Saturday, April 11, 2009

Weekend Update

“Clowns to the left of me, jokers to the right, here I am, stuck in the middle with you."

And I am stuck in the middle. I have been reading and writing a lot the last few days and can say that without a doubt the market is either going to launch into a hypersonicinflationaryspiral OR we are going to collapse into a depressionarycreditcollapseofmajorproportionspiral. One or the other. Possibly both. ;-)

Actually, reading Martin Armstrong’s work helps me to look around for underlying shifts in the fundamentals as he has a mid-cycle point that is on April 19th. That doesn’t mean it’s a top or that an underlying change happens on that exact day (a Sunday). It does mean that we should be looking for signs. We have recently seen an unprecedented global effort to reinflate the world. Bernanke QE, Stimulus everywhere, China M2 growing at 25%+… that’s the hypersonicinflationaryspiral part. The other part is debt upon debt, consumers who are tapped out and losing their jobs, asset prices that have fallen and continue to fall, TAX REVENUES that have fallen off a cliff, quant funds and investment banks playing games and DISTRIBUTION AT THE TOP of a large bear market rally. That’s the depressionarycreditcollapseofmajorproportionspiral part.

The retail investor sees a breakout on Thursday on higher volume (SPY/DIA/XLF/DOW). P&F charts that produce higher targets. Goldman Sucks announces they are going to be selling stock to raise capital and pay off the TARP. To which I say BFD to the T-A-R-P. The TARP, the recent rally, the change of accounting rules, the quantitative easing, the phoney baloney “stress test” all of it a big bag of stinking manure, morally corrupt LIES and MANIPULATION. Other than that I have no strong opinions.

And the break out above trendline is plain as day for everyone to see. Look at the markets during Great Depression and you will see several breakouts above lower level trendlines. The long term bear market indicators, moving average crosses and DOW theory, are not even close to being reversed. As I look into the market I see signs of distribution, of the large guys selling to the small guys. I see advance/decline divergences that are growing larger, and I see a potential ending diagonal that conflicts with the obvious breakout. In fact, a move lower on Monday would turn your basic breakout into a throwover.

Last Thursday was the end of trading for a shortened holiday week and thus we had a low volume week – but it was on track to be low volume regardless. The rule of alternation before Opex says that if the Thursday prior to Opex is up, then the week of Opex is down (about a 70% rate of success). Well, last Thursday saw the DOW rise 246 points (3.1%), the S&P rose 3.8%, the NDX gained 3%, and the RUT rose a whopping 5.9%.

Internals were strongly bullish once again, another 90%+ up day – I’ve lost count. Anyone here think that’s a normal healthy bull market? What, no hands? 93% of the volume was up and there were 13 new highs (a slight decrease despite an up day), and no new lows.

The XLF went on a 15.54% moon launch on word that, wink-wink, all 19 of the banks are going to pass the stress test, nudge-nudge. And WFC rose 32% on RECORD profits, courtesy of AIG, spreads widened with QE and taxpayer money, USURIOUS consumer credit rates and fees, and good old fashioned Enron accounting principles. Basically all the things that show our economy has come back to its previous full glory.

The XLF chart produced yet another huge gap overnight opening above the 100dma and quickly penetrating the upper Bollinger band where it closed. A pullback would be expected to get back inside. Note the higher volume… that was everywhere Thursday:

The XLF Point & Figure diagram produced a breakout target of $20. Note the lack of price volume resistance until you arrive at the $20 area:

Just don’t look at the CMBX indices or those rates might make your hair stand on end.

And despite the risk of implosion in the Commercial Real Estate segment, IYR climbed 12% breaking out and producing higher targets on the P&F charts:

Here’s a 3 month weekly chart of the DOW. That is a pretty clear looking hammer which is normally indicative of a top. Note the volume pattern on the weekly here… falling prices – rising volume. Rising prices – falling volume. The Weekly stochastic fast is just touching overbought here, of all the major indices, the DOW is the least overbought on this timescale:

The SPX weekly is also a hammer and is overbought on the stochastic (btw, the NDX closed ABOVE THE WEEKLY BOLLINGER):

The SPX daily, 3 month chart shows that we’re up above the 100dma and getting near the prior secondary tops in the 878 area. There is resistance in the 865 area as well, but the next higher pivot point is all the way up at 912. The next lower pivot is now support at 848:

The 30 day SPX is where I see a potential ending diagonal that I highlighted in red. If this pattern is in play, we may have just a little higher to go and then we should be done with the pattern and fall out of the bottom. Some EW experts, however, believe we are in wave 3 up of wave C. I will not venture a guess as to the count here, again it’s too complex a formation for me and is built entirely of manipulation as far as I’m concerned, so I won’t try to count it. Note that the stochastics are overbought on all timeframes UP TO WEEKLY!

You can see on the SPX P&F chart that it broke the downtrend line and produced a triple top breakout with a target of 1,065! NO, we are not going there this week or even next! In fact, of all the targets produced by the P&F charts, this is one that I am most suspect of, and note that there are conflicting targets still such as the dollar which still has a higher target. The SPX is not going to 1,065 with a rising dollar – period:

The P&F for the VIX has a target of 33. It closed in the 36 range on Thursday and can still be considered to inside of a large bullish pennant. The gap down produced an odd candle for the VIX, just sitting there out in the open. A gap back in the other direction would abandon that candle and be very bearish for equities (confirmation of course):

Here’s a chart of the Nasdaq Advance/Decline line versus the Nasdaq price. That’s a very large bearish divergence. The NYSE also has a bearish divergence, but not anywhere near this large. This is another indication of distribution and that we are nearing a top:

And here’s a chart that someone posted on Tickerforum – I’m not sure who originated it, but it’s a good one. It shows the percent of S&P 500 stocks that are above their 50 day moving average. Tops tend to occur when this average is above 80, and right now it’s way above:

There were several other really good charts on Tickerforum this weekend that others have compiled. One that struck me was the buy/sell volume which clearly shows that this rally is being sold into.

So, overall I think we may be at or near an intermediate term top. At least some correction is expected in the short term. Do we turn and go straight down? It’s a possibility – hell the tax revenue short fall should scare everyone with an ounce of common sense into protecting whatever wealth they have. The government will be after it at some point. The government is now stuck. The wealthy are stuck. The middle class are stuck, and the poor are just out of luck. All I see are “Clowns to the left of me, jokers to the right, here I am, stuck in the middle with you."

Stealers Wheel - Stuck In the Middle with You (ht backwardsevolusion):

China PIO…

Pilot Induced Oscillations (PIO) are induced when control inputs are out of phase with the cycle. The pilot, seeing the airplane yaw and roll to the right applies left aileron to correct, not realizing that the airplane would have corrected on its own had he not made any input at all! Yes, the plane may continue to sway to and fro, but when the pilot introduces his inputs, the sway, the yaw and roll GROW LARGER. This can and has become so extreme that the aircraft breaks up in flight!

PIO can also occur along the pitch axis:

Knowing that cycles occur in flight, pilots are trained in PIO and modern airplanes have computers (yaw dampers) that make small and timely control inputs to prevent them from occurring in the first place. That’s why you almost never spill your coffee while flying on a modern airliner.

Our economy goes through several cycles of varying degree all the time. A properly designed economy would have natural forces that damper the oscillations to keep them from growing too large. Incorrectly applied inputs force the cycles to become much larger than they naturally would. Greenspan lowering rates to zero? Bailing out bad banks? STIMULUS? Governments think they are the pilots of the economy, but they merely introduce inputs, mostly the improper kind.

Witness the lost decade in Japan (now approaching two decades). Propping up failed banks was an input that did not allow misallocations to be cleansed.

Witness CHINA. They “manage” nearly every aspect of their markets, starting with their currency. In late 2008 when their market became overheated and common people invested their life savings in stocks, a BUBBLE was blown that the Chinese then set about to intentionally prick. They raised bank reserve requirements on multiple occations, they kept interest rates high. And prick the bubble they did. The Hang Seng index plummeted from a high of 32,000 to a November low of just 10,600, a loss of 66.9% (a Seth number):

Now that the bubble has been pricked, check out their latest control input – a 25.5% increase in M2!!
China Loans, Money Supply Jump to Records on Stimulus

By Kevin Hamlin

April 11 (Bloomberg) -- China’s new lending surged more than sixfold from a year earlier to a record 1.89 trillion yuan ($277 billion) in March, adding to signs that growth in the world’s third-biggest economy is gathering pace.

M2, the broadest measure of money supply, grew 25.5 percent, the central bank said on its Web site today. That’s the fastest since Bloomberg began compiling data in 1998 and more than the 21.5 percent median estimate in a survey of 12 economists.

President Hu Jintao said April 1 that China’s 4 trillion yuan stimulus plan was taking effect, after urban fixed-asset investment surged 26.5 percent in the first two months. China’s lending boom contrasts with the struggle in the U.S. to rid banks of illiquid assets and efforts by central banks from Switzerland to Japan to unfreeze credit.

“China is unusual in that it has this incredible capacity to mobilize all its institutions -- central government, local governments and the entire banking system -- to boost government-influenced investments,” said Vikram Nehru, the World Bank’s Washington-based chief Asia economist.

China’s banks, which are mostly state-owned, have already met the bulk of the government’s target of at least 5 trillion yuan of new loans this year. Lending may top that level by as much as 3 trillion yuan, according to JPMorgan Chase & Co.

The explosion in credit since the central bank dropped lending restrictions in November prompted the nation’s banking regulator to warn this month that lenders face a “severe” challenge in managing their risks.

Hazard for Banks?
“The central bank had to ensure it did enough to reflate the economy,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong. “The question now is whether it has done more than is needed.”

A concentration of loans in infrastructure projects is a potential hazard for banks, China Banking Regulatory Commission Vice Chairman Jiang Dingzhi wrote in the April 1 edition of China Finance, a magazine affiliated with the central bank. Unusual growth in discounted bills, which are used for working capital and dilute banks’ lending profits, “deserves high attention,” Jiang said.

“The biggest dangers to China’s economy and financial system come from within, not from outside,” Jiang Zhenghua, former vice chairman of China’s parliamentary standing committee, said at a financial conference in Beijing today. “The biggest of these hidden dangers is the degree of bad loans in China.”

Not everyone agrees on the risks.

Loan Quality
China Merchants Bank Co., the nation’s fifth-largest by market value, said this week that providing money for infrastructure projects will improve the quality of its book by adding more medium- to long-term loans.

Besides the risk of bad loans, the credit boom may inflate asset prices and increase the likelihood of inflation making a comeback. The benchmark Shanghai Composite Index of stocks has climbed about 34 percent this year.

“Some of the money has gone to the property market, some to the stock market,” said Lai at Daiwa Research. “It is not what the central bank wants to see.”

Excessive loan growth may “lead to inflationary pressure in the medium term, exacerbate credit risk and could potentially contribute to higher volatility in the economy,” said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong.

“With loan growth rates exceeding official targets, bank regulators may urge more restraint, to guard against excessive liquidity,” Jing Ulrich, head of China equities at JPMorgan Chase & Co. in Hong Kong, wrote in a report today.

China’s banking regulator is examining whether it needs to curb lending after new bank loans surged to a record in March, the Shanghai Securities News reported on April 8, citing unidentified people.

Still, exports fell a record 25.7 percent in February, Chinese steel prices have dropped this year, and industries face “great difficulty,” according to Ou Xinqian, a vice minister of Industry and Information Technology.

Trade Surplus
China’s trade surplus shrank 45 percent to $62.5 billion in the first quarter, from $114.3 billion in the previous quarter. The country’s foreign-exchange reserves grew by the least in eight years to $1.9537 trillion, the central bank said today.
Economic growth cooled to 6.8 percent in the fourth quarter, the slowest pace in seven years. The first-quarter figure is due April 16.

“China is unusual in that it has this incredible capacity to mobilize all its institutions -- central government, local governments and the entire banking system -- to boost government-influenced investments,” said Vikram Nehru, the World Bank’s Washington-based chief Asia economist.

Yes, Nehru is correct in that China is unique. I would say that China’s economy is more closed than the western world and thus attempts to create growth via money pumping would be more effective in creating inflation. Inflation that is causing China to do a real number on itself. Exports falling, huge new buildings and factories empty. Yes, they have surpassed the U.S. in auto sales now, but that’s not saying much for a country whose population is four times that of the U.S. What exactly are they going to produce and who are they going to sell it to? Dumping money into a semi-closed system will simply produce the next and LARGER pilot induced oscillation.

The U.S. is becoming more and more socialist and controlled. Our markets are anything but free at this point. One thing that can be forecast as a result is an increase in the magnitude of the cycles and volatility. Hopefully our economic aircraft can maintain structural integrity until it comes in for a safe landing. If that’s possible…

Martin Armstrong wrote a piece on China and controlled markets that is quite relevant. I hope you’ll find the time to read it. The New Face of China.pdf

Perhaps China and the U.S. could learn something from the aviation industry. The first would be how to do forensic accident investigation and how to implement the lessons learned from those accidents. Perhaps a simple diagram showing what inputs to apply or not to apply during oscillations would be appropriate?

Signs of Bubbles… “Betting on the Market”

PBS’s Frontline did a piece called “Betting on the Market” only 12 short years ago. Today it looks and plays like an important piece of history.

The video below shows Jim Cramer and other fund managers in the momo days of 1996. This is a terrific history lesson in bubbles. The video below is part 1, please view but don’t laugh too hard at how television made over Cramer:

Jim Cramer in 1996. "Betting on the Market" PBS Frontline (1997 Part 1 - 10 minutes):

Wow, what a throwback! Wouldn’t you love to find out the current situation of the carpet laying couple? How many people recognized in 1996 that they were participating in the largest economic bubble ever created by mankind? Notice the one manager who got up in front of the crowd realized that his opulent surroundings and number of people in the audience meant that he was near the end of the cycle. Did you catch that? He had an inkling, but I’ll bet he couldn’t describe the seven stages of a bubble!

So, let’s review Hyman Minsky’s seven bubble stages:
Ludwig Von Mises noted that the size of the bust is commensurate with the size of the boom and it was Hyman Minsky who accurately described the seven bubble stages (the following excerpt is from my book Flight to Financial Freedom – Fasten Your Finances, written during 2005/2006):

The late Hyman Minsky, Ph.D., was a famous economist who taught for Washington University’s Economics department for more than 25 years prior to his death in 1996. He studied recurring instability of markets and developed the idea that there are seven stages in any economic bubble:

Stage One – Disturbance:
Every financial bubble begins with a disturbance. It could be the invention of a new technology, such as the Internet. It may be a shift in laws or economic policy. The creation of ERISA or unexpected reductions of interest rates are examples. No matter what the cause, the outlook changes for one sector of the economy.

Stage Two – Expansion/Prices Start to Increase:
Following the disturbance, prices in that sector start to rise. Initially, the increase is barely noticed. Usually, these higher prices reflect some underlying improvement in fundamentals. As the price increases gain momentum, more people start to notice.

Stage Three – Euphoria/Easy Credit:
Increasing prices do not, by themselves, create a bubble. Every financial bubble needs fuel; cheap and easy credit is, in most cases, that fuel. Without it, there can’t be speculation. Without it, the consequences of the disturbance die down and the sector returns to a normal state within the bounds of “historical” ratios or measurements. When a bubble starts, that sector is inundated by outsiders; people who normally would not be there. Without cheap and easy credit, the outsiders can’t participate.

The rise in cheap and easy credit is often associated with financial innovation. Many times, a new way of financing is developed that does not reflect the risk involved. In 1929, stock prices were propelled into the stratosphere with the ability to trade via a margin account. Housing prices today skyrocketed as interest-only, variable rate, and reverse amortization mortgages emerged as a viable means for financing overpriced real estate purchases. The latest financing strategy is 40, or even 50 year mortgages.

Stage Four – Over-trading/Prices Reach a Peak:
As the effects of cheap and easy credit digs deeper, the market begins to accelerate. Overtrading lifts up volumes and spot shortages emerge. Prices start to zoom, and easy profits are made. This brings in more outsiders, and prices run out of control. This is the point that amateurs, the foolish, the greedy, and the desperate enter the market. Just as a fire is fed by more fuel, a financial bubble needs cheap and easy credit and more outsiders.

Stage Five – Market Reversal/Insider Profit Taking:
Some wise voices will stand up and say that the bubble can no longer continue. They argue that long run fundamentals, the ratios and measurements, defy sound economic practices. In the bubble, these arguments disappear within one over-riding fact – the price is still rising. The voices of the wise are ignored by the greedy who justify the now insane prices with the euphoric claim that the world has fundamentally changed and this new world means higher prices. Then along comes the cruelest lie of them all, “There will most likely be a ‘soft’ landing!”

Stage Five is where the real estate industry is today [2005/2006]. This stage can be cruel, as the very people who shouldn’t be buying are. They are the ones who will be hurt the most. The true professionals have found their ‘greater fool’ and are well on their way to the next ‘hot’ sector, like the transition from real estate to commodities now.Those who did not enter the market are caught in a dilemma. They know that they have missed the beginning of the bubble (gold, silver, and oil today [2005/2006]). They are bombarded daily with stories of easy riches and friends who are amassing great wealth. The strong will not enter at stage five and reconcile themselves to the missed opportunity. The ‘fool’ may even realize that prices can’t keep rising forever… however, they just can’t act on their knowledge. Everything appears safe as long as they quit at least one day before the bubble bursts. The weak provide the final fuel for the fire and eventually get burned late in stage six or seven.

Stage Six – Financial Crisis/Panic:
A bubble requires many people who believe in a bright future, and so long as the euphoria continues, the bubble is sustained. Just as the euphoria takes hold of the outsiders, the insiders remember what’s real. They lose their faith and begin to sneak out the exit. They understand their segment, and they recognize that it has all gone too far. The savvy are long gone, while those who understand the possible outcome begin to slowly cash out. Typically, the insiders try to sneak away unnoticed, and sometimes they get away without notice. Whether the outsiders see the insiders leave or not, insider profit taking signals the beginning of the end (remember who has sold their rental properties?).

Stage seven – Revulsion/Lender of Last Resort:
Sometimes, panic of the insiders infects the outsiders. Other times, it is the end of cheap and easy credit or some unanticipated piece of news. But whatever it is, euphoria is replaced with revulsion. The building is on fire and everyone starts to run for the door. Outsiders start to sell, but there are no buyers. Panic sets in, prices start to tumble downwards, credit dries up, and losses start to accumulate.

This is where you may see the “lender of last resort” who is usually the government. The government, although they were talking up a soft landing, are now forced to step in to prevent the crises from spreading to other sectors. Ironically, this is where the savvy investor who profited before, really profits now. With government backing, they are asked to step in and return “normalcy” to a now damaged sector.

The government’s attempt to “put out the fire” usually works. However, the conditions beyond the year 2010 will require oceans of water that the government does not posses. You must be ready!

"Betting on the Market" PBS Frontline (Part 2 - 10 minutes):

Mutual funds everywhere. Everyone was invested. You couldn’t lose money, all you can do is make it – it was just a matter of how much. If you weren’t in aggressive growth earning 60% you were a loser! ERISA laws created 401k’s and IRA’s and allowed the common man to “invest” for their retirement with tax deferred savings.

Now mutual funds are so passé.

And what has the same rage today? How about ETFs? Exchange Traded Funds are popping up like weeds. There’s even an ETF that goes up depending upon how many times Nate goes to the bathroom! Look for the 4X inverse next week.

And it’s wonderful because now Joe sixpack carpet layer can invest all his money against the market instead of just with it! And if that’s not good enough, he can now leverage his “thinking” by the power of three! All inside his IRA brokerage account!

Surly most investors reading my blog know that these new instruments are used primarily by professionals as short term trading vehicles, right? Guys like hedge fund managers, who are now propped up by our government, make a killing trading these things and you want to be just like ‘em, only better, right? You’re nimble, a trader’s trader.

Let’s take a look at a couple of new and popular ETFs, FAS which is 3X the financial sector:

Wow, that’s quite the track record. If you were excited about this 5 month old ETF and bet 5 months ago that financials would go up and held that investment then you would be down tremendously. And just look at the volume grow!

Boy, being 3X long the financials was a huge mistake! You must have meant to be in FAZ, the 3X INVERSE of the financial sector. Let’s see how you did using these new and wonderful ETFs being short the financials?

Shazaam! That is just ugly! What a great invention. I hope you can all stand back and look around at the financial industry and SEE what is going on TODAY. Did you see the mutual fund industry in a bubble at the time - honestly?

The current derivative backed ETFs are going to look silly a decade from now, just as mutual funds and Jim Cramer looks silly today. Again, what is the purpose, why are they allowed, and who profits? Is playing FAZ or FAS any different than going to the local casino? Is it more legitimate?

Here’s the next segment, talking about the Motley Fool – more historic perspective, enjoy…

"Betting on the Market" PBS Frontline (Part 3 - 10 minutes):

Great throwback review of the market... Nothing like going back in time to put the here and now into perspective.

Friday, April 10, 2009

U.S. Budget Disaster Strikes – March Outlays 2.5 Times Income!!

Yes we had two more banks fail today… one the FDIC could not sell and simply told depositors to take their money and move it to other banks. The reality, of course, is that the FDIC does not actually possess any money to guarantee anything. All of that money must be fabricated. But bank failures are NOTHING in comparison to what’s happening to our government’s budget.

I’ve been YELLING about the relationship of rising government expenditures coupled with falling income/revenue. It’s been a disaster and now it’s just unfathomable. Read and think about the following numbers carefully:
Budget deficit triples to $957 billion for year

March deficit hits $192 billion has receipts drop 28%, outlays rise 41%

By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) -- The U.S. federal budget deficit rose to a record $956.8 billion in the first six months of the fiscal year after the government stepped up spending to cope with a recession that has depressed tax receipts, the Treasury Department reported Friday.

The deficit is well on its way to the $1.75 trillion -- or 12.3% of gross domestic product -- that the White House has estimated for the full fiscal year, which ends in September.

The deficit through the first six months is more than three times higher than it was at this time last year. The government has borrowed $1 trillion from the public so far this fiscal year.

In March, the deficit widened to $192.3 billion from $48.2 billion in March 2008. Outlays rose 41% to $321.2 billion from $227 billion, while receipts dropped 28% to $129 billion from $178.8 billion.

Receipts from individual income taxes fell 27% in March, versus year-earlier figures. Individual refunds are up 14% so far this year. Compared with a year earlier, corporate income tax receipts fell 90% to $3.4 billion.

Much of the increase in outlays in March came from extraordinary investments by the government in banks and Fannie Mae and Freddie Mac, loans to credit unions, and increased spending from the stimulus package for unemployment insurance and Medicaid. Some of those investments should be repaid over time, but the government is booking them as cash expenses for now.

In March, Fannie Mae received $15.2 billion, Freddie Mac received $30.8 billion, and unemployment benefits totaled $10.6 billion.

Through the first six months of the fiscal year, outlays are up 33% to $1.95 trillion. Receipts are down 14% to $989.8 billion. Corporate income taxes are down 57% to $56.2 billion, while individual income taxes are down 15% to $429.7 billion. Payroll taxes are up 0.3% to $430 billion.

This is truly an EPIC collapse of government receipts, and maybe one of the most important stories of this time. Failing banks are one thing, failing governments are another.

Remember, deficit spending leads to debt. The only way to service debt is with income. Thus, in the long run what matters is debt to income. But if you really want to create a crisis in the here and now, the best way to do it is to run out of cash! How does one do that? Simply by taking in less cash than you pay out. Right now we’re talking about outflows that are 2.5 TIMES income for the U.S. Government!

Outlays = $321 billion in March

Receipts = $129 billion

Shortfall = $192 billion for the MONTH

Annualized, that shortfall adds up to $2.3 TRILLION

Forget about GDP comparisons, they are meaningless. We simply are piling debt on top of debt and we do not have the cash to pay our current bills much less those of the past. And none of our government’s budgets use the same GAAP accounting rules that they mandate you and your company use, they do not count future obligations as deficits – thus the term “CURRENT account deficit.” Check the BIG RED NUMBERS at the bottom of this blog. That number is VASTLY understated. Heck, they won’t even dream of adding Fannie Mae and Freddie Mac debt to their own balance sheet – I mean OUR own balance sheet – because the amount of debt is staggering.

Total Government Debt - Their method of reporting:

% Annual Change in Government Debt:

For the last several years our total national receipts were running at about $2.7 trillion per year. March’s receipts annualized add up to only $1.5 trillion. CORPORATE INCOME TAX RECEIPTS DOWN 90%!!

Tax Receipts on Corporate Income:

That is EPIC! Is this happening only on the National level?

NO! It’s happening on all government levels from the city, to the county, to the state. Revenues crashing, expenses skyrocketing… Here in Washington State, our budget deficit is now climbing at the rate of half a billion dollars per month! I just read an article that said one of the local towns is closing several main arterials to truck traffic because they can’t afford to repair the roads (Auburn May Ban Trucks from Key Freight Routes)!

State & Local Corporate Tax Receipts (Note the last large negative time period):

Make no mistake. This is a collapse of HISTORIC proportions. Total receipts DOWN 28%! That in itself is unprecedented, but combined with a 41% rise in outlays is simply a DISASTER. Deficit spend yourself to prosperity? That takes a special brand of nuts – as in INSANE. Can you imagine the trouble you would be in if your expenses were 2.5 times your income this month? What would you do? Would you spend more to stimulate your household? Where would you get the money? Borrow it? How long will that last? Uh, huh… that’s what I thought. Think we can print our way out of that? Forget it.

Mayor Bloomberg is calling the city of New York bankrupt unless they get MAJOR concessions from employees on their pensions. That’s two problems in one. Pensions are another very major problem, and all these problems compound upon the same 305 million taxpayers, many of whom are now unemployed, semi-employed, or whose living wage has been exported.

People who believe that municipal bonds and U.S. Treasuries are rock-solid safe because they have the power of taxation had better look at the numbers above.

And those who believe that the government can spend our way out in New Deal fashion are simply math challenged. We cannot afford to maintain the infrastructure we have, much less build more.

This is what happens when private central bankers run your money, your politicians, and your country. They create a monetary system that requires never ending growth to remain functional while they skim the growth and pocket your production along the way. Over time they hold all the wealth. Never ending growth is simply not possible as those who have spent some Time with the Good Dr. Bartlett know.

This historic drop in revenue is no surprise to me. The math underlying our economy does not work and is getting worse. I wrote Death by Numbers only a few months ago. The math is getting much worse, the same 305 million people are obligated for it all – that includes us and our families.

Hugh Hendry…

…on the markets, debt, the Dollar, being a contrarian, and on China. Not great quality video, but his thoughts are on the money like always (hat tip RW).

Hugh Hendry - 'I want to short people like me' (10 minutes):

Hugh Hendry - Chinese Economy 2009 (5 minutes):

Open Thread for the Weekend...

I'll have an update either later today or tomorrow. In the mean time, let's use this post as a general comments/ market thread...


Thursday, April 9, 2009

Martin Armstrong – Article Anthology…

Below are links to 12 of Martin Armstrong’s most recent articles. As far as I know, this is the only compilation of all 12 articles on the web.

I have gone over his situation before, he is in prison as I explained and provided research links for in my article Martin Armstrong's Latest... from behind bars. My source tells me that the SEC has just agreed to review his case.

I believe his work to be much more valuable than the drivel the mainstream is constantly feeding us. His work and understanding of economic cycles is out of the box and colored by his life experience, but appropriately so. His cycle dates, however, are not necessarily perfect/exact (take them to be plus or minus) and are not necessarily aligned with just the markets in the U.S. Therefore, you should not attempt to “trade” them on a short term basis. They are the larger forces at work and you should instead look for signs of significant developments around his cycle dates. For example, he had a cycle date in February, 2007 that corresponded to a top in the Nikkei and also in IYR – Commercial Real estate. Another major date is April the 19th… only 10 days from now.

I am listing his articles roughly by date, most recent first (not all the articles were dated, I do not know the order of those) and will add a link to this post in the right column labeled “Other Articles” so that you can find it easily. There’s a ton of information to digest. Most of it is very good, all of it is interesting. Much of it deals with his situation and he does look “at the man behind the curtain,” so keep an open mind as you read, and remember that he is writing these the old fashioned way, on an IBM Selectric!

You’ll also find a lot of good and meaningful history reminders going all the way back to the Roman Empire – something Bernanke would have been better served by doing. At any rate, don’t try to absorb it all at once, take it one article at a time, one page at a time so that you catch the meaning and understand where he’s trying to lead you. While I can’t say I agree with all his viewpoints, I can say that I agree with most and am glad I have the opportunity to share his work with you. Enjoy.

*To save on bandwidth expense, please download only once and save the file, thanks!
Destroying Capital Formation.pdf

The New Face of China.pdf

The Decline and Fall.pdf

Economic Suicide through Regulation martin armstrong.pdf

Turn out the Lights.pdf

The Collapse of Capitolism.pdf

Practical Laws of Global Economics.pdf

The Coming Great Depression.pdf

Implied Expectation of the Future.pdf

We are Alone.pdf

Its Just Time.pdf

The Only Viable Solution.pdf

Goldman Sachs Seeks to Silence Blogger Mike Morgan!

Okay, that’s the limit. The line. They have crossed it with this blatent attempt to silence Mike Morgan's blog and the PEOPLE had better let their representatives know that they are not going to take attacks like this on their First Amendment rights or we are likely to lose our only bastion of realistic reporting!

Seriously, this is nothing but a sick and perverse attempt to silence a critic, a truth teller. If they silence Mike Morgan, who’s next? Mish? ME?
Goldman Sachs Seeks To Stifle Blogger Critic (GS)

John Carney Apr. 9, 2009

Lawyers for Goldman Sachs are threatening a federal lawsuit against a blog that is critical of the investment bank.

The website "Facts About Goldman Sachs" states that it is an "open forum for facts and discussion about what part Goldman Sachs and their executives played in the current Global Economic Crisis." It is, as you can imagine, extremely critical of the investment bank. Now lawyers from the law firm Chadbourne & Parke have sent a letter to the proprietor, Mike Morgan, claiming that the website's URL,, infringes on the investment bank's trademark.

"Your use of the mark GOLDMAN SACHS violates several of Goldman Sachs' intellectual property rights, constitutes an act of trademark infringement, unfair competition and implies a relationship and misrepresents commercial activity and/or an affiliation between you and Goldman Sachs which does not exist and additionally creates confusion in the marketplace," Goldman's lawyer writes. (The full letter is below.)
The letter goes on to threaten legal action if Morgan does not stop using the name Goldman Sachs.

Morgan has struck a defiant pose, vowing the battle Goldman in court. "Needless to say, we will most likely fight this one in court with Goldman Sachs and now we will expedite adding relevant content to this website," he writes.

We're not experts in trademark law. But it strikes us as extremely unlikely that anyone would think that Morgan's website is affiliated with Goldman Sachs. If the content weren't clearly anti-Goldman, the disclaimer at the top of the website should make that clear:

This website has NOT been approved by Goldman Sachs, nor does this website have any affiliation with Goldman Sachs. This website was designed to provide information about Goldman Sachs direct from the public, and NOT from Goldman Sachs's marketing and public relations departments. You may find the Goldman Sachs website at

The unfair competition claim is laughable, since no services are being offered for sale at all on the site. It certainly isn't engaged in any investment banking business. Also, the website does not even appear on the first page of search results for "Goldman Sachs."

It seems far more likely that Goldman is annoyed at the critical website and wants to see it stifled. Goldman declined to comment for this article.

Trademark violation? Yeah, right. They are not suing, per se, but are threatening to. That's a typical Trademark infringement cease and desist letter. They will use their pack-dog attorneys to relentlessly attack and he will be forced to spend or capitulate, a lose-lose proposition for Mike. If it were me, I’d simply flip them the middle finger and change the blog name to GOLDMAN SUCKS and call it a day!

(HT Glass)

Pink Floyd- Pigs On The Wing:

Morning Update/ Market Thread 4/9

Good Morning,

Okay, so you wake up and read the following headline on CNN:

Initial jobless claims dip

The number of people filling for unemployment benefits for the first time dipped to 654,000, but continuing claims hits a record high.

Wow, that’s good news! Right? But then you go to Bloomberg and you read this:

Initial Unemployment Claims in U.S. Exceed 600,000 for 10th Straight Week

Ah, bummer man – you’re out of work!

LOL, I just love seeing how the same information gets twisted. Yes, for the week the number decreased from the week prior by 20,000, but it was only 6,000 below estimates and DEEP losses in an economy that needs to create jobs to grow not lose them. And the number of continuing claims, the most reliable and important number, rose to 5.84 million!

And then Wells Fargo (WFC) reported their trumped up earnings, claiming to earn 55 cents per share. What nonsense, this is a direct result of the mark-to-fantasy changes and the fact that they basically want to report whatever the heck they feel like, the banks run the government and the government is complicit in their false earnings reports. I expect one bank after the other to do this, so hang on for the ride, it’s going to be a doozy.

Meanwhile back in the real world, comparable store sales for Wal-Mart fell in March. Look for a feel good market attitude about the financials, but that drug induced feeling will fade when it becomes apparent that the consumer and manufacturing, the real engines of the economy, aren’t doing so great.

But for now, the market was up overnight and rocketed higher, being stopped only by the 848 pivot and being right up against the highs for this rally. Here’s a snapshot of the overnight action on the /YM (DOW futures) left, and /ES (S&P futures) on the right:

IYR also rose with the financials. I don’t know how far this rally runs, I think it’s dangerous and is ultimately destined to fail, but it can go on for longer than you think.

I apologize for the lack of updates and new posts, I’m trying to attend to some things after finally getting my taxes done. I’m getting caught up now but plan on spending some time with the family this weekend and should be back in full operation next week.

Have a good day,


Wednesday, April 8, 2009

Morning Update/ Market Thread 4/8

Hey, I’m basically done with the arduous job of pleasing and paying the folks at the Treasury so that they can blow my money like drunken sailors on shore leave!

Nice U-turn last night to put the futures in slightly positive territory… the world economy must be a-okay because two nearly bankrupt homebuilders, Centex and Pulte, are going to merge. CTX stock jumped from $7.50 to over $10! People never learn.

And purchase applications are up! Low, low, interest rates, too good to pass up – a once in a lifetime opportunity, get ‘em while they’re hot!

It may take me a while to get back into the swing of these updates, I can tell. Here’s the overnight:

60 minute stochastic went out way oversold last night, so some up/sideways is expected to work those off. Are we going to go roaring higher? I doubt that, we have a fresh sell on the daily stochastic, but we’ll see. I’m sure the monkeys on CNBS will be pumping M&A, M&A, we’re all saved. Think I’ll keep a low profile until after the weekend.

Have a good day,


Tuesday, April 7, 2009

Morning Update/ Market Thread 4/7

Good Morning,

George Soros finally gave the markets a reason to pull back a little as he said that this was obviously a bear market rally as the real economy has not been fixed yet. No kidding? You mean that giving bankers TRILLIONS while piling TRILLIONS onto the debt of the nation and its people doesn’t really fix the economy whose problem is that it’s saturated with debt? Whoa, that’s a pretty radical concept there George – LOL!

The economy doesn’t need nor does it want more “credit.” What it needs and wants is to clean out the DEBT. What the people need and want is a sound currency, less debt, the derivatives gone, and the central banking system returned to the people of this country who rightly own it.

But Soros’s comments, although accurate, aren’t the reason the market is pulling back this morning. No, it’s just overbought, up against resistance, and needs to pull back, it’s been too long and too far without one, the oscillators are screaming for relief.

People are also a little nervous about earning’s season which starts this week. Just remember that earnings season is not about earnings good or bad, it’s about expectations for earnings and what’s priced in. It’s going to be a particularly nasty season to participate in because the rules have been changing so much that it’s hard to get a handle on what’s going to happen.

The banks are a good example with recent changes to mark-to-fantasy accounting rules that allow the banks to obscure and hide their assets. In other words, we’re going back to Ponzi (oops, I mean business) as usual.

And then we’ll change the rules some more in an attempt to further drive out those evil short sellers. We’ll put uptick rules back in place and make them particularly strong on central banks – LOL. And, we’ll put in newer and better circuit breakers so that no one who owns stocks need risk or worry about catastrophe! Heck, why not just make the uptick rule say that you can only buy a stock at a higher price than the last person who bought it? That would ensure the never ending growth they want! Right?

At any rate, the futures are down pretty good this morning with the /ES now at about 816. I put the /ES on the chart below on the 15 minute scale so that you can see what appears to be a pretty well formed head & shoulders top that has formed over the past few days. It’s worth roughly 30 points if it should be confirmed by a break of the neckline, and that would produce a target of roughly 785 on the /ES. That of course assumes that the neckline is broken and that we make it through support in the 800 area:

I don’t think yesterday’s move was what the McClelland Oscillator was looking for with a large move, so today is likely it.

I’m still busy with taxes and will likely not participate much today and will not have a full update this evening, but I will post some quick observations on the market thread that goes along with this post. Yes, taxes are a ton of fun… I’ve paid to have them done for years and since I’m now less complex with all my real estate holdings gone and down to only one working business, I’ve decided to grind it out the old fashioned way. OMG, the frictional losses in our WAY overcomplicated tax system are staggering. Yet another area that needs fundamental reform…

Have a great day,


Monday, April 6, 2009

Max Kaiser’s Latest – keeping his eye on the ball…

Max Kaiser on the G20 meeting, currencies, debt, who’s behind it, and what he sees in the future (hyper-inflation).

I like Max as he sees the “man behind the curtain” which many believe to be “tinfoil.” It is not tinfoil, the strings are being pulled. In regards to Max’s hyper-inflation outcome, he sees the IMF producing a super-currency that will be leveraged many times by financial institutions around the globe. It is truly a dangerous path they are on. Max, like me, is keeping his eye on the ball. Just remember that much of what sounded like tinfoil and conspiracy theory to most just a couple of years ago has come to fruition.

Part 2 is the meat of why I am posting this, but want to post the other two parts to put it all in context for those who are interested:

Max Kaiser interview with Professor Shakespeare (Part 1 – 7 minutes):

Max Kaiser interview with Professor Shakespeare (part 2 – 7 minutes):

Max Kaiser interview with Professor Shakespeare (Part 3 – 6 minutes):

Morning Update/ Market Thread 4/6

Wow, look at that date! Tax day is approaching and guess who’s not done yet?! I’m close, but I’ve got to finish it and today’s the day I focus on getting them done, so you will be hearing less from me today and possibly tomorrow, but I’ll certainly be done soon.

Futures tried to run higher last night but turned lower this morning as the market could not get through the 848 pivot setting up the possibility of confirming all those hammers from Friday. If we are beginning a turn, which is much too early to know, then the first area of support is just above the 800 level:

The deal with IBM and Sun sounds like it’s in jeopardy of failing and that’s pressuring the NDX.

And bonds found support again, hmmm, it’s amazing how stocks suddenly get pressured and bonds zoom just as rates get close to support.

I can tell you that I hear way too much optimism in the media about inflation. There was an article in Bloomberg about deflation being dead and that inflation trades, like TIPS, are doing best. Sold to you is all I can say about that!

The Dollar is up this morning, gold is down further.

There are very few economic data releases this week, but today there are a ton of short term treasury auctions – must sell more debt. Today marks the beginning of Quarter 1 earnings so we’re in the area were market moving releases can occur. Markets are closed on Friday for the Good Friday Holliday.

Have a good day, appreciate the input on the market thread,


Sunday, April 5, 2009

Uncle Jay Explains the News...

Hey Boys & Girls, it's time for Uncle Jay to Explain the News: