Friday, July 17, 2009

Morning Update/ Market Thread 7/17

Good Morning,

Equity futures are down overnight while long bond futures are down sharply:

This, despite the fact that Bank of America “earned” $3.22 billion in the Second Quarter and Citi “earned” a “surprise” $4.3 billion based, it claimed on the sale of Smith Barney. Is there any wonder why they were pressuring Congress and the FASB to allow mark to fantasy? There’s your answer in how they handled that. I personally think earning these billions is good for the bastards. I hope they give themselves GIANT sized bonuses that they so obviously deserve for being the biggest crooks in the history of the planet by a factor of about a thousand, that way the people of the U.S. just might get angry enough to put the SOB’s behind bars where they deserve. I’ve said it a hundred times, but I’ll keep on saying it… corporations and their money must be separated from government.

Trumped up earnings and robbery in the financial space is one thing, real profits from a real economy are absolutely another.

Here’s the latest greenshoot to suck the sheeple in… housing starts. I’m going to present Econopray’s latest spin, but keep your eye on that year over year number which is still horrific:
Housing starts in June came in unexpectedly strong, continuing a robust gain the month before and indicating that we may have passed the bottom in housing. Starts increased 3.6 percent, following a huge 17.3 percent spike in May. The June pace of 0.582 million units annualized was down 46.0 percent year-on-year and came in well above the market forecast for 0.530 million units. The boost in June was led by the single-family component which advanced 14.4 percent after rising 5.9 percent the month before. However, the multifamily component gave back some of May's surge, falling 25.8 percent after a very strong 65.9 percent boost the month before.

By region, the June gain in starts was led by a monthly 33.3 percent jump in the Midwest, followed by a 28.6 percent boost in the Northeast. The West and South declined 14.8 percent and 1.4 percent, respectively.

Importantly, permits posted a healthy increase, indicating that the strength in starts over the last two months may not be that much weather related. Permits came in with an 8.7 percent increase in June, following a moderate 4.0 percent rise in May. The June pace for permits at 0.563 million units annualized was down 52.0 percent on a year-ago basis.

Today's report shows unexpected improvement in housing and we have another indicator suggesting that we are getting closer to the end of the overall recession. Equities should like the numbers and bond yields should firm.

Anyone calling bottom on a two month bounce when an indicator has COLLAPSED 46% in the past year is certifiably nuts – especially when that timeframe is its seasonal peak. And I’ll take it further and state that there is just simply too much inventory available and building more new homes into a still oversupplied market is an economic negative, not positive.

Housing Happiness

Welcome the mass psychosis of wave c up of B up. I guess to celebrate the banks robbing us blind we all run to our broker and buy stocks instead of running for the pitchforks and rope!

Talk about being overbought! 100% of DOW stocks are above their 5 day moving average. The DOW closed above it’s upper Bollinger band on lower volume with an oversold daily stochastic and RSI, with everything on the shorter timeframes extremely overbought.

I care not, that’s because I’m heading out ASAP this morning to go riding through the hills of Idaho and western Montana for a few days. Trust me, I need it, but hope you enjoy another Options Expiration day of manipulation and billion dollar profits for the criminals who are “running Wall Street.” Of course by that I mean those who are robbing Americans of their money and of their futures.

Have a good day and weekend, I’ll be back most likely on Tuesday. If I get to civilization at some point I’ll make a quick post, otherwise it’ll be the early part of next week.


Styx – Suite Madame Blue (America Patriotic):

Thursday, July 16, 2009

Max Kaiser on Goldman Sach...

Love someone who will speak his mind. Gangpile on Goldman couldn't be more deserved! Thanks Max! (ht David!)

Max Keiser takes offense to Goldman Sachs story (pt 1 of 2):

Max Keiser takes offense to Goldman Sachs story (pt 2 of 2):

Glenn Beck on the Goldman Web...

Glenn Beck Explains The Federal Connection,Bear Stearns Corruption

Ron Paul on Glenn Beck Discussing Goldman Sachs…

If you listen to only one part, make it part II… But I'd say Glenn pretty much nails his summary in part I.

Glenn Beck: The Tentacles of Gldm. Sachs w/ Ron Paul - Part I (9 minutes):

Glenn Beck: The Tentacles of Gldm. Sachs w/ Ron Paul - Part II (7 minutes):

Mish on the Alex Jones Show…

Part I (11 minutes)

Part II (7 minutes):

Morning Update/ Market Thread 7/16

Good Morning,

Futures are close to even after being down last night and then topping again in the 933 area:

The dollar is down and bonds are up slightly.

JPMorgan posted a $2.7 billion profit, and boy, does that just piss me off! CRIMINALS are continuing to steal taxpayer money, while they control they government, hide their toxic waste, and rake consumers over the coals with outrageous fees. Let’s just say that between them and Goldman Suck’s bonuses, that I’m of the opinion that their karma is going to catch up to them in a way that won’t be so pleasant down the road and it will be deserved.

One Tin Soldier – Coven:

And we have to suffer through listening to Paulson testimony today – a Teflon soldier. The only testimony I want to hear from Paulson is at his criminal trial.

It looks like CIT will not be getting bailed out by the government, now there’s a tin soldier that won’t be riding away come judgment day. This will cause losses elsewhere as they were active in the derivatives field. I don’t know where and it may take a while to find out, but it looks like CIT will wind up in bankruptcy where they belong instead of becoming another money laundering operation for the central banks. Must not have been able to funnel enough cash through them or they would have.

Jobless claims came in much lower than expected at a still awful 522,000 for the month. Continuing claims fell as well, but the BLS and Econoday actually offer up an excuse for the decrease:
Substantial improvement, but improvement tied to seasonal adjustments, is underway in jobless claims where initial claims fell 47,000 to a lower-than-expected 522,000 in the July 11 week (prior week revised to 569,000). The four-week average is down 22,500 to 584,500. Continuing claims really fell, down 642,000 to 6.273 million. But the Labor Department is warning that results for both initial and continuing claims are being affected by prior layoffs in the manufacturing sector, layoffs that are largely seasonal and that happened earlier than usual this year. Stocks and commodities popped higher, but only briefly, in initial reaction to the headline decreases.

You mean that there are still manufacturing jobs? LOL, where? Please read Point's update below regarding the "ADJUSTMENTS."

Not to worry, there have only been 1.5 million foreclosures in the U.S. this year:
NEW YORK ( -- The foreclosure plague is not going away -- it's only getting worse.

A record 1.53 million properties were in the foreclosure process -- default notices, auction sale notices and bank repossessions -- during the first six months of 2009. That was 9% more than the previous six months and 15% more than the same period of 2008, according to a report released Thursday by RealtyTrac.

There were a total of 1.91 million filings resulting in 1 out of every 84 U.S. properties receiving at least filing in the first half of the year. Banks repossessed 386,800 properties.

"What this means is, despite the intensity of the efforts on the part of government and lenders we don't have a handle on foreclosures yet," said Rick Sharga, a spokesman for RealtyTrac.

TIC flows (Treasury International Capital) were NEGATIVE by "only" $66.6 billion (see that number???) with foreign private TIC flows negative by “only” $82.2 billion!!! Nothing to see here, move along…

That’s nice… we are running structural deficits and people are pulling money from the treasury, not giving it to them. So here’s the question… who is buying up all the debt??? There is more here than meets the eye, remember that they are claiming that indirect bidders are snapping up treasuries… oh really? Could those indirect bidders actually be government surrogates? I’ve been wondering this for quite some time. Wonder why the Fed doesn’t want a REAL audit? There’s smoke here, tons of it.

I’ve been detailing the collapse of the bond market and despite the rally of the past few weeks, is down substantially since the beginning of the year – as in collapse. Well, TLT is has now given up a good percentage of the recent gains:

HUGE gaps all over the charts from yesterday. Here’s the DOW with one of the smaller gaps. Huge move and on higher volume:

The Transports also made a huge move on higher volume, leaping over the 50 and 200 moving averages. Note that the DOW Industrials made a new high, but the Transports have not:

Note the double top at 933 on the SPX. It topped out there again overnight.

The VIX diverged against the market yesterday, watch it closely today:

McHugh said last night that he believes we have started wave c up of B and that the evidence for that is overwhelming. And what a ride the past three days have been. Two 90%+ days in the past three, yesterday was a 97% up day, buying panic! McHugh stated that he thinks the upright H&S pattern is not going to play out because it was too obvious and people were talking about it on CNBC. Thus he thinks the inverse H&S is now more likely and it has a target up in the 9,700 area of the DOW or 1,050 area of the SPX… maybe, but I sincerely doubt it.

Now, on the other extreme, Denninger said that he shorted the hell out of the market after the close yesterday (that would be appropriate looking at CIT and the devilish numbers of the TIC data).

I fall in neither camp! Sorry for the non-commital, but I want to see 956 fall to declare the H&S pattern dead and to fall in McHugh’s camp, and conversely, I would want to see a fall back below the neckline at 888 to be in Denninger’s bearish camp. But you know me, of the two I would favor Denninger being correct. They both know and believe that the fundamentals of our economy are cooked and on that point we are all in agreement.

Philly Fed data comes out at 10 Eastern…

Have a good day,


One Tin Soldier:

Wednesday, July 15, 2009

Morning Update/ Market Thread 7/15

Good Morning,

Futures are up overnight as Intel’s rosy demand prediction lifted the entire market and it has not fallen back:

That price action now has prices right at the top of the blue channel depicted below. A break above that channel is a clue that wave c of B may be occurring:

The short term stochastics are very overbought and there is a small RSI divergence at this point.

The MBA purchase applications index plunged from 285.6 down to 258.8 for the past week. Here’s Econoday:
Whatever improvement there was in the MBA's purchase index was fleeting, falling back in the July 10 week by a heavy 9.4 percent to 258.8. Difficult job conditions and difficult credit conditions continue to limit home buying despite falling prices and low rates. Rates have been lower but are falling again, at 5.05 percent for 30-year loans for a nearly 30 point drop in the week. Low rates fuel demand for refinancing where the index rose 18 percent in the week to 1,707. Next data on the housing sector will be the housing market index tomorrow.

Well, bonds are down again this morning producing higher rates… the recent up trend line in prices (lower rates) has been broken.

The CPI data is doing the same thing as the PPI data did, namely showing month over month improvement but at the same time year over year is negative by 1.2%. Again, here’s Econoday’s spin, I pay far greater attention to the year over year numbers than the month over month:
In June, consumer price inflation jumped and on higher gasoline price but other components also added to the spike. The headline CPI surged 0.7 percent, following a 0.1 percent uptick in May. The June rate matched the market forecast. In the latest month, energy costs posted a 7.4 percent hike while food price inflation was unchanged. Meanwhile, core CPI inflation firmed to 0.2 percent in June from a 0.1 percent uptick in May. The market expectation was for a 0.1 percent gain for the core.

The 7.4 percent boost in energy costs was due to a 17.3 percent spike in gasoline prices after a 3.1 percent gain in May.. Heating oil rose 2.0 percent while piped gas and electricity declined 1.2 percent.

Within the core, new & used motor vehicles advanced 0.4 percent, apparel jumped 0.7 percent, and recreation gained 0.5 percent (largely on admission fees and for cable and for satellite television and radio). Tobacco and smoking products increased 0.8 percent. On the soft side were rent of primary residence and owners' equivalent rent, both rising 0.1 percent.

On a year-ago basis, headline inflation dropped to down 1.2 percent (seasonally adjusted) in June from down 1.0 percent in May. Meanwhile, the core rate eased to up 1.7 percent from up 1.8 percent in May. On an unadjusted year-ago basis, the headline number was down 1.4 percent in June while the core was up 1.7 percent.

The June CPI report showed temporarily hot headline inflation as the energy component is expected to reverse in July. But some portions of the core were stronger than expected, including apparel and recreation. Also, the CPI for new and used motor vehicles rose significantly.

While most of the headline numbers should be shrugged off, the firming in the core should be a little worrisome and likely will weigh on bond prices. There were enough components showing notable increases to question the view that the recession is keeping inflation down. Also, the Empire State manufacturing index posted a nice increase and that should also help bond yields bump up.

And the Empire Manufacturing index did indeed post a nice gain, rising from negative 9.4 to just negative .55:
Rates of manufacturing decline are slowing decisively, pointing to a near-term bottoming in the sector and what would be a big plus for the economic outlook. The Empire State general business conditions index is only slightly negative in the July report, at -0.55 vs. -9.41 in June. A zero reading would indicate no month-to-month change, and at least that high of a reading seems certain for the next report given the big improvement in new orders which jumped into positive ground, at 5.89 indicating month-to-month growth vs. a long run of negative readings.

Shipments also shifted into growth mode, at 10.97 vs. May's -4.84. Prices paid likewise showed an increase, at 10.42 vs. -5.75 and likely reflecting more than just energy prices which have come down so far this month. Despite the signs of improvement, both here and in other reports, firms continue to destock at an accelerating rate with the inventories index at -36.48 vs. -25.29 in May. Thin inventories are not a vote of confidence in the outlook but will help limit future layoffs as demand for future goods will have to be met by production. A mild negative in the report is an easing back in the general six-month outlook where the index fell about 14 points to a still optimistic 33.99.

A leveling in the manufacturing sector would not only point to wider economic recovery but would also give a boost to demand for risk. Confirmation of strength in the manufacturing sector could make tomorrow's report from the Philadelphia Federal Reserve a market-moving report.

We’ll have to watch this one. While it appears to be a positive that this index has leveled off, the level of manufacturing is so low that no growth in manufacturing still means dire times. But no growth is certainly better than freefall, so we’ll see what happens as we exit the spring time and lose the seasonality later.

Industrial production fell .4% in June, less of a fall than forecast month over month. Capacity utilization rose to a still very anemic 68% which was slightly better than forecast.

So, there’s enough green shoot data (less of a free fall) that the holders of now worth less and less fiat dollars may generate another leg up. Watch that channel top, a break above is bullish and I would not stick around on the short side if it breaks. On the other hand, if it holds, there may be a good short opportunity coming off it, but I don’t see the fuel for the shorts today except for the overbought condition. Hey, no matter which way it goes, you’ve got to roll with the changes!

Have a good day,


Roll With the Changes - Styx and REO Speedwagon:

Tuesday, July 14, 2009

End of Day Charts 7/14

Interesting day today with the dollar up, bonds down, and equities up. Many hammers produced in the major indices so I thought it was worth posting a few charts today. Those hammers are POTENTIAL reversal indications, but it’s also still possible that we have just begun wave c up of B, so be sharp, this is another important week.

Let’s start with the SPX daily. Here is a large mostly outside hammer that finished well below the 912 pivot point. We’re back above the 200dma, but well below the 50. Most of the daily charts produced new buy signals on the daily stochastics (with my slow settings), but pay attention as all the short timeframe stochastics, 60 minutes and less, are overbought:

The Dow daily closed barely above the 200dma and produced a perfect outside hammer on LOWER volume. That’s a pretty good, high odds, reversal indication but needs to be confirmed with lower prices tomorrow:

The XLF had a small down day today, a divergence against the broader market. It too produced a hammer, but it is inside which makes it a lower odds potential reversal indicator. The rub is that the small down day was on lower volume here than Meredith’s GS pump yesterday:

The most telling index for me is the Major Market Index (XMI). It produced a textbook perfect outside hammer right on the 200dma. Tomorrow will be an interesting and important day:

For confirmation, the DIA also produced a hammer on lower volume:

On the 60 minute SPX chart we see that prices got back above the neckline, but are way overextended here. It appears more like we are extending the right shoulder, but again need to see more price action. There’s a pretty well formed downchannel with the top now just above the 912 pivot point. The shorter time frame RSI produced a small negative divergence throughout today, but there is actually a small positive divergence on this timeframe:

Now, to counter all the potential reversal indicators, the bond market moved down in price (up in yield) very hard today. Just looking at the TLT 3 month chart, it looks like we broke the most recent uptrend line, and did so on higher volume than yesterday. Also note the much larger volume picture which is quite obvious… falling prices - higher volume, rising prices – lower volume. Also note the fresh sell signals on the oscillators:

The VIX dropped all the way to support at the 25 area:

This produced a very interesting Point & Figure chart with the breakout and subsequent return back to prior levels… note that the computer is calling this formation a “bull trap.” LOL, now there’s one I didn’t know the P&F was capable of spotting but evidently it knows a trap when it sees one! It’ll be interesting to see if this plays out – note the bullish target of 50 from the breakout the other day. Someone’s about to get trapped, we should know more tomorrow:

Intel just reported higher than expected earnings, but with GAAP accounting still reported a loss. Didn’t stop it from skyrocketing and carrying the market higher in after hours trading. That pushed the /ES up into the 912 pivot where it found resistance. Let’s see what tomorrow morning brings, we’ll get CPI data, industrial production, and the Empire State Survey.

Hey, please do me and Martin Armstrong a favor and go to this site (Contact Michael Malloy) and request that Mr. Malloy please represent Armstrong’s case. Evidently Armstrong is requesting that Mr. Malloy represent him as Malloy just won a very important case with a similar legal background… Chadwick freed after 14-year contempt sentence

Thanks and have a great evening,


Hey the central bankers are all working the same angle behind the scenes – “Don’t let him go!”

REO Speedwagon - Don't Let Him Go:

Eliot Spitzer on Goldman Sachs...

The "Sheriff" (who, unfortunately, has trouble keeping his "gun" hidden) is hitting the nail pretty much on the head with this Bloomberg interview…

U.S. Justice Department Investigating CDS Markit?

LOL, Doesn’t the Justice Department know that all their money comes from the 4th branch of government that they are investigating? Or is it just for show like all the “investigations” transpiring in the 4th branch of government over the past couple years? (For the uninitiated, the 4th branch of government is the Financial branch… they are the ones who provide funding and exercise control over the Executive, Legislative, and Judicial branches – there are NO checks or balances. Bolding mine.)
Credit Swaps Investigated by U.S. Justice Department

By Matthew Leising

July 14 (Bloomberg) -- The U.S. Justice Department is investigating the market for credit-default swaps, according to Markit Group Ltd., the data provider majority-owned by Wall Street’s largest banks.

“Markit has been informed of an investigation by the Department of Justice into the credit-derivatives and related markets,” spokeswoman Teresa Chick said yesterday in an e- mailed statement in response to questions from Bloomberg News. She declined to comment on the nature of the investigation. “We will work with the Department to provide any information requested of us.”

The antitrust division sent civil investigative notices this month to banks that own London-based Markit to determine if they have unfair access to price information, according to three people familiar with the matter. U.S. lawmakers plan to regulate the $592 trillion over-the-counter derivatives market, which includes credit-default swaps blamed for helping worsen the biggest financial calamity since the Great Depression.

“I say Hallelujah that some authoritative body has finally stepped forward to investigate, in a small way, how Wall Street takes advantage of information for its own advantage,” said William Cohan, a former JPMorgan Chase & Co. investment banker and author of “House of Cards,” about the financial crisis. “The fact that they control Markit and it provides information about the prices of credit-default swaps and they’ve benefited from this for many years without any challenge or investigation was outrageous.”

Justice Department spokeswoman Laura Sweeney declined to comment. Markit Chief Executive Officer Lance Uggla didn’t immediately respond to a voicemail left on his mobile phone.

Unregulated Market

Credit-default swaps -- contracts that protect against or speculate on corporate defaults by paying the buyer the face value of a bond or loan if a company fails to meet its debt agreements -- ballooned almost 100-fold within seven years to represent about $62 trillion by the end of 2007, according to estimates from the New York-based International Swaps & Derivatives Association.

Unregulated trading of the contracts made it difficult for the U.S. to assess how connected banks had become following the failure of Lehman Brothers Holdings Inc. in September. Credit markets froze when the New York-based firm, once the fourth- largest U.S. investment bank, collapsed in the world’s biggest bankruptcy.

Increased Scrutiny

The Obama administration now wants all trades of over-the- counter derivatives to be backed by clearinghouses or registered with regulators. Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather.

“This has to be seen as another step towards regulating the over-the-counter market,” Philip Gisdakis, head of credit strategy at UniCredit SpA in Munich, wrote in a research report published today.

Cohan said the Justice Department action shows that antitrust cases may be used more aggressively by the Obama administration to look into practices in the over-the-counter derivatives market.

“This is one of the first concrete examples of a shifting political wind with regard to Wall Street,” he said in a telephone interview today.

$28 Trillion

Markit provides derivative and bond data to more than 1,500 customers. It owns the most actively traded credit swap indexes and pricing services in the market, which represents $28 trillion in underlying securities, according to the New York- based Depository Trust & Clearing Corp.

Bloomberg LP, the owner of Bloomberg News, competes with Markit in selling information to the financial-services industry.

JPMorgan is Markit’s largest shareholder, with at least 1.67 million ordinary voting shares out of a total of 14.38 million, according to filings at U.K. Companies House. Bank of America Corp. is the second-largest, with more than 1.52 million shares held through its own units and those acquired in its purchase of Merrill Lynch & Co. last year. Royal Bank of Scotland Group Plc owns at least 1.35 million shares after its purchase of ABN Amro Holdings NV, while Goldman Sachs Group Inc. has about 1.11 million shares, the filings show.

JPMorgan and Goldman Sachs representatives declined to comment. Officials at Merrill Lynch and RBS couldn’t immediately be reached for comment. The Financial Services Authority in London and the European Commissions antitrust department in Brussels declined to comment on whether European authorities are investigating pricing in the CDS market, according to officials at the agencies.

Owners and Providers

Justice Department investigators want to know if Markit’s bank shareholders received advantages as owners and providers of prices and trading patterns for credit-default swaps,aid two of the people. The data from the market’s largest users is provided to more than 300 financial firms to set prices of the contracts in their portfolios, according to Markit’s Web site.

The notices ask recipients to give the Justice Department details on the amount of their trading, how much they have at risk in the market, the monthly value of their credit swaps and other information, said a person who read parts of the letter to Bloomberg News.
The letter also seeks the level of current bank ownership in Markit and whether the shareholders have tried to sell their stakes, the person said.

Transparency, Efficiency

End-of-day and real-time prices for credit swaps are available to Markit customers, the company says on its Web site. Real-time prices come from the Wall Street dealers that send that information to clients throughout the day.

Markit checks the information it receives to ensure it’s current and correct, according to the company. “By insisting on the highest standards, we ensure superior data quality for an accurate mark-to-market and market surveillance,” the Web site says.

“Markit strives to enhance transparency and efficiency in the credit derivatives market by making all our independent data products commercially available to all market participants,” company spokeswoman Chick said in the statement.

Markit, founded in 2001 by Toronto-Dominion Bank executives Uggla and Kevin Gould, made acquisitions in 2007 and 2008. The company purchased the owners of the iTraxx and CDX credit- default swap indexes, which are used to speculate on the credit quality of more than 500 companies in Europe, Asia and North America.

Goldman Trading

Losses on mortgages made to borrowers with poor credit began to soar in 2007, causing credit markets to freeze up and leading to almost $1.5 trillion in writedowns and credit losses at the world’s biggest financial institutions, according to data compiled by Bloomberg.

Goldman Sachs today reported record earnings of $3.44 billion in the second quarter that beat analysts’ estimates as revenue from trading and stock underwriting reached all-time highs less than a year after the firm took $10 billion in U.S. rescue funds.

The record results were driven in large part by trading unregulated over-the-counter derivatives. Revenue from fixed-income, currencies and commodities, the company’s biggest unit, was a record $6.8 billion, compared with $6.56 billion in the first quarter and $2.38 billion in last year’s second quarter.

Bet you didn’t know Markit is owned by JPMorgan, Bank of America, and Goldman Sachs, did you? To be honest, I did not until I read this article, but I am anything but shocked to learn they own the company that “reports” the prices of derivatives which they own and have worked so hard to hide and obscure!

And you know who Markit is right? Markit Homepage…

They are the ones whose little graphs I present on occasion as they are the ones reporting on pricing of the CMBX (commercial real estate securities) indices:

Ironic that when you click on the Markit icon on their site, it takes you to a page with a big heading titled “Credit Fixings,” LOL!

Credit Fixings...

And what is it exactly that they are “fixing?” Why PRICES of course!
The Credit Event Fixings are designed to ensure a fair, efficient and transparent process for settlement of credit derivative trades following a corporate default. The Fixings were developed by Creditex and Markit in close cooperation with ISDA and major credit derivatives dealers and are an integral part of ISDA's CDS Index protocols. Creditex and Markit have jointly acted as administrators of the Credit Event Fixings since their inception in June 2005.

There are simply no checks and balances on our financial industry at all. They pay for their own ratings. They own and control the companies who report the value of their “assets.” They own the politicians and make the rules. I won’t hold my breath on the Justice Department taking real and meaningful action. I fully expect a good show and a little talk. But breaking up the cartel – forget it, it’ll never happen. Guess who’ll own the exchanges?

Supertramp – Crime of the Century:

Economic Data 7/14

Let’s start by diving into retail sales which were higher than expected overall on a month to month basis, up .6%. Ex-autos, however, growth was less than expected. Below is Econoday’s take on the numbers, note that they don’t even mention the 9% Year over Year decrease that represents a historic collapse of sales:
Retail sales in June came in a little stronger than expected on increases gasoline and motor vehicle sales. Otherwise, sales were soft. Overall retail sales posted a 0.6 percent gain after rebounding 0.5 percent in May. The advance in June topped the market projection for a 0.5 percent increase. Excluding motor vehicles, retail sales gained 0.3 percent, following a 0.4 percent boost in May. The consensus had expected a 0.6 percent increase. The latest increase in overall sales was led by a 5.0 percent surge in gasoline station sales. Excluding motor vehicles and gasoline, retail sales slipped 0.2 percent after easing 0.1 percent in May.

Outside of gasoline and motor vehicles, sales were mixed but mostly down. Notably, building materials & garden equipment fell 0.9 percent. Consumers are eating at home more as food services & drinking places also declined 0.9 percent. General merchandise slipped 0.4 percent. On the positive side, gains were led by electronics & appliance stores and by sporting goods, hobby, book & music stores, both gaining 0.9 percent.

Overall retail sales on a year-ago basis in June were down 9.0 percent, improving from down 9.8 percent in May. Excluding motor vehicles, the year-on-year rate slipped to down 7.9 percent from down 7.6 percent.

The June boost in retail sales shows a sluggish consumer sector once autos and gasoline are discounted. Equities should not be very excited about the numbers after going into the detail. But stocks are focusing on earnings and Goldman Sachs beat estimates sharply before open.

And over in the weekly ICSC report, same store sales were down sharply for the week, falling .9% and also falling .7% year over year. Again here’s Econoday’s spin:
Cool weather, the coolest in 12 years, pared demand for seasonal goods, driving ICSC-Goldman's same-store sales tally down 0.9 percent in the July 11 week for a 0.7 percent year-on-year decline. The report is warning that July will likely be "another tough month" for retailers. June retail sales will be posted at 8:30 ET.

Meanwhile, the Redbook was down a whopping 5.7% last week on a year over year basis and that follows a 4.2% decrease the week prior, meaning that conditions in department stores are worsening.
Redbook keeps reporting sharp declines with same-store sales at a year-on-year minus 5.7 percent in the July 11 week. Month-to-date, sales are down 1.7 percent vs. June. The report said customers are not responding to women's fashions which is bad news for department stores. For department stores, this morning's retail sales report extended a run of very deep declines. General merchandise is also on a long string of declines while clothing is flat. These are the categories tracked by Redbook and ICSC-Goldman which explains why both of these reports have, and unfortunately continue, to report significant weakness.

The Producer Price Index came in hotter for June than previous months largely on the back of higher gasoline prices. Note in the two charts that follow Econoday’s take, that the month to month chart is showing increases but when we look at the year over year chart we see a huge plunge in this index. On that YOY chart, note that the “core” has remained positive and has yet to go negative. This is statistical game playing that has gotten out of hand. Note that the overall PPI is DOWN 4.7% year over year! Not quite enough to trigger a deflationary spiral signal but very close:
Producer price inflation in June jumped sharply at the headline level due to higher energy costs. The core also was high and largely due to higher motor vehicle prices. The overall PPI spiked 1.8 percent in June, after increasing 0.2 percent in May. The boost in June was sharply above the consensus forecast for a 0.8 percent hike in the headline PPI. The latest gain was led by the energy component which jumped 6.6 percent. The food component also posted a large gain-1.1 percent. Meanwhile the core PPI rate advanced 0.5 percent, coming in much higher than 0.1 percent decline in May. The latest number was stronger than the market expectation for a 0.1 percent gain.

Boosting the core rate were a 2.0 percent jump in auto prices and a 3.4 percent surge in light truck prices.

For the overall PPI, the year-on-year rate fell to minus 4.3 percent from minus 4.7 percent in May (seasonally adjusted). The core rate year-ago pace firmed to up 3.4 percent from up 3.0 percent the prior month.

The latest PPI report was quite strong but largely due to temporary factors. Energy is now in retreat and the spike in auto and light truck prices will not continue. The June PPI is an aberration in the current inflation trend. Bond yields, however, are likely to firm. Stocks are focused on earnings with Goldman Sachs sharply beating estimates before open. Also, retail sales were a little better than expected.

If it were up to me, I’d scrap the BIS, the BLS, and all government agencies that produce statistics and I’d start over in one giant swoop! I’d develop a set of statistics that cannot be changed and tweaked over time – a “core” set of statistics if you will. NO, statistics don’t need to “change with the times,” the laws and principles of economics do not change – this time the math of debt is no different than the basic math in Roman times! We need to stop tweaking and spinning things into a positive, the only one we’re fooling is ourselves – it’s leading to economic mass psychosis!

Billy Joel – Honesty:

Morning Update/ Market Thread 7/14

Good Morning,

Futures are slightly higher this morning, here’s the overnight action on the Dow and the S&P:

Yesterday’s move up was obviously the large move called for by the small movement in the McClelland Oscillator on Friday. It was a powerful 90% up day. I look at that move as either the beginning of wave c up of wave B up, or it is a wave 2 up of 3 down. For it to be a wave 2, prices will need to begin to fall again very soon which is so far not indicated by the price action. You can see the waves on this 30 minute SPX chart pretty well. Note that we retraced 50% of the most recent down wave already. The short term stochastics are overbought up through the 60 minute timeframe:

We have just entered what could be an important turn window which bolsters the case that we may have completed wave b down of B and are beginning wave c up. Also bolstering the c case is that /ZB just broke it's most recent uptrend this morning and thus could be headed lower in price, higher in yeild:

Of course Goldman did wind up making a huge $3.44 billion profit in the second quarter. Lovely. Bonuses for all of them while the taxpayers are saddled with the debt of bailing out AIG and passing their money into the quasi government (4th branch thereof) hands!

Yesterday the latest treasury budget numbers were released, another record as explained by Mike Larson at Interest Rate Roundup:
More record-setting deficit figures to chew on
Hope everyone is having a decent Monday. One item that's worth noting this afternoon is the latest budget update from the U.S. Treasury. Turns out the June deficit came in at $94.3 billion, the first time there's been a deficit for that month since 1991. It's also the largest June deficit ever. The year-to-date tally of red ink? A record $1.1 trillion in the first nine months of the fiscal year that ends September 30, 2009.

There was quite a bit of data out this morning and I’m running out of time so I’ll post this and will add the economic data in a separate post in just a few minutes.

Hope everyone has a great day,


Here’s Oliver receiving a little on the job training on behalf of Goldman Sachs:

Oliver! - You've Got To Pick A Pocket Or two

Monday, July 13, 2009

Emerging Markets - Highway to the Danger Zone!

Bloomberg wrote a pretty fair and accurate article on the over-valuation of emerging markets. I didn’t trim this article as I found the entire piece to be interesting. Note the references to IMF and also World Bank growth forecasts. I’m not sure the game that’s being played here, but now when I see a piece that largely tells the over-valued truth I get suspicious as to the motive. Is it time? Are the central bankers positioned correctly for this article to play?

I know, but you must have a skeptical mind for these markets, things are NOT what they appear on the surface.

Here’s a two year chart of the Emerging Market Index to keep in mind while reading this article:

Emerging Markets Priciest Since 2007 When Shares Fell

By Adria Cimino and Michael Patterson

July 13 (Bloomberg) -- The last time stocks in developing countries got this expensive was in October 2007, just before the MSCI Emerging Markets Index began a 12-month tumble that erased half its value.

The MSCI gauge trades at 15.4 times reported earnings, compared with 14 for the Standard & Poor’s 500 Index, according to weekly data compiled by Bloomberg. When developing nations last commanded a premium, the 22-country benchmark sank 54 percent in the next year.

Groupama Asset Management, Palatine Asset Management and Standard Life Investments say the disparity means investors are paying too much for shares from China to India to Brazil at a time when the global economy is contracting. MSCI’s emerging- market gauge is valued at 1.7 times its companies’ net assets after a 34 percent surge last quarter, the highest on record compared with the MSCI World Index of 23 advanced economies, which trades for 1.5 times, data compiled by Bloomberg show.

“Emerging-market stocks are at risk,” said Matthieu Giuliani, a Paris-based fund manager at Palatine, which oversees $5.56 billion. “You should only pay so much for growth.”

Investors are already starting to show a lack of confidence in a continued rally. The MSCI developing-nation index dropped 8.3 percent from its 2009 high on June 1 through last week, while the MSCI World fell 7.4 percent and the S&P 500 retreated 6.8 percent. Emerging-market funds had $540 million of net outflows in the week to July 8, the second time in three weeks investors withdrew money, according to Cambridge, Massachusetts-based EPFR Global, which tracks funds with $10 trillion worldwide.

Volatile Returns

The MSCI emerging-market index declined 2.4 percent to 718.72 as of 8:36 a.m. in London, the steepest intraday slump since June 23. The MSCI World slid 0.6 percent, while futures on the S&P 500 lost 0.5 percent.

All 22 emerging-market currencies tracked by Bloomberg depreciated against the yen in the past month, and 16 weakened against the dollar. The yen usually attracts investors during economic turmoil because Japan’s trade surplus makes the nation less reliant on overseas lenders, while the dollar benefits from its status as the world’s reserve currency.

While developing nations’ economies grew an average 1.7 times faster than developed countries in the past 20 years, their stocks traded at a discount because their economies and returns were more volatile. Brazil’s annual inflation averaged more than 1,000 percent in the 1990s, and South Korea required a $57 billion bailout from the International Monetary Fund during the Asian financial crisis of 1997.

Bull Markets

The MSCI emerging-market index had 13 bull-market rallies of at least 20 percent and 12 bear-market declines of the same magnitude since its inception in December 1987, according to data compiled by Birinyi Associates Inc., the Westport, Connecticut-based research and money management firm founded by Laszlo Birinyi. That compares with five bull markets and four bear markets for the S&P 500 during the same period.

Developing nations led the worldwide rally in equities last quarter, with China’s Shanghai Composite Index adding 25 percent and India’s Bombay Stock Exchange Sensitive Index jumping 49 percent. The gains outpaced a 20 percent rise in the MSCI World and a 15 percent advance in the S&P 500.

The increase cut the dividend yield of the emerging-market gauge to 2.97 percent, compared with 3.49 percent for developed countries. MSCI’s emerging-market index fetches 1.1 times sales and 6.7 times cash flow, compared with 0.8 and 4.3 in the advanced gauge, data compiled by Bloomberg show.

Record Share

“Gains came too quickly in the context of a slow economic rebound,” said Romain Boscher, who helps oversee $119 billion as a director at Groupama in Paris. “Valuations are now high, and that leaves the door open for a drop. Emerging and developed markets are at risk.”

Developing nations’ share of global equity value climbed to an all-time high this month as investors poured in a record $26.5 billion last quarter, according to data compiled by Bloomberg and EPFR.

The infusion helped Beijing-based oil producer PetroChina Co. climb 17 percent in Hong Kong trading this year and overtake Exxon Mobil Corp. as the world’s largest company by market capitalization. PetroChina’s shares are valued at 11.3 times earnings, compared with 8.9 for Irving, Texas-based Exxon.

PetroChina, which traded at a discount to Exxon as recently as April, is one of five Chinese companies ranked among the world’s 10 biggest by market value. The rest are in the U.S.

Growth Premium

Itau Unibanco Holding SA in Sao Paulo, Latin America’s largest bank by market value, trades at 2.7 times net assets, more than double the 1.1 price-to-book ratio for Banco Santander SA. The Santander, Spain-based lender got 33 percent of its net income from Latin America in the first quarter and is the world’s 10th-biggest financial company by market value.

For Carmignac Gestion’s Eric Le Coz, emerging-market equities deserve a premium because the economies are the only ones projected to grow this year. Financial institutions in developing nations also avoided most of the credit freeze that caused almost $1.5 trillion of writedowns and credit losses since 2007, according to Bloomberg data.

Le Coz’s firm is buying shares of Beijing-based China Construction Bank Corp., which trades for 2.5 times book value, and Bharat Heavy Electricals Ltd., the New Delhi-based manufacturer of power-plant equipment that’s valued at 31 times earnings.

Not as Fragile

The Washington-based IMF estimates developing economies will grow 1.5 percent as a group this year and 4.7 percent in 2010, while advanced economies will contract 3.8 percent in 2009 and expand 0.6 percent next year.

Emerging markets “should be more expensive,” said Le Coz, who helps oversee $28 billion as a member of the investment committee at Carmignac in Paris. “In the past, emerging markets were fragile. Today that’s not the case.”

Brazil, which defaulted on its foreign debt twice since 1983 and devalued its currency in 1999, now has an investment- grade credit rating from S&P and Fitch Ratings. Moody’s Investors Service said this month it may upgrade Latin America’s biggest economy.

China surpassed Germany in 2007 to become the world’s third-largest economy. Russia has $409 billion of foreign exchange reserves and India has $253 billion, the world’s third- and fifth-biggest holdings, according to Bloomberg data.

‘Grave’ Prospects

Developing nations traded at a discount to American equities from 2001 to 2006 even after their economies expanded at almost three times the pace, according to Bloomberg and IMF data. They moved to a premium in October 2007, the peak of a five-year advance that sent the MSCI gauge up fivefold. The index’s drop in 2008 was almost 16 percentage points steeper than the S&P 500’s 38 percent slide, the worst since 1937.

When emerging-market valuations climbed above the U.S. in 1999 and 2000, it foreshadowed the end of a seven-year global rally. The MSCI developing-nation index sank 37 percent in the 12 months after March 2000, compared with a 23 percent slide in the S&P 500.

The Washington-based World Bank spurred a worldwide sell- off last month after warning of “increasingly grave economic prospects” for developing nations and predicting the global economy will contract 2.9 percent this year, compared with a previous forecast of a 1.7 percent decline.

Equities sank on July 2 as the U.S. government said the economy lost 467,000 jobs last month, 102,000 more than the median economist’s estimate.

‘Run Too Far’

Emerging markets “are still dependent on exports and the health of wealthy countries,” Palatine’s Giuliani said. The European Union was the biggest export market for Brazil, Russia, India and China as of 2007, the last period the data were available, according to the Geneva-based World Trade Organization. The U.S. was the second-biggest market for Brazil, India and China.

Shares in developing nations are the most vulnerable to further declines because prices “have run too far ahead” of a recovery in profits, according to Standard Life’s Jason Hepner.

Companies in the MSCI emerging-markets index that reported results since the end of the first quarter posted an average earnings drop of 92 percent, trailing analysts’ estimates by 14 percent, according to Bloomberg data. That compares with a 46 percent profit slide for Europe’s Dow Jones Stoxx 600 Index and a 31 percent fall for the S&P 500, Bloomberg data show.

“We favor the more defensive markets like the U.S.,” said Hepner, an Edinburgh-based money manager at Standard Life, which oversees about $178 billion worldwide and has a “very light” position in emerging-market equities.

While BlackRock Inc.’s Bob Doll projects developing-market equities will be the most attractive stock investments over the next few years, he says they may lead a short-term retreat as investors reduce expectations for an economic recovery.

“A lot of risk assets are ahead of themselves,” said Doll, vice chairman and chief investment officer of global equities at New York-based BlackRock, which had $1.3 trillion under management as of March 31. “Almost always, what goes up the most, pulls back the most.”

Indeed! I agree that a lot of risk assets are ahead of themselves, but agreeing with a public statement made by someone running BlackRock makes me nervous.

I do think that it’s interesting that some of the developing nations banks are in relatively better condition. Those parts of the world that didn’t participate in the securitization/ “derivatization” of everything above ground have been and will probably continue to be relatively better off.

Still, they are dependent upon demand from the rest of the world, so expecting fundamental REAL growth is probably not the brightest call at this juncture – doesn’t mean that speculative “hot” money can’t run these markets higher.

Below is the Point & Figure chart for the Emerging Market Index. Note the very bullish target of 63! I highly doubt this index will reach that height with this fundamental backdrop. However, betting against them now might be a little dangerous, especially with BlackRock making comments like that!

Another thing that gives me pause about this chart is that I see the “dragon” pattern here. I won’t try to draw it, but imagine the tail on the left, two feet, a long neck and a head… when the head is above the “back” it is a bullish formation as it is here. So, if you go back to the chart at the top of this article, you will see that formation there too. Note also that it retraced half of its enormous decline and then fell back to the 38.2% retrace line where it is finding support now. To me it looks like it may fall back to the 23.6 which places prices at the top of the “dragon’s back.”

Overall I think emerging markets are over valued. But I also think playing these markets in either direction is playing in the danger zone.

Morning Update/ Market Thread 7/13

Good Morning,

Futures are flat to up a little this morning after being down hard last night and then making a U-turn. Oh yeah, that's real natural looking (not!):

No economic data this morning, the Treasury releases their budget this afternoon and later in the week we’ll get the PPI and CPI numbers for June. As trumped up as they are, they will still give us an indication of how close we are to being in a deflationary spiral.

Here’s the 60 minute snapshot showing the Head & Shoulders pattern. It is now confirmed and the 888 area is acting as resistance for now:

There was a small change in the McClelland Oscillator on Friday, so look for a large price movement today or tomorrow. The short term stochastics are all in the middle, so no help with direction there. The daily stochastic is oversold and the weekly is still on a sell signal.

Below is a link to a video called “What is an Option Worth?” It’s 45 minutes long and is a terrific video on how to value an option. This is an upper level lesson on implied volatility, yet it is simply presented so that you can understand it. If you are trading options, you really should spend the time to view this video. Thanks to Dean Mouscher for starting this new website to educate retail investors:

What is an Option Worth?

Emerson, Lake & Palmer - Welcome Back My Friends, To The Show That Never Ends

Sunday, July 12, 2009

Uncle Jay Explains the News...

It's time, boys & girls, for Uncle Jay to explain the news!

The Fundamentals Still Apply, as Time Goes By...

Martin Arnest, a friend of my friend Leland, wrote a nice email to me and in it he described the ways and thinking of his grandfather, Henry Arnest. I asked him if he would expand a little bit on his grandfather and provide some pictures. Below is a compilation of his email, additional information, and my edits:
"The Fundamentals Still Apply, as Time Goes By..."

…The main thing for me is a change in attitude and philosophy around money and the economy. Many of my friends and fellow Gen-Xer's still haven't gotten it.

My Grandfather was in his seventies and I was a teenager when he started to tell me on a regular basis, “You know Grandpa wont be around forever.” Damn if he didn’t live to be 94 years old, and I got the benefit of more than twenty years of his parting wisdom.

He was an experienced 21 year-old: he’d had the fingers of his right hand half-blown off at 14 in a mining accident, sold films to Northern California movie houses for 20th Century Fox as a teenager, and after spending several years working for his late Grandfather's partner in construction struck out on his own pouring concrete with his brother in Oakland California.

My grandfather never went to college and took a job with the Carnation Company in 1931. He started out selling Evaporated Milk and Polenta to the mostly Italian grocers of North Beach in San Francisco. During the 1930s he took the ferry from Oakland to San Francisco every morning and watched the SF Bay Bridge, then the Golden Gate being built. He worked his way up from being an Evaporated Milk Salesman to what we would call in today's terms the COO of the company. His great strength, among others was the ability to really know what the Harvard educated execs didn't get: what really goes on – on a day to day basis in the kitchens of America.

Nestle bought Carnation over two decades ago. He would have rolled in his grave if he knew that Nestle put out a product (Pre-made cookie dough) without understanding how their customers would use this case they ate it raw! You probably heard about the recall a few weeks back.

He also taught me about the fundamentals of a good investment: strong leadership, solid dividends, and moderate PE ratios, etc. He saw the scam that Enron was pulling long before it went bust... and made a profit from it. He started railing against derivatives to anyone who would listen as much as fifteen years ago.

“Lets take off the bandage and look at the wound,” he’d say… and problems would be days if not minutes from being solved.

Despite his typical bias toward action, he was fond of saying, “Sometimes the hardest thing to do is nothing.”

I’m taking both of these lessons to heart right now.

Great anecdotal story about your grandfather, Martin. Thanks for sharing!

Martin also shared this picture of his grandfather's social security card... it is from 1935, one of the original issued:

I’m thinking an entire generation is relearning the lessons of the past. Despite our now instant communications and record of history, collectively we don’t seem to act on those past lessons. Perhaps that will change some day.

Yves Latest Views – Systemic Desensitization from Reality…

In this latest short piece Yves Lamoureux, of Blackmont Capital, Inc., demonstrates that the deleveraging is at the “…half way point in the great unwinding.” He charts the Yen versus the Dollar and shows the relationship to our equity markets.

Another good piece of analysis, thanks for sharing Yves!

Martin Armstrong – Motion For Rehearing…

In yet another legal document Armstrong makes the argument that the rule of law is not being followed in his case. His attempts at appeal are being ignored.

The Wall Street Journal did an article in January highlighting Martin’s case and two others…

No Charge: In Civil-Contempt Cases, Jail Time Can Stretch On for Years



One can spend a long time in jail in the U.S. without ever being charged with a crime.

It happened to H. Beatty Chadwick, a former Philadelphia-area lawyer, who has been behind bars for nearly 14 years without being charged.

Businessman Manuel Osete spent nearly three years in an Arizona jail without ever receiving a criminal charge. And investment manager Martin Armstrong faced a similar situation when he was held for more than six years in a Manhattan jail.

All three men were jailed for civil contempt, a murky legal concept. Some scholars say it is too often abused by judges, to the detriment of those charged and their due-process rights. "These results of too many civil-contempt confinements are flatly outrageous and often unconstitutional," says Jayne Ressler, a professor at Brooklyn Law School.

In some contexts, the federal system limits civil-contempt confinement to 18 months. Some states have similar limits. But in other states, judges face few restrictions on how long someone can be held in civil contempt.

A judge generally can issue either a civil or criminal contempt charge whenever he or she feels that a party has disobeyed an order or has disrupted a proceeding.

In a criminal contempt charge, which is aimed at punishing bad behavior, a defendant is afforded the due-process safeguards of the criminal system, including a possible jury trial.

Civil contempt charges, on the other hand, are meant to be coercive, issued to force behavior such as making a witness testify, compelling a journalist to reveal sources or strong-arming a parent into paying child support. Because civil "contemnors" hold the key to their own freedom -- after all, complying will spring them -- they aren't given the same due-process rights as criminal defendants.

If someone held for civil contempt can't meet the judge's order, theoretically, the confinement should end. And while long-term civil confinements are unusual, problems arise when a court doesn't believe the person. With the party and judge at loggerheads over, say, the availability of funds, it is often the contemnor who loses, forced to remain behind bars at the mercy of a skeptical judge. That has sparked cries for reform.

Consider Mr. Chadwick's case. In 1994, during divorce proceedings, a Delaware County judge held Mr. Chadwick in civil contempt for failing to put $2.5 million in a court-controlled account. He says he lost the money in bad investments; his wife's attorney claimed he had hidden it offshore. In April 1995, Mr. Chadwick was arrested and detained. Nearly 14 years later, Mr. Chadwick, who suffers from non-Hodgkin's lymphoma, is still in jail -- even after a retired judge was hired to help locate the money, and failed.

"The money is gone," says Mr. Chadwick's lawyer, Michael Malloy. "The coercive effect of this order is gone; it has turned into a life sentence."

The judge who held Mr. Chadwick in contempt in 1994 couldn't be reached for comment, but he has said publicly that he doesn't believe Mr. Chadwick lacks the funds.

Few argue that civil-contempt confinement should be abandoned altogether. "The threat of jail is sometimes the only thing that will make a person comply with a court order," says Adam Winkler, a professor at UCLA law school.

For some, including Albert Momjian, the lawyer for Mr. Chadwick's ex-wife, the theory still holds. "There's no doubt in my mind that he has the money and could walk out of jail next week if he wanted to," says Mr. Momjian.

Critics question why the burden rests with contemnors such as Mr. Chadwick to prove they don't have the money, rather than with a prosecutor to prove they do. "It runs counter to our entire system to say 'It's your burden to prove a negative,'" says Brooklyn Law School's Ms. Ressler.

Another concern: While those sent to jail for civil contempt may appeal their confinements, appellate judges often will overturn lower-court rulings only if they find an "abuse of discretion," a standard that offers trial judges wide latitude.

Reformers hope that more states enact laws limiting the terms of civil confinement, as Congress did in 1970, when it passed a statute limiting the length of civil-contempt confinement to 18 months for those who refuse to testify in federal court or to a federal grand jury. After that, if civil confinement hasn't coerced a certain behavior, the burden would fall to the government to bring criminal charges.

"As a matter of due process, I think 18 months is enough in most cases," says Thomas Sjoblom, the lawyer for Martin Armstrong. Mr. Sjoblom argued unsuccessfully that the 1970 law should have extended to the situation involving his client, who failed to produce $15 million in gold and antiquities in a civil suit alleging securities fraud. "After that, let the government prove a criminal case." Mr. Armstrong is currently serving a five-year sentence for criminal conspiracy.

Of course, such a limit might give contemnors an incentive to wait, knowing that eventually they will be reunited with their riches.

Nonetheless, some states are modifying their laws. In the midst of the situation involving Mr. Osete, who was detained in Arizona from late 2002 to late 2005 for refusing to hand over more than $800,000 in alimony and interest payments, which he said he didn't have, the Arizona Supreme Court changed its rules. Now, Arizona courts must hold hearings every 35 days for those held in civil contempt on family-law issues, and judges must find that a contemnor has the ability to comply with the order.

Write to Ashby Jones at