U.S. Credit Rating May Tank: “U.S. Likely to Lose AAA Rating: Analyst Prechter” is 6/17/09 headline on this moneynews.newsmax.com/street talk post. This post is about the views of Robert Prechter on the U.S. credit rating and outlook on the U.S. economy. They might be just the views of another technical analyst if Mr. Prechter hadn’t predicted the 1987 stock market crash, and if he were alone in his views, but such is not the case and so here are some of his thoughts:

• “…he sees the United states losing its top AAA credit rating by the end of 2010 … as the government issues trillions of dollars in debt to fund efforts to bail out the economy.”
• Speaking on the stock market Mr. Prechter says, “There will be a leg down in stock prices, and it will affect all other areas,” including corporate bonds and commodities, said Prechter, who is executive officer at research company Elliot Wave International, based in Gainesville, Georgia.”
• “Federal Reserve Chairman Ben Bernanke has not averted a re-run of the 1930’s Great Depression, even though investors are becoming firmly convinced that the Fed has avoided disaster and that the economy has hit bottom.”
• “It’s the next leg down (in stocks) that will make it clear that these things are not true.”

Unemployment Up: “Unemployment of 10% Spreads, Risking U.S. Recovery” is the title of the  Shobhana Chandra article at Bloomberg.com on 6/19/09. The article speaks to the rising unemployment in the U.S. and where in might go from here. Here are a few key points:

• “More than one-quarter of American states now have unemployment rates higher than 10 percent, and all but two saw a further job-market deterioration in May.”
• “… eight states – - including California, Florida and Georgia — reached their highest level of joblessness in May since records began in 1976, the Labor Department reported today in Washington.”
• “… said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. …The biggest increases in unemployment will be in the states most dependent on manufacturing, construction and financial services.”
• “Michigan’s jobless rate, at 14.1 percent, showed the biggest jump from April and remained the highest in the nation.”
• “The (U.S.) jobless rate reached a 25-year high of 9.4 percent last month.”

‘Change’: “Best Prepare; For Change We Will” says the Mike Folkerth – King of Simple headline on his blog, mikefolkerth.com this 6/19/09. Mr. Folkerth says change is coming and preparation is important. Here are some of his views:

• “Remaining a skeptic of mine and other claims that the U.S. has reached zenith for positive growth is one thing. Failing to take any preventive actions in the event that this dour prediction is true, is quite another.”
• “We need to be cognizant of the world outside of our own neighborhoods. In a new report out today from a U.N. agency, the people in the world who are going hungry now exceeds a Billion for the first time in history. Preparing against that possibility within our own families and communities should be a priority.”
• “We have reached the point that individual actions are the only cushion that one will have against the continual application of failed government policies.”

We couldn’t have said better ourselves Mike, as next week we turn to Part 2 of our series on “Investments In Farmland”, and why investors are doing it  along with other weather events. Until next time: keep your eyes on the horizon as the weathers changing fast.

The NYU Professor Nouriel Roubini terms our current economic situation one of “stag-deflation”. This is Professor Roubini’s term to describe an economy that is mired in the combination of recession, deflation, and economic stagnation..

These then are “desperate times” that give forth “desperate economic news” and therefore require “desperate policy actions” according to the professor. It is the combination of these “ desperates ” that will push the Fed into more “crazy” policies along with the worse economic news to come.

DEEP RECESSIONFROM DEEP JOB LOSSES: Bloomberg.com of 12/7/08 says in a piece, “U.S. Job Losses Signal Recession Will Be Long, Deep (Update2)” by Rich Miller and Bob Willis, that the U.S. “… may be headed for the longest recession since WW11…” due to increasing job losses.

Employers are cutting jobs at the fastest rate in 34 years in order to survive. Along with jobs, businesses are reducing investments to strengthen their cash positions for what they perceive as more economic difficulties ahead. This “survival mode” according to Mark Zandi, chief economist at Moody’s Economy.com, portends “big job losses” in the future.

FOOD–GOING HUNGRY: Energy Bulletin (energybulletin.net) on 12/8/08, notes in a brief Paul Myers (Sydney Morning Herald) article, entitled “Going Hungry in the 21^st Century,” that the world is currently experiencing, “The most acute food shortage in more than 40 years, according to the World Bank…”.

This food shortage is unique, according to the article, in two very important ways: first, it’s “… not confined to sub-Saharan Africa…” and second, it’s not “temporary”.

Declining food supplies are also in evidence in places like South Asia, Central and South America, and the Caribbean. Here it is important to note that for the past 12 months a number of countries have temporarily prohibited rice exports (China, Thailand, Cambodia, Vietnam, and Egypt) in order to, the article states, “…preserve local supply.”

At the end of this week, PrudentHome hopes to discuss a/some different perspective(s) on what some are calling the “depression”.

Until then, keep your eyes on the horizon.

Like the weather, economic, political, and environmental events are beyond our individual capabilities to control but like the weather too, we’re somewhat able to predict their coming and prepare. So what does the weather look like as it begins to move toward us just at the horizon ? Our economy thrives on cheap, available credit and fossil fuels (oil). Now, if credit is cheap it is certainly less than readily available while oil is not cheap and probably becoming less available.

Three major European banks and a major U. S. investment house are predicting a financial situation , in the U. S. and the world , during the coming months characterized by words like “crisis” and “catastrophic” . This while our own central bank, “ The Fed”, is described as an institution “ without credibility “.

World food stocks, primarily grains, are at a half-century-plus low with major countries preventing grain exports altogether or heavily discouraging those exports thru taxes. While world production is currently at a marginally adequate level, it is fragile. Any significant economic, climate, or geo-political interruption could spell famine on a large scale.(Note: Both China and Saudi Arabia are currently buying farmland in places like Africa and South America)

World oil production levels are nearly maximized though they are currently pretty stable. This stability however, exists in the face of an increasing world demand with it’s attendant price increases.

World fresh water stocks seem to be in about the same shape as food and oil : marginally adequate at current levels barring interruption.

Climate change (warmer, more variable and uncertain weather) brought about by, or significantly influenced by, human activities appears to be a generally accepted scientific position. This change could effect world food production in both the short and long term.

Geo-politically, the world seems to be stumbling along about as usual however, current potential conflicts in major oil producing areas of the middle-east and Africa cause special concerns regarding world oil production interruptions with their attendant price increases.

Now we come to the shy, retiring, 800 pound gorilla in the room…population . While critical world resources, though stretched thin , might be adequate in the short-term we’re adding a population to the world equal to that of the U. S. every 48 months!

What does all this mean to the family and the prudent home? In a word, PREPARATION. This is the same response the family and prudent home gives to any severe weather challenge.

More specific discussion about the “weather” and family responses to it will be found here next week on Tuesday, July 8.

Meanwhile, keep your eyes on the horizon.