Saturday, July 11, 2009

Martin Armstrong – The Irrational Free Markets that are Never Wrong?/ Why Taxes are the Only Tool Remaining!

There are really two essays in the attached paper, the first one, “The Irrational Free Markets that are Never Wrong?” dives into why our attempts to manipulate and control the market place never work. Armstrong explores the writings and history of Adam Smith and his “invisible hand” and contrasts that to Karl Marx. His conclusion:
“What we do not grasp, is that the economy is no different than any other complex system. It can be easily predicted from a long-term perspective that the present course of events will unquestionably lead to the destruction of the United States and Western economies from excessive debt, declining real growth, and rising costs of government that set in motion the same collapse of Rome and just about every other empire.”

His second paper below is titled “The New Practical ‘Laws’ of Global Economics – Why Taxes are the Only Tool Remaining!” In it, Armstrong dives deeper into modern history and talks about the math and tax problems. He also discusses the problems associated with being on a gold standard. He then sets out what he sees as three steps to take as solutions, but there’s a lot of reading to get there! While I don’t agree with all his positions and statements, I do think his broad ideas are mostly accurate and the reading of history from his perspective is fascinating and well worth the effort to understand. He certainly is getting at and addressing the roots of the problems which is where most do not dare tread, especially in the mainstream media.

The Irrational Free Markets 709

*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.

Pete Peterson on Charlie Rose…

Who is Pete Peterson? From Wikipedia: Peter George Peterson
Peter George Peterson (born June 5, 1926) is an American businessman, investment banker, fiscal conservative, author, and politician whose most prominent political position was as United States Secretary of Commerce from February 29, 1972, to February 1, 1973 under Richard Nixon. He was Chairman of the Council on Foreign Relations until retiring on June 30, 2007, after being named chairman emeritus. He is the Senior Chairman of the private equity firm, the Blackstone Group. In 2008, he was ranked 149th on the "Forbes 400 Richest Americans" with a net worth of $2.8 Billion. In 2008, he established The Peter G. Peterson Foundation with a $1 billion endowment.
Once again, hat tip goes to Mr. Glass!


Pete Peterson on Charlie Rose (7 minutes):


Pete Peterson on Charlie Rose (56 minutes):

The Fed Under Fire…

Pay attention to the comments of William Greider, author of “The Secrets of the Temple.” He is describing exactly what I was railing about all through the crisis last fall, namely that Jamie Dimon, CEO of JPM, HAD to buy Bear Stearns to save themselves and received $30 billion in guarantees from the Fed while Dimon also sat on the board of the New York Fed of which little Timothy Geithner was the head!

Here’s the real truth. JPM is the center of the derivatives universe and has already imploded. It is only a matter of time before the $90 trillion of derivatives they hold, and hide, and obscure come crashing down.

Audit the FED? ABSOLUTELY. I fully support that, but I can almost guarantee you it will not happen in any real manner, for if it does, that will lead to the end of the Fed, a very good reason to support the REAL audit of which they are obviously so afraid. (again ht Glass!)

The Fed Under Fire (8 minutes):

Geithner Refuses to Answer Derivatives Bailout Question...

Representative Brad Sherman poses a simple question to little Timothy Geithner which Timmy refuses to answer. Not a hard question, but it was a question meant to pin him down on whether or not derivatives that are being sold today will receive bailout money in the future.

Obviously, the implication of his refusal is that he will bail them out if need be… or not. You see, it has become the Treasury’s, Fed’s, and central banker’s discretion to take your money and give it to themselves or not. NO RULE OF LAW, simply lawlessness. Hat tip Mr. Glass who is rightfully angry and sick of it. Hey America, when you wake up unemployed, lose your house, and are living on central banker welfare to feed your family, you should know why those things are gone – they left with the rule of law.

Friday, July 10, 2009

Short Weekend Update…

I’m back, finally! So here’s the story on my cable/internet… yesterday early afternoon my wife sees a Comcast van drive by the house a couple of times slowly and the driver is staring in the window at her as he passes. Shortly there after the cable dies!

We look around the block and could see the neighbors still had cable, only ours was out. So I called Comcast and they said the earliest they could make it out was Saturday! I said no way and managed to get a guy out this afternoon and he found out that they had disconnected our cable at the junction, because they were finally getting around to terminating the service of the people who moved out two weeks before, AFTER connecting our new service! MORONS! They blamed it on a known computer glitch, which they have yet to fix. Why did the guy who saw my wife not knock on the door and ask? Did I mention MORONS?

Anyway, I’m back and I have just a couple of charts to share to give you a feel for where we are…

Here’s the big picture chart of percentages since this bear market began:

Obviously oil and commodities have been taking a very big hit and deservedly so as demand is WAY down and inventories are WAY up. Oil is back below $60 a barrel, here is a weekly chart:

And here is the oil P&F chart showing a bearish target for oil of $44:

Here’s a weekly chart of the SPX… fourth down week in a row now, the SPX is down 8% from its high, the DOW is off 8.2%. Again, the Head & Shoulders top has now been confirmed and the neckline at 888 has held as overhead resistance – the target on that pattern is 810ish. Volume this week was considerably higher than the shortened week last week. The weekly stochastic fast has now reached the mid-point:

The SPX daily produced its third doji candle in a row today, and you can see that prices are following the 200dma (red line) downwards. The daily stochastic and RSI are oversold:

The 10 minute chart shows that the down channel – let’s call that wave 1 – was broken and now we are either making wave 4 of 1 or wave 2. The short term stochastics are all in the middle range up to the 60 minute timeframe:

Did you see that California has now missed a huge quarterly payment to its schools ($4 billion)? They claim they will make the payment on July 30th… yet another huge I.O.U. Hey, welcome to the Hotel California!

Eagles - Hotel California (good intro):

Morning Update/ Market Thread 7/10

Good Morning,

Unfortunately the Comcast cable service went out in my new home yesterday afternoon and has not come back! I spent this morning just driving around trying to find a decent wireless connection and just got one, so my apologies for being late with the morning post. I talked to Comcast and they may or may not be able to get out to look at it today, so we'll see. In the meantime I'm completely out of touch for now so I won't attempt to update you, how about if you update me in the comments?

I actually do have chart up and running on my little mini computer and will spong the free internet while I can!

Here's a shot of the 10 minute SPX, you can see that we have failed to get back over the 888 area but have overthrown the channel the way I have it drawn. It could be that I need to widen the channel, we'll see what happens later in the day.

Again my apologies, I hope to be back with you later today...


Thursday, July 9, 2009

David Tice Comments - 2 July 09...

Founder of the Prudent Bear Fund telling it like it is...

David Tice (6 minutes):

Morning Update/ Market Thread 7/9

Good Morning,

Equity futures are up this morning following a stronger than expected weekly unemployment report:

The weekly number of new claims fell to 565,000, the first time below 600K since early this year. Here’s Econoday:
Initial jobless claims in the July 4 week fell a very steep 52,000 to a much lower-than-expected level of 565,000 -- the lowest level since the beginning of the year and extending a trend of improvement that is certain to give a boost to green-shoot talk (prior week revised slightly to 617,000).

Citing a Labor Department analyst, Market News International says the latest week benefited from a shift in the timing of auto layoffs and other layoffs in the manufacturing sector, layoffs that have already happened. Note that seasonal adjustments are fixed at the beginning of the year and are not adjusted to reflect current events, here of course the bankruptcies of General Motors and Chrysler.

But a negative in the report is continuing claims which jumped 159,000 to a new high of 6.883 million in data for the June 27 week. The four-week average is also a new high, at 6.769 million.

The most important factor, though, is that new claims are coming down, pointing to eventual easing in continuing claims. The markets got an immediate lift out of this report with stocks and commodities rising.

LOL, NO, the most important factor is not that new claims are coming down, heck, people are exhausting their benefits because no one is hiring. Continuing claims remain extremely elevated.

Today is launch day for the PPIP! Woo hoo! This highly touted program was supposed to be the end all, remember? Five hundred point rally day on the announcement, Bill Gross of Pimco calling it “win-win-win!” Remember? Today Pimco announced they are not participating – thwack! And the program has been sliced down to nothing in terms of dollars, only a few tens of billions being thrown at a few of the club members like Blackrock. Love it. Of course it will accomplish nothing for the economy… no new real jobs, nothing for the people in America who really need it. What a waste.

And just to fuel you Goldman conspiracy people (of which I have definitely become one – hey sometimes the truth is just staring you in the face) read the last half of ZeroHedge’s Mid day Update. That may just be how certain “problems” are taken care of? Call me suspicious because of the timing.

And now the /ES is back up into the 880 range, it is likely going to retest the neckline of the head & shoulders pattern that is now confirmed and valid (target 810ish) until and unless the highs of the head (956) are taken out.

And with stocks rising overnight, look at what happened to the dollar (left side of chart). On the right side of the following chart is the long bond futures. Note that I’ve been watching a rising wedge form… we overthrew the top of it yesterday and today are back inside it. I’m watching for a break of the lower trendline:

Again, the 888 area should offer resistance, but don’t be surprised if we run back above the neckline. That’s common with H&S patterns, it does not invalidate them.

Hey, let’s do the Yield Curve Mambo!

Yield Curve Mambo

Wednesday, July 8, 2009

Max Kaiser Interviews Craig Roberts…

Craig Roberts is a former Assistant to the Treasury Secretary and is giving very truthful answers to Max’s good questions…

“I think the U.S. economy is already gone…”

I also hope everyone pays attention to what he is saying about the connection of money to politics and to the military….

(9 minutes):

The money shot is in the last minute of this next video as Max asks some very pertinent questions like, “Who does the Treasury Secretary work for, the people or the banking system on Wall Street?

Robert’s reply, “He works for Goldman Sachs.” LOL, this is a former Assistant
Treasury Secretary!

(3 minutes):

Jake’s Handcrafted Oak – Shameless Furniture Plug/Testimonial…

Yes, this is a shameless plug, advertising for someone who deserves it. If you have spent time around my site, you know that I don’t go plugging people or businesses lightly – I am a truth teller and will not plug someone who does not deserve it. Jake deserves it, but you should know up front that I am receiving advertising fees from Jake in exchange for posting an ad. This testimonial, however, is not a part of the ad, it is helping out someone who has helped me out.

Jake runs an Amish furniture business in Holmesville, Ohio. You won’t find his business on the internet; he is a producer of fine handcrafted furniture - not just oak, but almost all typical woods including cherry, maple, hickory, and oak. I literally have a house full of handcrafted Amish furniture as there is no better furniture that I’ve found FOR THE MONEY. If you contact Jake, you will leave a message on a recorder as Jake does not own a phone. He will call you back. You will get WHOLESALE pricing from Jake and if you tell him Nate sent you, you will receive an additional 5% off. His margins are very tight, you will be shocked what he can sell to you for so little money. I literally have added up wood and hardware costs and just don’t know how they sell it for so little.

But here’s the deal. Jake called me up the other day and stated that business was very, very slow for reasons that are clear to all the readers of my blog. He asked if I could help him out, and this is how I’m going to do it!

Jake is as straight-up as they come. A man of his word who follows through on what he says. Since Jake is a manufacturer and not a middle man, he can price his furniture lower than you will find elsewhere – I was extremely lucky to find him and only did so after searching directly for manufacturers. While he can’t make all types of furniture, through his connections he can get it for you – as he has done for me.

I simply called Jake up and told him what I wanted. He arranged everything, including shipping. I even hand drew a custom desk I wanted him to make out of solid hickory and it turned out beautifully, beyond my expectations, it is truly a functional work of art that will become a life-long heirloom. He can make or have made virtually any furniture in any size you desire, in any wood you desire, in any finish you desire.

This is REAL furniture, not some mass manufactured particle board stuff. REAL SOLID WOOD furniture with heavy duty hardware. You could literally park a truck on my son’s bed and it would not even creek! I’m serious, we’re talking solid oak 4x4’s!

Kids jumping on the bed? Don't worry about the bed getting hurt, worry about the kid!

And guess what? You can buy this furniture for less than even cheap chain store furniture because the Amish are not greedy, they work hard, build nothing but quality solid stuff, and follow through on what they say – all traits that America sorely needs (especially in the financial community)!

What follows are just a few picture of the amish furniture that I personally own. Most of it is solid cherry wood… there’s some maple, oak, and hickory. The dining room set is called “Classic Mission.” It has black walnut inlaid diamonds which are simple but beautiful. Those chairs and tables are made of bent cherry wood and covered with a “natural” clear lacquer finish as I like to see the natural beauty of the wood.

These are just examples of my furniture located in my prior home:

And here's some current photos along with a stock photo of my dining room set:

My desk & credenza are made of SOLID hickory, also covered in a natural clear lacquer finish:

Not that I'm bragging, but heck, even the underside of my desk is beautiful!

I know I shouldn't be encouraging people to spend their hard earned money, but IF you need furniture, this is it.

To see more examples of traditional Amish furniture, simply do a Google search for “Amish furniture.” You will find many retailers and some “discounters.” Jake will beat their price. Here’s a couple of examples:

Amish Furniture Home

Amish Outlet

So, you just find the furniture you like, measure your space, and call Jake. He will arrange it exactly how you want it, be sure to be specific. Remember that the furniture is made in Ohio and thus has to be shipped to you. Jake and most Amish stores use Packship USA to pack and then transport their furniture. I have personally used them at least 5 times and have never had a problem. Here’s their web site, but again, Jake can arrange it for you, or you can do it yourself:

PackShip USA

Plan on the cost of shipping to add 15 to 30% onto the cost. This will still be WAY less expensive than what you can buy locally.

Seriously, I do not take such a plug lightly. I know Jake and trust him to follow through. If you are in need of furniture, Jake’s is the place to get it!

8239 TR 562
Holmesville, Ohio 44633

To reach Jake, please call (leave a message, he will call you back!):

Charles Ortel on China…

Charles Ortel, managing director with Newport Value Partners, talks about China and the U.S. Dollar… (ht Glass)

The Dollar's Demise: Is China Signaling the Beginning of the End?

Gerald Celente - Obamageddon...

Yet another good Celente interview. He does understand what's occuring, and while it sounds radical, you better not rule it out - I don't (ht Chris).

7/5/09 Gerald Celente on Fox News: Obamageddon is Coming:

Thunder Road Report – Stop the Inflation or Deflation Debate!

Paul Mylchreest wades into the raging and never ending inflation/deflation debate. He falls squarely into Czar Point’s camp with inflation in the things you need and deflation in most asset classes.

This is definitely true for now. I also see deflation now, inflation later, but I am personally not convinced that this will not turn into an outright deflationary spiral. It very well may and that outcome would be nation changing. I give it high odds solely because the math of the underlying debt simply does not work (and it’s far worse than we know due to the proliferation of derivatives). While Kondratieff winter is definitely the current cycle, as Martin Armstrong points out it may be a shorter cycle playing out inside of a 224 year cycle which is even larger and “nation changing.” Move forward 224 years from the signing of our Declaration of Independence and we arrive in the year 2,000. Just remember that events on this scale do not unfold overnight. We are living through a period of great upheaval and it’s surely not done expressing itself! For even after the economic events play out, we still face those “other events” that tend to follow times of economic upheaval.

So, to see inflation in my judgment, we must see the ability of incomes to service the debts. Incomes are NOT going to rise to THAT level anytime soon, thus the only way to get incomes to that level is through DEFAULT. Default is in progress, but it is slow and being masked – quantitative easing EQUALS DEFAULT. Issuing I.O.U.s EQUALS DEFAULT. But those losses must be recognized and dealt with. They will be. Inflation will not happen again until AFTER they are – imho.

Great piece by Paul, good food for thought… I really enjoy his writing style and am glad he’s willing to share his work with us!

Thunder Road 1976 - Bruce Springsteen:

Morning Update/ Market Thread 7/8

Good Morning,

Equity futures are up a little this morning which is to be expected after yesterday’s selling:

The only economic data this morning was the MBA’s Purchase Index which rose from 267.7 to 285.6. That is quite a rise for the week, but Econoday’s take is more optimistic than deserved.
MBA's purchase index popped 6.7 percent higher in the July 3 week to a 285.6 level that hints at improved demand for housing. The refinance index also jumped, up 15.2 percent to 1,707.7. Mortgage rates were little changed in the week, at a still favorable 5.34 percent for 30-year fixed mortgages. The housing market is still trying to find its feet, but today's results do point to better times ahead.

No, the housing market is NOT finding its feet. In fact, the next rounds of pain is just about to hit as the more expensive option arm resets are just kicking in.

Of course the IMF has to come out and raise their global economic growth forecast for next year to 2.5%. Why the revision today? Hmmm. Just keep in mind that the IMF is run by the same group of bankers who are running this country (and controlling the markets). Criminals all, who literally should be put on trial.

Now that the H&S top patterns are confirmed, I absolutely expect a little bounce and possibly even an overthrow of the neckline to shake people from what’s happening. The neckline is a natural point to stop out and I’m sure those stops will be challenged.

McHugh is saying that there is a phi mate turn date scheduled for the 17th that is coincident with a Fibonacci turn, AND a Bradley model turn all at the same juncture. This is rare and it raises the odds that there will be a mid-month turn, possibly as early as next week. That would most likely be a bottom, AFTER the H&S targets are reached. Of course it doesn’t have to happen that way, but just be aware of that time frame.

I’m watching the Transports for confirmation of a new short term low, all of a sudden they’re not leading anymore and the signals are usually better when both the DOW and Transports are moving into new lows or highs together.

And from the State of California, we were provided with this lovely chart showing cash flows for the next year. Lovely, especially with their I.O.U.'s due to be paid by October! I think we're all witnessing a spiral that's already gotten out of hand:

Here's Arnold's reaction to seeing the California Cash Flow chart as depicted by AZRainman:

Here’s what the banker’s trial and testimony would look like in Dave Chappelle’s eyes, LOL! (First skit only! Make sure you don't play that one at work or around "sensitive" ears...)

Dave Chappelle on White-Collar Crime: "I Plead The Fifth"
I plea Da Fif

Tuesday, July 7, 2009

End of Day Market Update...

Just a quick update to point out a few chart items…

First of all, it’s quite unusual to have such well formed hammers from yesterday be bearishly engulfed as they were. Yesterday’s last minute rally had a contrived appearance and did not look like it was something that would last.

Today’s action produced two new bearish targets on the Point & Figure charts, one for the SPX, the other for the NDX:



Below is a daily chart of the SPX for the past month. Note how the lower Bollinger band is turning down to accommodate the action. Today broke the 200dma average and closed below it – that is bearish as is the engulfment of yesterday’s candle. Note, however, that the daily stochastics is now oversold again:

On the 60 minute chart you can see that the very prominent H&S pattern now has a broken neckline. This is a very reliable pattern once confirmed, as this one now is, and it has a downside target of about 810ish which is below the P&F target of 825.

The DOW’s H&S is targeting about 7,600ish, just below the P&F 7,700 target. Note the bearish engulfment and oversold daily fast stochastic.

Below is a chart of the Transports. Note how they have not broken beneath the most recent lows as of yet while the Industrials have. There’s still plenty of room here for lower and I will be surprised if they don’t make a lower low soon:

Note that the VIX rose right to the 50dma and stopped dead. It needs to get over the 50 for the bearish case to have further legs. This is a dangerous place to sit tonight as it could springboard off the 50 in either direction:

I note that all the short term stochastics are oversold tonight from the 10 minute to the 60 minute and even the daily. Today was an 80% down day by volume. I will not be surprised if we retest the neckline of that H&S pattern, possibly even rising back above the neckline. The only thing that can invalidate that pattern now is if prices rise back to new highs above the head – unlikely here.

That’s about it for now, will have more in tomorrow’s thread.

Have a great evening,


Whenever I think of California, I’m reminded of Don Henley’s lyrics, “Call someplace paradise, kiss it goodbye…”

Issuing I.O.U.’s? Truly the last resort!

The Eagles – The Last Resort:

Matt Taibbi on Goldman Sachs…

Matt Taibbi is a reporter for the Rolling Stone. He did an excellent article that’s really all about Goldman Sachs but which he (his editors?) called “The Great American Bubble Machine.”

It’s a good read, but lengthy and so I’m just going to show you the intro and let you go to their site to read the entire thing. Just click on the title to read it (ht Xleland):

The Great American Bubble Machine

Matt Taibbi on how Goldman Sachs has engineered every major market manipulation since the Great Depression


Posted Jul 02, 2009

In Rolling Stone Issue 1082-83, Matt Taibbi takes on "the Wall Street Bubble Mafia" — investment bank Goldman Sachs. The piece has generated controversy, with Goldman Sachs firing back that Taibbi's piece is "an hysterical compilation of conspiracy theories" and a spokesman adding, "We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good." Taibbi shot back: "Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it." Here, now, are excerpts from Matt Taibbi's piece and video of Taibbi exploring the key issues.

What I really want you to see and understand is Goldman’s influence and relationship to politics. THIS RELATIONSHIP IS OUT OF CONTROL AND NEEDS TO BE SEVERED. While all the video links in the above article are good, I want you to pay attention to what Matt is saying in the following videos (I wish I could embed those videos, but I cannot):

Goldman in the Government…

Goldman’s Influence…

Goldman’s Appology…

What Taibbi is saying is absolutely correct. Hank Paulson (while CEO of GS) and his salesmen were peddling what THEY KNEW was toxic waste to retirement funds and small governments around the world. There is testimony that parties were thrown following successful sales trips where the salesmen literally laughed at the “suckers” who purchased those “assets.” While that was going on, Paulson’s boys were placing billion dollar bets that those same assets would fail.

His punishment for this high treason? Appointment to the Secretary Treasurer’s position where he proceeded to funnel taxpayer funds to the banks and through bankrupt entities such as AIG to Goldman. This is blatant MONEY LAUNDERING. Paulson is a traitor to his country and should be put on trial as such.

Here’s an interview with Taibbi on the Business News Network: Interview with Matt Taibbi…

And it runs much deeper than even Matt is discussing. Goldman has become THE MARKET. They comprise nearly half of the programmed trading of the NYSE and are, in my opinion, a surrogate of the government. They have become the government, they run the 4th branch, THE FINANCIAL BRANCH OF GOVERNMENT. They control the other three, the Executive, the Legislative, and the Judicial.

They are the prime example of why America needs a Constitutional Amendment that separates corporations and their money from politics.

It used to be that only comedians could get away with telling the truth. Now it’s in the Rolling Stone. Watch out when the general public finally becomes aware of what’s happening to their country and their way of life.

Wanda Sykes on the Bailout

Morning Update/ Market Thread 7/7

Good Morning,

Equities are slightly lower this morning and so are bonds and the dollar. Commodities are up slightly. Here’s the overnight action in the DOW and S&P:

The only data out today comes in the form of store sales. The ICSC grew by .1% month over month and by .5% year over year in the last week. Redbook – a weekly measure of sales at chain stores, discounters, and department stores – fell by 4.2% year over year for the week and that follows a -4.3% read the week prior.

The late day rally yesterday (very unnatural looking) produced hammers on almost all the indices. They did reach key support levels yesterday morning, the SPX touched the 200dma and the lower Bollinger band before beginning its climb back into positive territory:

You can see that the DOW did likewise and it was on higher volume. To be valid, prices need to exceed the top of those hammers today, if they do not then they are not valid reversal signals:

Those hammers look on the chart like bottom indicators but I’m not sure I’m buying them as valid. They are shadowed against the body of the previous candle and most of the buying occurred in the last 15 minutes, a sign of gamesmanship. Keep in mind that the P&F on the DOW still has a target of 7,700:

Most of my other indicators are squarely in neutral territory. Keep in mind that any rally from this point will pressure bonds again and so I don’t think they can let equities run still.

That’s about all I have for right now. NYSE is claiming that the Goldman brew ha,ha was all their mistake… sure it was. Tell you what, George Carlin (RIP) had it all figured out…

George Carlin Video: The Truth About Wall Street And Washington (ht Glass):

Monday, July 6, 2009

Morning Update/ Market Thread 7/6

Good Morning,

Robert McNamara is gone, finally bringing peace to thousands of Vietnam Veterans… may there never be another one like him! He was nothing but a central banker/ military industrial complex shill responsible for the death of thousands of Americans. He will not be missed by me.

Equity futures are down pretty sharply this morning with the dollar up, bonds up, and commodities down. This is a more normal trade from my perspective as the world realizes that prospects for growth are not there – we are experiencing parabolic collapse of prior out-of-control growth instead:

Of course the Bankruptcy judge in GM’s case is going to approve their plan to create a new company, axe the debt in exchange for stock, screw the workers wages and benefits down, ignore the money laundering that took place passing billions of taxpayer money through to the banks, and make the taxpayers (you and me comrade) 60% bag holders in a company that doesn’t stand a chance – still.

And what’s going on with program trading and Goldman over at the NYSE? Strange things going on there, Zerohedge is covering that one well and it should be interesting to watch. I’ll cover it more as we learn a little more.

The economic calendar is fairly light this week, we have non-manufacturing ISM coming out at 10 Eastern this morning, but the data is fairly light the rest of the week, International Trade and Consumer Sentiment on Friday.

The technical landscape is beginning to look pretty bearish. The key level to watch right now is 880. Should that level break, the obvious head & shoulder’s pattern on the 60 minute chart will be confirmed. Should that happen, the downside target would be about 810ish which would be a 50% retrace of the “green shoots” rally. Here’s the 60 minute SPX, you can see that pattern clearly – there may be a sloped neckline which may be in the Sethonian 888 region:

Of course the 30 and 60 minute stochastics are oversold and we could very well experience a bounce off the neckline area. If the H&S is in play, I would expect it to break, come back up to retest and then fail.

On the daily you can see the colossal damage that was done last Thursday. Note that the 200dma is also in the 888 region and that will lend support at the neckline. The daily stochs are coming down out of overbought towards oversold:

Expect some monkey business in this area, it’s an important one. The consensus for the Service ISM is 46.7… that may be a little high, we’ll see, it should be interesting. Heck, I say just surrender now and get it over with already!

Cheap Trick – Surrender:

Sunday, July 5, 2009

The Collapse of Government…

It’s no longer coming, it’s here.

Oh, we still pretend but the collapse is in full progress at this time. As a nation we have already begun to default on our debts – that’s what “Quantitative Easing” is all about – a bankrupt nation who can no longer finance her debts and resorts to printing money using it in a circle of currency devaluing all the while talking up our “strong dollar policy.” It’s so ridiculous that a 4th grader could see through that scam. Yet we pretend, but we won’t be able to much longer as the collapse has already begun.

The government on all levels, city, county, state, and federal live on debt that’s generally financed by bonds. Many of these governments do not have the revenue (income) to pay the debts they already carry. And now that their revenue streams are crashing, they are being forced to lay off employees and cut back in general, but they are not doing so fast enough.

How bad is it? Impossible math bad. Let’s examine the state of California who is on the leading edge of the governmental crisis. Keep in mind that what’s happening in California is happening all over America and is likely to result in a domino of failures. The following article (ht Comrade Wannabe) details the anecdotal process of deflation and its effects on government:

Tax Bill Appeals Take Rising Toll on Governments

Homeowners across the country are challenging their property tax bills in droves as the value of their homes drop, threatening local governments with another big drain on their budgets.

The requests are coming in record numbers, from owners of $10 million estates and one-bedroom bungalows, from residents of the high-tax enclaves surrounding New York City, and from taxpayers in the Rust Belt and states like Arizona, Florida and California, where whole towns have been devastated by the housing bust.

“It’s worthy of a Dickens story,” said Gus Kramer, the assessor in Contra Costa County, Calif., outside San Francisco. “These people are desperate. They know their home’s gone down in value. They’ve watched their neighborhoods being boarded up. They literally stand in there and say: ‘When can I have my refund check? I need to feed my family. I need to pay my electric bill.’ ”

The tax appeals and reassessments present a new budget nightmare for governments. In a survey conducted by the National Association of Counties, 76 percent of large counties said that falling property tax revenue was significantly affecting their budgets, said Jacqueline Byers, the association’s research director.

Officials in some states say their property tax revenue is falling for the first time since World War II.

The recession has already taken a significant toll on states’ budgets, as rising joblessness, a weak business climate and a drop in consumer demand have cut sharply into receipts from taxes on sales, personal income and business earnings.

The pain at the state level is trickling down to county and local governments. To compensate, about 10 percent of large counties are raising the tax rates associated with home values to minimize the revenue loss, the county association said.

Even so, most counties simply have to absorb the lost revenue. Municipalities are laying off workers, renegotiating labor contracts, freezing salaries and cutting services.

The revenue losses are coming as homeowners prod towns for new assessments, and as municipalities conduct regular revaluations of their real estate. While declining residential values weigh heaviest on many governments, the value of commercial real estate is also sliding as businesses shut down and move out of storefronts or shopping malls.

Property taxes are meted out by a disparate patchwork of cities, towns, counties, and school and fire districts, all with their own rules. Because tax formulas vary widely county to county, not every decrease in assessed values automatically lowers a household’s property taxes.

But officials across the country say there is no question that the number of appeals has risen from the usual trickle to a flood.

In suburban Atlanta, thousands of people lined up at government offices to file their requests for reassessments before a March 31 deadline. In parts of Ohio, appeals have multiplied fivefold. Tax lawyers in the northern suburbs of New York say they have never been so busy, and some towns have hired extra employees to sift through the paperwork and are spending hundreds of thousands of dollars on legal fees to deal with the cases in tax courts.

The call for counties to acknowledge the falling price of homes is loudest in states where taxes are highest, or the housing crisis has hit the hardest.

“We’ve been absolutely getting killed,” said Robert W. Singer, the mayor of Lakewood Township, N.J., and a state senator, whose town is setting aside $2 million to pay tax refunds to homeowners. “We’ve never had this before. Usually they’re undervalued. Now, everyone’s overvalued.”

The appeals are not just coming from individual homeowners. Condominium associations and entire subdivisions are pushing for new tax assessments, as are companies that own office towers, industrial parks and shopping malls.

New Jersey, which has the nation’s highest property taxes, has been besieged by tax appeals from homeowners like Peggy Tombro, whose rambling home in Bound Brook is assessed at a value of $1.8 million but is languishing on the market with an asking price of $1.3 million. Her taxes are increasing to $53,000 a year.

“I don’t know what else to do,” said Ms. Tombro, 63, who has gone back to work selling antiques to pay her tax bill.

In the Inland Empire of California, near Los Angeles, Joylette Lynch, 70, is challenging the assessed value of her home as she tries to scrape together $1,158 a month to pay her mortgage, taxes and other bills. Her two-bedroom house in a community for older residents was worth as much as $280,000 three years ago, but houses on her block are now selling for less than $100,000.

“If the house is not worth what I bought it for, why am I paying the same amount in taxes?” she asked.

Ms. Lynch, meanwhile, lost her job at a Bed, Bath & Beyond this year, and is behind on her mortgage payments. Shaving a few hundred dollars off her annual tax bill of $4,300 might not keep her out of foreclosure, but it would help, she said.

“Everything’s in God’s hands now,” she said.

Officials say stories like these are common as unemployment hits 9.5 percent and people seek to trim their budgets. Appraisers and assessors, normally concerned with land values and comparable sales, are becoming ersatz crisis counselors.

Jeff Furst, the appraiser in St. Lucie County, Fla., said a 62-year-old man recently walked into his office and described how his wife had been laid off and his salary had been cut in half. He was struggling to pay his taxes and looking for relief, Mr. Furst said.

“We’re hearing from people like this every day,” Mr. Furst said. In St. Lucie, which sits along the Atlantic, property tax revenue is expected to fall 20 percent, and tax appeals are 10 times as high as they are normally. “Most people are going to see a significant decline in their tax bill.”

Mr. Kramer, the assessor in Contra Costa County, said homeowners started swamping his office with requests for new assessments in December. As many as 500 people would call in one day. His voice mail message now begins: “If you’re calling to request an informal review of your property value due to the declining real estate market.”

Contra Costa has now reduced the recorded value of more than a third of the 350,000 privately owned properties in the county.

Lisa Driscoll, the county’s budget director, said property tax revenue had been growing about 8 to 9 percent a year but was now projected to decline 5 percent next year. The county has cut $50 million from its budget to offset the decline in real estate and other taxes.

Bonnie Grassley’s house in Fort Pierce, Fla., reflects the rise and fall of the broader economy. Its assessed value topped $153,000 in 2006, as Florida’s housing market caught fire. Now, it is worth $77,500.

Though her tax bill is only $150 a month, Ms. Grassley is out of work, spending her savings, and says she hopes a reassessment will save a couple hundred dollars a year.
“My home means everything to me, and it’s all I really have,” Ms. Grassley said. “I’m determined to keep it, come hell or high water. It’s a terrible way to lose your home, just over taxes.”

Property assessments are just one way in which the economy ripples from the real world and finds its way back into government.

This is a continuation of the crises that is occurring in slow motion – a depression. Sub-prime to home builders, to banks, to insurers, to car manufacturers, and now to government itself. Backstopping the failure of businesses in an attempt to create never-ending growth is exactly the cause, the very reason we are in this mess. It ends now, not with your grandchildren.

And as Martin Weiss explains, it’s likely to get a whole lot worse:
Day of Reckoning

by Martin D. Weiss, Ph.D. 07-05-09

This is a day of reckoning for California and, ultimately, for all of America.

Will our nation’s largest debtors meet their massive financial obligations? Or will many ultimately default?

In California, the answer given by the state Treasurer’s office was a commitment never to default, seeking to directly refute my forecast issued here 13 days ago under the headline “California Collapsing.”

According to the BusinessJournal:

“The California’s state Treasurer’s office on Monday refuted an analyst’s recommendation last week that investors dump California municipal bonds and that the state is likely to default.

“Analyst Martin Weiss of Weiss Research said in a June 22 report that California’s financial woes create ‘a very high probability’ that California will eventually miss debt service payments.

“Mr. Weiss’ analysis and recommendation, to put it kindly, is misinformed,” responded Tom Dresslar, a spokesman for state Treasurer Bill Lockyer. “Even the credit rating agencies said, in announcing possible downgrades, that the likelihood of default is low.”

Ironically, just two days later…

California Defaulted on Its
Short-Term Debt Obligations

In lieu of cash, California issued i.o.u.’s to meet obligations to vendors and citizens, postponing payments on its current liabilities.

But current liabilities are short-term debts. Ergo, based on this standard definition, California is already defaulting.

It’s not the same as defaulting on its bonds. But for reasons I’ll explain in a moment, I’m now more convinced than ever that a bond default is also coming.

Consider the importance of this week’s events…

If California’s creditors had a say in the issuance of i.o.u.’s, Sacramento officials might be able to deny they’re in default by implying mutual consent. But that’s far from the facts. The creditors had nothing to do with this decision. It was unilateral, a telltale aspect of debt defaults.

If the i.o.u.’s were as good as cash, Sacramento might also deny the D-word. But the sad reality is that, if you’re among those stuck with California i.o.u.’s, you have only two choices: You have to either hold them while you sweat and cross your fingers or you have to sell them at a steep discount — exactly the same choices facing bond investors after a default.

If all major financial institutions accepted California i.o.u.’s, that might also help Sacramento justify a continued denial of default. But the reality is that most banks are not accepting the i.o.u.’s, and no one could argue their reasoning is financially unsound.

Why accept a piece of paper at face value when it’s worth significantly less than face value on the open market? The nation’s largest banks already have enough troubles with toxic mortgages, toxic credit cards and toxic loans on commercial real estate. They’re not exactly anxious to pile on toxic California paper.

If, as in past episodes, California’s budget mess were mostly due to a political snafu, it could be argued that the i.o.u.’s are merely a temporary stop-gap. But that’s clearly not the case either.

To the contrary, California’s budget crisis is rooted in an unprecedented economic depression with 11.5 percent unemployment and the greatest concentration of mortgage delinquencies in the nation. Even if the i.o.u.’s are ultimately paid in full, California’s debt troubles are not going away.

Why I Expect a Default on California’s Bonds

Short of an 11th-hour rescue from Washington — where political resistance to bailouts has grown dramatically in the wake of recent federal rescues — it will be extremely difficult for California to avoid a default on its bonds.

The fundamental reason: A vicious cycle of budget tightening and falling state revenues.

The state cannot balance its books without inadvertently making the California economy — and its deficit — even worse.

When it cuts spending, it merely creates more unemployment and forces consumers to slash their own spending or default on their own obligations, driving the economy into a still deeper depression. And when it raises taxes, it has a similar impact.

Either way, the end result is lower revenues flowing into the state’s coffers.

But now California has over $28 billion in bonds coming due between now and October. How will it come up with the cash is a great mystery to me. Bond holders are certainly not going to be among those accepting i.o.u.’s.

Wall Street Rating
Agencies Also in Denial

The business model of Moody’s, S&P and Fitch is to sell their ratings to bond issuers; the ratings are bought and paid for by the very institutions being rated, including the state of California.

After multiple investigations of the Wall Street ratings agencies, Congress and the Obama Administration are proposing radical changes. But right now, it’s business as usual, and the egregiously conflicted business model of the Wall Street rating agencies still stands.

I believe that’s a key reason the rating agencies have not yet fully recognized the obviously dire state of California’s finances. And that’s why California’s state Treasurer can still claim Wall Street “doesn’t agree” with more realistic analysis like ours.

In effect, the state virtually pays them to hold their punches.

But despite these blatant conflicts of interest, the truth cannot be bottled up forever. Here’s what I see coming next:

1. Downgrade massacre: A series of multi-notch downgrades by Fitch, Moody’s and S&P, making it extremely difficult — if not impossible — for California to roll over maturing debts at any cost.

2. Worsening deficit: Surging interest costs and greater than expected declines in cash inflows, bloating California’s deficit even further.

3. Washington snub: A last-ditch effort to persuade Treasury Secretary Geithner and President Obama to reverse their earlier decision not to bail out California.

But Washington’s arguments against a California bailout are relatively firm: They’re already giving California billions through the stimulus package. If they bail out California, what will they say to the dozens of other states that line up on the White House lawn asking for theirs?

In contrast, arguments supporting a federal bailout of California sound like a hollow rerun of last year’s “bailout-or-meltdown” ultimatum by former Treasury Secretary Paulson to Congress. It’s a long-ago discredited approach to financial emergencies.

4. Default on California bonds: Despite Sacramento’s official mantra that a default is impossible and unthinkable, it happens.

5. Cascade of defaults: If giant California can default, the new assumption is bound to be that almost any issuer of tax-exempt securities can do the same. A cascade of downgrades and defaults by other states and municipalities ensues.

What to Do…

If you’re a U.S. citizen or resident — whether in California or not — don’t count on borrowing money. Prepare yourself for a return of last fall’s environment in which consumer credit was either too expensive or unavailable.

Pinch pennies. Sell off unneeded assets and possessions. And raise as much cash as you can — for emergencies and for your family’s future.

If you’re a bond investor, better to be safe than sorry. Unload your tax-exempt bonds and tax-exempt mutual funds. With few exceptions, the benefits do not justify the rapidly growing risk.

Good luck and God bless!

Good advice. My only disagreement with Martin; the Federal Government is indeed insane enough to attempt to bail out the states and will do so… eventually. Most likely this will occur after they have used it as leverage to remove the politicians that stand in their central banker way. Of course the combined scope of the problem is way larger than even the Federal Government, but so is the banking crisis and they will do anything to bail out the interests of the central bankers who control them. It will all come to a head, of course, and we will all suffer for it. Life attached to the central banker’s fiat and DEBT was simply irresistible…

Robert Palmer – Simply Irresistible:

*Picture of Arnold by AZRainman.