Saturday, June 6, 2009

Martin Armstrong – Case Update…

For those following the saga of Martin Armstrong’s imprisonment, and I hope you all are as it is significant to the freedoms we are all supposed to be enjoying as Americans, below are the latest legal petitions filed in Armstrong’s case…

If you will remember, he filed a lengthy petition after the SEC agreed to review his case. That petition can be found here: Martin Armstrong’s Reply to the SEC… Those who take the time to read the arguments and accusations made by Armstrong will understand that the “game” is not being played “according the rules of Hoyle.” In other words, the rule of law is not being applied in Armstrong’s case (nor in many financial matters like the financial bailouts, Chrysler, and GM bankruptcies!).

After his latest petition, a motion answering questions from the 3rd Circuit court was filed on May 26th of this year:

And Armstrong was allowed to file a MAXIMUM 3 page Motion For Relief which he filed on June 1, 2009, just a few days ago:

While I am only privy to one side of this argument (I’m trying to get documents on the other side), the reason I’m willing to share this information on my site is precisely for the reason that no other sites, and especially the main stream media is not. My “radar” is telling me that the story is being suppressed and that the players behind the scenes are pulling strings to keep Armstrong behind bars. Yes, those players are in the financial and financial regulatory world and they are influencing the judges and the outcome of Armstrong’s proceedings.

This is not what America is supposed to be about. THAT is why I’m providing this information and hope that it spreads far and wide so that BOTH sides can come together to get this case, a case that has gone on for YEARS longer than it should have, behind them.

This case is about more than just Martin Armstrong, it is about someone who was in the financial community who was targeted and likely was made a fall guy by our own regulatory authority – the SEC. This is about the Rule of Law and whether or not it’s being followed. Loren summarized the issue well:

The Real Threat to America:

Today I learned that Armstrong’s daughter, Victoria, is getting married TODAY. Obviously Martin will not be there to see it. His case needs to see the light of day – I encourage everyone to stay informed.

Friday, June 5, 2009

Mish Speaks at Google...

Mish is too conservative to post this video of himself on his site, but Calculated Risk did and it's worth watching as Mish talks about blogging and the economy. Fifty minutes long, it's always worth it to listen to Mish...

PS – I can completely relate to his “laughing while writing” comment. I, too, am often smiling and laughing as I write… my family laughs at me for having a good time while I write!

Morning Update/ Market Thread 6/5

Good Morning,

Futures are up overnight and spiked higher on the release of the monthly employment situation for May. The headline monthly number plunged to 345,000 yet the headline unemployment rate jumped to 9.4%. Here is a look at the futures, Dow on the left and S&P on the right:

Prices are approaching the 961 pivot point with the short term stochastics overbought. It would appear that wave C up of B is well underway. The bugaboo in all this, of course, is the bond market which is again launching rates higher with long bond futures hitting yet another new low as the parabolic collapse of longer term bonds continues (dollar on left, long bonds on right):

That’s the tradeoff, money flowing into equities pulls capital from bonds and hence higher interest rates. Of course that will pressure all holders of debt, especially the middle class who are riddled with it. It will certainly slow down the housing industry and will eventually stress governments as they too carry and must finance their massive debts.

Here’s a link to the BLS’s employment report BLS Employment Situation Summary .

Interesting that the numbers for March and April were revised downward: “The change in total nonfarm employment for March was revised from -699,000 to -652,000, and the change for April was revised from -539,000 to -504,000.”

At first glance it appears to me that with their numbers falling but the rate rising that the numbers of people being laid off has reached a plateau, but that people are now falling off the roles on the other end as their benefits run out. Also jobs are not being created and that’s why the RATE continues to rise dramatically.

When we look at the alternative measurements from the BLS and we find that the numbers are rising across the board! Here’s the link to the BLS Alternative Measurements, and the table is reproduced with my highlighting below (click on chart to enlarge):

Here we find U6 (the measurement most closely resembling how employment has been calculated in the past) ROSE from 15.8% in April to 16.4% in MAY, while the Raw data rose from 15.4% to 15.9%!!

I’m not convinced that the sudden drop in the headline number is copasetic, I’ll have to do some more research. Frankly, I just don’t trust the BLS and their numbers, and the reporting of government statistics is critical to maintain confidence. The numbers need to calculated consistently over time and they need to be transparent. We’ll have to wait and see if the decrease in the headline number can be sustained over time. There’s more unemployment in the pipeline.

Here’s John William’s Unemployment chart with his alternative measures that more closely resemble the U6 numbers. This chart will update automatically once he updates his data:

Chart of U.S. Unemployment

Okay, 9.4% is their official number now. Seasonally adjusted U6 is at 16.4%. Now we’ll have to see what happens as we transition out of spring and into the next phase of the auto crisis with factories closing and dealerships being shuttered. Also, the next phase of the housing crisis is right around the corner as we are leaving the subprime debacle and entering the option arm resets on the higher end homes that should be in full force by the end of the year and we have rising interest rates just in time to greet those who must reset.

See, Nate can always put a realistic spin on the news to brighten up your day, LOL! Hey, I have a tune for the fine folks at the BLS, and since their numbers are such a throwback, so is this tune!

Wild Cherry - Play That Funky Music:

Thursday, June 4, 2009

THE HORROR, Bond Traders are White with Terror...

This is an excellent piece written by Stewart Thomson of Graceland Updates (ht Ryan). My warning is that his site focuses heavily on precious metals, but what I like about this article is his focus on CAPITAL FLOWS (bond market versus stock market), and his neutrality in who will win the battle of evermore or what he calls the "thrilla in Manila!"

As you read the following article, please keep in mind the fact that next week’s bond auction will auction a staggering $127 billion in debt ($6.6 TRILLION annualized!)! For a quick review of the bond market’s latest action, I recommend that you review my article, Interest Rate Update…

While I believe that the deflationary forces are going to win in the medium term, the other forces may ultimately win the battle in the long term. You or I will not be “winners” regardless of who wins this battle! You may think you can place a directional bet and become a winner, but I am not so certain – again, a reason I like this article:
THE HORROR, Bond traders are white with terror

Gold Battle
Thrilla in Manila!

I want to talk about the bond market today as it relates to gold. And take you into the very real mind of a very real bond trader. Looking at a bond and gold chart is all very interesting if you like watching ivory tower movies. I do. But movies are not the whole picture. Experiencing the market thru the eyes of a real professional bond trader gives you a sensation of reality, in this case a most horrifying reality, that no chart can give you. I'm going to take you into the mind of a major bond trader who is a very good friend of mine.

What's happening in bond land? The latest US govt bond auction was for $110 billion. Two years ago the average monthly bond auction total was $5 billion, $10 billion, numbers like that. The US govt finances its debt with bonds. A $2 trillion deficit means $2 trillion in new bonds needs to be issued. Approx. $200 billion a month.

I want to take you inside the mind of a primary dealer. These are the approx. 20 dealers that have contracts with the US govt to market their bonds. The way the deal works in the govt's mind is: "You buy our bonds and sell them. You can short t-bonds going into the auction and bag a nice profit for yourself. But if you don't sell the bonds to your clients, guess who owns them? You do! If you don't like it, no more primary dealing for you, got it? And maybe we aren't so keen to hand over anymore bailout money or allow fraud accounting of your OTC derivatives. So play ball, or we take you out."

I spent two hours yesterday meeting in person with a very good friend of mine who is retired as the largest govt bond trader in Canada for one of the primary dealers. He still manages $1.5 billion as a side gig. His minimum trade is $5 million. He looks like a pitbull and uses 4 letter words like Mr. Bernanke uses a greenback photocopier. He carefully detailed to me the horrors that began roaring thru the bond market, horrors that are growing, since the shocking $110 billion US govt bond auction was announced for this week.

The bottom line is: There isn't enough money to soak up all the govt paper screaming down the pipe. The $300 billion in total that Mr. Bernanke committed to buy the bonds over multiple auctions, is a drop in the bucket. It's not enough.

There is a daily competition for money in the world's bond markets. The US govt bond is the King Daddy of those markets. The primary dealers will do WHATEVER IT TAKES to sell those bonds. The primary dealers also carry tremendous power against the govt. Let's have a listen to their response to the Gman's "it's my way or the highway". Listen carefully. "How would you like it, Mr. Gman, if we announced that " sorry, we can't find buyers for your triple A rated toilet paper, we're going to announce to your public that you defaulted. Let's see how you do when we cut your credit cards up. You tell us what to do? Wrong. Go ahead, take away our primary dealerships. We're all standing together on this. We give the orders, not you. Got it?"

What might those orders be? One order could be: "Your $300 billion commitment to buy T-bonds ain't gonna cut it. Try $3 trillion. Now get to your greenback photocopier start button and start pushing it. We'll tell you when to stop."

While that action may be in the pipeline, as of today the ACTIONS taken in the bond market by the players are what is important. And those actions, believe it or not, are to buy bonds. Money is starting to come out of general equities, aka the stock market, and into bonds. Money is not coming out of bonds, it's going in. This is what the chartists don't understand. Money isn't just trickling in, it's pouring in. But it's not enough to meet the govt's skyrocketing demand for money!

The losses in the bond market have pounded bank capital ratios. Balanced funds must now sell stocks and buy bonds to meet their mandated percentages. Losses on corporate bonds bought over the past year are staggering. Many hedge funds leveraged their purchases and are now in dire trouble.

I have warned you all repeatedly about taking delivery of a portion of your stock certificates. Securing your gold. Holding 1 to 12 months expenses cash outside the banking system.

The bond market auction was this week. Again, I want you to FEEL what the bond traders are feeling. They are white with terror. They aren't looking at some chart in internet candyland, they know there isn't enough money to buy all the govt bonds.

Where we appear to be headed is for a test of the Dow lows. You had better pray those lows hold. Because if they don't, your money could become a target of the govt as its demand for money skyrockets, while the supply of money tanks. The ideal situation is a fast crash towards those lows with perhaps either the Dow transports or the industrials breaking, but not both. While that happens, the bond market must rally.

The nightmare situation is the Dow just slowly rolls down, and bonds mount no major rally. If both the Dow transports and the industrials break the lows, the global banking and brokerage system will likely be closed soon after that, the first of many such closes. Short selling would likely be banned. A national sales tax would be simply one of a zillion money grabs.

I do things in moderation. If the Dow industrials and transports break the lows, I would seriously consider moving 5% of your IRA and 401k money out and into physical gold on the next correction in gold. Looking back, you should have bought gold bullion in a pyramid formation instead of opening IRA and 401k accounts. It's too late to turn that clock back. It's a small number, but you may not need that much insurance than 5% given the magnitude of the dangers at hand. Nothing is fixed. Nothing is repaired.

If Ben Bernanke fails to drastically increase the Fed's purchases of bonds, another vortex of asset destruction is a near certainty, as the primary dealers will exert mindblowing pressure on the managers of other assets to move those assets into bonds. Some of the movement is being triggered automatically thru asset allocation algorithms. Let me repeat: money IS not just moving into bonds now, it is POURING in. But... that money is not enough to soak up all the bonds the govt is issuing.

Most money managers are only just this week starting to understand this reality. And what kind of horrific situation this is. If Mr. Bernanke steps forward and announces massive new bond purchases, that could disintegrate the USdollar and send gold to $1200 in weeks or even days. On the other hand, if he doesn't, the primary dealers have no choice but to order a massive liquidation of equity and commodity assets to feed the Gman's maniacal demand for money. Picture a black hole. Everything is being sucked into it. That is the US govt's demand for money. This week's announcement of the $110 billion auction is literally seen by the bond traders as announcing that a real black hole has opened up on a sandy beach. EVERYTHING is slowly being sucked in. Even the sand. And it is accelerating fast in a massive deflationary vortex. As the govt gets the money, it is BURNED. As the sand (and people) pour down the hole, even gold could get sucked in as everything is sold to feed the Gman. Here's the gold chart, the weekly. The chart looks phenomenal. Indicators almost all right in the middle "sweet spot." Perfect to activate the head and shoulders.

Sadly, the massive increases in the commercial short positions of gold and other commodities over the past few weeks suggest it could be the deflationary vortex that emerges the victor of this clash of the titans. Will gold soar or melt? I wouldn't bet 10 cents on one scenario exclusively over the other. I want my subscribers to be 100% prepared for any and all scenarios. Remember the tools Mr. Bernanke has laid out. After the purchase of the t-bonds fails, (and it is badly failing right now) the next step is gold revaluation. If you think the United States govt is going to stand around like a wet noodle while their t-bonds are liquidated and watch all "their" money pour into gold without taking action to prevent that, please report to your new home on Fantasy Island. And don't expect there to be any gold there for you when you arrive. Own gold stocks bought into weakness and take delivery of a portion of your certificates. Own gold jewellery. Secure your gold before the govt secures it for you. Jim "Mr. Big" Sinclair, the world's largest trader of gold in the last bull market, feels gold could begin a skyrocket move to 1200, within 3 weeks! Jim "Mighty Man" Rogers feels gold could fall to 700! The bottom line right now is the bond market will decide the victor. The good news is Mighty Man will be a buyer at 700 if it happens. If he is correct, another massive wave of asset destruction is just around the corner, one that could require in excess of $50 trillion in money printing to cover the announced otc derivatives losses that will probably follow. The IMF may have no choice but to start a massive liquidation of its gold very quickly if the bond market doesn't reverse. They have no money and they may be enlisted to buy US govt debt. This is the clash of the titans and the public, who has just loaded up on stocks in time to be killed, is on the verge of being totally obliterated. Regardless of which way this plays out. Ironically, as money pours out of other assets to buy US govt bonds to feed US Gman Friar Tuck, it could have the effect of a giant short position on the USD being unwound, triggering a massive USD rally. The scenarios for huge price movements in all the major markets in all kinds of directions is arguably stronger right now than ever in financial history!

This is the ultimate nail biter, the Financial Thrilla in Manila! Will it be Jim Sinclair's bull rocket, or Jim Rogers' sledgehammer? I'd like to leave you with an even bigger question for the weekend, and that is:

Are You Prepared?


May 29, 2009
Stewart Thomson
Graceland Updates


CNBS Drivel, or Why I Can No Longer Tolerate the Circus!

Just can’t watch it anymore, it’s like watching the Peter Principle in action as only the incompetent are left.

Drivel, drivel everywhere… Can you identify the only rational voice on this clown panel?

Loren Gets It!

I have no idea who Loren is. BUT, he produced the most lucid video I have viewed in quite some time. He covers a lot of territory here, I posted this in Martin Armstrong’s comments, but this deserves wider attention. I agree 100% with everything Loren says and cannot find fault in any of it – he is simply describing reality for those who can handle it! (ht Nemesis)

The Real Threat to America (8 minutes)

Morning Update/ Market Thread 6/4

Good Morning,

Futures are up this morning, the /ES is currently around the 935 area which is a pivot point. The next higher pivot is at 961, and the next lower at 912:

The stochastics are positioned for upside, as yesterday's pullback was weak on price but internally a stronger decline. Bonds are down sharply and the dollar turned down as well.

More green shoots, what a great time to be an American hourly wage earner! Wal-Mart announced they are hiring 22,000 this year!! Of course that is down from 33,000 last year, but hey, just think of all those families dependent upon a real living wage who used to make automobiles and their parts, now a few of them can at least get greeter wages! Terrific!

And the media has spun the weekly employment numbers into a terrific thing, how, I just don’t know. I guess they are just even more talented at spin than even I can give them credit for… Hey, we ONLY had 621,000 initial new claims last week! And that’s DOWN only because they revised the week prior UP to 625,000! But what’s really being trumpeted is the first decline in continuing claims in the past 4 months… a whopping 15,000, bringing the grand total to ONLY 6.735 million!! This, according to Bloomberg, signals the worst is behind us! Sure it is, if you don’t mind being a greeter at Wal-Mart!

And, despite all the unemployed workers, it seems that those who are left were producing more in the first quarter, not less! And this is true both on a quarterly and yearly basis:
(Econoday) Productivity and labor costs in the first quarter were both revised and for the better. First quarter productivity actually was revised up to an increase of 1.6 percent annualized, compared to the initial estimate of a 0.8 percent rise. The first quarter revision was above the consensus projection for a 1.2 percent gain. Meanwhile, unit labor costs were revised down to a gain of 3.0 percent from an initial estimate of a 3.3 percent annualized increase. The number came in marginally stronger than the market forecast for a 2.8 percent boost.

Year-on-year, productivity rose 1.6 percent in the first quarter, following a 0.6 percent decline the prior quarter. Year-on-year, unit labor costs eased to up 3.0 percent from up 5.1 percent for the fourth quarter.

The first quarter revisions will be seen favorably in equity markets because the higher productivity number means businesses are trimming costs and are going to be better poised for profits when recovery arrives. Equities will also like the fact that in today's jobless claims report, continuing claims fell for the first time since January 3.

So, there you have it… the 666 bottom holds, everybody works at Wal-Mart and lives green shoot happily ever after… on $12 per hour!
The new 'good' job: 12 bucks an hour

In the Midwest, communities race to replace dwindling auto jobs with renewable energy ones, but workers will have to sacrifice on their pay.

NEW YORK ( -- Massive investment in renewable energy could ultimately create 4 million manufacturing jobs. But for the workers in the bottom rung of this movement, the shift to green jobs could very well mean a pay cut of nearly 60%, a trend spreading across the entire manufacturing sector.

Many of the entry-level jobs making green energy components start at $12 an hour, much less than the now extinct $28 an hour job that had allowed high school-educated workers in the auto sector to achieve middle class status.

"Particularly at the lower end, these are not very good jobs," said Philip Mattera, research director at Good Jobs First, a labor-friendly research group, also acknowledging that the renewable energy sector paid wages that were "all over the map."

Americans are betting that molding steel wind turbines, slicing silicon for solar panels and making batteries for electric cars will put them back on top of the manufacturing game. The 4 million new jobs, estimated by the University of California, Berkeley, would bring back more than half of all the manufacturing jobs lost in this country since the sector's heyday in the late 1970s.

At a battery plant just outside Indiana, job growth could boom. The plant is owned by EnerDel, the car battery division of Ener1. Here, the company is racing to build a cost competitive battery for an all-electric car. If it gets a government loan it's applying for, the company plans on hiring up to 3,000 people. That's roughly what a big auto plant employs.

But $12 an hour is the starting wage for a production worker.

Cut in pay of only 60%! Ever try to raise a family on $12 an hour? I haven’t, and I can’t imagine. That’s what’s happening to the middle class in America in a nutshell and has been for quite some time. Meanwhile our government is intentionally destroying the purchasing power of those $12, squeezing the life out of the debt saturated and over taxed consumer.

Enjoy the summer rally, if you’re happy about it then I’d say either you’ve had a frontal lobotomy, or I need a bottle in front of me! Hey, those $12 don’t come easy!

George Harrison - It Don't Come Easy:

Wednesday, June 3, 2009

Martin Armstrong – Is Democracy Dying?

Subtitled, “The Real Leviathan – The Power Cleverly Hidden Behind Politicians,” this Armstrong piece strikes to the heart, THE ROOT CAUSES, of our financial and economic problems… (For those who do not recognize the term, here is a link to the Wikipedia entry on the Leviathan ).

A real treat, Armstrong tells it like it is. Can you handle the truth?
“Democracy is dying if not already dead. We live in a delusion, a nightmare from which there seems to be no escape. …For as much as we may believe we have a Democracy and that the State is somehow controlled by the people, there is nothing that is further from the truth than this fiction of our imagination.”

HOW TRUE! These are all points that I have been making, but Armstrong makes his case plain and simple. He addresses the need for the rule of law and how we are currently not following it.

Once again he uses history to teach about the rule of law and takes us back into antiquity; way past the Great Depression which is apparently and unfortunately as far back as anyone in our own government has studied! He then tackles religion and places it in context with the past and modern times and how it has influenced economics. Tying that altogether, he then reflects on modern history.

This is quite a work! I hope everyone takes the time to read and understand what he is discussing. He is talking about the RULE OF LAW and how critical it is to have it in place in order for capital to form. The rule of law IS CERTAINLY NOT about your local State Patrol pulling you over to finance their operations! Enjoy this piece, I think we have all learned from Martin’s writing and I for one am thankful we have enough freedom left to enjoy it!

To view in full screen, click on the icon in the upper right hand corner.

To PRINT, click “more,” then “print.” You can also click "more" then "save document" to open in YOUR .pdf viewer where you can either save or print.

Peter Schiff on Dysfunctional China Relationship...

Schiff's explanation of China and our debt relationship with them is just too funny! He explains how little Timmy Geithner is lecturing the Chinese on how to run an economy... on these points Schiff is absolutely correct. It's funny, sad, and disgusting how conceited our government has become.

Schiff Report Video Blog June 2, 2009 (10 minutes):

Morning Update/ Market Thread 6/3

Good Morning,

Futures are down fairly steeply this morning, the /ES is sitting at 935:

The MBA Purchase Index rose for the last week in May, but mortgage applications tumbled 16% in that WEEK alone due to the fact that the average mortgage interest rate climbed .44% during the week. Still think interest rates in the bond world don’t matter?

But the Challenger Job report and the ADP Employment report both indicate improvement in announced firings and in the number of new claims. The ADP report in particular has been very unreliable. And, although they show slight improvement, the numbers are still awful and those without jobs are still not finding them elsewhere. Also, the GM job losses and ripple effect have yet to really hit.

Also, it was reported yesterday that there are, get this, 35 million Americans living on food stamps! Hello? That’s 11.4% of our entire 306 million population! Bread lines? Who needs them, the government will just tax everyone else, or borrow, or print to pay everyone else.

Hey, I know I sound like a broken record, but the math just doesn’t work and it’s getting far worse, not better. Every step along Failure Road over the past year and a half has seen failure after failure and “the problem” gets “solved” when the government intervenes and transfers more corporate failure onto its citizens. The saying is “as General Motors goes, so goes the U.S..” How true, and how sad…

Factory orders and non-manufacturing ISM come out at 10 eastern. Don’t be surprised if the greenshoot tokers come back out.

Technically the market is still living in Wonderland. The VIX is still in the middle of its declining wedge, it produced a hammer yesterday so keep watching it, a break above that upper trendline will be bearish for the markets. The dollar is up this morning, reversing trend in gold and oil, while bonds are up but only slightly.

Hey, whenever I see that Alice is running the markets in Wonderland, then I know it’s time to whip out Minsky’s 7 bubble stages as I wrote about in my book. Let’s start by examining Stage Four:

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!”

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.

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.

All I can say is that we are somewhere in this spectrum of bubble development right now with the equity markets. Where do you think the bond market is? There, the answer is in stage 7, revulsion! Seriously, keeping these bubble stages in mind and coupling them with your knowledge of exponential curves and parabolic blow offs will keep you an outside observer of Wonderland instead of an inside participant!

Jefferson Airplane - White Rabbit /Somebody To Love:

No rule of law.

Tuesday, June 2, 2009

Thunder Road Report Nicely Summarizes Demographic Article…

Paul at Thunder Road (U.K. website coming) wrote a report basing his demographic article on my article. It’s a very nice summary, so I’m going to share it with you. Here’s a link to my original article, Damning Demographics… Gee, notice how much more polite his title is than mine… no wonder I don’t have any damn luck at getting on the mainstream media, lol!

Interest Rate Update…

The yield curve is at ALL TIME historic wide spreads. This means that short duration debt is yielding very little while at the same time yields/rates are rising DRAMATICALLY on the long end of the curve.

TLT, the 20 year bond fund, has fallen in PRICE by 25.9% since its pre-Christmas high. Call it whatever YOU want, I call it a BOND MARKET CRASH. Anything that loses a quarter of its value in only five months has CRASHED. This crash was the result of a parabolic rise in bonds. ALL exponential math eventually crashes upon itself (Spend some Time with the Good Dr. Bartlett…).

This parabolic growth was noted in this article: Bond Market Hide & Seek – A Domed House & 3 Peaks.... Consider this post an update to that article.

Note on the following chart of TLT that we have now retraced 100% of the final blow-off top of the parabolic move and are now basing right where I drew that line 5 months ago (on this chart PRICE is on the right):

Now let’s zoom out to a two year chart and at the very bottom you see a rising black trendline… that line is the long term growth line since the inception of TLT in 2002:

It is the same growth line that really emanates from the peak in interest rates back in 1980. They have been falling ever since then and just hit ZERO! Thus, there is nowhere to go BUT UP (for rates)! And up they have gone, TLT lost 25% already! But watch that trendline down at 87.50… When/if it breaks, then you know for certain that the long term downtrend in rates is OVER and that higher rates are on the horizon. It’s my belief that that is going to happen soon, probably following some basing action between here and there.

Below is a chart of the TNX going all the way back to 1962, almost my entire life. The TNX represents the 10 year Treasury notes which most FIXED mortgage rates are tied to. You can clearly see that rates rose into 1980 and that they have collapsed to an all time low near 20 – that’s 2% on this chart (on this chart RATE/YIELD is on the right):

And now rates have almost DOUBLED since that low. The question, then, would be is that as low as it goes, was that THE bottom? The answer is YES, that was and will remain THE bottom in interest rates. WHY? Because the Federal Funds rate cannot be intentionally set below ZERO and the 10 year must yield at least 2% more than the Federal Funds rate or otherwise the banks cannot possible make money by loaning money (what a concept). So, you have seen THE LOW for your lifetime, I doubt that you will see it again.

Let’s go back up to that chart. See that trendline I drew in? 10 year rates above that trendline, about 4.8%, will mark the end of a 30 year era of decreasing rates. That era was marked by LEVERAGE. As rates went down, borrowing money became more and more affordable. This, in turn, caused the PRICE of all ASSETS to gain in value. The zero percent Federal Funds Rate would have never happened had it not been for the securitization of debt process and the shadow banking world of derivatives. That era has peaked and a break of that trendline will signal that the era has indeed ended (the break of that trendline should correspond to the break of the lower trendline on TLT). It’s going to happen, it’s just a matter of WHEN. That I do not know. The faster equities rise and the more Bernanke prints, the FASTER it will happen!

Here’s why it matters… we are already a debt saturated society on all levels, personal, corporate, local government, state government, federal government (Death by Numbers)! The higher the cost of borrowing goes, the greater the income that has to go to servicing all that DEBT, and the less money there is to actually buy goods and services (When the Math No Longer Works...). People can afford to buy far less house at 9% than they could at 4.5%!! This will keep the trend of falling asset values alive.

Thus, we are leaving the 30 year era of leverage where DEBT was your friend. When rates are rising, you are in an era of deleveraging where DEBT is YOUR ENEMY! How long will that era last? Well, let me put it to you this way… look at that chart and you will see that it has just started! Of course NOTHING moves in a straight line, so there will be headfakes and bounces along the way. And, I would not be surprised to hit that trendline and bounce off it before breaking it. Heck, a rise in the TNX to that trendline will ruin our over-leveraged middle class, especially if our dollar is losing value at the same time and robbing the same people of more purchasing power.

Think the crisis is over? Think again. Yes, rates rising WOULD be a “good thing” IF we were not saturated with debt, but we are. This is a new era we are entering, it is CRITICAL that you understand the difference between an era of leveraging versus one of deleveraging!

Please consider An Overview Of The Housing/Credit Crisis And Why There Is More Pain To Come…

Peter Frampton - Show Me The Way:

The Future of Food…

This is a very lengthy piece that was made in 2000(?) – quite awhile ago, but I hadn’t seen it and it is fascinating. I had no idea that the patent system was now allowing genetically altered food to be so HARSHLY protected under “the law.” It is a great example, in fact, of how corporations and their money influence politics, judges, and RAPE the people of America and of the world. In fact it is a good example of how the rule of law has become a one way street. Corporatism.

Watch it when you have time, its one hour and twenty four minutes long. If you haven’t seen it before it’s quite the education (apologies for the commercials, you must be "programmed" first, lol!):

Overseas viewers may not play... here is a link to the youtube series: Youtube part 1 of The Future of Food…

Morning Update/ Market Thread 6/2

Good Morning,

Futures are down slightly this morning, bonds are up, the dollar’s down and gold is rising again:

We receive vehicle sales data later today, the ICSC store sales data showed a week over week drop of .6%, but a year over year gain of .6%, while the Redbook chain store sales showed a .1% improvement for the week. At 10 eastern pending home sales data is released.

We now have two new components of the DOW Industrials. Traveler’s Insurance (gee, that sounds industrial), and Cisco Systems. Look for both of those firms to rise now that they are a part of the index. Again though, substitution bias influences the index. The ONLY company remaining of the original Dow 30 stocks is GE. Since GM and Citi are being removed, we should see a little more volatility in the index simply because the new stocks are alive and not flatlined near zero. CSCO rose 5.4% yesterday and pinned its upper Bollinger band.

So, how to make money at this point in time? Hopefully everyone has a portion of their portfolio in gold. I do, but my mantra is not to overdo it as that trade can reverse quickly. Me, I’m just sitting patiently waiting for a good short entry. We may be getting close, but McHugh believes that we have begun wave c up of B up and that there’s an inverse H&S target of about 1,050 on the S&P. I don’t like his inverse H&S, never have as it does not have a right shoulder. We simply performed a rocket shot off of 666, leveled out and created a triangle and now are rocketing up and out of the triangle… abc.

The short term stochastics are WAY overbought, and prices are ABOVE the upper bollinger. The daily stochastics are reaching overbought AGAIN.

Below is the SPX for the entire bear market... note that we made a new high for the first time, that makes this area a very important one technically (neither the DOW nor Transports have made a new significant high):

I think this is the most dangerous thing that could have happened to the markets and the economy. It’s NOT healthy and is likely to end in tears. Of course timing is everything and the bulls are crowing as they always do when prices are rising. Many of the same old tired lies are being told again and people believe those lies again. That’s what bear markets do.

I see that Peter Schiff is declaring victory… believing that the bonds down, dollar down play, like he forecasted, is happening now. He’s claiming the ride down was the sucker move and this is the real deal! Okay Peter, bask in it while you can. Timing is everything.

Since I feel like I’m just repeating myself, I don’t really have a lot to add this morning. I have a terrific Martin Armstrong article coming out later today entitled, “Is Democracy Dying? The REAL Leviathan – The Power Cleverly Hidden Behind Politicians.”

Ha, ha, that’s right up our alley, can’t wait to read that one myself, I’d say Armstrong and I are pretty much on the same page in that regard only he’s had more, unfortunate, direct experience with it.

Okay, have a great day. I know many of you feel like I do!

Peter Frampton - Do You Feel Like We Do:

No rule of law.

Monday, June 1, 2009

Morning Update/ Market Thread 6/1

Good Morning,

Futures are higher with the ramp job on Friday’s close continuing overnight and into this morning. The /ES ran right into the 935 pivot point and is stuck there for now. This area contains BOTH the 200dma and the daily upper Bollinger band. It should contain prices in the short run, but if the Bollinger turns up and the 200dma holds, there’s then a very good chance it will continue to run as the fools rush in to not miss “the buying opportunity of a lifetime… LOL:”

And we STILL have not had a meaningful retrace, all we did was produce a tiny sideways triangle and then went higher. This is the very worst case scenario for the market, it is a sign that buying panic is steering the ship, NOT a normal and healthy progression. But the irrational can stay that way for quite some time…

Speaking of irrational, the market has been going UP for over 3 months. So, if people are buying the bad GM news thinking it was "priced in," all I can say is sold to you…

The entire “bankruptcy” has not been done according to the laws that are on the books. The firing of CEO Wagoner, the arrangement with bondholders, the order in which assets are being distributed, the initial bailouts, and the whole concept of “prepackaged (government sponsored) bankruptcy” is simply being made up as they go along. NO RULE OF LAW! IT’S LAWLESSNESS!

In fact, how is what they are doing different that what Hugo Chavez is doing by nationalizing industries in Venezuela? It’s no different, it’s dictatorial! It’s not socialism, it’s FASCISM. Capital, and I mean HEALTHY CAPITAL, does NOT form in lawless environments. New and healthy enterprises do not arise from that environment, sorry.

If you’re one of about 20,000 GM workers, it’s not such a good morning. Nor will there be many good mornings ahead for the many of thousands more all along the supplier pipeline in the weeks and months ahead. And again, don’t look for a new shining star to arise from those ashes, no… who would invest their capital in an auto industry in America where the President is allowed to appoint the companies leaders and pay off the debtors as he sees fit?

The entire spectacle reminds me of Rome. The sports stadiums, the athletes, Barak O’Caesar, Barney frank playing the rotund – I can just picture him in a white robe eating grapes by the side of the spa – the only thing that’s missing are the orgies! Oh wait, those are in vogue again too – or so I hear! Seriously, the parallels are stunning.

And bonds are plummeting again this morning. That’s the sound of capital fleeing. No, it is not a sign of health, it is people cashing out of the lawless empire.

And this morning we learned that consumer spending fell yet again last month – but the good news? Wages rose more than expected! Let’s read the applicable clip from Bloomberg on that:
Incomes climbed 0.5 percent, the biggest gain in almost a year, reflecting increases in unemployment insurance benefits and social security payments associated with the Obama administration’s stimulus plan. Income was projected to also fall 0.2 percent, matching the March decrease.

Ha, ha, hardee, har, har!

Unemployment benefit raises and social security raises are the leading cause of a blip rise in wages!? Truly, we are now at a point where it almost pays more NOT TO WORK.

At 10 eastern we get the manufacturing ISM and on Friday is the employment situation for May. Of course more billions upon billions in debt issuance…

Only the fools rush in!

Elvis Presley - Can't help falling in love:

No rule of law.

Sunday, May 31, 2009

Uncle Jay Explains the News...

Once again it's time, boys & girls, for Uncle Jay to Explain the news!

An Overview Of The Housing/Credit Crisis And Why There Is More Pain To Come...

This is one of the best summaries of the housing market I have seen, it comes from T2 Partners who have produced other good reports in the past. They pick up on many of the points I have been bringing up, such as the fact that there is pent up inventory, not only in REO’s, but also in people who are waiting for an opportunity to sell when “prices recover” which will not happen for years.

An excellent summary, please read the comments on the .pdf slides, there’s a lot of good information (Click on link below):

An Overview Of The Housing/Credit Crisis And Why There Is More Pain To Come...

Below is an summary from Mark Hanson on the housing market taken from this report (pages 62 – 65).

Comments From Mark Hanson - The Field Check Group, May 5, 2009

California housing -- at the low end -- is 'bottoming' mostly because: a) median prices are down 55% from their peak over the past two years, thereby making the low end affordable; b) foreclosures have temporarily been cut by 66% through moratoriums reducing supply; and c) demand is picking up going into the busy season.

But the moratoriums are ending and the number of foreclosures in the pipeline is massive -- they will start showing themselves as REO over the near to mid-term. The Obama plan held the foreclosure wave back, creating a huge backlog and now the servicers are testing hundreds of thousands of defaults against the new loss mitigation initiatives. We presently see the Notice of Defaults at record highs and Notice of Trustee Sales back up to 9 month highs -- there is no reason for a loan to go to the Notice of Trustee Sale stage if indeed it wasn't a foreclosure. However, the new 'batch' are not only from the low end but a wide mix all the way up to several million dollars in present value.

Because the majority of buyers are in ultra low and low-mid prices ranges, the supply-demand imbalance from foreclosures and organic supply will crush the mid-to-upper priced properties in 2009. We already have early seasonal hard data proving this. As the mid-to-upper end go through their respective implosions this year and the volume of sales in these bands increase as prices tumble, the mix shift will raise median and average house prices creating the ultimate in false bottoms. We also have data proving this phenomenon.

After a year or so the real pain will occur when the mid to upper bands are down 40% from where they are now, and the price compression has made the low to low-mid bands much less attractive -- the very same bands that are so hot right now. Rents are tumbling and those that bought these properties for investment will be at risk of default (investors have been buying all the way down). Investors have just started to get taken to the woodshed from all of the supply and this will get much worse. Mid-to-upper end rental supply is also flooding on the market making it much better to rent a beautiful million dollar house than putting $300,000 down and buying.

After investors are punished -- and with move-up buyers gone for years -- it will leave first-time homeowners to fix the housing market on their own. Good luck and good night. Five years from now when things look to be stabilizing, all of these terrible kick-the-can-down-the-road modifications that leave borrowers in 5-year-teaser, ultra-high-leverage, 150% LTV, balloon loans will start adjusting upward and it will be Mortgage Implosion 2.0. These loan mods will turn millions of homeowners into over-levered, underwater, renters and ensure housing is a dead asset class for years to come.

Due to a confluence of events including a national foreclosure moratorium and near-zero sales in the mid to upper end during the off season, the broader housing data show signs of stabilization. Taken in context, it is a blip. There are no silver linings or green shoots in housing whatsoever other than by these first-time homeowners -- former renters -- who now find it cheaper to own than rent. This is a very good thing, but it only applies to a small segment of the population and will not be able to support the market. In addition, the first-time buyers who come out of the rental market put continuous pressure on rents.

Our data shows that the mid-to-upper end housing market is on the precipice of the exact cliff that the market fell off of in 2007, led by new loan defaults. What happens to the economy when you hit the mid-to-upper end earners the same way the low-to-mid end was hit with the subprime implosion? We will find out soon enough. When we look back on housing at the end of 2009, anyone that made positive housing predictions this year will not believe how far off they were.

S&P/Case-Shiller national (not 20-city) index, which implies a 10-15% further decline from where prices where as of the end of 2008. It’s almost certain that prices will reach these levels

• The key question is whether housing prices will go crashing through the trend line and fall well below fair value. Unfortunately, this is very likely. In the long-term, housing prices will likely settle around fair value, but in the short-term prices will be driven both by psychology as well as supply and demand. The trends in both are very unfavorable.

Regarding the former, national home prices have declined for 31 consecutive months since their peak in July 2006 through February 2009 and there’s no end in sight, so this makes buyers reluctant – even when the price appears cheap – and sellers desperate.

Regarding the latter, there is a huge mismatch between supply and demand, due largely to the tsunami of foreclosures. In March 2009, distressed sales accounted for just over 50% of all existing home sales nationwide – and more than 57% in California. In addition, the “shadow” inventory of foreclosed homes already likely exceeds one year and there will be millions more foreclosures over the next few years, creating a large overhang of excess supply that will likely cause prices to overshoot on the downside, as they are already doing in California.

• Therefore, we expect housing prices to decline 45-50% from the peak, bottoming in mid-2010

• We are also quite certain that wherever prices bottom, there will be no quick rebound

• There’s too much inventory to work off quickly, especially in light of the millions of foreclosures over the next few years

• While foreclosure sales are booming in many areas, regular sales by homeowners have plunged, in part because people usually can’t sell when they’re under water on their mortgage and in part due to human psychology: people naturally anchor on the price they paid or what something was worth in the past and are reluctant to sell below this level. We suspect that there are millions of homeowners like this who will emerge as sellers at the first sign of a rebound in home prices

• Finally, we don’t think the economy is likely to provide a tailwind, as we expect it to contract the rest of 2009, stagnate in 2010, and only then grow tepidly for some time thereafter

Mortgage lending standards became progressively worse starting in 2000, but really went off a cliff beginning in early 2005

The worst loans were subprime ones, which generally had two-year teaser rates and are now defaulting at unprecedented rates

Such loans made in Q1 2005 started to default in high numbers upon reset in Q1 2007, which not surprisingly was the beginning of the current crises

The crisis has continued to worsen as even lower quality subprime loans made over the remainder of 2005 reset over the course of 2007, triggering more and more defaults

It takes an average of 15 months from the date of the first missed payment by a homeowner to a liquidation (generally a sale via auction) of the home

Thus, the Q1 2005 subprime loans that defaulted in Q1 2007 led to foreclosures and auctions in early 2008

Given that lending standards got much worse in late 2005 through 2006 and into the first half of 2007, and the many other types of loans that are now with longer reset dates that are now starting to default at catastrophic rates, there are sobering implications for expected defaults, foreclosures and auctions in 2009 and beyond, which promise to drive home prices down further

In summary, today we are only in the middle innings of an enormous wave of defaults, foreclosures and auctions that is hitting the United States. We predicted in early 2008 that it would get so bad that it would require large-scale federal government intervention – which has occurred, and we’re likely not finished yet.