Saturday, August 29, 2009

Mish – On the Edge with Max Keiser…

Max’s Opening (6 minutes):


Interview with Mish Part I (7 minutes):


Interview with Mish Part II (9 minutes):

St. Louis Fed Charts – Banks Not Looking that Healthy at ALLL…

When a banks’ loans begin to non-perform, they begin to eat into their capital reserves. Each banks’ Board of Directors is responsible to assess their reserves and make certain that they comply with legal and accounting requirements and, of course, they are certainly free to maintain standards that are higher than minimums.

The Fed tracks the banks’ Allowance for Loan and Lease Losses (ALLL) and produces charts showing ALLL versus NONPERFORMING loans. A ratio of 100 would mean that all the banks in that size have ALLLs that exceed their nonperforming loans – a condition of health. The lower the ratio number, the less healthy the banks are for that size stratum. The banks are complaining about arbitrary rules regarding ALLL, to learn more here is an article from July of this year; Banks' loan loss reserves are lagging behind delinquent loans… (site will only let you view article once w/o login).

The Fed groups banks into those with ASSETS less than $300 million, those with assets $300M to $1B, those $1B to $20B, and those $20B and Higher. Of course, you and I don’t know how those “assets” are valued or by who. That’s where Enron accounting mark-to-model accounting standards come in – thus the charts below are likely indicating a false sense of health, if you can call them healthy at all. Also keep in mind that there are now millions of home owners underwater on their loans, and many commercial real estate loans are facing the same fate. As asset deflation drives prices lower, any hiccup in income drives those loans into the nonperforming category. Let’s examine the small to medium size ($300M to $1B) and the large banks above $20B…

BANKS $300M to $1B:

Nonperforming loans:


ALLL Ratio:


BANKS over $20B:

Nonperforming loans:


ALLL Ratio:


Here’s the chart of TOTAL nonperforming loans:


So, the big banks would appear to have fewer nonperforming loans, but their ALLL ratio is running around 12 while the smaller banks are up around 30. Again, I’m betting that the REAL ALLL is much, much lower due to mark-to-model, but what you’re seeing here regardless is NOT a picture of health, that’s for sure.

For more on bank capital requirements, you may want to start your research with a visit to Wikipedia - Capital Requirements.

Note that the total loans and leases at all commercial banks are now negative:



And that net commercial loan charge offs are continuing to skyrocket:



And I think the chart of the week is the chart showing net capital inflows. Is that what a loss of confidence looks like?



Here’s the St. Louis Fed’s most recent Monetary Trends Update. Note the dates in the top margin on each page to see the latest. Not a lot of change from the last couple of weeks, but I still think these charts have deflation written all over them…




So, do banks really have "excess reserves?" It seems to me that at least in relation to nonperforming loans, reserves are free fallin'...

Tom Petty & the Heartbreakers - Free Fallin':

Poll Results – Separating Corporations and their Money from State…

The question was…
"Should there be a Constitutional Amendment separating corporations and their money from State?"
Of the 157 respondents, 140 said “yes” (90%), and 17 said “no” (10%)….

I’m not surprised, of course, that it was lopsided but the truth is that I just can’t fathom WHY those who said “no” would think that it’s not an appropriate thing to do?

Of course I know that the devil is in the details, but let’s discuss it… please bring up specifics…

How would you accomplish this goal, specifically?

What would be the benefits of doing so?

What would be negative about doing so?

What reason did you vote “yes” or “no?”

Here are some of the thoughts I have on how to accomplish change in this regard… Any action, laws, or Amendments should be designed to accomplish the following:

- Limit corporate political contributions to ZERO
- Limit personal contributions to $1,000 per individual (can’t buy media for that? Tough, then the price will come down)
- Eliminate earmarks
- Surgically remove the military industrial complex from our entangled government
- Force the banks to recognize their losses
- Jail the corrupt players
- End the Fed – set interest rates via the free market
- Create a sound money system NOT based on never ending growth, yet is still flexible enough to accommodate population growth/shrinkage with AUTOMATIC controls.
- Get rid of Primary Dealers
- Start over on all government economic statistics – fold old agencies create new ones
- End the GSEs
- Unwind 99% of all derivatives… Allow the monolines to only insure bonds, no derivatives
- End the practice of rating agencies receiving money from those they rate

The list could be a long one, those are items off the top of my head, help me add to this list and let’s talk specifics!

Thanks for your input, looking forward to a discussion…

Friday, August 28, 2009

Martin Armstrong – Will Gold Reach $5,000+?

All right all you gold bugs, here you go! This is a terrific paper that I know you will enjoy and will stimulate your thought.

Armstrong believes that gold is NOT a hedge against inflation but rather a hedge against a loss of confidence in government. There is a difference, and Martin does a good job explaining it. He is reiterating his latest papers in stating that a loss of confidence in the government sector is coming soon if not here already.

Again he emphasizes the rule of law, he goes way back into history again and then delves into the beliefs of none other than Thomas Jefferson.

He gives a complete technical update for gold stating:
“I have provided the technical analysis on Gold based on a monthly chart. The first real resistance is formed by the Primary Channel that shows $1,350 - $1,750 between 2010 and 2012. this represents still a plain old normal technical move with nothing that would reflect a meltdown. It is breaking this overhead resistance where it becomes support that we enter in the “danger zone” of a true meltdown in PUBLIC CONFIDENCE.

Most of the projected resistance from the major low back in 1999, shows various targets from $1,700 to $2,750. However, if gold exceeds this level and it too forms the subsequent support, now we are looking at the $3,500 to $5,000 target zone. This is where we see the potential for Gold is a true economic meltdown of CONFIDENCE.”





*To PRINT, click "more" then "save document" to open in YOUR .pdf viewer where you can either save or print. Printing directly from the Sbribd menu may not produce good results.

Dr. Michael Hudson Interview – Must Listen!

This is a must listen interview as Dr. Hudson gives a clinic on what is going on with the banks and with debt. He is SPOT ON! So spot on that this is a classic interview that should be shared with all your friends and family members.

About an hour long, you will be glad you listened. Please click on link below for mp3 format.

Dr. Michael Hudson Guns & Butter Interview…

Or you can visit "Dress Rehearsal For Debt Peonage" with economist Dr. Michael Hudson

"Dress Rehearsal For Debt Peonage" with economist Dr. Michael Hudson on why the banks are returning the bailout money; bank fees and penalties; banks prefer default to foreclosure; debt as wealth; Obama's Financial Regulatory Reform Proposal and its six major flaws; the deregulation-by centralization ploy; failure to reform the economy will lead to debt peonage.

Marc Faber Talks about the Long Term…

I’ll say this, if you go back in history and look at collapses in credit, it is about 10 years that major “other events” (like war, or revolution) breaks out…

Marc Faber 26 August (9 minutes):

Morning Update/ Market Thread 8/28

Good Morning,

Equity futures are up this morning as, according to McHugh, we launch higher on wave 3 up of 3 up of c up of B up:



Again, let’s get over resistance at night, not during trading hours…

The dollar is about level and it’s hard for me to tell what the bond market is doing this morning as treasury futures rolled to a new month but appear to be down… I’ll have to see what they look like during trading hours. Oil is up slightly and gold is substantially higher, getting close to the top of its triangle (potentially bullish on a break above).

Personal income and outlays were reported this morning. Income was flat month over month (expecting .1% positive growth), it was down 2.4% year over year, while consumer spending was up .2% mom and up 1.1% yoy. This would mean that the savings rate is falling again as consumers earn less but spend more, a dynamic that is either not true because of the data and/or because we’re now getting yoy comparables to a time last year that was already lower.
Highlights
The consumer is not getting much fuel for spending as personal income was flat in July. Cash for clunkers boosted an otherwise bland month for consumer spending. Personal income in July was unchanged after plunging a sharp 1.1 percent in June from the end of a fiscal stimulus program. June originally was a 1.3 percent drop. The July number fell short of the market forecast for a 0.1 percent rise. Even the wages and salaries component was sluggish but at least gained 0.1 percent, following a 0.3 percent drop in June. Consumer spending is primarily fueled by wages and salaries.

Consumer spending continued to rise, advancing 0.2 percent after a 0.6 percent boost in June. Strength was in durables, which jumped 1.8 percent on auto sales. Nondurables dipped 0.3 percent while services increased 0.3 percent

Meanwhile, inflation eased substantially as energy costs softened. The headline PCE price index slowed to a flat reading after surging 0.5 percent in June. The core PCE price index also softened, rising only 0.1 percent after a 0.2 percent boost in June. The July rise in the core index matched market expectations.

Year on year, personal income growth improved to minus 2.4 percent from minus 3.2 percent in June. Year-ago headline PCE inflation declined to negative 0.8 percent from minus 0.4 percent the prior month. Year-ago core PCE inflation slowed to 1.4 percent from 1.5 percent in June.

The July personal income report shows the consumer sector with little contribution to pulling the economy out of recession other than the boost from the cash for clunkers program. The report should be about neutral for the markets today as small upward revisions in June numbers should offset the incremental shortfall of July to expectations.

Well, Econoday must have employed a new reporter? At least he’s not trying to pump this report and is breaking out the cash for clunkers compenent. It’ll be interesting to see the subsequent data and if it falls off because of that.

Consumer sentiment comes out at 9:55 Eastern this morning. Consumer confidence was higher earlier this week, but two weeks ago consumer sentiment surprised on the down side. If I were trading in here, I’m not, I’d be ready for anything. Keep in mind that we still are awaiting a large move in the markets due to the small changes in the McClelland.

If McHugh’s count is correct, that move would be up as subwaves 3up of 3 up strike. He is actually targeting the mid 1,100 area on the SPX, and his count seems to be tracking pretty well so far.

I am always suspect of large moves upwards overnight. There are several open gaps in the charts below us and we’re going to make another one this morning on the open…



The Rolling Stones – Paint it Black:

Thursday, August 27, 2009

Barney Frank – HR 1207 will Pass in October…

Sure, I’ll believe it when I see it. And I’ll believe it when I get to see WHO is doing the audit, what they get to look at, and what they get to report and to whom. That’s still plenty of time to “cook up” an agreement, much like they did on on the supposed “stress tests.” Keep your eye on the ball, the ball is the debt.

Barney Frank says HR1207 will pass in October:

Bernanke - Nation's Top Expert Getting it all Wrong...

Bernanke: Why are we still listening to this guy?

Howard Davidowitz – “As a country we are out of control, we’re in a death spiral.”

Simply telling the truth… (ht Comrade)



"In the Tank Forever": U.S. Consumers, Retailers in a "Death Spiral," Davidowitz Says:

On retail:
"The retail business is terrible... It's almost all negative."
"We're going to close hundreds of thousands of stores."

On the consumer:
"They’re still over leveraged, they're losing jobs, their credit has been cut back."

On America:
"We are in the tank forever. As a country we are out of control, we're in a death spiral."

On the stock market:
"We're in terrible shape. That's what the fundamentals tell me. I can't explain the stock market."

When All Else Fails, Just Up Everyone’s Credit Rating!

When Barack Obama was running for President, I did hold out some hope. I do view the bad actors in the debt world as the investment banks and think those “financial experts” hold the vast majority of culpability for creating the credit bubble and subsequent crisis.

I do NOT expect the young newlywed couple, with kids and looking for a home, to realize that they are being duped into a loan that is just crazy by historical standards and has pumped up the price to crazy heights as well. I do expect central bankers to know the difference and to act responsibly, a concept that only sounds GULLIBLE in today’s no concept of usury world.

So now that consumer credit is declining, what’s a never ending fiat system to do? Why just up everyone’s credit rating, of course, that way everyone can qualify for credit again!

New Credit Score Model Not Helping Home Buyers Says Credit Expert

DALLAS, Aug 26, 2009 /PRNewswire/ -- The improved FICO 08 credit scoring model promises to deliver a 5 to 15 percent increase in borrowers' credit scores. But it’s not helping home buyers. According to Eddie Johansson, president of Credit Security Group, a leading nationwide credit analysis and rescoring firm, that’s because the largest sources of home financing, Fannie Mae and Freddie Mac, have not yet approved it.

“When Fannie and Freddie approve it, it has arrived - but not until then,” he said. Neither organization has provided its schedule or intentions for approving the FICO 08-based credit scores available from two major credit bureaus.

Credit scores help lenders determine whether a mortgage loan is approved and the interest rate offered. In general, the higher the score, the easier it is to get a mortgage loan and the lower the interest rate.

Johansson said his analysis predicts the new model - if approved - will have the most impact on the current refinancing boom and mid-to-higher-end home sales.

Speaking to 150 bank executives at the Independent Bankers Association of Texas Leadership Conference in San Antonio and to banking educators attending the Financial Literacy Summit at the Federal Reserve Bank of Dallas, Johansson said, "If it’s implemented as expected, it is a great opportunity to boost the housing market." Johansson believes the new model will be a more accurate measure of credit risk.

"It takes into account more of the borrower's history and penalizes them less for a single unusual event," he said. It also has more score card levels, allowing finer adjustment of credit scores." He said it will reduce the power of unscrupulous credit collectors too, since a single bad event - reported in error - will have less impact on scores.

FICO 08's developer, Fair Isaac Corporation, predicts it will help lenders reduce default rates on consumer loans 5 to 15 percent and "deliver a 5-15 percent lift for credit shoppers and nonprime consumers." Fannie Mae and Freddie Mac own or guarantee almost 31 million home loans worth about $5.4 trillion, which makes it all the more important that they approve the new score model.

Central Banker’s polite golf clap, clap, clap… TRAP!

So, we change the accounting standards to allow banks to mark to fantasy. We allow banks to hide toxic assets in shell corporations. We allow banks to hold toxic assets off balance sheet (and even loan taxpayer money against it). We allow the ratings agencies to get their income from those they rate. We let banks repackage toxic waste and give it a triple-A rating – again. And now we just fluff up everyone’s credit score in addition to robbing them blind and laundering money through what should be bankrupt companies.

Truly a sick and demented economy, one where the concept of making something or providing a real service to produce an income stream that can be used to service debts just doesn’t matter. Income to debt, the math is going to continue to bite until we get it right.

All I see is graft and corruption. I do not see any signs of health or any signs that we have turned any corner and are now headed in the right direction. We are now locked into a spiral… one where the exponential math needed to create new growth is beyond comprehension and far, far beyond our means to service the debt that’s being created. Thus we grasp at straws, anything really, to keep the never ending growth alive. The system is in trouble, this type of thing feels just like the first time:

Foreigner - Feels Like The First Time :

Morning Update/ Market Thread 8/27

Good Morning,

Equity futures are up slightly or otherwise flat (now down at the open):



The futures show the dollar is down, bonds are down hard, oil is down, gold is up slightly.

First, let’s talk about Martin Armstrong’s call… He’s saying IF we get above 11,000 on the DOW with a MONTHLY close, then we may have already seen bottom, otherwise, we retest the lows, possibly break them and will likely bottom in the first half of next year (May). THEN, he poses the QUESTION, will we reach 30,000+ on the DOW by 2015, only six years away?

I like Armstrong and want to help him, but I have to call them like I see them. The only way that happens is in an all out collapse of the dollar, OR we go on some type of national debt forgiveness campaign which would result in the prior anyway.

With interest rates peaking in 1980 and declining to zero in 2008, he now sees capital flows reversing out of government debt (true) and into private equity (false). While I see the lack of confidence in government with this cycle, I also see a lack of confidence in corporate America that is at least equal. Capital does NOT have to flow from one to the other, it can also flow to gold or just out of the country.

Also, for the stock market to triple in the next three years, there would have to be earnings to support such growth… where does those earnings come from? You have a collapsed housing and credit bubble, you have very negative Baby Boomer demographics over that timeframe and you have a government who is flat out broke. Yes, they can print like Zimbabwe, and IF they do to the extent that we triple the stock market in the next six years, you better hold on because it will wipe out 99% of Americans who will no longer be able to afford to live. It may happen like that, but I just don’t think so – that’s my opinion and my call and it is very counter to what I just read from Armstrong. That’s not to say I don’t see a bottom and a turn in May of next year, I do, that’s what I’ve said all along. Credit collapses historically last 2.5 years and that will be the time. I just don’t think we go roaring into exponential growth again. The math of debt will prevent that.

Okay, on to today’s trumped up government releases.

GDP for Q2 came in unchanged from the initial read of -1.0% growth. The consensus was that it would be revised downward to -1.5%, it was not. Here is Bloomberg and the market pumpers:
Aug. 27 (Bloomberg) -- The U.S. economy contracted less than anticipated in the second quarter as a jump in government spending and smaller cutbacks by consumers helped mitigate a record plunge in inventories.

Gross domestic product shrank at a 1 percent annual rate from April to June, the same as calculated last month, a Commerce Department report showed today in Washington. Analysts in a Bloomberg survey forecast a 1.5 percent drop. Corporate profits rose the most in four years, the department also said.

Companies from Wal-Mart Stores Inc. to Macy’s Inc. cut costs and stockpiles to bolster earnings as job losses caused consumers to curb spending. Leaner stocks and government programs to revive demand, including the “cash for clunkers” and first-time homebuyer incentives, are boosting manufacturing and housing, putting the economy on a path to recovery.

“The seeds of recovery are seen in this report,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “Inventories are at rock-bottom levels and production is on the rise as store shelves are increasingly bare. ‘Cash for clunkers’ was the icing on the cake.”

The seeds have been sewn alright, the seeds of deception.

Weekly jobless claims fell a whopping 6,000, from a MASSIVE 576,000 loss reported last week, to 570,000 this week. I consider that to be no change and will spare you Econoday’s drivel, but will show you their chart:



The headline regarding after tax corporate profits suggests we saw some huge rally in profits, the largest in the past four years! Of course those articles fail to talk about the year over year numbers again that show Q2 corporate profits are down “only” 17.7% year over year – a historic one year collapse by anyone’s measure. But I will grant you that it’s an improvement over the prior quarter’s -21.8% plunge. What you are seeing is volatility, a reaction to government stimulus and manipulation. Again, that cannot last forever and must be removed or otherwise America will not stay America.

Of course Econoday annualizes the quarterly gain to say that corporate profits “gained 33.8% on an annualized basis.” That is some kind of twisted logic! You have a collapse of historic proportions and a bounce higher for one period and that’s the line they feed the public. Here’s the chart, you decide if we’re going to go on to new record corporate profits anytime soon:



Hey, we get another look at the Fed’s balance sheet this afternoon, maybe we’ll find the source of that bounce there, eh? Let’s see, how many trillions did that indebt America?

By the way, don't forget that the largest portion of the bounce in corporate profits came from the FINANCIALS who went back to marking their toxic waste to model. Remove that or mark their "assets" to reality and you will see NO corporate profits whatsoever. The false accounting continues, Enron was just a warmup.

We had another small change on the McClelland Oscillator yesterday and again am awaiting a large price move in the equity markets.

It seems to me that we are in a similar position to the giraffe. Perhaps he hit the bottom but how's he going to dig his way out of all that sand? The Debt is the sand, we have a lot of digging to do!

Wednesday, August 26, 2009

Martin Armstrong – The Truth About the Knights Templar--The Government's Relentless Desire To Confiscate Wealth...

This piece focuses on history, the role of government, the rule of law, and again on his own plight.

Again he states that the DOW will rise to 30,000+, but it will be on the back of a loss of confidence in government, a loss of confidence in the currency, and an eventual shift back away from the government to the private sector. I know that’s very difficult to see right now, but perhaps that may occur as a backlash to current events. He would contend that’s it’s a part of the cycle.

Hey, now you know where your weekend reading’s coming from!

Martin Armstrong – Correlation of Cycle Perspective…

Once again explaining how cycles work together in an ever dynamic (but corrupt) system, we get ever more in depth cycle theory in this piece.

In the end, Armstrong explains that, “The DOW will become the hedge against the inflation created by the decline in real purchasing power of the currencies.” And there you have HIS explanation on why his previous article raises the possibility of one more huge up cycle by the year 2015…

Martin Armstrong – Will the DOW Reach 30,000 by 2015?

A short forecasting piece by Armstrong, the key is found in the last three paragraphs. According to him and his confidence model, key resistance is at 11,000 on the DOW Industrials. If we fail to break above that level then a retest of the lows is likely or even to make new lows into the first half of next year. THEN, he is predicting a rally to (choke) 30,000 plus.

Ooookaaay. A lot of people have ruined their reputations on such calls, but with the money pumping reaching new extremes, I can see that in a Zimbabwe/loss of confidence kind of way, but I would not bet the farm on that occurring.

I disagree with the fact that Martin does not temper his discussions on the concentration of capital being the heart beat of innovation. Yes, you need capital to form and to concentrate to pull off large scale innovations, but that is different than boom/bust and it’s not just a matter of degree, especially when the boom is propagated with Ponzi finance and FRAUD.

At any rate, always a thought provoking read, I’m sure you will enjoy it…

Chris Martenson - The Shell Game

Funny, but you get exposure to another shell game, this time on “How the Federal Reserve is Monetizing Debt,” and this one is brought to you by Chris Martenson who did an outstanding job on this article.

Below is Chris’s Executive Summary, instead of posting the article I recommend that you follow the link to Chris’s site and check out his pretty charts and graphics there:
The Shell Game - How the Federal Reserve is Monetizing Debt

Executive Summary

- The Federal Reserve and the federal government are attempting to "plug the gap" caused by a slowdown of private credit/debt creation.

- Non-US demand for the dollar must remain high, or the dollar will fall.

- Demand for US assets is in negative territory for 2009

- The TIC report and Federal Reserve Custody Account are reviewed and compared

- The Federal Reserve has effectively been monetizing US government debt by cleverly enabling foreign central banks to swap their Agency debt for Treasury debt.

- The shell game that the Fed is currently playing obscures the fact that money is being printed out of thin air and used to buy US government debt.


The Federal Reserve is monetizing US Treasury debt and is doing so openly, both through its $300 billion commitment to buy Treasuries and by engaging in a sleight of hand maneuver that would make a street hustler from Brooklyn blush.

This report will wade through some technical details in order to illuminate a complicated issue, but you should take the time to learn about this because it is essential to understanding what the future may hold.

One of the most important questions of the day concerns how the dollar will fare in the coming months and years. If you are working for a wage, it is essential to know whether you should save or spend that money. If you have assets to protect, where you place those monies is vitally important and could make the difference between a relatively pleasant future and a difficult one. If you have any interest at all in where interest rates are headed, you'll want to understand this story.

There are three major tripwires strung across our landscape, any of which could rather suddenly change the game, if triggered. One is a sudden rush into material goods and commodities, that might occur if (or when) the truly wealthy ever catch on that paper wealth is a doomed concept. A second would occur if (or when) the largest and most dangerous bubble of them all, government debt, finally bursts. And the third concerns the dollar itself.

In this report, we will explore the relationship between those last two tripwires, government debt and the dollar…


BTW, Chris dug up a terrific chart from the Fed on Tic Flows:



Yet another parabolic rise and subsequent collapse...

Robert Kiyosaki – Preparing for the Worst…

Robert Kiyosaki of "Rich Dad, Poor Dad" fame has some words of advice he’d like to pass along. For the uninitiated, Kiyosaki made his own personal money from writing about his experience growing up as a "poor" child of a high school principal in Hawaii. His “rich dad” was his friend’s father who supposedly mentored Robert in business and in life.

Many now accuse him of simply being a marketing wiz, and not a lot more. There’s probably some truth to that, but I can tell you that his books are mostly a good read for those inexperienced in business. He’s more of a motivational writer, but did write a book warning of the crisis, it was called Rich Dad's Prophecy: Why the Biggest Stock Market Crash in History Is Still Coming...and How You Can Prepare Yourself and Profit from It! It was written in 2002 and was ahead of its time in seeing events that are unfolding today. Of all the books he’s written, even before the crisis Kiyosaki called it the most important book he’s written, and it was one of his poorest sellers! I read that book and liked it, although it would be dated today.

Here’s his current thinking, I think he’s spot on…

Preparing for the Worst

by Robert Kiyosaki
Monday, August 24, 2009


"Is the crisis over?" is a question I am often asked. "Is the economy coming back?"

My reply is, "I don't think so. I would prepare for the worst."

Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money.

The stock market has been going up since March 9, 2009. Talk of "green shoots" fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons:

1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.

Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking... and I don't blame them. A global panic would be ugly and dangerous.

2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.

Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog.

In the 1980s, our government's hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines.

While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, "Sometimes the cure is worse than the disease." I say the government stimulus cure is killing us frogs.

3. Old frogs don't hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years -- their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy.

The stimulus plans seemed to work. But when a person turns 60, their spending habits change dramatically. They stop consuming and start conserving like a bear preparing for winter. The economy of the Western world is heading into winter. Hot wires and hot money will not get old frogs to hop. Old frogs will simply join the bears and stick that money in the bank as they prepare for the long, hard winter known as old age. The businesses that will do well in a winter economy are drug companies, hospitals, wheelchair manufacturers, and mortuaries.

4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it's my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare... Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.

5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they're concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.

The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.

The reason the 401(k) has this law related to mandatory withdrawals is because the Federal government wants to collect the taxes that they deferred when the worker's money went into the plan. In other words, the taxman wants their pound of flesh. Since they allowed the worker to invest without paying taxes, the government wants their tax dollars when the employee retires. That is why the laws require older workers to sell their shares -- and pay their pound of flesh.

Demographics show that we are entering a battle between young and old. I call it the "Age War." The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age.

This war is not coming...it is upon us now. This is one of many reasons why I remain cautious and say, "The worst is yet to come."

How to Play the Corporate Shell Game…



When I was in college I taught flying for Louisiana Tech University and then moved on to flying corporate aircraft prior to entering the U.S. Air Force. One of the people I flew for owned construction equipment and built roads and bridges for the state of Louisiana.

We would routinely fly to Baton Rouge, the state capital, and bring boxes of peaches to the politician’s offices. My boss was not only handing out peaches.

In return, he would receive inside information on SEALED bids. I’m not kidding, and he was caught and fined for this on at least one occasion that I know of.

Not only did he do that, but he mastered the corporate shell game. What he would do is start a corporation just to bid on a large project. If he won the bid, he would “buy” the equipment from his last corporation, thus he could depreciate the same assets again. Meanwhile, in his old corporation the money received was never enough to pay off his creditors and he would simply bankrupt the company leaving behind debt to those who were unwittingly providing credit to his shell corporation. He did this repeatedly and would move assets around like crazy, even trading road building equipment for the airplane that I flew. Of course Louisiana had dirty money everywhere at the time, including a famously filthy-dirty governor.

So there’s a small personal example of how corporations play the shell game and how they influence politicians. Of course that was peanuts compared to the games being played by the central banks and by their lobbyists. But THE GAME IS THE SAME.



The latest example can be found in Britain…

RBS and Lloyds sell repossessed properties to subsidiaries

From The Times
August 24, 2009


Britain’s taxpayer-owned banks are selling repossessed property assets to their own subsidiaries to avoid billions of pounds of losses that would be incurred by selling them in the open market.

Royal Bank of Scotland (RBS), which is part-owned by the Government, has set up West Register to buy properties taken over by RBS after borrowers had fallen into default.
Lloyds Banking Group, which inherited billions of pounds of commercial property loans when it took over HBOS, is understood to have a similar subsidiary that buys assets from its owner.

The practice, which was popular towards the end of the recession of the early 1990s, enables banks to avoid selling assets that have fallen significantly in value and are in negative equity to an outside buyer, which would leave it nursing a loss.

Instead, the bank, through its subsidiary, is able to buy the asset, such as a shop or office block, at a knockdown price in the hope that it will benefit from a future increase in its value.

The details have emerged at a time when RBS and Lloyds are under pressure to demonstrate how they will generate returns for the taxpayer as soon as possible.
While selling repossessed assets to a subsidiary might result in bigger future gains in value, selling in the open market resulted in a quicker return, property agents said.

It is not clear in how many cases banks choose to keep the property rather than sell, although agents said that the option had become more appealing for banks after falls in value of about 45 per cent from the 2007 peak.

William Newsom, head of valuation at Savills, the property group, said: “Banks sell the property but, rather than selling into the market, they go into a workout vehicle. It is a model that we saw in the last downturn. The subsidiary pays what the property would fetch on the open market. It has to be a fair value.”

RBS and HBOS were the biggest lenders to commercial property companies during the boom. All UK banks are thought to be facing £100 billion of paper losses from their exposure, according to Jones Lang LaSalle, the consultancy.

An estimated £42 billion of commercial property loans are due for repayment in 2009, with £31 billion due in 2010.

An industry source familiar with the practice said: “This is a legitimate strategy that was pursued at the end of the previous recession. It means that the bank is able to avoid crystallising the loss, although it is still on the balance sheet.

"They will do this with a small proportion of the total outstanding debts. All the banks must do to meet regulations is maintain capital lending.”


RBS was not available for comment last night.

A spokesman for Lloyds Banking Group said: “Through the Business Support Unit, our priority is to ensure the successful turnaround of our business customers and to manage the assets for which we are responsible in a way that is of most benefit to all parties. We constantly review the options available.”


Legitimate? Only if you’re an industry insider.

This is simply playing the shell game and it subverts the rule of law. The rule of law states that when your debts exceed your assets, you are bankrupt. Then you proceed to a bankruptcy court where your assets are sold and the creditors are paid in the proper order.

The shell game subverts the rule of law by passing underwater “assets” to a shell corporation leaving the remaining corporation in tact. What this does is hide valuable assets from the people who are creditors on the bad assets.

THIS IS NOT WHAT CORPORATIONS ARE MEANT TO DO. This same game is happening here in the United States as well. Our governments are COMPLICIT in playing this game as are the accounting firms who go along with such schemes.

The rule of law is breaking down. Think about what that means if you are a potential future creditor… it means that you might be left standing naked in the cold, and you would be properly advised to think twice about ever putting your hard earned capital to work in that country again.

Remember Penn & Teller’s explanation of “sleight of hand?” The seven secrets of magic are:

1. Palm
2. Ditch
3. Steal
4. Load
5. Simulation
6. Misdirection
7. Switch

Here they are explaining the shell game by using cups and balls – only need to watch the first 4 minutes:

Penn & Teller – Cups and Balls:


Okay, now that you’ve seen how the shell game is played and you know the “magic” concepts of “steal” and “ditch,” follow along and see if you can spot the pea. When you see what is going on behind the scenes, it doesn’t seem so “magical” any more, does it?



What do you think is going on with our banks and government???

Morning Update/ Market Thread 8/26

Good Morning,

Equity futures are down to flat this morning after being both below and above yesterday’s closing price overnight:



The Dollar is higher, bonds are slightly higher, oil tried to go higher overnight but is now lower, and gold is up.

As reported previously by Chris Martenson, the MBA mortgage loan index dropped telling us what the index is!! Instead they simply report a plus or minus percentage for the week, thus obscuring the data. Charts become meaningless and so does the entire report. Yet the markets are going to react to the perception it creates. This is yet another statistic gone bad… I’ll report on it today, but I may not in the future, and frankly, you have to wonder what they are hiding.

Here’s econoday’s short report, what else can you say when you can’t see anything behind their “report?” Note that it rose simply on “increased demand for government loans:”
Highlights
MBA's purchase index rose 1.0 percent in the Aug. 21 week boosted solely by the what the report said is increased demand for government loans. The gain marks the fourth straight for the longest streak since March. MBA is not providing index levels. The refinance index rose 12.7 percent for a third straight gain. Mortgage rates moved higher in the week with 30-year loans up 9 basis points to an average 5.24 percent.

Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

The durable goods orders for July rose 4.9% on a month over month basis, following a -2.5% number in June. Everyone and their brother was expecting this number to be positive on the cash for clunkers billions, and they were right:
Highlights
Aircraft orders and auto orders made for a surge in the manufacturing sector during July, another key factor suggesting that the recession has already come to an end. New orders for durable goods shot up 4.9 percent. Excluding an 18.4 percent surge in transportation, orders still rose a strong 0.8 percent. Civilian aircraft orders rose more than six fold while motor vehicle orders, likely boosted by cash for clunkers, rose 0.9 percent. Capital goods orders were extremely strong, up 9.5 percent following a 5.7 percent drop in June. The report even includes an upward revision to the prior month's orders, to minus 1.3 percent from minus 2.2 percent. Details include big gains for primary metals, fabricated metals, computers & electronics, communication equipment, and even electrical equipment in a gain that hints at improving construction demand. Machinery orders did fall substantially but couldn't make a dent into the capital goods reading.



Note, once again, that they simply fail to mention the much more important (and horrific) year over year number that is still well below 20% beneath last year’s readings.

Also, when you go from NO aircraft orders in a month to a handful, that’s what produces a “six fold” increase in orders. I track that industry and do not see a structural turn around there at all.

So, was the billions spent on cash for clunkers worth it? What happens when the government money runs out? What if it never runs out, comrade?

New home sales come out at 10 Eastern today.

There was a small movement in the McClelland Oscillator yesterday meaning that a large price move is coming either today or tomorrow, direction unknown.

The short term oscillators are all in the middle of the range, but the percent of stocks above their short term moving averages is very high. The breadth of the market is stunningly BAD. Yesterday, as Karl Denninger pointed out, the 4 top volume stocks comprised more than 37% of all the volume on the NYSE. And those four companies were C, BAC, FNM, FRE. Two lying sacks of zombie bank excretions and two government infested bankrupt mortgage cookers. Now that’s what you base a market rise on… IF YOU WANT TO GENERATE A CRASH. And that’s where this market is headed and quick if they don’t start letting the air out in a nice and controlled manner – and soon.

Did you catch the action in oil yesterday? Spike to $75 resistance and then collapse down to $71.25. Not a sign of health. Speaking of oil, don’t think that just because demand has fallen and taken the speculative bubble out, that the concept of peak oil has gone away. The world’s fourth largest oil field, for example, is the Cantarell oil field in Mexico. Below is its latest output chart. If that rate of decline continues, Cantarell will be pumped dry in just a couple more years, taking away the largest source of revenue for the Mexican government. So in the long run there are going to be supply issues to contend with, but in the meantime stockpiles are running way high and we get an update on that this morning (10:30 eastern) so watch the oil markets, they can pull around the entire equity markets for sure.



Two things caught my eye in the charts yesterday. The first is the VIX which created a long tail candle. Those types of candles can sometimes represent a bottom, like the one I highlighted that represented a top, so I think that’s worth watching.



Also, the dollar (futures presented below) is scratching out an interesting pattern that looks like a descending wedge (so does the VIX). If that’s what’s happening, it could break higher and that would mean lower for equities. Again, worth keeping an eye on that formation to see what direction it breaks. Also, yesterday’s candle is interesting and is potentially bullish for the dollar as well – let’s see what today brings, right now the dollar is up pretty strongly.



The formation in the SPX over the past couple of days looks bearish to me. It can also be read as consolidation following a breakout though, and with the way the markets are being run, I would not (and did not) bet the farm on that. But you know... when it comes to playing in the Goldman Casino you just have to go your own way!

Tuesday, August 25, 2009

Geithner – Audit the Fed Dangerous? Forget it, Get Rid of the Fed!

Oh, and take back the U.S. Treasury and FIRE little Timothy Geither! His responses make me so angry it's not even funny. While Geither never worked for Goldman, Paulson, who preceded him certainly did and certainly fed money to Goldman. Sickening defense of the indefensible.

Separate corporations and their money from State!

Morning Update/ Market Thread 8/25

Good Morning,

Equity futures are up this morning, here’s the overnight action:



The Dollar is down, gold is up, oil is up, and bonds are flat. In other words, central banker nirvana, everyone’s so happy that they reappointed a criminal and a traitor to the United States to run the Fed. Yippee.

And what a criminal he is. He orchestrated the looting of the taxpayers to the tune of several trillion dollars, robbing those who work and giving their money and future earnings to the financial engineer risk takers who are still hiding trillions upon trillions in toxic debt and derivatives that are just festering and waiting to strike again. And he is robbing the working class a second time by devaluing our money and punishing those who save.

And Obama was all about change? Yet another lesson in money and politics. There is no doubt that we need to separate corporations and their money from state.

But what do you know… a judge actually ordered the Fed to tell us who got what. That’s the first positive step towards transparency and the first time I’ve seen the Judicial branch make an independent decision in years. I hope it stands, somehow I’m so jaded now that I think we’re being played and I won’t be surprised if we get the punch line in a few months time. I doubt the central bankers are just going to roll over.

The Goldman ICSC was out this morning, but we just ignore that other than this forward looking remark, “It sees a very steep 3 to 4 percent drop for August sales relative to July.”

The Redbook was down 4.4% yoy for the past week, here’s Econoday:
Highlights
Cash-for-clunkers pulled sales from the back-to-school season, according to Redbook whose same-store year-on-year tally continues to show significant weakness at minus 4.4 percent. The report said apparel retailers are reporting special back-to-school trouble. Redbook sees a 0.7 percent full month decline compared to July.

The Case-Schiller Index is out for June, it rose to an index value of 141 from 139. Here’s the Bloomberg spin:
Aug. 25 (Bloomberg) -- Home prices in 20 U.S. cities fell in June at a slower pace than forecast, signaling the real- estate crisis that triggered the worst recession since the 1930s is dissipating.

The S&P/Case-Shiller home-price index declined 15.4 percent from a year earlier, the smallest drop since April 2008, the group said today in New York. The gauge rose from the prior month by the most in four years.

Lower prices and government stimulus efforts have made homes more affordable to first-time buyers, spurring increases in sales that will eventually stem the slide in property values. Gains in housing and stocks will speed the process of restoring the record loss of wealth that has shackled consumer spending, which accounts for 70 percent of the economy.

“The sharp freefall in prices is over,” said Michelle Meyer, an economist at Barclays Capital Inc. in New York. “People are entering the market and that is starting to normalize prices. It’s a clear positive.”

Oh yeah, home prices declining 15.4% in one year is clearly a positive, and who would ever think that the month of June would show a small increase from May? Why that never happens that time of year! Why I’ll bet there are all kinds of consumers lining up to get their 2nd, 3rd, and 4th mortgages just so they can run to the malls and buy more worthless crap from China, right? Of course that’s okay because China will, of course, just turn around and buy our debts from us forever and ever, and let’s just keep Ben Bernanke on forever because he’s done such a great job of ruining our economy and turning us into a fascist state of the corporation for the corporation where we socialize the losses and privatize the profits while casting aside all who make this nation truly great.

The reappointment of Bernanke is a clear vote for more of the same. The rumor was that the Chinese wanted him out, they do not want more of the same. This will be an interesting test, we’ll have to see what the TIC flows look like, but we won’t know for about 3 months due to the wonderful transparency offered by the central bankers who keep all the timely information for themselves and shovel it off to you after they have already acted on it.

Did I mention that the Fed needs to go away? That’s right, the central banks need to go bye-bye too and the people need to take back control of their money or they will wind up with none of any value.

Consumer Confidence numbers are out at 10 Eastern this morning, be ready for anything there. Consumer Sentiment last time was worse than expected, I don’t have a good read on how the sheeple are feeling, whether they are being fooled by a trumped up stock market rally and complicit media or if they are seeing and feeling reality? We’ll find out.

The Bernanke reappointment makes this a tragic and sad day for America. Get ready because he does not know or do math and math is about to teach America a huge lesson.

Pivots are at 1,041, then 1,061 on the up side, 1,018 is the support pivot.

Housing Happiness

Monday, August 24, 2009

Steve Keen – Debt and Income Evidently do Matter…

Terrific presentation by Australian economist Steve Keen. Keen is definitely keeping his eye on the ball and sees/presents the correlation between debt and the economy very well. Debt levels are WAY higher than prior to the great depression as he points out.

He makes the contention that resuming the growth of debt is one way to pull the economy out, but later states that he doesn't believe that can happen - bravo. So, he thinks that some type of debt forgiveness needs to happen, and I don't think we're going to see that because there are too many dollar holders around the globe that would not be pleased by that type of extreme moral hazard. Therefore, in my opinion, change on a major league scale is coming.

I would also interject that with each prior bubble and collapse, interest rates were lowered to stimulate the creation of more debt. This time is DIFFERENT in that interest rates hit zero. Think about that.

Steve Keen - Getting to Grips with the Economy part I (9:44):


Steve Keen - Getting to Grips with the Economy part II (10:44):

Puetz FinancialSense Interview...

The short cycles are beginning to align with the longer cycles (down) again. Significantly, the 86 day cycle that Puetz identified begins this week and we are in a Puetz Crash Window until about the middle of September.

While I’m not studied in Puetz, he uses some methodology that includes the cycles of the sun and planets and how they interact with nature. He uses these cycles and aligns them with changes in human psychology and thus market price. I DO NOT DISCOUNT HIS THEORIES. Everything has cycles! The fall is HARVEST TIME, and it is nearing.

The other side of the coin, of course, is that this is a very, very undeveloped science, one that still falls into the “squishy” category. DO NOT PLACE YOUR BETS in the Goldman CASINO based solely upon these methods! But do give it a listen and watch the cycles play out…

Here’s the link to the audio interview:

Click here for Puetz Interview...

Tickerforum member, Ponzi_unit, was graceful enough to provide a summary of Puetz’s interview. The interview sheds a lot of light on Armstrong’s work, it’s worth a listen…
From the interview: Puetz built upon previous research, 2.12 yr, 6 yr, 19 yr, Kondratieff 57 yr, 171 yr, 515 yr...

Puetz goes on to on to say that they were not estimated precisely to begin with and seems to have smoothed them out to be divisible by three. He says after he made very minor adjustments to the cycles and multiplied them by three he found they matched well with nature and calls them to be 'physical cycles'. Climate, geology and universe - all precisely divided by 3 - found about 25 cycles... and concludes that they are all linked.

Stock, business, climate,...

Cycles get out of phase but jump back, gravitational characteristics, electromagnetic cycles, human cycles (psyche) (which he discounts as he says they are caused by natural cycles?) hope I have that correct. Says it doesn't matter who's in charge, especially the 515 year civilization cycle rules over them (world leaders)... Nation after nation, no matter what part of world, civilizations seem to collapse... Similar to what I've read on Kondratieff, if humans can realize that these cycles exist we can control them -

On gov controlling cycles are proven failure, Puetz says we can't control by racking up huge debt during good times and says government is (in my words) counter cyclical. Should be encouraging saving during good times.

On EW, every cycle sub divides; Puetz used this concept in his theory. Frequency, and wave length theory confirm his cycles.

Believes a great number of people are influenced by negative / positive cycle and that there is nothing government can do to control it. Seems like a conflict with statement a couple paragraphs above.

Is there some way to predict stock market changes by monitoring mood changes?

Likes weekly survey "consumer comfort index" which contains a particular component 'personal finance index' ( no direct google hits on this ) tends to precede changes in Stock market by a few months. It relates to the question in the survey: 'how do you view your personal finances'

On short term news events - dominant factor, most nations are not prepared for big swings (in mood),

On 'turning points' A general rule: when one cycle peaks, all other cycles of smaller wave lengths peak at same time. Example, in Jan 2007, based on history of all these cycles, the 172 yr cycle (rounded) peaked, so the 2.12 yr, 6.36 yr, 19 yr & 57 yr also peaked. Subsequent to that, various market peaks stock, commodity peaked within 9 months...
- investors only respond positively to credit growth (reflation) during upswings (of cycles),...

Ties it in with climate cycles... global temp declines starting from Jan 2007 - ongoing influence.

On sunspots... thought it was ridiculous when he first heard it, doesn't believe it's absurd any more because of solar winds ionization of magnetic stream, at height (northern lights, etc.) says his theory predicts we are effected by Earths magnetic cycles, resulting mood swings, etc,...

Says cycles are more visible in bear markets than bulls markets. Says deleveraging during bears emphasizes cycles. Talks about a series of natural occurring waves effecting all living, (animate & inanimate) things. Unconscious behavior, not fully understood by science, yet recognized as likely influential on attitudes, moods,... many unknowns re precise mechanisms. (full moon madness!)

Not just theory of markets, theory of universe, cycles of BILLIONS of years which he's been able to trace back to the big bang. (Uhm, wow.)

(--- your humble scribe is now pausing for a moment of reflection on this, imagining the margin of error ---)

2.7 billion year cycle, volcanoes! evolution! extinction! 22.2 billion year cycle, 13.7 billion years

On Martin Armstrong: became aware of Armstrong 3 years ago (edit- pretty sure it's 3 months ago and i'm not going back to interview - there's that number 3 again!),

Says Armstrong breaks it down to core component as 2.15 and Puetz is 2.12 yrs, says they are only off by .03 (you better check for accuracy) and that Armstrong’s turning points match up well enough with his own... are nearly identical to what he's (Puetz) identified. The only difference between both of our theories is estimate on the time (huh?)... (I guess he means .03 yr)

On margin of error: within 2% likely within 1%, believes Armstrong has some errors, says Armstrong’s data fits the last 100 years better than his (Puetz own) cycles, but when looked at over longer period of time says his cycles fit better and that Armstrongs starts to break down. Says he thinks Armstrong tried to make it fit most recent data - it does it well. Thinks that Armstrong demonstrates 'inversion' well. Inversions do exist. Puetz describes them as deviations. Says Armstrong is correct (in some specific cases). So he's working on modification of his own theory for confirmation (using some Armstrong principles) -

Says we just had an 'inversion' (as Armstrong calls it) or 'deviation' as Puetz calls it happened in March of this year...

Inversion/Deviation = theory predicts peak however markets make a trough.

Says he has an explanation why this 'occasionally occurs' but won't go out on a limb to explain until he studies it further.

(Scribe notes: seems that Puetz has a lot of respect for Armstrong’s work, I'm curious to know if Puetz’s point of interest is in the concept that 'hot money' flow, evacuation from one peaking market flowing into another bottoming market (the next market to get hot) is the cause of these 'inversions/deviations')

Says he and Armstrong are seeing same thing, same conclusion, just different methodology.

172 yr cycle peaked Jan 2007, down for 30 years according to this theory. Last peak May 1835, (canal bubble) followed by 7 yr bear, followed by recession and civil war, down phase coincides with war cycles. International conflicts are greatest threat.

On the Fourth Turning (Strauss and Howe): Puetz acknowledges the work of many cycle theorists and says that everyone seems to come up with the same results and that what sets Puetz apart from others is that he believes he's documented the source of all the cycles in sequence. In other words, Puetz applies the physics behind the cycles.

Doesn't feel that all the cycles are converging, they are oscillating, are not precise, the larger cycles overwhelm smaller cycles...

(current application of cycle theory to markets - interview dated July 11, 2009)

Says that because of recent market deviation/inversion in March of 2009, that he expects the correction to now occur on a sub cycle of 28 day, 86 day cycles are in play now. Says 86 day cycle is now in phase w/258 day cycle. Expects some sideways action (must mean end of July-August according to timing of interview). Tremendous deleveraging taking place, oscillations are short term and doesn't believe in sustained upswing, 172 yr cycle rules. Says new next major low possible around April 2010, (6.36 yr cycle) again, all rebounds are capped. Down cycle should end around 2035. Deflationary/depression environment.

Actually worse for US because debt can't continue - says world is out of suckers buying US debt. Consumption drops till we can afford to pay as we go, sustainable.

Stocks and bonds look good compared to a few years ago but are over valued. Mentions rule of law breakdown as gov changes rules. Gold and silver can do favorable - although - major indexes there are breaking down too - gold and silver could deflate again. Long term, a good buy, but deflation can take them down short/medium turn. Would prefer to be in cash for conservative investors or short.


Robert Precture’s work, of Elliott Wave International, is also aligning with this timeframe…

Robert Precture - Robert Prechter of Elliott Wave on CNBC's Closing Bell, Aug 17, 2009:

ARE YOU KIDDING? Toxic Waste Becomes Triple-A Again…

The readers on my site are largely WAY more informed than those of the general public. Get a load of this nonsense and I guarantee you will be left shaking your head.

Are you tempted?

The Temptations – Get Ready:



Remember me? Wall Street repackages toxic debt

7 minutes ago
By MATT APUZZO
Associated Press Writer


(AP:WASHINGTON) Wall Street may have discovered a way out from under the bad debt and risky mortgages that have clogged the financial markets. The would-be solution probably sounds familiar: It's a lot like what got banks in trouble in the first place.

In recent months investment banks have been repackaging old mortgage securities and offering to sell them as new products, a plan that's nearly identical to the complicated investment packages at the heart of the market's collapse.

"There is a little bit of deja vu in this," said Arizona State University economics professor Herbert Kaufman.

But Kaufman said the strategy could help solve one of the lingering problems of the financial meltdown: What to do about hundreds of billions of dollars in mortgages that are still choking the system and making bankers reluctant to make new loans.

These are holdovers from the housing bubble, when home prices soared, banks bought risky mortgages, bundled them with solid mortgages and sold them all as top-rated bonds. With investors eager to buy these bonds, lenders came up with increasingly risky mortgages, sometimes for people who could not afford them. It didn't matter because, in the end, the bonds would all get AAA ratings.

When the housing market tanked, figuring out how much those bonds were worth became nearly impossible. The banks and insurance companies that owned them knew there were still some good mortgages, so they didn't want to sell everything at fire-sale prices. But buyers knew there were many worthless loans, too, so they didn't want to pay full price for the remnants of a real estate bubble.

In recent months, banks have tiptoed toward a possible solution, one in which the really good bonds get bundled with some not-quite-so-good bonds. Banks sweeten the deal for investors and, voila, the newly repackaged bonds receive AAA ratings, a stamp of approval that means they're the safest investment you can buy.

"You've now taken what was an A-rated security and made it eligible for AAA treatment,"
said Richard Reilly, a partner with White & Case in New York.

As for the bottom-of-the-barrel bonds that are left over, those are getting sold off for pennies on the dollar to investors and hedge funds willing to take big risk for the chance of a big reward.

Kaufman said he's optimistic about the recent string of deals because, unlike during the real estate boom, investors in these new bonds know what they're buying.

"We're back to financial engineering, absolutely," he said. "But I think it's being done at least differently than it was before the meltdown."

The sweetener at the heart of the deal is a guarantee: Investors who buy into the really risky pool agree to also take some of the risk away from those who buy into the safer pool. The safe investors get paid first. The risk-taking investors lose money first.

That's how the safe stack of bonds gets it AAA rating, which is crucial to the deal. That rating lets banks sell to pension funds, insurance companies and other investors that are required to hold only top-rated investments.

"There's no voodoo going on here. It's just math," said Sue Allon, chief executive of Allonhill, which helps investors analyze such hard-to-price investments.

Financial gurus call it a "resecuritization of real estate mortgage investment conduits." On Wall Street, it goes by the acronym Re-Remic (it rhymes with epidemic).

"It actually makes a lot of fundamental sense," said Brian Bowes, the head of mortgage trading at Hexagon Securities in New York. "It's taking a bond that doesn't necessarily have a natural buyer and creating two bonds that might have a natural buyer for each."

The risk is, if the housing market slips even more, even the AAA-rated investments may not prove safe. The deal also relies on the rating agencies, which misread the risk at the heart of the subprime mortgage crisis, to get it right.

And then there's the uncertainty about the value of the underlying investments, which FBR Capital Markets analyst Gabe Poggi called "totally combustible."
Poggi likes the deals because they appear to have breathed some life into the market, but he said it only works if everyone knows exactly what they're buying.

The Obama administration is also working on a plan to get banks buying and selling risky bonds. But the public-private partnership announced this spring is still in the works and has yet to help investors figure out what those bonds are worth. By creating Re-Remics, banks can help start the process themselves.

The concept has been around for years, but it has become increasingly popular lately as a way for banks to sell off bonds backed by commercial properties such as malls and office buildings. Analysts say they've seen a few dozen deals aimed at repackaging debt held over from the mortgage boom. Investment banks have also dabbled in turning collateralized debt obligations, or CDOs, into Re-Remics.

That's where Allon gets nervous.

"I think that's trouble," she said.

CDOs are already complicated. Repackaging them makes it harder to figure out what the investment is worth. The more obscure the concept, she said, the more likely the deal has gotten too creative.

Wall Street has a tendency to push the boundaries of good ideas, Bowes said. But he said banks are still smarting from the market implosion and are unlikely to rush into new, risky ventures.


"A lot of the market innovations, they all started out with this fundamentally good concept and they often tend to deteriorate over time, or just evolve into more and more risky versions of the same concept," Bowes said. "This time around, the likelihood is, it will take a lot longer for that to happen."

Let’s reread this passage:

That's how the safe stack of bonds gets it AAA rating, which is crucial to the deal. That rating lets banks sell to pension funds, insurance companies and other investors that are required to hold only top-rated investments.

"There's no voodoo going on here. It's just math," said Sue Allon, chief executive of Allonhill, which helps investors analyze such hard-to-price investments.

Financial gurus call it a "resecuritization of real estate mortgage investment conduits." On Wall Street, it goes by the acronym Re-Remic (it rhymes with epidemic).

"It actually makes a lot of fundamental sense," said Brian Bowes, the head of mortgage trading at Hexagon Securities in New York. "It's taking a bond that doesn't necessarily have a natural buyer and creating two bonds that might have a natural buyer for each."

The risk is, if the housing market slips even more, even the AAA-rated investments may not prove safe. The deal also relies on the rating agencies, which misread the risk at the heart of the subprime mortgage crisis, to get it right.

Are you kidding me? This is exactly the same as before, all the same players, all the same problems, and all the same suckers.

It didn’t work before and it won’t work again.

What is stunning, simply CRIMINAL, is that our government is not only allowing this shit to happen but is actually promoting it. The ratings agencies have not been fixed, the criminals have not been locked up, and the fraud will continue to plague the American people who allow ignorant and incompetent pension managers to provide their hard earned capital to buy such toxic nonsense from the “geniuses” on Wall Street. They will pay the price for their ignorance, AGAIN, only the second time will be much harder than the first.

The graft in our government is simply stunning. As far as I’m concerned, there IS NOT ONE SINGLE FINANCIAL PRODUCT IN THE USA THAT SHOULD CARRY A TRIPLE A RATING AT THIS TIME.

SEPARATE CORPORATIONS AND THEIR MONEY FROM GOVERNMENT!

Rare Earth – Get Ready (full length live version):


"'Ya want to play hide-and-seek, get ready!"