Friday, October 2, 2009

On Point – Unemployment Report…

“Czar Point,” a regular commenter on the Economic Edge, gave two very pointed posts on how he views the numbers inside this morning’s employment report. The numbers are STUNNING, and they are the TRUTH. Math does not lie and cannot be spun… statistics can be, but not simple math. Point simply takes out his calculator and adds them up. You will be shocked…
I'm going to add a little to the employment situation summary. All numbers are raw, not adjusted.

The civilian labor force dropped by a mind-boggling 1.28 million in September from August, with 235 thousand people being added to the workforce. The participation rate plunged .6% to 65.0%.

The employment-population ratio - the TRUE measure of employment in this nation - fell to 58.9%. The actual number of the unemployed rose by 285 thousand, while those not in the labor force jumped by 1.516 million.

And unemployment for those aged 16-19 years old skyrocketed in September to 25.8% from 24.2% in August. For this age group, the emp-pop ratio is just 26.2% with the participation rate falling off the cliff, from 40.7% to 35.3%.

This, by far, is THE WORST employment situation report I have ever read. Bar none.
I ran the numbers on how many jobs we have actually lost since December 2007 - the beginning of the recession-cum-depression - and how many jobs we'd have to create each and every month for the next two years just to return to November 2007 levels…

I hope you are sitting down, have a good stiff drink at your side, and no firearms or sharp objects are within reach. And all small children are safely stowed away.

Jobs lost in the past 22 months total 8,039,000, while the non-institutionalized civilian adult population (i.e. those not in prison, or a mental hospital, etc.) has risen by 3,166,000. This brings the ACTUAL jobs lost number to 11,205,000.

Now, dividing 3.166m by 22 months roughly equals 144,000. This is the number of jobs that have to be created every month in order to keep up with the growth in population; taken times 24, this gives us 3,456,000 additional jobs that need to be created to keep up with population growth between now and September 2011.

Added together, this means we need to have 14,661,000 - or an average of 610,000 - jobs added to the economy by the above date to reach par with November 2007.

There you go. The V-shaped recovery and green shoots simultaneously detonated...


There you have it. The truth behind the numbers that your government presents but will not talk about. The “media” will not dig and also will not discuss it – they are both fooling themselves and the general (under/ unemployed) population…

Styx – Fooling Yourself:

Yves Lamoureux - Negative risk premium and return assumptions...

Yves explains why he believes that investors should be favoring bonds over stocks. Please listen to his interview, he clearly explains that there is a disconnect between the signals being given by the bond market and by the stock market. This divergence was present prior to the last decline and it’s present now…

Yves Market Clues – Part I

Yves Market Clues – Part II

Yves Lamoureux – Blackmont Capital

I had used to believe that stocks delivered superior returns compared to bonds.

I looked at the following graph and realized that long term Canadian bonds had delivered twice the returns of Canadian stocks since 1987. It is particularly relevant since the Canadian market had been on a tear the last few years because of commodities.

Most market participants today still expect a positive risk premium for stocks even if extrapolating from recent past events results in confounding this expectation.

I expect bonds to deliver better or equal real returns with fewer risks than stocks going forward. Negative risk premium is the new normal and new behavioral shifts strongly underpin that case.

I had originally offered my case to buy the long bonds near the bottom of this cycle on the 19th June.

You create a spread of 4% or better between the Fed fund and the long bonds and in turn that becomes a trading buy signal. We had such a signal and ran with it.

We continued to run with this message digging further and came up with the primary dealers’ net treasury weekly positions graph in relations to bonds. What we found was most unusual. After averaging a net short position of -60 billions on average over many years, the primary dealers had suddenly turned bullish with net long treasury positions.

In this next graph, I use TLT as a proxy for long term bonds and TIP as the proxy to represent the Treasury inflation protected bonds. The recent recovery points to TLT showing greater strength and the clear conclusion is one of deflation reasserting itself or the lack of inflation thereof.

In a negative risk premium world you would expect to have bonds outperform stocks for total return and the yellow line here (below) where bonds are compared to the S&P500 is definitely up.

From both charts long bonds are definitely turning up or have put in a good base from which to launch upward.

In reference to behavior, it’s become clear that investors attitude are changing and the new normal is not to invest one’s savings in stocks rather that money is flowing to bonds. Recent data points to exactly this type of behavior and perhaps getting trounced once is enough for a certain legion of investors but not all. As we had seen in 2000 in every drop of stocks, we are slowly loosing participants to join in this exuberant party. Investors who miss out this time are also assured of not feeling any party hangover.

Yves Lamoureux,
Investment Advisor,
Blackmont Capital Inc.

The opinions contained in this report are those of the author and are not necessarily those of Blackmont Capital Inc.. Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor BCI makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. BCI is an independently owned subsidiary of CIFinancial. CI Financial is a Canadian owned diversified wealth management firm, publicly traded on the TSX under the symbol CIX. Blackmont Capital Inc. is a member of CIPF and IIROC.

Denninger on the Economy...

This is Karl at his best... he is absolutely telling the truth and is passionate about it. It's uncofortable isn't it? That's the reality, and that's why no one wants to listen or to hear it...

Morning Update/ Market Thread 10/2

Good Morning,

Equity futures are down sharply on the employment report:

The Dollar and bonds are up, gold and oil are down.

The headline unemployment rate increased from 9.7% to 9.8% with the consensus expecting -170,000 the number came in at -263,000.

Here’s Econoday trying their best to spin huge losses in a positive light:
The September jobs report was disappointing-but the consensus may have grown too optimistic. In reality, job losses are not nearly as severe as earlier in the recession and the unemployment rate is drifting up slowly as expected. Nonfarm payroll employment in September fell 263,000, following a revised decline of 201,000 in August and a revised decrease of 304,000 in July. The August drop in payroll employment was worse than the consensus forecast for a 170,000 contraction. August and July revisions were down a net 13,000 (the net declines were worse). Losses were widespread in both goods-producing and service-providing sectors.

Turning to the household survey, the civilian unemployment rate continued its uptrend, rising to 9.8 percent from 9.7 percent in August and compared to the market forecast for 9.8 percent. The latest rate is the highest since 1983.

Wage inflation eased sharply as average hourly earnings in September grew 0.1 percent, following a 0.4 percent gain in August. The consensus had projected a 0.2 percent rise for the latest month. The average workweek slipped to 33.0 hours from 33.1 hours in August, coming in below the market forecast for 33.1 hours.

Today's employment report will set equities back as futures were down notably on the release. Bond yields fell. However, the numbers are hardly dramatically negative. It is too early to write off the recovery given that nearly everyone expected a sluggish and choppy recovery.

Now that we’re done trying to spin it, the real number to watch is the seasonally adjusted U-6 that came in at a staggering 17.0%. That’s the number that is most closely comparable to how unemployment used to be reported like during the Great Depression.

Here’s the “alternate” table, note the non-stop increases in the seasonally adjusted U-6 (click to enlarge):

And here’s the complete report for those who like to dig. If you do, you will find some staggering statistics inside. You’ll note that the government sector has been consistently the only sector adding jobs – remember that government spending subtracts from the real economy, it does not add to it. Also look at the minority and youth figures, very troubling.

Factory orders come out at 10 AM…

The S&P futures landed right on support at 1,010 after breaking down below the 1,018 pivot. There’s very strong support from here to 1,000 and then the next support pivot is at 991.

On the 3 month SPX chart below, you can see that at current levels we have broken the 50 dma and are sitting right on the lower boundary of the rising wedge which is coincident with the bottom Bollinger band:

Be careful right here, it’s very strong support, I’m sure Goldman’s computers will make an attempt from here. The NDX is also sitting right on its bottom boundary the way I have it drawn. Any further decrease in prices below about the 1,010 level will break that rising wedge and will likely signal that wave C down (the big one) has begun. I am not front running this as I know that almost always once a major support area is broken that prices will come back up to test that break from below – patience pays.

Here’s some cheerleading of my own for the most overvalued stock market in history…

The Animals – Bring it on Home to Me:

Thursday, October 1, 2009

October Monetary Trends…

The first edition of October’s monetary trends is out. If you spend some time going through the charts, I think you’ll find that the underlying credit situation is still deteriorating. You have time deposits and retail money market funds down tremendously, money aggregates are decreasing, velocity is still decreasing, commercial paper and consumer credit are falling at a faster rate, inflation readings while bouncing a little are still negative, and the S&P 500 Price to Earnings ratio is continuing its historic disconnect from reality:

Look at the amount that commercial paper is down year over year! We’re talking nearly 40%, and the fuel for the largest segment of the economy, consumer credit, is continuing to plunge into negative territory:

Total loans and leases negative with no upturn:

All monetary aggregates when measured in year over year percent change are up, but the annualized RATE percent change is showing that in the short term the aggregates are SHRINKING:

Velocity continues to fall, with the monetary base velocity growth plunging to the -80% range year over year:


The geniuses on Wall Street will argue forward P/E, but even with their wild eyed, mark to fantasy bullshit, the FORWARD P/E IF ACHIEVED (it won’t be) is still in the out of control, way outside of historic norms 38 range. This is a MASSIVE DIVERGENCE from reality, do not expect it to last.

Rare Earth – Get Ready:

Morning Update/ Market Thread 10/1

Good Morning and welcome to the month of October!

Equity futures are slightly down or close to flat this morning after forming a pretty obvious triangle over the past few days:

The dollar is up, oil and gold are flat, and bonds are higher.

Ken Lewis, runner up only to Jamie Dimon for Asshat of the Year, is finally out at Bank of America. Applause! Bring on the next market manipulator… Seriously, these institutions have taken over America, our money system, and our government. They need to be broken up and the “Fed” abolished.

Now we have the Super Fed to contend with, the IMF. They just revised their 2010 forecast for growth upwards from 2.5% to 3.1%. Ahhh, and I believe in their forecasts because they have been so accurate to date – not.

The Monster Employment Index, another very fine gauge of employment (not), fell in September from 121 to 119.

The Challenger Job-Cut Report came out showing that fewer announcements of mass layoffs are occurring, here’s Econoday:
Challenger's count of layoff announcements fell to 66,404 in September, down from 76,456 in August for the lowest total since early in the recession of March last year. Industrial goods showed improvement as did health care and construction. Autos showed a big jump in the month and are already near a full year record.

Motor vehicle sales come out today. With cash for clunkers ending I would expect to see deterioration.

The personal income and outlays data came in mostly benign but helped again by a cash for clunkers give away whose effect will not be there in the future:
News on the consumer sector this morning was mixed as person income came in a little above expectations but jobless claims were somewhat worse than anticipated. Personal income in August edged up 0.2 percent after an upwardly revised 0.2 percent increase the month before. The August gain in income was above the consensus forecast for a 0.1 percent rise. The wages and salaries component also rose 0.2 percent in the latest two months.

While everyone expected spending to be up due to a surge in motor vehicle sales, unexpected good news was that consumers were spreading some cash around elsewhere, too. Consumer spending spiked on cash-for-clunkers auto purchases as personal consumption expenditures surged 1.3 percent in August, following a 0.3 percent rise in July. The latest number topped the consensus forecast for a 1.1 percent increase. Once again, strength was in durables, which jumped 5.3 percent on sharply higher motor vehicle sales. Nondurables were robust also with a 2.3 percent boost while services advanced 0.4 percent.

Inflation was mixed as the headline number was moved notably higher while the core rate was subdued. The headline PCE price index jumped to 0.3 percent after flat reading in July. Core PCE inflation was unchanged at 0.1 percent, equaling market expectations.

Year on year, personal income growth slipped to minus 2.6 percent from minus 2.5 percent in July. Year-ago headline PCE inflation firmed to negative 0.5 percent from minus 0.8 percent the previous month. Year-ago core PCE inflation eased to 1.3 percent from 1.4 percent in June.

The good news is that the consumer is making a comeback-even beyond the jump in auto sales. Nondurables and services were healthy-even after discounting inflation. And there was a moderate gain in income. And soft core inflation numbers should keep the Fed happy-letting the FOMC keep interest rates low as planned. Overall, the personal income report was favorable and should be a positive for equities. However, initial jobless claims were higher than expected and that may get more market attention.

Note the year over year numbers are still negative, even with government handouts. What will they be without?

The weekly initial unemployment claims number came in at 551,000, still extremely elevated:
Weekly claims data show no significant change. First-time claims did rise 17,000 to 551,0000 and the prior week was revised 4,000 higher to 534,000 but the four-week average dipped reflecting solid improvement in prior weeks. The four-week average is at 548,000 -- down nearly 25,000 from this time last month and the lowest level since early in the year. Continuing claims fell 70,000 to 6.090 million and show slight month-to-month improvement with the four-week averages at 6.155 million vs. 6.220. The unemployment rate for insured workers is unchanged in the week at 4.6 percent, down a tenth from this time last month. There was no significant reaction to the data which support expectations for incremental improvement in tomorrow's big payroll report for September.

The manufacturing ISM, pending home sales, and Construction Spending are released at 10 Eastern.

A triangle has formed over the past few days in the indices. Remember that wave 5’s can be tricky. I expect higher as it plays out, but it could be volatile until it turns. Again, it can truncate or extend. Yesterday’s move down and then up produced red hammers across the indices. Those and the triangles look a little bullish, but then again the volume was higher on the decline for the red candles. It sure looks like wave 2 down and then the start of wave 3 up… if it is, I would expect a powerful move up within the next couple of days. I should note, however, that the triangle has me thinking that it could actually be a wave 4 triangle and that wave 5 up has not actually begun yet. The DOW did make an intraday lower low yesterday, but the S&P did not so it puts the count that looked so solid a little bit in doubt. Regardless, wave c up does not appear to be over yet...

Here’s a tune dedicated to Ken Lewis and Bank of America…

Supertramp – Crime of the Century:

Wednesday, September 30, 2009

Martin Armstrong – The Public V. Private Waves and Switzerland’s Fate Along with the Rest of us…

Yet another interesting lesson in relationship of economics to history. Seldom will you find mention of economics underlying history in traditional books, but Armstrong ties these relationships together for us, taking us to the current administration and their attack on capital in Switzerland…

The year 2016 seems to have particular meaning for Armstrong for the global economy as a whole. He makes the point that it is probably too late to fix our problems at this point and that we are now on our way into the history books. Simple math would tend to agree with that premise, and it, unfortunately, is not in politician’s self-interest to fix the underlying math…

*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.

Morning Update/ Market Thread 9/30

Good Morning,

Equity futures are higher this morning, below is a chart of the /ES & /YM (S&P and DOW futures:

NOTE: UPDATED CHART, the plunge followed the Chicago PMI report - The Chicago PMI fell back to 46.1, showing contraction when estimates were for growth and a number closer to 52.

The Dollar is down, bonds are down, oil and gold are both up.

First a big thank you to Davos who worked tirelessly to bring people updates on the economy – Thank You, your updates will be missed! I still have some projects myself and will be back into the full swing of writing hopefully by next week.

MBA purchase applications fell 6.5% for the prior week. That follows a rise of 5.6% the week prior. Interest rates are at historic lows, and yet Econoday is left to wonder why applications would be so low. Remember that this statistic was ruined when they stopped providing the raw data and now only give percentage moves. You will have no way to know what the real level of activity is here – by design:
MBA's purchase application index fell back 6.2 percent in the Sept. 25 week while the refinance application index slipped 0.8 percent. The dips come despite rock bottom loan rates including a 4.94 percent rate for 30-year mortgages, the lowest rate since mid-May. At 65.3 percent, refinancings are making up a larger share of total applications as homeowners scramble to lock in low rates and pay down higher rate loans. But the dip in the purchase index, if extended in coming weeks, would point to a slowing for home sales which, though bumpy, are just beginning to recover.

The ADP employment guess of the week is saying that we lost another 254,000 jobs in September. This is a report that I give little to no credence, we’ll get the government’s employment spin on Friday.

The third revision of 2nd quarter GDP came in higher than expected. Again, the GDP figures are grossly overstated as the deflator is understated plus we are counting mark to fantasy financial engineering, “growth,” as growth to our economy. Here’s Econoday’s report:
Yes, we are very much looking in the rear view mirror at this point. But the third estimate for second quarter GDP clearly shows the economy at recession bottom-with the weight of the evidence of more recent data arguing that the recession technically is over. And the component mix for second quarter GDP adds to the argument that the third quarter will be moderately positive. For the second revision to second quarter GDP, the Commerce Department nudged up its estimate to an annualized 0.7 percent decrease from the previous estimate of a 1.0 percent decline. The market forecast was for a 1.2 percent decrease. The upward revision was primarily due to higher estimates for business spending on software and nonresidential construction. Net, final sales are now more positive at an annualized 0.7 percent in the second quarter, compared to the second estimate of a 0.4 percent gain.

Year-on-year, real GDP decreased by 3.8 percent, after falling 3.3 percent in the first quarter.

On the inflation front, the GDP price index was unrevised at no change. The consensus had no revision at flat for the GDP price index.

The latest GDP numbers show the economy at recession bottom with increased likelihood that there will be an inventory boost in the third quarter, resulting in a moderately positive number for overall GDP. Equities should like today's report while bond yields should firm.

A part of that GDP report, corporate profits were revised downwards for Q2. We’re talking about a historic year over year decrease in profits of 19.2% which was revised downward from -17.7%. Of course the media spins the story to emphasize the short term bounce. Those who are “looking forward” are going to get burned again as the bounce is on the back of unsustainable government money pumping, not growth in the real economy:
Corporate profits in the second quarter were revised down slightly to an annualized $1.031 trillion from the original estimate of $1.050 trillion and in comparison to the first quarter's $0.976 trillion. Profits in the second quarter were up an annualized 24.5 percent, following an 85.1 percent surge the previous quarter. Profits are after tax but without inventory valuation and capital consumption adjustments. Corporate profits are down 19.2 percent on a year-on-year basis, compared to down 24.8 percent in the first quarter.

From a technical perspective, we are still forming a very nasty looking rising wedge. Rising wedges are bearish and the minimum target for those wedges is the base of the wedge. Below is a 9 month chart of the SPX:

The NDX is making an even more perfect rising wedge. The angle of ascent is steeper, you can expect that the correction will be steeper as well:

Regarding wave count, McHugh was in agreement that Monday’s advance was likely wave 1 up of wave 5 up (of c up of B up). That means that yesterday’s and this morning’s decline are likely wave 2. Wave 3 up of 5 up should begin fairly soon unless wave 5 truncates which it certainly can do. If this count is correct, the next wave up will be strong and it will finish very near to the top of this rally.

Notice that prices once again failed to get over the 1,061 pivot point. Your clue that wave 3 of 5 is underway is when that pivot point gives way. The next higher pivot is at 1,090, and current support is at 1,041.

How about that Indonesian earthquake? Another tsunami and now well over 100 killed… my sympathies, I’ve been to Pago Pago several times, it’s a tropical paradise but nature can certainly be brutal.

Donovan – Atlantis:

Tuesday, September 29, 2009

Davos on the Edge 9.30.2009


John Williams of Shadow Statistics: Not a Recovery, Dire Shape,

30 Minute point on, Part 1

World Bank Head Sees Dollar’s Role Diminishing

“The greenback’s fortunes will depend heavily on U.S. choices,” Mr. Zoellick said. “Will the United States resolve its debt problems without a resort to inflation? Can America establish long-term discipline over spending and its budget deficit?”

FDIC Bankrupt? Uh huh.

From CNBC's "Breaking News" banner:

FDIC to Ask Banks to Pre-Pay Premiums to Inject Cash Into Deposit Insurance Fund (story developing)


Somehow I suspect it will be something like this:

(Gee, I need to graft Geithner's head on that one..... along with Bair!)

Anyway, the point stands. The FDIC is clearly out of money, and this is nothing more than yet another legalized accounting fraud game, where they'll get "the money" now but allow the banks to "recognize" that "charge" over time.

Gee, what happens if the bank doesn't have any money somewhere between now and then and fails?

Mark To Myth Losers: Americans

I have often written about the fraud in marking so-called "assets" to mythical values. But nowhere does the damage of this practice hit more home than it does in places like this:

Vacant homes can become havens for drug sales and other crimes. Health and sanitation is another issue when homeless people move in to properties where utilities have been disconnected. And as the weather cools, there is yet another worry -- fires started by intruders trying to keep warm in vacant homes.

"They want to find a place to get out of the cold," Rigler says at another home near 300 East and 800 South. Several windows and even two doors have needed boarding up in recent months to keep out those doggedly determined to take up residence.

Those homes are the "visible side" of accounting fraud.

This is not limited to Utah. In Oakland CA:

"Just about every foreclosed property on my beat has some kind of problem," said Derek Smitheram, a police officer in East Oakland, which he said has thousands of vacant homes.

Again, the issue here is that these properties are being intentionally kept back from the market due to valuation.

Or in Miami....

But the real estate agent now brings a pistol when he visits the foreclosures he is trying to sell for banks, in case he runs into squatters in the long-vacant homes.

The problem in all three places, and thousands of towns across the country, is the same: Banks have every incentive to drag their feet in both recognizing that loans are delinquent and thus to prosecute foreclosure in the first place, but also, once that has occurred, they have every incentive to hold properties off the market - the so-called "shadow inventory" - to avoid recognizing losses that have already occurred.

The Case for Inflation

Faber and the Dollar

PhD economist Marc Faber said in May:

“I am 100% sure that the U.S. will go into hyperinflation.”

Faber said he thinks – in the medium-term – we could have high levels of inflation (and see this and this).

Faber’s argument is that a weakening dollar will lead to inflation (as every dollar will buy less goods and services).

Government Printing

The government has injected trillions of dollars into the economy in the form of TARP bailout funds and other programs. Indeed, the government’s own watchdog over the TARP program – the special inspector general – said that number could be $23 trillion dollars in a worst-case scenario.

The basic argument for inflation is – as everyone knows – that the government has injected so much money into the economy (through bailouts, quantitative easing, purchase of treasuries, etc.) that there will be a lot more dollars chasing the same number of goods and services, which will drive up prices. In other words, the supply is the same, but demand has increased.

Indeed, the U.S. has also provided huge sums of dollars to foreign central banks. Could dollars given abroad cause inflation inside the U.S.? Yes – because some proportion of those dollars will be spent by citizens in those countries to buy stocks, commodities, goods and services within the U.S.

Three well-known advocates of the inflation argument are Rogers, Buffet and Schiff.

Specifically, billionaire investor Jim Rogers said we are facing an “inflationary holocaust”.

Warren Buffett said:

The policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

And Peter Schiff has argued for years that hyperinflation will wipe out the value of the dollar, so people should get all of their money out of dollars and into foreign currencies and assets.

But is all this government printing and quantitative easing really enough to cause inflation?

The back-of-the-envelope figures I’ve seen bandied about say no. Because of the massive destruction of credit (which – as Mish has repeatedly pointed out – must be included in discussions of inflation versus deflation), the government would probably have to print one-and-a-half to two times as much as it already has in order to create inflation.

The government could still do so. Yes, it would be suicidal for the dollar and might cause foreign buyers of U.S. treasuries to stop buying, but the boys in Washington could – if they were crazy enough – increase the money printing and quantitative easing to the point where inflation actually kicks in.

Will they do so? Summers, Geithner and Bernanke have proven themselves willing to do a lot of crazy things over the past year, so I wouldn’t rule the possibility out altogether.

Hyperinflation is Coming! Weimar Republic of Germany

Simon Johnson: Prospects for Your Future (Video on page)

Your Airplane Nate: Take care!

Morning Update/ Market Thread 9/29

Good Morning,

Equity futures are up a little this morning, rising to the 1,061 pivot on the latest Case-Schiller data that showed some month over month improvements (1,090 is the next higher pivot):

The dollar is up, bonds are down, oil and gold are both down.

The ICSC showed slight improvement, but we completely ignore that Goldman report as it has no basis in the real world whatsoever. The Redbook, half connected to the real world, showed a year over year decline in sales of 2.2% which is an improvement over last week’s -2.6% showing. Econoday claims an improving trend, but these have been negative for quite some time.

Here’s what was released by Econoday on the Case-Schiller Index:
Case-Shiller reports a third month of gains for home sale prices. The composite-10 index rose 1.7 percent in July on top of a 1.4 percent gain in June and a 0.5 percent gain in May. The composite-20 index, up 1.6 percent in July, shows similar gains. With the exception of Las Vegas, all metro areas show gains or at least flat conditions. Year-on-year rates also improved for a third month, now at minus 12.8 percent for the 10 index and at minus 13.3 percent for the 20. Rates of decline in California have definitely come down, now showing year-on-year declines in the mid-teens vs. 20 percent and worse declines earlier in the year. These are exhaustive data but do lag, which is a concern given set backs in new and existing home prices during August.

Note that the year over year declines are still very large at 13.3%, but better than the expected 14.2% plunge the "experts" were counting on. These numbers are a disaster for overleveraged homeowners and banks - oh, and for our overleveraged government, the world's largest home owner, auto manufacturer owner, bank owner/partner, and market/data manipulator extrodinaire.

Consumer confidence comes out at 10:00 Eastern.

Yesterday’s move up was powerful price wise, but very weak volume wise. This is yet another sign that the top is nearing and that distribution is occurring. I see an overall declining volume pattern still while lately the down days are quite a bit heavier than the up days. This is true across the ETFs and all the indices, not just one or two.

McHugh wants to see a Hindenburg Omen to be ensured that wave C down has begun. A Hindenburg Omen occurs when the market is split, with a large percentage of new 52 week highs alongside a large percentage of new 52 week lows. Every major decline in the past 25 years has been preceded by a Hindy. In order to get one, however, prices must start down and produce the new lows that are required – that will take some time as we are currently running at 170 new highs and only 2 new 52 week lows. My point being that you should not expect to just fall off the proverbial cliff immediately when C begins. Sure, that still could happen, but the odds do not favor it playing out that way. Declines roll and develop and the meat of the decline usually occurs with wave 3 down. Again, we are nearing the end of the count for wave B up.

Styx – Crystal Ball:

Monday, September 28, 2009

Davos on the Edge 9.29.2009

  • Federal Reserve Buys More Than 100% of Mortgages Issued in 2009
  • Hotel RevPAR off 18.3 Percent
  • U.S. ratings-fraud continues
  • Commentary: We shouldn't have homeless children in America
  • Saddled with Debt
  • En Down Ments (Chart)
  • Ludwig von Mises Institute (Video, H/T iDoctor)
  • The Economic Crisis and How to Deal with It (Video, H/T iDoctor)
  • Ferguson On US Deficit - Bloomberg (H/T iDoctor)



“A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank.” – Ron Paul

Federal Reserve Buys More Than 100% of Mortgages Issued in 2009

This is important information. What I've found and present below is that the Federal Reserve is not just supporting the housing market, it is the housing market.

Just as important as a person's desire to buy a home is their ability to gain access to mortgage funding.

The mortgage market is a gigantic beast with many moving parts, but it is pretty easy to understand from a high level.

The process works like this: A homeowner secures a mortgage from a bank or mortgage company. Then the mortgage is sold off to another company, with the cash generated by that sale now available to lend to other potential homeowners. Ultimately the mortgage may pass through several sets of hands but ultimately it lands with a terminal holder.

In that chain, the mortgage might get sold off several times, or perhaps sliced and diced by Wall Street wizards, but all that matters is that some company (with cash) is there at the end to buy the mortgage to keep the whole chain moving along.

Lately, the "terminal buyers" in that chain have increasingly ended up being the federal government (through the GSEs) and the Federal Reserve.

And not just by a little bit, but by a lot.

Here are the numbers:

So far in 2009 (through August), a total of 3.2 million existing homes were sold for an average price of $217,000, while 263,000 new homes were sold for an average price of $264,000.

Taken together, and assuming that we live in a world where 10% is the average down payment, we get this table:

Hotel RevPAR off 18.3 Percent

We are now into the business travel season, and as expected, RevPAR is off sharply from 2008.

From Oahu Island occupancy increases in STR weekly numbers

Overall the U.S. industry’s occupancy fell 8.6 percent to end the week at 59.6 percent. Average daily rate dropped 10.5 percent to finish the week at US$98.34. Revenue per available room for the week decreased 18.3 percent to finish at US$58.57.

Click on graph for larger image in new window.

U.S. ratings-fraud continues

This is only one of the outrageous aspects of this obvious scam. Ratings agencies are paid by the sellers of these products. Thus, the ratings agencies don't even pretend to independently evaluate these products (which, of course, is the primary function of these companies). The companies selling these products have to explain to the ratings agency how they should value them. If a particular ratings agency doesn't supply the appropriate “rubber-stamp” for the toxic security in question, then they don't get any future business.

It is a scam which is openly fraudulent, yet nothing has been done. Ratings agencies are still being paid by the sellers of these fraudulent securities. They still haven't even hired enough staff to evaluate the products they are “rating”. And government “regulators” still turn a blind-eye to this institutionalized fraud.

Commentary: We shouldn't have homeless children in America

The effects of homelessness on children are crippling.

Children who are homeless are in bad health twice as often as other children, and four times as often as children with a family annual income of more than $35,000. They are four times as likely to have asthma, and they go hungry twice as often as other children.

Homeless children have delayed development at a rate four times the national average. More than one-fifth of homeless children between 3 and 6 years have emotional problems that require professional attention.

Saddled with Debt

Ignoring the massive spike in government related debt (Federal, State, AND Local) for the time being and focusing instead on household liabilities as a percent of the national income, we see mortgage debt is now at 70% of GDP (more than double the level seen in the 1980's and 50% more than that seen at the beginning of this decade) and consumer debt is now at 18% of GDP.

The importance of all this is of course that all that debt that has been added over the years has been a huge contributor to that GDP. The fear is that the debt has just pulled a lot of consumption forward rather than infrastructure or other long term investments that will provide future growth opportunities.

En Down Ments (Chart)

Ludwig von Mises Institute (Video, H/T iDoctor)

The Economic Crisis and How to Deal with It (Video, H/T iDoctor)

iDoctor writes:

"WOW!! watch at (starts) 1:15:00 where Nail Ferguson starts speaking the truth that no one wants to hear & they cut him off...."

Ferguson On US Deficit - Bloomberg (H/T iDoctor)

Morning Update/ Market Thread 9/28

Good Morning,

I’m back! Turns out that Arno has a broken ankle and will need about 6 weeks to heal. Fun while it lasted, it’s a very difficult and disappointing way to end the trip. The window for doing the trip as planned has passed for the year, as far as I’m concerned, and I’m not planning on attempting it again.

Thanks to all who supported the effort, and especially Davos who kept this site going. If you are not aware, Davos has announced that he is stopping his updates on Chris Martenson’s site at the end of this month. And, since I’m back he will also stop the updates on this site at that time. He plans on working on some projects and spending more time with his family. It’s difficult to put never ending work into a blog, and he deserves a well earned break and all our thanks for his help in spreading around some reality.

Equity futures are up this morning, here’s the overnight action on the /ES and /YM (S&P and DOW):

The dollar is up slightly, oil is flat, gold is up a couple dollars but still stuck below the $1,000 mark.

No economic news out today, that’s good as it gives me some time to get caught up on things. That’s going to take a few days, so please be patient with me and I’ll get back to writing full force again as soon as I can, but I’m going to have to work into it as I get settled again. Later in the week we have consumer confidence, another Q2 GDP trumped up revision, Chicago PMI and a host of the other usual highly questionable statistics! The next large event that everyone is looking forward to is the employment situation that comes out next week on the 2nd of October.

Below is a 6 month chart of the S&P 500. You can see that the rising wedge is still in play. According to McHugh, this latest down move should be followed by one more up move to finish off his wave count for the large wave B up, that puts C down to follow. Looking at the stochastics, the daily has a way to go before it’s oversold, but the 60 minute is on a fresh buy and the shorter term oscillators are mixed. I do see a very short term positive divergence but the negative divergence is still there, and quite large, on the longer time frames. My guess is that we may tap the bottom of that wedge sometime soon and then we’ll rise back to the top and possible make a new high. Wave 5’s, however, are tricky as they can either extend and rise above the top of the wedge, or they can truncate. This next wave up, when it begins, will likely be the bulls’ very last chance to escape with their pants on.
Numbers to watch? October 13th, and SPX 1133 in honor of Seth? What happened to him anyway? I’ll have to write him and find out… prison is not ruled out, lol. The pivot points to watch are support at 1,041 (next lower at 1,018), and resistance is at 1,061.

Speaking of bulls, even Jim Grant has turned bullish? That’s a great indication that the psychology for a major top is in place. During the Great Depression, there were also some very famous investors who turned bullish only to be wiped out later. Their thesis correct, it simply takes longer than you would think to draw in all the idiots, err… dumb money, which the world seems to flooded with. Insider selling? Still at record highs. Price to Earnings? Off the charts by historic norms. The math of debt? Even more unworkable than before. Banks? Still insolvent, but hiding via accounting tricks and supported by the government that is complicit in the deception.

No, those things have not changed one iota in the two weeks I was gone, and as you can see, neither has my outlook. The fleecing is ongoing, it’s going to get real ugly in the next round.

Not my favorite tune, but hey… I’m back in the saddle again!

Aerosmith - Back In The Saddle

Sunday, September 27, 2009

Davos on the Edge 9.28.2009

  • Ticker Guy: Post-HR1207 Hearing (Video)
  • Max Keiser talks to Stacy Herbert about the IMF sales of 403 tons of gold (Video)
  • Is The Fed Hiding Gold Swap Arrangements With Foreign Central Banks?
  • The ONLY Bright Light on the Team: Blasts The Goldman Business Model, Moral Hazard, And Calls For A Return Of Glass-Steagall
  • Staycation (Chart on page)
  • Ron Paul on Fed Transparency, We Shouldn't be Afraid of the Truth (Video on page)
  • Naill Ferguson Discusses the G20 (Video, H/T Ernie)
  • Bailout Date
  • G-20 gridlock leaves global financial system at risk (H/T Dogs)
  • $1,900.00 or do Time (Congress excluded)


Ticker Guy: Post-HR1207 Hearing (Video)

Max Keiser talks to Stacy Herbert about the IMF sales of 403 tons of gold (Video)

Is The Fed Hiding Gold Swap Arrangements With Foreign Central Banks?

[Whitepaper on page]

There is not one asset that, over the decades and especially since the collapse of the gold standard, has received more claims of manipulation than gold. Yet evidence has always been impossible to come by. Are the interests imposing a gold price ceiling just too strong? If GATA's latest dispatch is correct, then yes, and they reach to the very pinnacle of modern financial oligarchy, represented by none other than the US Federal Reserve. GATA believes that the Fed has implicitly confirmed the existence of gold swap arrangements. As we all recall, the Fed issued nearly half a trillion in foreign CB liquidity swap lines whose primary reason was to make sure that foreign banks which were all massively short the dollar did not collapse, as the dollar skyrocketed into the end of 2008, after the capital markets became paralyzed and the dollar-short trade promptly became unwound. Could gold swaps be a comparable method for the Fed to explicitly permit foreign entities to keep gold prices low?

The other question of whether or not this confirmation needs an depth investigation over potential prior contradictory disclosure is left for the proper authorities. Of course, when it pertain to the Fed, there are no proper authorities. After all, the Fed is accountable to no one.

The ONLY Bright Light on the Team: Blasts The Goldman Business Model, Moral Hazard, And Calls For A Return Of Glass-Steagall

[Whitepaper on page]

Staycation (Chart on page)

Ron Paul on Fed Transparency, We Shouldn't be Afraid of the Truth (Video on page)

Naill Ferguson Discusses the G20 (Video, H/T Ernie)

Bailout Costs..... to Date

--- Amounts (Billions)---
Limit Current
Total $11,563.65 $3,025.27
Federal Reserve Total $5,870.65 $1,590.11
Primary Credit Discount $110.74 $28.51
Secondary Credit $1.00 $0.58
Primary dealer and others $147.00 $0.00
ABCP Liquidity $145.89 $0.08
AIG Credit $60.00 $38.81
Commercial Paper program $1,200.00 $42.44
Maiden Lane (Bear Stearns assets) $29.50 $26.19
Maiden Lane II (AIG assets) $22.50 $14.66
Maiden Lane III (AIG assets) $30.00 $20.55
Term Securities Lending $75.00 $0.00
Term Auction Facility $375.00 $196.02
Securities lending overnight $10.42 $9.25
Term Asset-Backed Loans (TALF) $1,000.00 $41.88
Currency Swaps/Other Assets $606.00 $59.12
GSE Debt Purchases $200.00 $129.21
GSE Mortgage-Backed Securities $1,250.00 $693.60
Citigroup Bailout Fed Portion $220.40 $0.00
Bank of America Bailout $87.20 $0.00
Commitment to Buy Treasuries $300.00 $289.22
FDIC Total $2,477.50 $356.00
Public-Private Investment (PPIP)$1,000.00 0.00
Temporary Liquidity Guarantees* $1,400.00 $301.00
Guaranteeing GE Debt $65.00 $55.00
Citigroup Bailout, FDIC Share $10.00 $0.00
Bank of America Bailout, FDIC Share $2.50 $0.00
HUD Total $306.00 $3.25
Hope for Homeowners (FHA) $300.00 $3.20
Neighborhood Stabilization (FHA) $6.00 $0.05

G-20 gridlock leaves global financial system at risk (H/T Dogs)

NEW YORK— A year after the panic that brought the world’s financial system to the brink of collapse, the Group of 20 nations will now assume the role of a permanent council on global economic cooperation. But there is still no global regulatory framework to prevent another major market meltdown. As the leaders of the world's top industrialized nations gather in Pittsburgh, that will be another item on the menu while they sip wine and nibble on hors d'oeuvres.

$1,900.00 or do Time (Congress excluded)

Taxation Chief of Staff Tom Barthold confirming the penalty for failing to pay the up to $1,900 fee for not buying health insurance.

Violators could be charged with a misdemeanor and could face up to a year in jail or a $25,000 penalty, Barthold wrote on JCT letterhead. He signed it "Sincerely, Thomas A. Barthold."