investing in the oil sector in 2001-2002,” writes Mark McLornan in the May issue of Marc Faber’s Gloom Boom & Doom Report. McLornan runs a fund that invests in farmland. Some of his on-the-ground observations confirm many of the things I’ve been telling my readers for the past several years.

As for likening agriculture today to oil in 2001-2002, an investor’s pulse quickens. We all know the great run oil stocks had as the price of oil sprinted from under $30 to a peak of $143 per barrel. Investors made hundreds-of-percent gains – even thousands-of-percent gains. What most investors forget is that oil prices halved from 2000 to the bottom in 2001, just before the great run-up. The same sort of setup seems to be happening today in the agriculture sector. Most ag commodities fell more than 50% after hitting their June 2008 highs.

This is the pause that refreshes.

The biggest reason to get excited about agriculture is the fact that supplies are at multi-decade lows. In fact, as McLornan points out, “agriculture is one of the very few sectors globally that currently face supply shortages.”

The “stocks-to-use ratio” provides a helpful context. This ratio measures how much supply is on hand versus how much we use. High ratios imply a fully supplied market. Low ratios hint at possible shortages. You have to go back to the 1970s to find ratios in wheat and corn as low as they are today.

The kicker to all this is that last year, the world’s farmers produced a record wheat crop and the stocks-to-use ratio barely budged. There is no way we are going to top that harvest this year with all the drought hitting different parts of the world.

The International Grains Council (IGC) predicts a fall in total wheat output in 2009-10. The IGC predicts global wheat output of 650 million tons, down by 5% from the previous year. The largest declines are seen in the European Union, the U.S., China, Russia, and Ukraine. “Although conditions in the Northern Hemisphere are generally favorable,” the IGC says, “production is likely to fall sharply.”

McLornan says that global yields for wheat hit a plateau in the 1980s and “gene modification technology has been unable to improve what natural selection has achieved over the past centuries.” So we already have tight supplies. And they look to get tighter.

The financial crisis also threatens to reduce supplies. Farmers who cannot gain access to credit cannot put seeds in the ground. Thus, the twin forces of drought and financial crisis seem likely to exert a growing influence over the grain markets – depressing supplies and therefore, boosting prices.

We’ve seen this movie before…

In 1933, in the pit of the Great Depression, writer Sherwood Anderson took to America’s back roads to see how the country was making out. He wandered into coal towns and mill towns, farms and factories.

His account, published in 1935 as Puzzled America, gives us a peek at Depression-era days. As the title lets on, most Americans seemed not to know quite what to make of the Great Depression. “Puzzled” seems just the right word.

It was puzzling because a man was prosperous and then suddenly was not any longer. A common story in farm country during the Great Depression began something like this: There was a prosperous farmer with lots of land who grew wheat. He then went into debt to buy more land and plant more wheat. The price of wheat suddenly fell like a shot quail. And the farm went under. Just like that, our man was broke.

If the financial crisis didn’t take the farm, Mother Nature did. “It was a farm until he plowed it,” Anderson quotes one man as saying of his uncle’s place. Then the drought came. The dry soil swirled around like snow in a blizzard. The farm simply “blew away.”

The hot winds tore the bark right off the trees and burned crops to ash. Fences lay buried under dust drifts. Dust storms blackened the sky. Topsoil of thousands of acres blew away. Anderson describes a little church in North Dakota:

The boards of the church cracking and curling under the dry heat, the paint on the boards frying in the hot winds… and the dust of the fields sifting in through the cracks. Dust in the mouths of the people as they prayed for rain.

Commodity prices took a big tumble after the crash of 1929. That’s what bankrupted the once-prosperous farmers. Then you had fewer farmers farming. Then you also had drought. Supply fell and prices soon rallied hard off their bottoms. By 1937, most food commodities – corn, wheat, sugar – were as high, or higher, than their ’29 highs.

Today, we also have the dual threat of drought and financial crisis. Farmers across the southern plains report poor crop conditions, thanks to dry weather. We also have drought in many places in the world that usually grow a lot of food.

One example: China’s Ministry of Agriculture said that a third of its crop faces drought issues. The country’s stocks-to-use ratio will fall below 30% for the first time since 1971. As AgCapita, an investment fund specializing in farmland, notes in a recent letter, China will be a net importer of 12 million metric tons of wheat. By way of comparison, Canada’s entire annual wheat exports average around 15 million metric tons.

We also have cutbacks in supply, as farmers have a harder time getting financing to buy seed, fertilizer and machinery. As The Wall Street Journal reported recently:

Across the nation, farmers are making plans to cut their production of corn, wheat, rice, peanuts, beef, pork, poultry and milk… Also, some farmers plan to grow just one crop on land that normally produces two each year, and to let some land lie fallow throughout the year.

Production of meat in every category will fall for the first time since 1973. Meanwhile, consumption of grains keeps rising. Globally, wheat demand should rise 6% this year. No surprise that retail food prices rose nearly 6% last year. I think they could rise as much this year.

Ultimately, we’ll have to grow more food…somehow. So a forward- looking investor will want to invest in the ideas that help that process along. Fertilizers are one such idea. Like a prizefighter with a tough chin, fertilizer demand doesn’t stay down for long. The reasons are simple. Lower fertilizer use means lower crop yields. Lower crop yields tend to raise prices for food. These higher prices then provide an incentive to plant more, so fertilizer demand comes back.

I’m a fan of PotashCorp (POT:nyse), which benefits from these trends. It also owns more potash, a key fertilizer, than anybody else. As Barron’s recently noted: “Longer-term investors can take comfort in the knowledge that many crop-planting, potash-guzzling countries – like China, India, Brazil – all have growing economies.” And they have growing populations as well.

There are other ways to invest too. You can buy other ag-related businesses. You can also invest in the actual food commodities. I expect good moves on this stuff in the back half of the year after the fall harvest disappoints.

What about demand?

I think we’re getting close to the moment when the world’s meager supplies of grains become front-page news. We have another few months before the reality of a lousy fall harvest sets in. Agriculture investments should do very well from that point – for everything from fertilizer stocks to agricultural equipment makers to the grains themselves.

As always, I recommend buying assets like these before the crowd sees it on the 6:00 news.