Saturday, December 6, 2008

Only 82 Times that spent on the Race to the Moon!

...or 17 times the amount spend on the New Deal. Amazing.

From Moneyweek... yes, these figures are adjusted into today's dollars:

Nate's Official Take on the Dollar

This morning I received the following email update from Jack Crooks of Mr. Martin Weiss’s MoneyandMarkets team:

* The following quote is lengthy, it is Mr. Crooks speaking beneath the following line:


The gates to dollar heaven are guarded by skeptics

Dear Nathan,

I was doing some research earlier in the week, and I came across a blog I'd never heard of written by a guy I'd never heard of on a topic that we've all most certainly heard of... the U.S. dollar.

It was the same old story that's been beaten into the ground:
The U.S. dollar is doomed... the U.S. economy can't sustain its current account deficit... a U.S. economy on the brink of recession is terrible for the buck... blah, blah, blah.

Over the last several months, I've explained why the U.S. dollar is NOT DOOMED despite what have been, and will continue to be, some rotten tasting fundamentals in the United States.

You can read about my views in my past Money and Markets columns.
However, here's a different, more academic approach that builds an even stronger case for the U.S. dollar.

The first thing you need to know is this...

Markets Often Become Feedback Loops

Markets are driven by human nature and are not rational. If they were, there would be no uncertainty, no guesswork, and no market.
Because markets are driven by human perceptions and feelings, markets are completely irrational at times — sometimes longer than you may think. As John Maynard Keynes quipped, "Markets can stay irrational longer than you can stay solvent."

Most people think trends are driven by events, the changing fundamentals. But they're not. It's the perception of these events by market participants that counts.

And depending on the time frame and market environment, investors will perceive things any number of ways. This quote sums it up ...
"But what actually registers in the stock market's fluctuations, are not the events themselves, but the human reactions to these events. In short, how millions of individual men and women feel these happenings may affect their future." — Bernard Baruch

With that in mind, here's an important point that most investors have never considered:

While the fundamentals appear to drive prices, often times it's the prices that drive the fundamentals.

Think feedback loop here.
Let me walk you through the process...
Step #1. The price of an asset falls. The reason may be triggered by the market realizing that key economic fundamentals are deteriorating, e.g. a decline in GDP or a larger-than-expected unemployment report.

Step #2. As prices fall, collateral values fall. Banks and others who lent based upon the value of collateral then must call in loans or require more collateral. This reduces available credit.

Step #3. This decline of credit adds to the deteriorating fundamentals.

Step #4. Declining fundamentals lead to more price declines.
What we're left with is a self-reinforcing process where lower prices lead to falling collateral values, further weakening the fundamentals.

This feedback loop has played out right in front of our eyes in the current crisis...

The swift decline in prices, in the credit market primarily, has drained global liquidity.

The credit market problems forced institutions to sell other "good" assets in order to generate cash.

These other "good" assets were stocks.

This in turn has triggered more selling, and so on and so forth.
And this is why, when it comes to the currency market...

The Gates to Dollar Heaven
Are Guarded by Dollar Skeptics


Maybe you've heard of Ralph Nelson Elliott and his Elliott Wave Theory. Basically, this theory is a way of examining how markets move up and down in basic wave-like motions.

According to Elliott, there are five major waves of any up or down move. On a basic chart, it looks like this...



Let me show you how this theory relates to the U.S. dollar right now.

Right now, the first wave of that five-wave uptrend pattern is where I think we are with the U.S. dollar...

Wave #1 of an uptrend follows the end of a five-wave downtrend. Naturally, there are plenty of skeptics of such a reversal move.

These skeptics are still stuck on the same old story, refusing to accept the potential for a major trend change.
The evidence is there — the U.S. dollar can rally. It's done so over the last several months. Take a look...

The skeptics hold on to the same old argument about why the U.S. dollar is destined to become a banana republic currency, but you may want to reconsider the premises.



The argument of the skeptics goes something like this: The rally in the "doomed dollar" is only because of the fear in the market. Once this fear period passes, the dollar will tumble once again.

Here is my counter to that argument:

The U.S. economy is still the most efficient and flexible economy in the world. Just look at how often the U.S. government has been turning on a dime to find a solution to its economic problems.

Skeptics say this is a sure sign of weakness in U.S. financial leadership. But overall I see this as a sign of the STRENGTH of the U.S. system. And a huge reason why the U.S. will eventually emerge from this morass faster and stronger than the other leading developed nations the dollar competes against.

And guess what happens if this proves true?

It will lead to a strong self-feeding flow of international capital into... you guessed it... the U.S. dollar. Why?

First, the Fed will be expected to be the first to hike rates since the U.S. economy will recover first. That will be a big catalyst for money to flow into the buck. And...

Second, long-term capital will be excited to see a major economy poised for real growth potential — that will lead to a lot of foreign direct investment into the U.S. And that effectively means buying the dollar to buy U.S. assets — another big kicker for the lowly buck.

Look, the beginning of any new trend is loaded with skeptics. But keep in mind, at a certain point prices begin to influence the fundamentals.

As momentum builds based from a self-reinforcing feedback loop between prices and fundamentals, greater momentum will build behind the U.S. dollar.

That will eventually lead to capitulation — the point when more and more skeptics become believers.

And that inflection point marks the beginning of a multi-year dollar bull market.

The most powerful leg up is when the market catches on to the underlying fundamentals that were not quite visible to those stuck on their dollar bear story. And I think that next leg is dead ahead.

Best wishes,

Jack




Jack’s article begins with “Dear Nathan,” just because I am on their email list, it was not *directed* at me, I know. Or was it?
I was doing some research earlier in the week, and I came across a blog I'd never heard of written by a guy I'd never heard of on a topic that we've all most certainly heard of ... the U.S. dollar.

Hmmm… I have a new blog that just started this past week and I’m sure he’s never heard of me although I wrote a book on the overall subject that was begun in 2005, and I have owned an economic education company (State of Mind Seminars, Inc.), and have been an investor in both real estate and the equity markets for well over twenty-five years.
It was the same old story that's been beaten into the ground:
The U.S. dollar is doomed ... the U.S. economy can't sustain its current account deficit ... a U.S. economy on the brink of recession is terrible for the buck ... blah, blah, blah.
Over the last several months, I've explained why the U.S. dollar is NOT DOOMED despite what have been, and will continue to be, some rotten tasting fundamentals in the United States.

Hmmm… Would it be arrogant to assume that he could he be speaking of “Death by Numbers?” http://economicedge.blogspot.com/2008/11/death-by-numbers.html

I did say that our SYSTEM is DOOMED but I never said that being on the brink of recession is terrible for the buck (on the brink of recession? Ahh, it’s finally been made official and we are a year into it). In fact, while I did NOT talk directly about the dollar in that article, in past articles and updates I have been very specific on my position of the U.S. dollar, so I will reiterate it here just to make my position official.

Nate’s Official Position on the Dollar:

During the largest LEVERAGED credit bubble in history, too much fiat currency was created by the shadow banking system and thus credit/monetary inflation occurred and took asset prices to completely unrealistic heights that are outside of historical norms and ratios. That growth went parabolic and is now collapsing under its own weight.

In order to DE-LEVER, to get out of or to pay back debt, what do you need? DOLLARS! Thus our dollar that was going down in value is now driven UP in value because demand for dollars has increased. Since the dollar is the world’s defacto reserve currency, this de-leveraging is occurring globally, not just in the United States. The rally thusly picks up steam and it turns into a short covering rally, just like all the bear market equity rallies we’ve seen in the past year.

The dollar is another “squishy” measurement because the dollar “index” simply measures the value of the dollar against that famous “basket” of OTHER currencies. Those currencies (and their relative weightings) are*:
1. Euro (57.6%)
2. Japanese Yen (13.6%)
3. Pound sterling (11.9%)
4. Canadian dollar (9.1%)
5. Swedish krona (4.2%)
6. Swiss franc (3.6%)
*rough weightings, source, Wikipedia http://en.wikipedia.org/wiki/United_States_dollar. For more detailed information about the basket and weighting, the current information is found within this .pdf bulletin from the U.S. Fed: http://www.federalreserve.gov/pubs/bulletin/2005/winter05_index.pdf

Thus, the dollar index is simply a RELATIVE measurement compared to that basket.

My thesis is: YES, our currency, the reserve currency of the world, the dollar; is in fact doomed. That’s what the underlying math of our debts tells me. History has also spoken; ALL FIAT CURRENCIES throughout the history of mankind have failed. They have lived very short lives for a multitude of reasons which I am laying out in my current “Cut the Crap” series of articles. All failed fiat currencies, every one, has failed not due to deflation, but due to inflation. Deflation strengthens the dollar and prolongs its life, UNLESS the excess credit (debts) do not get DEFAULTED upon, in which case the attempts to counter deflation lead to hyper-inflation which WILL eventually kill the currency, and the economic and political system that are tied to it!

Let me be clear, I have researched both the long term dollar and gold charts that span the past century. Those charts say that during times of credit deflation, the dollar strengthens and gold goes down in concert with equities. I grant the gold bugs that this time the fed has run completely out of bullets with regard to its normal bag of tricks. Thus "quantitative easing" has begun and the reaction of gold to this is not clear as yet, but I am hedging.

People will be initially fooled if inflation begins to happen in the next few years. Such re-inflation will NOT be real growth, it will primarily be monetary growth only, as is what occurred from about the mid 1980’s to today (President Nixon removed us entirely from the gold standard in 1971).

We HAD a choice, but so far have chosen to simply move the debts from one party to the other without default. Until and unless that changes, I am sticking to my thesis. Dollar strength now while deleveraging occurs, dollar weakness later AFTER deflation has run its course and is eventually overpowered. But that’s only IF the system is not CHANGED FIRST (in other words failed or defaulted). And the truth, since we’re cutting the crap here, is that the dollar index means NOTHING to the person who can’t pay back the loan on an over-inflated home.

Remember that currency and economic systems are changing and evolving all over the world still today, just as they have throughout the history of mankind. That evolution did not end with OUR current system (that would be an arrogant assumption), so while I say that the present system is doomed, I do not mean that the end of the world is coming or any other such nonsense! What I do mean is that some form of a new system, or a major revamp of the current system, will produce a new beginning. Clear?

Below are two charts of the dollar, courtesy of StockCharts.com. The first is a weekly candlestick chart from 2006 to today, and the second is a Point & Figure chart that I use to determine breakouts and to get initial targets for those breakouts:



In the chart above, from the upturn that began at about the 72 level, you can see wave 1 that took the dollar to about the 81 level. It then retraced back to 76 – that would be wave 2. Wave 3 took the dollar up to the 87 - 88 level. Over the past seven weeks the dollar has been consolidating in a wave 4 sideways movement while at the same time our equities have likewise been in a sideways consolidation pattern. Wave 4’s are followed by wave 5 (in this case higher) unless it was a more simple 3 wave a-b-c corrective move which the sideways consolidation is saying is probably not the case.



The Point & Figure chart shows the break of overhead resistance (red line) and a target that is way up there at 110.

Will wave 5 take the dollar all the way to 110? If you own stocks or real estate, you better hope not. I would say that it is unlikely for the next wave up to get to that level. It could be that the first five waves up is only the first move of a larger A-B-C corrective move that will eventually take the dollar to 110, I don’t know.

What I do know is that the economic and debt problems that are occurring here, in the United States, are also occurring in the other regions of the world which comprise the dollar index’s currency basket. Many would say their problems are worse than ours, on the whole, and thus the dollar would likely strengthen for that reason alone, an argument that I fully understand and agree with, to a point.

The point at which that entire theory comes undone is the point that the entire system of the dollar reserve currency comes undone and is changed in one form or the other. I believe change on that scale is coming, the math says so. The only question that remains in my mind is when? My thinking is that it will be further off than I think it should be; but it will be much, much, sooner than the vast majority of the world is ready for.
For the Record,

Nate

BTW, I respect the opinions of Martin Weiss and most of his team, especially Mike Larson whose blog, Interest Rate Roundup, is linked to mine. I note, however, that there are opinions within his team that conflict with one another. I think it’s healthy to have a team that’s comprised of differing opinions, but when it comes to investing your money, you need to have a thesis that is correct or you need to admit that you are wrong quickly if your thesis develops holes. So, both Jack and I are in agreement that the dollar will strengthen in the short term. From his article above, it sounds like we differ in the long run and I believe that’s because he doesn’t understand how the underlying math simply fails to work. Simply put, there’s not enough income to service the debt. Yet the debt is a symptom of a larger, underlying systemic problem with our political and economic systems. I will address those underlying problems in upcoming articles which will be out soon.

Friday, December 5, 2008

Spend Some Time with Chalmers Johnson

Stimulating conversation with Chalmers Johnson on the American Empire. He has written 3 books on empires and is a professor at the University of California. Better than a book, the first video is on our “military Keynesianism” about 6 minutes in length, while the last two are on the American Empire and a little more than an hour and fifty minutes in total length. The last two were made back in 2003 (if you view just one, start w/part II), he was way ahead on the economy and many other subjects. Very articulate and well read... Enjoy!

6 minutes:


"Blowback" Part I, 50 minutes


"Blowback" Part II, 1 hr., 3 minutes


Wiki information on Chalmers Johnson:

http://en.wikipedia.org/wiki/Chalmers_Johnson

Bloomberg on Foreclosures

Mortgage Delinquencies, Foreclosures Rise to Record

By Kathleen M. Howley

Dec. 5 (Bloomberg) -- One in 10 American homeowners fell behind on mortgage payments or were in foreclosure during the third quarter as the world’s largest economy shed jobs and real estate prices tumbled.

The share of mortgages 30 days or more overdue rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both all-time highs in a survey that goes back 29 years, the Mortgage Bankers Association said in a report today. The gain in delinquencies was driven by an increase of loans with payments 90 days or more overdue.

“Until we see a turnaround in the job situation, we’re not going to see these numbers improve,” said Jay Brinkmann, chief economist of the Washington-based bankers group, in an interview. “We’re seeing more loans build up in the 90-days bucket as lenders work to modify loans and states put in place programs that delay foreclosures.”

The U.S. economy has shed 1.91 million jobs this year, while falling home prices have made it difficult for people who can’t pay their mortgages to sell their property. Payrolls declined in each month of 2008 through November, the Labor Department said today in Washington.

New foreclosures fell to 1.07 percent from 1.08 percent in the second quarter as some states enacted laws to temporarily stop home repossessions and lenders increased efforts to modify the terms of loans, Brinkmann said.

Home Sales Sink

“Some servicers keep a loan in a delinquent state until they see customers carrying through on their agreements, and then they’ll switch it to performing,” Brinkmann said.

U.S. home sales and prices began to tumble in 2006 after a five-year boom, dragging the economy into a recession that began in December 2007, according to the National Bureau of Economic Research.

The median home price in the fourth quarter probably will be $190,300, down 19 percent from the record $226,800 in 2006’s second quarter, according to a Nov. 24 forecast by Fannie Mae, the world’s largest mortgage buyer.

Purchases of existing homes in October slid to an annual rate of 4.98 million, lower than forecast, the National Association of Realtors said in a Nov. 24 report. The median price fell 11.3 percent from a year earlier, the most since the group began collecting data in 1968.

The Printing Begins (at least out in the open)

This is what happens when you're all out of bullets at the Fed. With interest rates now effectively zero, they still feel that they're obligated to "do something." Of course doing "something" pretty much is what brought us to where we are!

Now the cat's out of the bag in regards to printing. Bernanke talked about it in 2002:
"Another option would be for the Fed to use its existing authority to operate in the markets for agency debt..."

And here it is:

http://www.newyorkfed.org/markets/pomo/display/index.cfm

And here it is on Bloomberg:
Fed Buys $5 Billion of Fannie, Freddie, FHLB Debt(Update2)

By Jody Shenn

Dec. 5 (Bloomberg) -- The Federal Reserve bought $5 billion of Fannie Mae, Freddie Mac and Federal Home Loan Bank corporate debt under a new program aimed at reducing mortgage costs.

The central bank acquired bonds with maturities between December 2009 and November 2010, according to the New York Fed’s Web site. Dealers offered $12.9 billion of the securities. The purchases under the $100 billion program are the Fed’s first buying of long-term “agency” debt in 28 years.

Asset buying by the Fed represents “step three” in the U.S. government’s efforts to fix the financial system and curb a yearlong recession, following provisions of loans and capital to banks, George Goncalves, the chief Treasury and agency strategist with Morgan Stanley, wrote in a note to clients today.

“Moving to actually purchasing assets and not just funding them -- this as we have been saying is the quantum leap that will work off the liquidity programs in place,” Goncalves said. New York-based Morgan Stanley is one of 17 primary dealers that trade with the central bank.

Fed Chairman Ben S. Bernanke finds it “encouraging” that his plan announced last week to buy $100 billion of so-called agency debt and $500 billion of agency mortgage bonds has already spurred a drop in loan rates, he said Dec. 1. The government has sought lower rates as a way to stabilize the housing market.

Fed purchases of agency securities and possibly also long- term Treasuries may “influence the yield on these securities, thus helping to spur aggregate demand,” Bernanke said in a speech in Austin, Texas.

Mortgage Rates

The average rate on a 30-year fixed-rate loan dropped to 5.47 percent last week, the lowest level since June 2005, from 5.99 percent the prior week, according to a Mortgage Bankers Association survey released Dec. 3.

Treasury Secretary Henry Paulson is considering using purchases of home-loan securities to force loan rates as low as 4.5 percent, a government official said on condition of anonymity this week. His department in September began buying agency mortgage bonds, though not agency corporate debt; the Fed in September bought agency debt maturing in less than one year amid a run on money-market funds.

Agency debt is primarily the borrowings of government- sponsored enterprises including Fannie, Freddie and the home loan banks, as well as U.S. agencies including the Tennessee Valley Authority and Ginnie Mae. The debt carries either an implied or explicit government backing that typically allows the institutions to borrow at lower yields relative to other bonds.

Philosophical Shift

Bernanke’s steering of the Fed into long-term agency debt and mortgage securities follows a retreat by foreign central banks. Those holdings have shrunk by about $116 billion from a July record to $868 billion amid concern that the U.S. support for Fannie and Freddie may not be durable enough and because of sales to support weakening currencies, according to Fed data.

The only previous period in which the Fed bought agency debt was between September 1971 and April 1980 amid pressure from Congress that ended after the election of President Ronald Reagan ushered in a “philosophical shift in the role of government,” according to Skillman, New Jersey-based Stone & McCarthy Research Associates. The Fed, which also accepts agency debt as collateral for loans and in operations to temporarily drain liquidity from financial markets, remained an owner through 2003.

I note that the bond market front ran this and that gold did not jump on the news of this happening today. The amount was small, but again, this is their first public declaration. There are ramifications all over the globe due to this. I'll have more on this story later.

End of Day/Week 12/5

Huge move off the bottom today, the S&P had a 61 point range and the DOW produced 568 points worth of movement from bottom to top. Amazing volatility.

The DOW finished the day up 259 points, the S&P finished up 3.7%, the NDX up 4.4%, and the RUT was the ballistic leader up 4.86% after being down considerably this morning.

So, we know the fundamentals; horrid employment situation, banks, car manufacturers, and everyone else begging to be bailed out. Yet the bullish technicals overpower to steal the day, but not the week. Remember Monday? It was 686 points mostly straight down. On the DOW we broke Monday’s low this morning, but did not on the SPX. For the week the indices failed to gain back Monday’s losses.

Let’s take a look at the weekly SPX chart to see what’s going on there. This is a 6 month chart, each candlestick represents one week. Note the inside hammer candlestick for the week (red), and the trading range that we’ve been in since the beginning of October. Also note the recent buy signal on the stochastic. People are still talking about that October 10th low like it was THE low (or internal low), but you can clearly see that it was not. In fact, we were beneath that low again this morning.



The next chart is the past 3 months on the DOW with each candlestick representing a single day. Note that the red downtrend line is still holding, barely. The overall volume pattern is bearish, but today’s rise was on higher volume than the rest of the week. Note the stochastics, the fast broke down from oversold but is going back up into it while the slow just chugs uphill. Now scan the entire chart from the 10/10 low on the left to the right and what do you see? I see a price level that has gone NOWHERE, but the stochastics have gone from oversold and are approaching overbought. You can call that bullish if you want to, I call it a time killing pause to work off oversold conditions just like we’ve seen in the past year.



Finally, let’s go back and look at a 10 minute chart of the SPX. In the very short term the stochastic is now overbought as is the fast on the 30 and 60 minute charts. However, we first under threw that triangle pattern and are now above it. Which is the fake? We won’t know for sure until 895 falls on the upside, but the bullish case in the medium term looks pretty good if that level is broken. That would validate the inverted head & shoulders pattern that you can see on a chart with a longer timeframe that this one (you can just see the inverted head at the bottom, far left here).



So, although the fundamentals are a sore sight to behold, the technicals are still saying B wave rally/sideways. The upside for that rally is looking like it would target the 1,000/1,050 region on the S&P. I could probably be talked into a long play on a break above 900, but I would be very cautious if I did.

The VIX is still sitting right at the 60 level which is still very elevated.

Of significant note, TLT put in a reversal top on high volume which produced a fresh sell signal on the daily. That action produced a high volume bottom hammer on TBT, which argues the bullish case for equities here.

Also, the XLF (financials) put in a very positive plus 8% showing today. It looks like it’s making a 3 wave up move that is targeting the $14.50 area, again arguing for more short term upside.

On the bearish side, commodities and the CRB continue to make new lows.

If you caught the turn long this morning, congratulations! I did not, I think playing long in this environment is just asking to get slashed by a storm of falling knives! In times like these, I like to play small or not at all! And, if you’re buying here for the “long term,” Warren Buffett style, well… all I can say is, “Sold to You!”

Have a good weekend,

Nate

Shadow Stats Employment Update

Just in from Shadow Stats:

US Employment.

Today, the BLS reported a statistically-significant, seasonally-adjusted jobs loss of 533,000. The figure would be 732,000 Net of Revisions, and is down a total of 873,000 Net of Concurrent Seasonal Factor Bias.

Parabolic Update

Okay, that little parabolic move turned into a big one! The DOW is now plus 200 and more than 450 points off this morning’s low.

Below is a 5 minute SPX chart. Classic parabolic shape from this morning’s low. Remember what happens to all parabolic curves? In this chart you can see the bullish looking triangle with the upper down sloping line (blue) the lower up sloping line (matching blue). We obviously threw under, then came back up to the top and are now right back at the old triangle bottom at 858 (light blue line).



Let’s zoom out to a 60 day chart and look at that blue down sloping line that now makes the top of the current triangle. That line is the key for me right now. If we get above that line then I’m bullish short term. If, however, we follow that line down, that’s another matter. Once again you can see how prices keep returning to the 850/860 level. The descending line is about to squeeze out a resolution one way or the other. In either case I can almost guarantee at least one head fake in the wrong direction first!



DOW now plus 140…

Update Prior to Close

Careful…

In both directions! The DOW fought its way back to even, being led up by the financials and short covering kicked in causing a little parabolic move up. The 10 minute stochastic reached oversold and looks like it’s about to roll over.

The /ES and SPX ran right back up to the 850 level and have so far been stopped there. I want to point out that even IF the financials rally here, for whatever reason, that leadership will be temporary just as the leadership when the homebuilders began their multiple false rallies earlier. It is obvious that the damaged sectors are rolling from one to the other. We started with “subprime,” moved into home builders and all industries centered around “home,” then the financials felt the pain and have been beat down, but it is now the REAL ECONOMY that is indisputably being whacked.

The current crop of bottom fishers, like the ones before them, now see that an official recession has been called, they see HORRID employment numbers, and they use the old “can’t get any worse, the markets lead the recovery,” logic. Careful with that logic, the MATH does not agree.

Below is a 10 minute SPX chart. Note that the 10 minute stochastic is starting to roll over and there is a topping candlestick. The 30 minute stochastic, however, has much room to run upwards, so the battle in neutral ground continues. I can also see a potential 5 waves off this morning’s bottom, so be careful, my stance is neutral at this point as both bullish and bearish scenarios are still on the table.



Here is a view of the DOW weekly so you can how that situation looks prior to the close:



It's "bank failure Friday," Who wants to hold over the weekend in this casino?

Hugh Hendry Revisited

Another thought about Hugh Hendry’s commentary. I said in the prior post that he sounded like me but with a British accent. Well, after more thought, I realize that he sounds like I sounded one year ago!

http://www.cnbc.com/id/15840232?video=950838437

Almost everyone is BEHIND the curve in their thinking. Notable exceptions include Mish and Karl Denninger. I am working furiously on a couple more very important articles that I would like to get out soon. I see a way forward and will do my best to communicate that. It will require LEADERSHIP FROM THE PEOPLE, not from the top down. Please stay tuned.

Nate

Update

The DOW is currently off 230 points, below the 8,200 level and the S&P is approaching the 820 mark from just above. These are key areas of support. If they fail, then we are likely to head much lower as this morning’s employment report would suggest is where the market belongs.

It has already descended below the area I was considering for the bullish triangle. From a technical perspective, though, I won’t call it eliminated until 815 falls, which is the low on December 1st. And the bullish scenarios for wave B aren’t taken off the table until 740 falls which are the late November lows.

My short term oscillators are either already oversold or approaching that condition, thus you must be careful in shorting here. When I saw a rally on the open I couldn’t help myself and opened a small position short which is already profitable. Heck, only a fool would buy stocks into the face of an employment report like that. But, you say, people are too negative and it’s already priced in? I say B.S.! This market is not priced correctly until the debts that add up to more than $300,000 for every man, women, and child are brought under control by DEFAULT. But that’s just me, of course I know how to do 2nd grade math.

But markets never move in a straight line to their final destination, I fully realize that. I do, however, also realize that waves within markets are not shaped like a bell. Growth starts out slowly and builds into a strong growth phase that gives way to the final PARABOLIC top. The back side of the wave DOES NOT take the same shape as the front. The back side, which is where we are now, is much more steep… take a look, it’s in every chart that’s ever gone parabolic. Thus, this decline, one that’s on a grand supercycle level, is far from over. But history also shows that there is, almost always, an “eye of the storm.”

So I am careful here and am not completely sure of where we are within the waves. If wave A down has not ended, then we are getting close. Was the past 2.5 months of sideways movement the eye or wave B? Could be, I don’t rule it out. Thus I am in a period of time where I am uncertain in the short term, but I am NOT uncertain in the longer run. The MATH is speaking loud and clear. Is everyone listening?

820 just momentarily fell, 815 is the last important level before we retest the prior lows. The very short term stochastic indicators show that some basing in this area is likely. The DOW just made a new short term low, but the SPX is just above. NOT bullish if 815 falls! However, if this area holds and produces a bounce in the face of that employment report, look out above, the fools will then be temporarily in control.

Ugly Employment Morning Update 12/5

Good Morning,

DOW futures are currently down 90 points but were down 180 points just minutes ago. The plunge was caused by the release of September’s employment report which was simply shocking:

Payrolls declined by 533,000 in the month of September, the most since 1974, 34 years ago. The “official” unemployment rate jumped to 6.7%, but I can tell you that if that number was measured as it was in the past, it would be AT LEAST twice that.

Below is the unemployment rate as calculated by Shadow Stats BEFORE this latest report:



Note the SGS Alternate, nearly 16%!! Even the BLS’s U6 measurement is approaching 12%!

And get a load of the revisions for the prior two months:

September was revised down to -403k from -284k, that’s a one month correction of 119,000 people! Holly mother of you-know-who! Why do we allow our government to get away with this type of CRAP?

And October was revised down to -320k from -240k, another 80,000 unemployed who were not previously disclosed!

The “experts” consensus expectations were for a loss of 300k? Yet another example of how wrong the “experts” have been.

Okay, so now how do the markets react?

The S&P 820 level and the DOW’s 8,200 level stopped the future’s sell off, so far. Should that area fall, then the 760 bear flag target is in play:



The bond market is swinging pretty wildly in the OPPOSITE direction, be careful, this is setting up to be another wild day.

I have some VERY POWERFUL ideas on a way forward for our money system and economy. I am going to spend this entire weekend writing and working on my ideas. You will be hearing more about those ideas shortly, I intend to involve everyone I can, the time for that is coming SOON.

Nate

Thursday, December 4, 2008

Hugh Hendry

More truth telling, he sounds just like me (except for the British accent!)... follow the link to CNBC interview, about 4 minutes.

http://www.cnbc.com/id/15840232?video=950838437

End of Day 12/4

Another wild ride…

The DOW closed down 215 points, the S&P fell 3%, the NDX lost 3.3%, and the RUT finished off 3.1%.

Tough nut getting there, but all-in-all almost exactly what I expected for today. If you remember back to yesterday’s closing comments, I listed the reasons why I went short at the close. Today we fulfilled what the stochastic waves were saying and finished right at the bottom of the potential triangle that would be a part the large B wave up/sideways. That triangle is bullish, if confirmed.

The fundamental situation is actually quite sickening to me… CEOs that were chastised for flying corporate jets to beg for handouts are now driving in their electric cars to beg for even bigger handouts! Big difference – not. Pure after-the-fact marketing theatrics and I AM SICK OF THE SHIT. When are we going to CUT THE CRAP?

Not until the drug addict is found on the floor, I fear.

So, let’s talk about the charts. Below is a 60 day, 60 minute chart of the SPX. It’s busy looking but there are several possibilities in play and so let’s point them out.

- In the middle of the chart is the old, original blue triangle. You can see that the 850 now 856 level is a magnet. We go away from that line then we come back to it.
- Note the 60 minute stochastic. It still has plenty of room for further descent on both the fast and the slow.
- There is a potential down sloping channel that we just touched the top of.
- There is a potential inverse head & shoulders pattern with the neckline about the 900 area.
- There is a bear flag (far right) that actually confirmed today, targeting the 760 area.
- There is a potential, unconfirmed bull triangle forming which is best seen on the second chart.



So, we still have cross currents in time. And we also have cross currents between the bond markets and equities. Mixed signals. Not so mixed anymore, I note that the daily stochastic has turned up again matching the fresh buy signal on the weekly stochastic.

Let’s take a look at the 10 minute SPX chart. You can see that the fast stochastic reached oversold and bounced. That leads me to believe that we may have some very short term upside potential, but now it has to regain that same old 856 area and then break above the triangle top line which is now at about 867.



I went out in cash again, after a small but successful day, and will not play again unless we break 830 on the down side or 867 on the up side.

Hope you have a great evening,

Nate

Regular Update

830 on the S&P is the next stop… that would be likely stopping point on the short blue line below. That line, together with the down sloping blue line above it, denotes the possible bullish triangle. Should 830 fall, then I get more bearish, and then will be watching the 820 level. Should it fail, then the bear flag target takes us back down to the bottom area of the chart…

Note that the fast stochastic is now oversold and the slow is approaching the half way mark on the 30 minute chart:

Cross currents Last Update - 2nd Trade Comes and Goes

Okay, one last entry about this trade and cross currents piece:

I got back in this trade at 866 primarily because of what was happening in the TNX… but also because the rally attempt stopped at 870 and was itself a bear flag that produced a target of 850! There was that number again, so I jumped back on and rode it to 850 and sold there. It made it beneath that, but as you can see, the 30 minutes stochastic hit oversold right at 850 like I estimated and thus no oink, oink!





It’s another good lesson in patience, while it worked out, this market is very dangerous for pipping people out of positions with a lot of throw-overs and head fakes.

Schiff... Amazed they still invite him back!

Peter Schiff telling like it is... then technical difficulties?

Trade Closed - Cross Currents...

Cross currents… Trade closed for a small profit, but a good follow along example:



The /ES failed to reach 850, and the 30 minute stochastic failed to reach oversold before I exited the trade at 862 because, as you can see from the /ES chart on the right, we reached 855, then popped above the descending wedge… so, I exited to make sure I locked in at least a little something.

Note too, that on the left side is the /YM (DOW futures). We closed a 5 minute candlestick above the mid point of the Bollinger bands and that put my trigger on the finger.



So, even though the trade came close to working out, some “disturbance of the force” made the math targets fall just short. Had it taken us down to 850 I would have had and extra 12 points of profit, but you have to be willing to admit you’re wrong for now. Another clue to confirm just came as I was typing as they both went on to make a new high above the last, and it appears that a bullish 8/34 cross is about to happen.

This is a good example where it “felt” bullish, and I think the reason is the crosscurrents on multiple timeframes and that fresh weekly buy signal are in charge for now. We are probably in a big B wave up/sideways, and thus I am playing small and taking profits when I get them. It could be that the 30 minute wave re-establishes itself and we move back lower, but I'm not willing to risk it further here.

Look at the TNX (10 yr) below on the left… it’s saying something here, that’s 2.5% interest you’re seeing! It’s either saying, “deflationary credit collapse,” or it’s saying, “quantitative easing” with the Treasury buying up their own product (printing). This is a great reason why I am very hesitant to buy any big rally… I am NOT bullish here, and see that the credit markets are still locked on many levels. We’re trying our hardest to do a “Zimbabwe” but I don’t think they’ll be able to overpower the collapse of the biggest bubble in the history of man.



Nate

"Seeing" the math of the trade...

So, we had an 850 target from the earlier bear flag...

It broke and now we went from 866.5 to 856.5 and are basing here while the real short time frame waves go up on the 1,2, & 5 minute time frames - the small waves. Well, that move was 10 points... subtract 10 points from the most recent peak at 860 and you wind right back at 850!!! That's seeing the MATH, and I LOVE seeing trades work like that. It gives me the confidence to hang to my target! Trade profitable, now I move my stop down and will not let it get back above the most recent flag - profit locked!

Cross Currents & Trade update

The 5 and 10 minute stochastic made a trip back up to the top, while the 30 minute continues down, thus I did not sell my short.

And now I have a target: if you look on the right side of this chart, it's the /ES which has gone from 875.5 to 858.5, or 17 points. Now, take 17 points from the peak at 856.5, and you are targeting 850ish.



Now, let's go back to our 5 minute chart and what do we see at 850ish? A support line! I love it when the math works like that! That's where I sell, and I'll bet you that it's very close to where the 30 minute fast indicator reaches oversold.



Of course, I could be wrong, won't be the first time!

Nate

Update to Cross Currents Article - Stochastic

So there we were yesterday evening, overbought on the 60, 30, 10, and 5 minute stochastic – I took a small short position. This morning we dumped, then retested the upper boundary at SPX 875. I had my stop set at 876 and was nearly pipped, but stayed safe by a whole half point! As the stochastic got more overbought, I actually added a little to my short position.

Now let’s take a look at where we are; the following snap-shots where taken at about 9:05 this morning. Let’s start with the 5 minute SPX, you can see that the fast stochastic has reached oversold, but not the slow, yet. Do I sell my position?



Well, let’s now look at the 10 minute stochastic. Just reaching oversold on the fast, but the slow is not even half way down. Do I sell?



Now let’s look at the chart that I key on for short term trades, the 30 minute. Here you can see that we still have not issued a sell signal, but the fast is heading out of the overbought range and is pointing pretty much straight down. Do I sell? NO, I am going to wait and even if the shorter time frames oscillate up, I am not going to sell until either the 30 minute fast reaches the oversold line or I get stopped out, whichever comes first. Win a fair amount or lose a teeny amount. Play that oscillator game enough in the correct fashion (do NOT be a pig) and your profits will outweigh any small losses you have. That’s just me, and it’s just one technique that I use. It’s a good technique here because I DO NOT have a good technical target otherwise besides the bottom boundary of that bear wedge.



CAUTION: the day’s price action “feels” bullish to me and some of my indicators are mixed. Keep it small do not be a hero (when it comes to trading, heros are zeros).

Good luck with your day,

Nate

Nate Earns Own Spot on FedUpUSA.org Website

My "Cut the Crap" series of articles is now prominately displayed on the FedUpUSA.org website! Check it out, my section is on the left:

http://www.fedupusa.org/

Isn't the internet grand? I'll wear it as a badge of honor because I am FedUp and am proud to stand up for the truth - it will set you free (or have little black helicopters flying over your house)!

Update

Triangle off of a triangle: Looks like we made a little wave 4 triangle on the last leg up which could either be a wave 4 (with a 5th leg up to come), or it will break down from here.

If it breaks up, the little triangle target would be about 8,690 on the DOW which would throw-over on that larger triangle top. Oscillators moved up higher into overbought. This type of action is exactly why I’m keeping position size small. I still think we finish the day down, but the price action is certainly more bullish than it has been of late.

Chart below is DOW 2 day, 2 minute.

Update

By the way, I forgot to mention in my morning update that the ECB significantly cut rates by .75%, and the BOE also cut by a full point. More stimulus, yea!

Looks like we get a gap fill this morning, DOW is trying to get back to even. Short term oscillators are saying it could go higher, but they are still toppy and looking like they want to roll. TNX went up a little but just started back down.

876 is my stop out for my small position last night.

Morning Update 12/4

Good Morning,

DOW futures are down about 120 points this morning 40 minutes prior to the open. They were down about 200, but then spiked up a little on the weekly unemployment numbers which came down 21,000 to “only” 509,000 for the week! Uhhh, hello? Last week was Thanksgiving… a shortened week. 509,000 is indicative of a deep recession, and it makes me laugh to see the market jump, especially when the headline immediately beneath says that AT&T is slashing 12,000 job! Ridiculous!

You know that Bill Miller got bullish AGAIN, as have a couple others who I follow. The good technicians are talking B wave up/sideways THEN C wave down. Those are the technicians who understand the fundamentals and know how to do simple math such as I presented in Death by Numbers. One market caller just this morning wrote that he sees too much bearishness and thus he is now bullish! While I agree, in principle, that when there is too much bearishness one needs to be on the other side, I DO NOT BELIEVE THE BEARISHNESS IS OVERDONE! In fact, I’m beginning to see way too much bullishness! That’s exactly what secular bear markets do… they draw in more fiat currency at every step so that it can be returned to the ether from which it came.

Yes, I see a potential inverted H&S pattern, and I see a potential bullish triangle, BUT NEITHER HAS BROKEN AND CONFIRMED. And, remember that blue line I keep talking about on the following chart? Right now it’s at 857, that’s the bottom of the old big triangle, and that line is a seriously strong magnet! Below is a 5 day, 5 minute SPX chart:



Looking at that chart, the blue line across the middle is the triangle bottom, and the other two blue lines are the POTENTIAL bullish triangle. BUT, there is also a potential BEAR FLAG that I see clearly and I have heard no one else mention it.

Also, if you read my end of day yesterday, you will see that I saw bearish signs, especially from my short term oscillators. Again looking at that SPX chart, you can see support will be found at the 840 area and then again at the 825 area, but we must first break beneath 850 which has also been providing support. If we get below 825, look out, the target on that flag is in the 760ish area.

Then again, if 875 is broken on the upside we’ll have some real bullish potential. I still see it BOTH ways but am nonetheless still bearish because I see MIXED technicals with a fundamental background where the math simply does not work.

By the way, the past two weeks of mostly rally have occurred while the bond market is pushing rates down. This still looks like “quantitative easing” or what I would call “fool you printing.” As I described in previous works, at some point in this deflationary wave it MAY be possible for them to throw out enough trillions to stick a knife in our currency Zimbabwe style, but any “rally” in the markets under such circumstances will not be “real,” it will be a false rally where the value of your currency is plummeting. That is defiantly NOT happening yet. The dollar is still elevated following a very large rally and is consolidating. The potential is still there for it to rally more as dollars are in HIGH demand as deleveraging rifles around the globe. Despite the potential quantitative easing, gold is still not responding strongly. I am still watching but am cautious. History shows that gold gets slammed during deleveraging, but then performs well afterwards. That’s what I’m expecting here and thus I have begun to SLOWLY accumulate small amounts of it.

The TNX is down (drag on equities, or quant. easing?), DOW futures are down 115 (careful of the gap fill), I will be watching my 30 minute stochastic indicator as I described in yesterday’s article and will be looking to take profits on the trade I established yesterday when the fast first reaches oversold as that is a very short term trade. I think we will likely see 840 at a minimum today, but don’t rule out a touch and go higher. Overall a time to be small or not at all, in my judgment. We break beneath 825, or above 875, then I might start to look at something a little longer term. Will keep you updated either way.

Have a good day,

Nate

Wednesday, December 3, 2008

End of Day 12/3

Wild ride of a day… which I did not play, until after the close!

The DOW finished up 172 points, the S&P went for a 2.6% trot, while the NDX led the advance 3.2%, with the RUT gaining 2.7%.

We opened with a dump, jumped 300 points into positive territory, dumped 270 points again, and then performed a near perfect 3 wave advance gaining over 300 points into the close. I was busy writing most of the day and didn’t play along until the close.

I’m playing with a small position because I can see it both ways. However, here’s why I took a position at the close:

1. This looks like a potential bear flag. If it is, the target will be in the 760 region which is a huge move from 870. Look at the wave structure here… that looks an awful lot like a 5 wave structure off the 817 low, and wave 5 looks like it just ended with a perfectly symmetrical 3 wave structure. Check out the math… 835 to 861 = 26 points. Add 26 to 847.5 and you should land in the 873.5 area… and the high of the day just prior to the close? 873.12! Doesn’t get any closer than that. AND look at the structure of each of the up legs… all a-b-c’s. Then again, we could be looking at a potential bullish triangle...



2. Both the DOW and SPX produced pretty clean looking hammers, potential reversal indicators. The Dow had slightly lower volume than yesterday, but the DIA and SPY were higher volume on the advance, so that’s a mixed bag.



3. The bond market isn’t saying rally, it’s saying deflationary credit collapse/depression. The TNX was down again, and the IRX is still looking mortally wounded.

4. Like I explained in my article on waves earlier today, I see that the 60, 30, 10, and 5 minute stochastic ALL finished in or near the overbought area. Love that.

Now, I do see bullish potential: On a daily chart the advance from November 21st looks pretty much like it could be an A-B-C and we still could be making a triangle.

We still have a fresh BUY on the weekly stochs and it contrasts with the daily, so any trade I do here will be fairly short term and small.

We’ll see what tomorrow brings, should be fun.

Have a good evening,

Nate

Cross Currents in Time Make Choppy Waves

I’ve been noting in my updates lately that we are experiencing a lot of “flat” type of activities where the markets are moving back and forth within a range (albeit a very large range). This type of activity is common in wave 4’s and can be seen in all the triangle and megaphone patterns we’ve been seeing lately.

I view these times as VERY difficult to trade as getting the turns right, especially with large overnight gaps, is generally an exercise in futility – one in which trading costs can pile up and add to the cost of one’s mistakes. Thus, picking a good entry point becomes all the more important. ANYONE can enter long almost anywhere in a 25 year bull and “make” money (real or not!). This is NOT that time!

To help pick better entry points, it helps if you can “see” the waves that are always present and are present on ALL time levels, from the individual tick, up to decades and centuries. The tools that we can use to help us “see” those waves are collectively referred to as Oscillators. There are many. My advice is to pick one (maybe two) and stick to them. If you watch too many at once, all you will see are cross currents which can get very overwhelming and work against you making good trades.

My favorite oscillator is the Stochastic. I use the “slow” stochastic version which has two lines, the “fast” and the “slow.” On my charts, below, the fast is the black line and the slow is the red line. You can adjust how “fast” and how “slow” these are. I try to set mine to reflect the people I follow, like Dr. McHugh and Karl Denninger, although there are slight differences between all of ours. The key is NOT how you have them set, the key is setting them one way and leaving them so that you have consistency and can see how it’s working over time.

Regardless of your trading timeframe or the underlying fundamentals, you should always use the technicals to decide WHEN to enter. When refers to time. I contend that everything is made of energy and waves, including our markets, and that waves are occurring on all time frames at different levels. Waves that get in phase can cause amplification and waves that get out of phase can dampen the intensity. Doesn’t it make sense to look for waves that are in phase?

On the very big timeframe we have just begun correcting a multi-century grand supercycle. Thus the overall trend is currently DOWN. That’s why I prefer to play the short side here and will only “scalp” the long side. Waves on the long side WILL NOT be as powerful as waves on the short side UNTIL the correction has fully run its course.

When looking for good entry points I look for the waves to get in synch. The planned duration of the trade is important to consider as you will want to more fully consider waves on the LONGER timeframe if you plan on being in the trade LONGER. IT IS ALWAYS IMPORTANT for EVERY trade to look at the SHORT term waves as you should want to always pick as good an entry as possible.

Below is a series of SPX (S&P 500) charts that begin on the short time frame and work their way up. At the bottom of each chart you can see the “slow stochastic (ss)” indicator which contains a black line (fast) and a red line (slow) – on your own charts you can make those any color you wish.

If you are viewing these charts online, you may click them to enlarge, just hit return on your browser to go back.

This first chart is on the 5 minute timescale – you are viewing the waves as they oscillate ON THAT TIMEFRAME. Note that the fast is just coming out of oversold and is about to cross the slow which is still working its way from overbought to oversold:



The next chart is on the 10 minute timeframe. Note that the FAST just crossed the SLOW out of OVERSOLD and is heading down. That is a SELL signal on the 10 minute timeframe:



Here’s the 30 minute timeframe, the fast is overbought and the slow is approaching overbought:



Here’s the 60 minute timeframe, the fast has just curled down out of overbought and the slow is at the 60 level on its way up:



Here’s the same chart on the daily timeframe, the fast has rolled down out of oversold and the slow is still pointing upwards:



Below is the Weekly timeframe, the fast has just crossed the slow coming out of oversold. This is a BUY signal on that timeframe.



Next we have the Monthly timeframe, this is a 5 year chart. Note that the fast has flat lined in oversold conditions and that the slow is about to join it:



Now we have the Quarterly timeframe on a 20 year chart. Note that the fast is oversold and that the slow has only just left overbought!



This is an 80 year SPX chart on the YEARLY timeframe. Note that we just produced a SELL signal and that the fast has yet to reach the level of 2002, or of the levels in the mid ‘70s or in the 1930s.



There are almost always CROSS CURRENTS that run through time! The perfect trade entry would be going short from ALL timeframes overbought, or going long from ALL timeframes oversold. Guess what, if ALL timeframes here gets too oversold on the slow, you may NOT have THIS market to go long in!

The relationship between fast and slow is interesting. The fast is just that… it leads the way and quickly warns that the wave trend has changed. The slow is a little more cautious, saying, “wait a minute here, this could be a head fake!”

Right now I don’t like the cross currents with a buy signal on the weekly and an approaching sell signal on the daily. The same crosscurrents are occurring in the short time frames. Thus there is no clear direction and it’s a good time to sit back and watch others grind their account values down. Only the very best traders will make headway in this environment, you must be quick or committed to a long term position (hopefully short until the bear market is over) that does not decay in value with time or loses it’s value in relation to the underlying asset like the inverse ETFs do. Good luck!

My best trades are made from times where all the shorter timeframes are in alignment and they, in turn, are in alignment with the longer timeframes. Right now this means being patient and waiting for the 5, 10, 30, and 60 minute timeframes to be overBOUGHT and then going SHORT which is with the direction of the current BEAR market. This entry is much more powerful if you can get the daily and weekly waves on your side. You would have to be REALLY patient to get the monthly also on your side, but when those times present themselves, it’s time to go in with a larger portion of your portfolio.

Once IN a trade, the hard part is determining when to get OUT of that trade! Here, I’ve learned to be patient with the short timeframes but it depends upon whether I consider it more of a “SWING” trade that may last several days or even weeks, or if it is a “DAY” trade that I plan to close before the close. Let’s use a day trade as an example, and let’s say that I caught all the time frames up to 60 minutes in overbought and went short:

I will then watch the 1 through 10 minute timeframes oscillate but will be keying on the 30… It is my philosophy when day trading (especially if I don’t have a reliable exit target) to attempt to “cream” the markets by taking only the middle or first 2/3rds of the move. To do that, I watch the fast and slow on the 30 minute scale and SELL once the fast reaches oversold (don’t want to be a pig!). That is probably not the extent of the move, as usually the slow needs to get close to oversold or actually in oversold in that timeframe. SOMETIMES, however, this technique will make more profits than waiting for the fast to come up and cross the slow to produce a “buy” (which would be time to sell a short position).

There are a lot of techniques and you need to adapt your technique to each time frame as they do not work across the board in the same manner. Once you realize that you are watching WAVES, you can add a little Elliott wave knowledge in to help you make better decisions about entry and exit. Of course using traditional targeting techniques from basic technical work is important too. Never easy, my best advice is to take as much in as you can keeping in mind that the market’s waves are influenced by; the FUNDAMENTALS, the TECHNICALS, and market PSYCHOLOGY.

Best to your trades,

Nate

Update

Heavy buying in the financials with GS and Citi leading. GS is up more than 6% and C is up 5.4%.

This has sent the entire market up with the SPX up nearly 1% and the DOW is back in positive territory UP 55 points or more than 300 points higher than this morning’s low. Like I said, crosscurrents, and lots of them! If you are day trading then going long off this morning’s open was a good play. It looks to me like there could be more up side here, but I don’t have what I would call a good target. Again, when the math isn’t pointing me at targets I can see, I’ve learned that it’s best to just watch. Right now the SPX is at 856 which is EXACTLY the bottom of that old triangle. It’s amazing to watch how many times the market finds that level…

Definately a bullish cross on the 8/34 5 minute... have fun if you caught that on the long side! Next area of resistance will be about 866.

Non-Manufacturing ISM Lowest on Record

The Non-Manufacturing ISM came in much worse than expected and was the lowest reading in the history of this statistic:

U.S. ISM Services Index Fell to Record Low Last Month
By Shobhana Chandra and Bob Willis

Dec. 3 (Bloomberg) -- U.S. service industries contracted in November at the fastest pace on record, sinking the economy deeper into what may become the worst recession in decades.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 37.3, the lowest level since records began in 1997, from 44.4 the prior month, the Tempe, Arizona-based ISM said. Readings below 50 signal contraction.

Americans, hurt by mounting job losses, a lack of credit and falling home and stock values, are losing confidence and cutting spending on everything from cars and furniture to food and vacations. Slumping sales are prompting even more job cuts, signaling the economic slump will persist well into 2009.

“Business activity has shut down, along with the consumer,” Stephen Gallagher, chief economist at Societe Generale in New York, said in an interview with Bloomberg Television. “There is no reason for an immediate turnaround; financial markets have not stabilized; consumers have not stabilized.”

The index was projected to decline to 42, according to the median forecast in a Bloomberg News survey of 64 economists. Estimates ranged from 37 to 46.5.

Stocks retreated further after the report. The Standard & Poor’s 500 Index was down 113 percent, to 838.4, at 10:18 a.m. in New York. Treasury securities fell as investors judged the rally that pushed yields to record lows was unsustainable amid government efforts to revive growth.

Keep in mind that the Non-manufaturing segment of our economy now represents approximately 70% of the whole.

Morning update 12/3

Good Morning,

Dow futures are down about 150 points this morning.

RIMM lowered its Q3 outlook, Freeport McMoRan suspended its dividend and ADP reported that more jobs were lost in October than expected (their track record vs. government statistics is not good, but who is right? Neither!)

The non-manufacturing ISM number will be released later this morning.

Treasuries are under pressure again with yields on the 10 year falling.

From a technical perspective, this is a dangerous time to have money at work in either direction. A lot of market callers I follow were actually quite bullish last night and may be surprised by what the markets did overnight. One possibility is that we are forming another triangle. IF we are, they are frustrating to trade until they break. BTW, IF we are building a triangle here, it will most likely be bullish in the medium term as this triangle would have been entered on a move up and thus it would be expected for it to break in an upward direction. Again, IF that’s what’s happening. Wave 5 down is also still on the table, and from my perspective, the fundamentals support that.

So, let’s talk a little bit about crosscurrents… Waves are formed all the time in the markets, and they are occurring on ALL timeframes. These waves sometimes get in sync with one another to make moves that are larger and more powerful. I believe that we are experiencing a grand supercycle corrective wave, the most powerful there is. But within that wave, there are crosscurrents that can be seen if you look at the different timeframes. For example, on a weekly timeframe we have either just triggered a buy signal or are close to it, while on the daily timeframe we just rolled out of overbought and are close to generating a sell signal. To me, that’s a crosscurrent and those are NOT the time to be entering into large positions with your money. I look for alignment across multiple time scales. I usually start at the 5 minute, look at the 30 minute, and the 60 minute timeframes when placing ANY trade. And the further up the timescale you can find alignment, the better and the longer the duration of the trade.

At any rate, I see crosscurrents both on the long term scales and on the short term scales. When I get time I’ll write an article about that and show what I mean with pictures.

Meanwhile the markets just opened and we are down about 135 points. Is it just me or does it seem like we’re getting fewer gap fills than we used to? Perhaps we’ll get one today, again, too many crosscurrents here for me. I’ll let you know when I see a good entry point.

Have a good day,

Nate

Tuesday, December 2, 2008

My MONEY 'tis to me Sweet Land of Liberty...

…of thee I siiiinng!

Most Americans have probably never given a single thought to the CONNECTION between their liberty (their freedoms) and their country’s money or economic health. This is a subject that was CLEARLY UNDERSTOOD BY OUR FOREFATHERS but has since fallen wayside to a case of Bud (now foreign owned), American Idol, and a mind numbing food supply consisting of 90% corn syrup! I know it’s been awhile, but using our brains for a change won’t hurt; we’ll get through a little discussion here if we first just take another shot of insulin, caffeine, or Ritalin so that we can all FOCUS for a little while, okay? Of course I say that while pounding back another half gallon of Starbucks espresso blend!

When confronted with the math – the numbers – that simply no longer add up, people’s reaction is clearly one of shock. OH MY GOD, what have we done!? To experience that reaction yourself, you should read my previous article in my new “Cut the Crap” series, entitled simply, “Death by Numbers(on sale now for a monthly subscription of only $7.99, or get it for FREE here: http://www.mediafire.com/?m4yjy4fx3dz). Those numbers really say almost everything that needs to be said about where we are - at least to those who understand the ramifications – Fiscal Suicide.

The REALIZATION of a death is a traumatic and emotional experience. It IS GOING TO HAPPEN in some form to our economic system – the MATH says so – so from my perspective it is best to get through the grieving process and move on.

But obviously Bernanke, Paulson, Bush, and almost every other knuckleheaded Ivy League economist WISHES it weren’t so and thus they delay, and stimulate, and slash rates AS IF their ACTIONS will change the outcome and we can all avoid the day of reckoning! And yet their actions have indeed changed the outcome! History will show that they have EXPONENTIALLY WORSENED THE MATH and thus unwittingly SPEEDED our journey to fiscal road kill. History will not be kind, nor will I.

SO, our nation’s debts are SKYROCKETING while our tax base (income) is PLUNGING. And a never ending parade of “professional” “economists” and politicians on teevee keep telling us that THE SOLUTION to those problems is to pile on more debt and to cut taxes (income)? HUH?

Let me ask you something… Does your inner-child not question that math? Does it scream in agony at you as it knows the TRUTH, but yet their smooth words over-power your natural reason when you hear, “Our number one priority is to STIMULATE THE ECONOMY NOW TO SHOCK IT BACK TO LIFE, and we will worry about the rest later.

And what does your inner-child say when you hear that it’s okay for tax breaks to go the wealthy because their stimulation will “trickle down” through the rest of the economy? Did that ever make sense? And how does that inner-child feel about giving large portions of YOUR tax MONEY to the pigmen (oops, there’s that word again, I’ll have to work on that) who run the “federal” banks?

In case you can’t tell, my inner-child is throwing a MAJOR tantrum, and I still contend that any two year old has a greater chance at achieving a better outcome to this crisis than the pigmen who brought us here.

So, let's be adults and talk about where we've been, how we got to this place, and how we can make it better in the future. For truly people SHOULD NOT BE SHACKLED by a medium of exchange that is of their own invention. That is NOT Freedom.

Right now our economy is a ‘B’ horror show like the ones where the man-made computers have run amok taking over the entire globe, and the entire time you’re just sitting there cramming your mouth with butter “flavored” popcorn, thinking out loud, “PULL THE GODDAMN PLUG ALREADY, you morons!” But wow, I really took a detour there, so let’s get back on subject…

Now that the road kill cat’s out of bag, to even have a chance of understanding a better way forward, you must have an inkling of where it began. After all, even road kill was a living creature that had a bright and shiny future until one day…

My point is that our forefathers saw this coming.

And so did I and a lot of other people with common sense and the ability to do 2nd grade math, but NOT Bernanke, Paulson, Bush, Greenspan, nor anyone you ever saw allowed to talk in any “main stream” media! Guess what, there’s a reason for that, but I’ll leave that now for you to ponder while we return to our insightful forefathers:

For those of you whose “focus” drugs have worn off a little already…
…it was Thomas Jefferson who said, “Never spend your money before you have it.”

For those whose attention drugs are holding out a little better…

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
- Thomas Jefferson, Letter to the Secretary of the Treasury, Albert Gallatin (1802)

And look at where we are today! Who controls the issuance of our currency? Do you think it is the Treasury who rolls new twenty dollar bills off the printing press? NO, that is NOT how the vast majority of money is created. IT IS CREATED THROUGH THE ISSUANCE OF NEW DEBT! In fact, ALL MONEY IS ISSUED AS DEBT. And there USED TO BE a reserve requirement, but no longer. And lest anyone is still confused, our FEDERAL BANKING SYSTEM IS NOT FEDERAL AT ALL, it is PRIVATE, and thus the issuance of our currency is through the PRIVATE banks just like Jefferson warned. And so, first by INFLATION (what most adults spent their lives experiencing), and then by DEFLATION (what we are now experiencing and which adults cannot fathom), THE BANKS AND CORPORATIONS that will grow up around the banks, WILL DEPRIVE PEOPLE OF ALL PROPERTY UNTIL THEIR CHILDREN WAKE-UP HOMELESS! And what is happening NOW?

But the last sentence of this famous quote is the real “money” line, “THE ISSUING POWER SHOULD BE TAKEN FROM THE BANKS AND RESTORED TO THE PEOPLE TO WHOM IT PROPERLY BELONGS.” Can I get an “AMEN!” Heck yeah! Now we’re singing, “My MONEY ‘tis to thee sweet land of LIBERTY!”

You see, Jefferson was THE PRINCIPAL AUTHOR of the Declaration of INDEPENDENCE in 1776, AND he was the third President of the United States (1801 -1809), just in case our focus drugs are wearing thin (gulp, another slug of espresso). Jefferson didn’t just KNOW history, he MADE it. And he had what I call “future vision” (I see things in the future too, but perhaps I’ve simply had too much caffeine!). So, while he was writing and signing our Declaration of Independence, and doing little things like being President of a new and aspiring country, I wonder what they might have been thinking on the other side of the Atlantic?

While I can’t speak for all Europeans, I do know that the Rothschild family was emerging to control much of the banking system throughout Europe in Germany, Switzerland, England, France, and Italy. This was the same dynasty that profited from MARKET MANIPULATION (role modeling) as Napoleon was being defeated at Waterloo (Nathan Rothschild), and it was another Rothschild who famously said the following:

“Permit me to issue and control the money of a nation, and I care not who makes its laws.”
- Mayor Amschel Rothschild (1773-1855)

My point being that while we may have won our War of Independence, we ultimately gave up control of our central banking function. Our current interest bearing, fractional reserve, fiat money banking system was designed and implemented by the powerful banks – for THEIR profit, NOT YOURS. And to this point you may ask, “But you are saying the central banks should NOT be private, how are they any different than any other business?” And I will answer that question, but you must have patience and learn a little bit more about money and how we got to where we are first, before you can understand where I think this is likely to go and what I think a better destination might look like. If I were to go there directly, without this knowledge, you may dismiss what I propose out of ignorance, as many did when I began selling all my real estate holdings in the year 2005 and my equity holdings in the year 2007.

Just in case you, like nearly everyone else, have NO IDEA what an interest bearing, fractional reserve, fiat money system is, then, may I politely invite you to read my article entitled very simply, “Huh? Interest Bearing Fractional Reserve Money by Fiat… Doh!” which you can find here: (coming soon)

And if that article leaves you in a stupor, then, may I politely ask you to view this video production by the Misis Institute? Yes, it is a little stodgy and could be jazzed up with some good car chase scenes, a little bare skin, and guns with action figures who can CURVE the bullets, but overall, it gets the Good Housekeeping Seal of Approval and is also UL listed and compliant:



How are those FOCUS drugs doing? Man, this is some good shit. Pass the stuff over here, maaann.

Uh, okay, minor flashback there, college days, whew, I can barely remember those, but hey, I never inhaled! But before that little episode I was talking about our founding fathers and how they knew that we would be SCREWED if we didn’t control our central banking function and how they also appreciated the connection between FREEDOM, SECURITY, AND MONEY…

“Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.”
- Benjamin Franklin, Historical Review of Pennsylvania, 1759>

A concept WHICH THE CURRENT ADMINISTRATION DOES NOT UNDERSTAND, but which I will try to explain from my now fully caffeinated perspective...

FREEDOM AND SECURITY are TIED TOGETHER by MONEY, and they are INSEPARABLE. They all dance together, but, they dance together on the top of a balance beam!

Let me explain:

If the resources of a country are solely devoted to SECURITY:

Then there will be no real economy left for society. President Reagan is credited for winning the Cold War based on this principle. We led an arms race against the Soviet Union and their economy was not able to keep pace. You know how that turned out! By the way, I flew some of the first IMF missile treaty inspectors into Siberia when I was in the Air Force in the late 1980’s during the Cold War and had the privilege to stay in and tour some of their cities. At that time it was like stepping into a time machine and going back to the 1930’s. Socialism was NOT working out economically, and one look at the quality of their health care would make anyone embrace free market principles!

The Soviet’s OVERREACTION and focus on Reagan’s SDI initiative BANKRUPTED their nation.

I know this will be very controversial, but I have contended from the beginning that OUR OVERREACTION to the events of 9/11 has, in fact, BANKRUPTED our nation. Of course we were well on our way there already, but it was definitely a very heavy straw placed onto the back of our economic camel.

That’s what happens when you lose sight of the big picture, the FOREST through the TREES. Want a hint that you’re headed too far in one direction? WHEN YOUR COUNTRY SPENDS AS MUCH ON THEIR MILITARY AS ALL THE OTHER COUNTRIES ON THE PLANET COMBINED, it’s time to stand back and look at the FOREST – Gump!

So, while you are spending yourself senseless on the pursuit of SECURITY, you are actually making yourself LESS secure once you cross that fine line that is WAY, WAY, before the point we are at now. And is it just me, or does anyone else picture Osama Bin Laden sitting in a cave laughing his ass off? And, from my perspective we are now WAY MORE AT RISK AND LESS SECURE THAN EVER. In fact, our overindulgence in government, military, and “security” has left us in debt to the rest of the world while our actions have spawned MORE hatred and more potential enemies. Thus it is a negative feedback loop that leads to no place your grandchildren will appreciate.

NO, I am not weak on our security. IT IS A BALANCE for LONG TERM protection.

And I must add that legislation such as the Homeland Security Act, directly attempts to gain security at the cost of freedom, both by spending money we do not have and by diminishing individual rights and increasing the powers of the government.

Of course all you rednecks are shouting, “shut the heck up you PUSSY! You don’t LOVE America or you would be wearing a lapel pin American flag when you done there talk like that… BOY!”

They continue, “Why THEY have a secret plan; if YOU only knew what THEY do! Them boys are taking the fight to THEM, you know, the TERRORISTS. Why heck, it’s the smartest darn thing in the world we’ve done did there, to them Al qaeda LUNITICS who are drawn like flies to our military fly paper!” And he adds, “And that, there, is why you haven’t done seen another repeat of 9/11! BOY!”

SIGH. Don’t get me started on the “WAR on terror!”

Like religion and politics, I know that this is a subject that that can really hit nerves, and frankly, I hope I just hit one! Look, BIG government and BIG military lead to an inefficient country, there’s just no way around it.

And speaking of BIG government, another clue that things have gone too far is when more than half the working population works either directly or indirectly in support of the government! But that’s another subject that I’ll jump on later.

My point is that WE HAVE (had) A CHOICE, we can choose to make security the focus of our economy, or we can choose to make freedom the focus of our economy. The actions of late certainly do not resemble those of a free economy.

If, on the other hand, a country devotes its self to FREEDOM:

Then the economy generates the revenue that can be LEGITIMATELY spent on SECURITY! It’s as simple as that.

Know what? I have also found that to be true in my personal life. If your actions are focused on gaining security, you can find yourself lacking in freedom, and if you overdo it, may actually sacrifice security. I’m not just talking about physical security; I’m also talking about your wealth and your relationships with others.

I know, I know… it’s a touchy feely subject, but like all things in life, moderation and balance seem to be key. Again, FREEDOM, SECURITY, and MONEY are all linked. Neglect any one, or obsess on one and you may find that Nate’s rule about accidents might just come up and bite you! What rule is that? It’s just a simple FACT that the ACCIDENT involving YOU is usually not the one you see coming! It’s the one YOU DON’T see that gets you. Thus, you are well served to pick your eyes up off the TREE and begin to look around the FOREST – Gump!

And thus we circle back around to DEBT… it is a shackle around the necks of those who owe. That can be your personal debt, or it can be our national debt. Debt is the enemy of FREEDOM and yet ALL MONEY IS DEBT.

And that money is of our own creation! Or is it the creation of a few?

As we mourn the loss of a system, perhaps we need to look around and see the OTHER possibilities. Do we WANT a new system that’s just a larger version of the old system? Or, do we want to take a step up to the next rung on the Darwinian economic ladder?

The CHOICE, you will likely be told, is NOT yours to make! You will be told that you must take action and you must take it NOW, OR ELSE, HELL and BRIM FIRE DAMNATION will surely befell this great land of ours!!!

YEAH, okay, if you say so…

Personally, I believe there’s a better way. I’m working my way there, one step at a time. We’ve seen how the math just doesn’t work. And now we have come to realize that DEBT is the enemy of FREEDOM, and that we, the PEOPLE, may have won the War of Independence, but we NEVER gained control of our central banking system or our MONEY.

So, as we hear the pundits on teevee discuss this tree and that, make sure you take a caffeinated look around, for it is the roots that ultimately hold the forest up, and that is where we should be scanning for REAL problems and real SOLUTIONS. Roots.

It’s time to CUT THE CRAP America! Time is running out, we’re already half way to zero! The CHOICES of the future WILL BE MADE FOR YOU unless we all demand a well thought out system that works for US.

Nate

My COUNTRY ‘tis to thee sweet land of liberty – of thee I Siiiiinnng!




VIEW THE MOVIE I.O.U.S.A.,
Please keep in mind that Debt to GDP comparisons are not valid in my judgment, and also that the numbers have already grown exponentially since this was made a short time ago.


– 30 minute version