Saturday, November 14, 2009

More State Troubles Ahead...

It would seem that we’re headed into an area that the rule of law does not cover… namely that of individual states going bankrupt. It’s not happened before, the Constitution does not address it, nor does any other set of laws. So, will the Fed step in and bail the states out? Of course they will, they already are, just not enough to save them yet. The real question, of course, is who bails out our nation? Any way you slice it, ultimately it’s going to be you and I, and I’m going to have a lot to say on that subject, because my preferred way of doing so will not look anything like the central bankers have planned, that’s for sure.

Scary article really, we are going to face a tough road ahead:

State Finance Directors Warn of More Trouble Ahead

By SARA MURRAY

Michigan and California are likely to face a fresh round of budget woes when federal stimulus funds used as a fiscal crutch dry up, finance directors for the states said Friday.

Short-term budget gaps have battered states as revenues plummeted during the recession. Aided by about $250 billion in funds from the stimulus package expected through the end of next year, states managed to close the gaps this year. But both finance directors, speaking at a Pew Center on the States event in Washington, were pessimistic about their states' futures beyond fiscal 2011.

"We're facing a cliff in 2011 when stimulus dollars run out," said Mitchell Bean, director of the Michigan House Fiscal Agency. "There is not an end in sight, even in recovery."

As of July 2009, California's budget shortfall was 49.3% of its general funds. States have considered drastic options to fill such gaps.

"I looked as hard as I could at how states could declare bankruptcy," said Michael Genest, director of the California Department of Finance who is stepping down at the end of the year. "I literally looked at the federal constitution to see if there was a way for states to return to territory status."

There were no bankruptcy options, and the legislature chose to cut back sharply on education and health care to fill the gap. Mr. Genest already predicts the 2011 shortfall will outpace the projected $7 billion gap. It is a smaller deficit than this year's gap, but the choices will be more difficult because so many cuts have already been made.

Mr. Genest estimated that, eventually, 40% of the state's budget would go to the state Medicaid program, 40% to education, 10% to debt service and 6% to retiree medical services and pension—leaving little left for anything else, such as the state's corrections system.

Mr. Bean described a similarly depressing scenario for Michigan, which could end the recession with 25% fewer jobs than in June 2000 and a total of one million job losses. Michigan's unemployment rate in September was 15.3%.

He suggested that strict term limits often lead to political gridlock that prevents large-scale changes, such as overhauling the tax code so it is broad-based with lower tax rates. Mr. Bean said lawmakers will likely have to trim the budget at least 12.5% this year after closing a $2.8 billion gap last year.

"Citizens don't quite understand yet the implications of some of the cuts that we've made," Mr. Bean said. "A lot of it has fallen on local governments. I am very concerned that we're going to have a lot of insolvencies in local governments."


As usual, tons of real problems with no real answers to be found. That’s because real answers don’t exist in the boxes presented to you. Watch “The Secret of Oz” and get ready for some real answers to flow your way.

Oh, and here's a snipet from a terrific example of business as usual...

Derivatives Reform Bill Written By Someone 'Inside The Banks'

Michael Greenberger, a University of Maryland law professor and veteran federal regulator, studied the House committee's 187-page bill and detected the fine needlework of Wall Street lawyers. "It had to be written by someone inside the banks," Greenberger said, "because buried every few pages is a tricky and devilish 'exception.' It would greatly surprise me if these poison pills originated from anyone on Capitol Hill or the Treasury." A well-informed Congressional source confirmed that the original language in the draft legislation was written by financial-industry experts. It "was probably written by JPMorgan and Goldman Sachs," he told me, "and possibly the Chicago Mercantile Exchange."


There you have it, how laws are really written in America. Any law written in a competent manner, such as Ron Paul's Audit the Fed bill wind up so gutted that they become completely meaningless, or worse, even more dangerous, like the bank "stress tests" that are designed to enhance perception only and leave the sheep with a false sense of security. There is obviously a better path forward for America, we need to get to work.

More Fibonacci...

Includes interview of Robert Prechter and how Elliott Wave relates to Fibonacci sequence. Quite interesting...

Fun with Fibonacci Time Intervals…

Last Monday was the best fit for a Phi Mate and Bradley Model Turn date. No turn has happened as yet, the market is simply quanting and computing its way forward, looking set to retest recent highs. This is occurring despite divergences of historic proportions, valuations of historic disproportions, massive insider selling, and a consumer whose level of confidence in the economy is more truthful than government statistics which simply do not match statistics that are not subject to manipulation… things like tax receipts which are down jaw dropping amounts.

The more they spend, it seems, the less they get back. That’s what happens to crazy people who don’t understand nature or math.

Still, it seems pertinent to ask if turn dates have stopped working? Do the mathematical relationships of nature no longer have meaning? In fact, the majority of trading now occurrs on the back of just a few of the big players computers, they feed on dollar carry and interest arbitrage to get their fuel, and remain unbridled by any sense of adult supervision. That fuel, however, will not last forever, nature will reassert herself, just as she always takes care of excess. The turn will come, patience is a virtue afterall, and we are all being taught lessons in that regard.

Nature can be seen in the markets, I see it at work all the time… retracements that turn right on Fibonacci levels, pivot points that act as support and resistance, their underlying math related also to Fibonacci. For the uninitiated, Fibonacci numbers are those that are the sum of the previous two numbers in the sequence. Thus we have numbers that go 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, 6765, and so on.

While that sequence may not look important on the surface, this underlying math structure is the building block of nature. It affects the number of appendages on your body, the number of pedals on a flower, and it also can be found as the basis of wave structure. It is used in architecture, in design, and in marketing. It is everywhere. For those with more interest, you can find more math based upon this sequence here: Fibonacci Numbers.

Interesting things happen when you look at Fibonacci in terms of time. It is very common to find major market turns that are in Fibonacci relationships to major turning points of the past. Sometimes one relationship from one major turning point will happen on top of another. These points are the basis for Fibonacci turn dates. They can be counted in seconds, hours, days, weeks, months, or even years… These obviously do not always work, but they do have better odds of producing a turn than simply guessing. They do not tell direction or magnitude, only that whatever direction was in place is more likely to reverse.

“Oh pashaw,” you say. Well, pay attention and I think you’ll find that there is something to it. Usually we look at these relationships fairly close in, but yesterday I was playing around with the long term charts going back nearly a hundred years. Here are some charts I find interesting… no, I would not place money on any turns on this duration, this is an article of interest only…

Let’s start by looking at Fibonacci time relationships on the DAILY timescale… Below is a chart showing the S&P 500 with a Fibonacci daily time sequence that begins on the 1929 peak. Take a look at how day number 17,711 nailed the very peak of the market in the year 2000, and it wasn’t that far off many other turn points as well.



Next is a daily sequence of the DOW off the 1932 bottom. Note how it landed right in the 2002 low… that same thing happens on the SPX chart as well on this timeframe.



Next is a chart of the DOW showing the DAILY sequence off both the 1929 high and the ’32 low:



Note that the further out in time you go, the longer the time interval. That’s the Fibonacci function at work, always adding the last two numbers upon one another.

Now, this is why I am doing this piece to begin with. When you drop a WEEKLY sequence off of the 1929 high, it lands on NOW, as in THIS WEEK, the 4,181st week since the peak in 1929.



Now, you will note that this weekly sequence does not seem to land on the major turning points, so it may have little to no meaning, I don’t know, it’s just interesting, and we’re about to find out as there is no doubting that the trend into this sequence is up.

Here is the same chart of the SPX WEEKLY showing that week 4,181 just came into view.



Interestingly, on the MONTHLY time frame, we are approximately two more years away from the next sequence which will land in the year 2012 from the 1929 top, and in the year 2014 from the 1932 bottom.



That monthly chart is interesting because this timeframe cordons off the major Elliott waves as they progress... Wave 1 up to the peak in 1937, wave 2 down into the low near 1944, wave 3 up into the 1962 area, the sideways action of wave 4 into the last sequence showing, and where will it be when we land on it again in a few years? Hmmm...

Again, this is just fun with charts, something interesting to look at, nothing to get excited about for sure. Still, interesting that the weekly timeframe aligns closely with the recent Bradley and Phi Mate turn dates. I do believe we are very near a major top, but that belief comes from other areas of technical analysis. The primary count now in Elliott Wave analysis allows for one more wave higher. The fuel has not yet been removed from the criminals distributing their positions to the masses, a good reason for patience, no need to get ahead of the next move, it should take quite some time to play out.

Friday, November 13, 2009

Has the Whole World Gone Enron Mad?

Would it be anti-American if I answer yes? It would seem so, and that seems to me to be a very large part of the problem.

So we ask the question again, is China an economic miracle waiting to happen, or is China headed for collapse? People were saying it was a miracle when I was saying the Hang Seng was a bubble and was on the verge of collapse. Collapse it did, losing more than two-thirds of its value, falling from its 32,000 peak to its 11,000 low:



Note the relationship between the Hang Seng and our own S&P 500 index (thin black line). So, is China on a path to riches? Are they really growing 8.9% this year? Does Communism work? Can the Communist politicians really direct resources in an efficient manner, or is it all paper based fluff?

Mark me down in the later camp. Evidently I am not the only one who believes the entire economic world is built on false information and paper that is much thinner than you will find in a deck of cards (ht Dan, article from Politico):

Is China headed toward collapse?

By: Eamon Javers
November 10, 2009

The conventional wisdom in Washington and in most of the rest of the world is that the roaring Chinese economy is going to pull the global economy out of recession and back into growth. It’s China’s turn, the theory goes, as American consumers — who propelled the last global boom with their borrowing and spending ways — have begun to tighten their belts and increase savings rates.

The Chinese, with their unbridled capitalistic expansion propelled by a system they still refer to as “socialism with Chinese characteristics,” are still thriving, though, with annual gross domestic product growth of 8.9 percent in the third quarter and a domestic consumer market just starting to flex its enormous muscles.

That’s prompted some cheerleading from U.S. officials, who want to see those Chinese consumers begin to pick up the slack in the global economy — a theme President Barack Obama and his delegation are certain to bring up during next week’s visit to China.

“Purchases of U.S. consumers cannot be as dominant a driver of growth as they have been in the past,” Treasury Secretary Timothy Geithner said during a trip to Beijing this spring. “In China, ... growth that is sustainable will require a very substantial shift from external to domestic demand, from an investment and export-intensive growth to growth led by consumption.”

That’s one vision of the future.

But there’s a growing group of market professionals who see a different picture altogether. These self-styled China bears take the less popular view: that the much-vaunted Chinese economic miracle is nothing but a paper dragon. In fact, they argue that the Chinese have dangerously overheated their economy, building malls, luxury stores and infrastructure for which there is almost no demand, and that the entire system is teetering toward collapse.

A Chinese collapse, of course, would have profound effects on the United States, limiting China’s ability to buy U.S. debt and provoking unknown political changes inside the Chinese regime.

The China bears could be dismissed as a bunch of cranks and grumps except for one member of the group: hedge fund investor Jim Chanos.

Chanos, a billionaire, is the founder of the investment firm Kynikos Associates and a famous short seller — an investor who scrutinizes companies looking for hidden flaws and then bets against those firms in the market.

His most famous call came in 2001, when Chanos was one of the first to figure out that the accounting numbers presented to the public by Enron were pure fiction. Chanos began contacting Wall Street investment houses that were touting Enron’s stock. “We were struck by how many of them conceded that there was no way to analyze Enron but that investing in Enron was, instead, a ‘trust me’ story,” Chanos told a congressional committee in 2002.

Now, Chanos says he has found another “trust me” story: China. And he is moving to short the entire nation’s economy. Washington policymakers would do well to understand his argument, because if he’s right, the consequences will be felt here.

Chanos and the other bears point to several key pieces of evidence that China is heading for a crash.

First, they point to the enormous Chinese economic stimulus effort — with the government spending $900 billion to prop up a $4.3 trillion economy. “Yet China’s economy, for all the stimulus it has received in 11 months, is underperforming,” Gordon Chang, author of “The Coming Collapse of China,” wrote in Forbes at the end of October. “More important, it is unlikely that [third-quarter] expansion was anywhere near the claimed 8.9 percent.”

Chang argues that inconsistencies in Chinese official statistics — like the surging numbers for car sales but flat statistics for gasoline consumption — indicate that the Chinese are simply cooking their books. He speculates that Chinese state-run companies are buying fleets of cars and simply storing them in giant parking lots in order to generate apparent growth.

Another data point cited by the bears: overcapacity. For example, the Chinese already consume more cement than the rest of the world combined, at 1.4 billion tons per year. But they have dramatically ramped up their ability to produce even more in recent years, leading to an estimated spare capacity of about 340 million tons, which, according to a report prepared earlier this year by Pivot Capital Management, is more than the consumption in the U.S., India and Japan combined.

This, Chanos and others argue, is happening in sector after sector in the Chinese economy. And that means the Chinese are in danger of producing huge quantities of goods and products that they will be unable to sell.

The Pivot Capital report was extremely popular in Chanos’s office and concluded, “We believe the coming slowdown in China has the potential to be a similar watershed event for world markets as the reversal of the U.S. subprime and housing boom.”

And the bears also keep a close eye on anecdotal reports from the ground level in China, like a recent posting on a blog called The Peking Duck about shopping at Beijing’s “stunningly dysfunctional, catastrophic mall, called The Place.”

“I was shocked at what I saw,” the blogger wrote. “Fifty percent of the eateries in the basement were boarded up. The cheap food court, too, was gone, covered up with ugly blue boarding, making the basement especially grim and dreary. ... There is simply too much stuff, too many stores and no buyers.”


And who else has inconsistencies in their statistics? Sales tax receipts that don't match green shoot statistics. Shrinking shipping and oil demand versus cash for clunkers sales and supposedly positive GDP growth.

And China's largest consumers, Americans, have already pulled ALL their future income forward. Can the shopping habits of 5% of the world’s population really produce a sustainable economy for the entire globe?

Below is a piece from Aljazeera. Yes, that Aljazeera.

Aljazeera – China Spending…


Spending on infrastructure is one thing, IF that infrastructure is put to use in commerce! If you, however, build infrastructure just to build something, then the weight of carrying, of maintaining that infrastructure only becomes a future liability. Where is China heading? Are they cooking their books? Who is their customer, and what necessary products are they going to create? Do they already have too much capacity?

And I ask the question, why does this reporter sound sane, yet when I switch on CNBC, I hear reporter after reporter, analyst after analyst, who all sound completely nuts? As if spending more and more, and going deeper and deeper into debt is going to solve a debt problem. As if 2 or 3% inflation year after year is sane? That amount of growth if REAL is one thing, but if it is simply paper growth, it will absolutely kill the value of a currency dead on very short order. Our current version of our dollar, for example is only 38 years old, and yet we are running into currency problems already. What does the future hold? Will we find our Focus? Or is it all just a nutty derivative paper backed game of Hocus Pocus?

Focus – Hocus Pocus (song ht Mick):

Morning Update/ Market Thread 11/13

Good Morning,

Equity futures are up a little overnight, below is a chart of the Dow futures on the left and S&P 500 futures on the right:



The dollar is down slightly, bonds are up (usually not a good sign for equities), oil is down sharply, and gold is close to even.

Oil broke below most recent support this morning and fell beneath $76 a barrel. Yesterday’s petroleum report showed increasing inventories and lower demand. That feeds into this morning’s release of our international trade where both imports and exports were higher, but the rise in imports exceeded the rise in exports, causing a re-widening of the trade deficit.

Now, to an untrained central banker pump monkey, that may sound like a good thing. But the vast majority of the rise in imports was due to the rise in the price and quantity of imported oil. Do we need more oil with inventories at record levels? NO. Is the price of oil up due to an increase in demand? Not according to the weekly petroleum releases! So what’s happening? It’s a monetary phenomena, a result of the sinking dollar. The “experts” on teeveeee claim that a sinking dollar is good for exports. What they fail to take into account is that we are an importing nation, exporting is no longer our strength. Thus we have run up massive debts in every way, in every segment. And with our wages being arbitraged and held down, as the price of commodities rises, it only works to further squeeze the American consumer. It’s a viscous circle, one where higher commodities means more deficits and more debt which means a further sinking dollar and so on. It a circle that simply puts America and Americans in a losing position in the long run in exchange for a short term pop.

Here’s the highlights of the report from Econoday:

Highlights
The U.S. international trade deficit in September widened significantly on higher oil imports. But the good news is that the freeze up in global trade appears to be thawing as U.S. export rose significantly. The overall U.S. trade deficit widened to $36.5 billion from a revised $30.7 billion worth of red ink in August. The shortfall was worse than the consensus projection for a $32.5 gap. Exports rose 2.9 percent while imports jumped 5.8 percent. The worsening of the trade deficit was led by a wider petroleum shortfall which came in at $20.5 billion compared to $16.6 billion the previous month. The nonpetroleum gap increased to $25.9 billion from $24.3 billion in August.

The widening in the petroleum deficit was due to both more barrels imported and higher prices. Physical barrels imported increased 6.6 percent in September after dropping 9.4 percent the month before. The price of imported oil rose to $68.17 per barrel from $64.75 in August.

Year-on-year, overall exports rose to minus 13.2 percent from minus 20.6 percent in August while imports improved to down 20.6 percent from minus 28.5 percent the previous month.

Overall, the rise in export appears to be more real than the boost in imports. Imports were up on higher oil prices, more barrels of oil, and more automotive imports from Canada. The gain in autos was to replenish auto inventories after cash-for-clunkers. Non-auto imports were up moderately. But manufacturers are benefitting from a lower dollar and healthy gains were seen in capital goods, autos, and consumer goods. While the headline numbers could weigh on the dollar, the details favor it. Equities should like the boost in exports.





Year over year figures are still down tremendously even against now very easy relative comparisons. Remember, one year ago commerce was at a virtual stand still and imports are down 20% from that level.

And yet, this is how Bloomberg reports this terrific news:

Trade Deficit in U.S. Increases by Most Since 1999

By Bob Willis

Nov. 13 (Bloomberg) -- The trade deficit in the U.S. widened in September by the most in a decade, reflecting rising demand for imported oil and automobiles as the economy rebounded from the worst recession since the 1930s.

The gap grew a larger-than-anticipated 18 percent to $36.5 billion, the highest level since January, from a revised $30.8 billion in August, the Commerce Department said today in Washington. Imports surged by the most in 16 years, swamping a gain in exports.

Demand for foreign products may remain elevated in coming months as consumer and business spending improve and companies aim to prevent inventories from collapsing even more. Exports may also rise as expanding economies in Asia and Europe and a weak dollar drive demand for American goods, giving manufacturers such as Dow Chemical Co. a lift.

“The recent upturn in imports reflects a stronger U.S. economy,” Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “A rebound in exports is helping the economy transition from recession to recovery.”

The dollar dropped after the report. One euro cost $1.4888 at 8:38 a.m. in New York, up 0.3 percent from late yesterday. The yen climbed to 89.54, up 0.9 percent.

Exceeds Forecasts
The trade gap was projected to widen to $31.8 billion, from an initially reported $30.7 billion in August, according to the median forecast in a Bloomberg News survey of 77 economists. Deficit projections ranged from $28.6 billion to $34.1 billion.

A collapse in world trade earlier this year brought the gap down to $26.4 billion in May, its lowest level since November 1999, as imports plunged even faster than exports. As commerce begins to pick back up, global leaders agree more needs to be done to strengthen the expansion.

U.S. Treasury Secretary Timothy Geithner and other finance ministers at the Asia-Pacific Economic Cooperation forum in Singapore this week reiterated a pledge to maintain stimulus efforts “until a durable recovery in private demand is secured.”

Asia is “leading the world” back to recovery, Geithner told reporters at a joint press briefing with his APEC counterparts. President Barack Obama began a swing through Asia today as world leaders work toward a rebalancing that will make global growth more reliant on spending by Asian consumers and businesses and less dependent on their American counterparts.

It goes on and on, all pumping this report, never getting into the why or what may happen as a result in the future. I liken this type of thinking and reporting to flying with blinders on… the inevitable crash is simply a “DUH” moment.

And here is the price report that goes along with the report of International Trade:

Highlights
Import prices went up in October, in what bears are certain to claim as early evidence of dollar-based inflationary pressures. Import prices jumped 0.7 percent in October driven by a jump in natural gas prices which soared 24 percent but are since on the retreat. Industrial supplies, which include metals, are extending their run of increases. There's even an unusual rise for finished goods with prices for imported capital goods up 0.2 percent which follows a long run of no-change readings. Prices for imported consumer goods rose 0.3 percent following a run of mostly negative readings.

The export side of the report also shows pressure in October with export prices up 0.3 percent and up 0.3 percent even after excluding a price dip for agricultural exports. Industrial supplies also show pressure on the export side with capital-goods prices up a noticeable 0.2 percent though consumer-goods exports fell a tenth.

The year-on-year rate for import prices looks benign at minus 5.7 percent. But the Bureau of Labor Statistics is noting that the index is up 8.1 percent since February. And the BLS is also saying that the price increases for imported raw materials and metals, including precious metals, are in fact "tied" to the dollar. Today's report does show some pressure and is consistent with inflation expectations evident in the financial markets, namely gains in gold and other commodities. Commodity prices popped higher in immediate reaction to the report. Next week will offer two key readings on inflation, the producer price report on Tuesday and the consumer price report on Wednesday.



No, commodities did not rise on this report, oil in fact fell sharply. While prices are up on massive pumping in the short term, the net effect is really on our money and not on the real world economy. The long term damage, however, will indeed be real. Many nations are beginning to squeal over the falling dollar. Pressures are mounting, there is change at hand.

Consumer Sentiment is released shortly.

I mostly went over the technicals in yesterday’s write-up and don’t have that much to add. I will not be surprised if the top is in, but I also won’t be surprised by one more run higher either. I agree with McHugh, that very few people realized the top was in when the market first started to subtly roll over in October of ’07… very few people, myself excluded, were ringing a bell for you at the top. I’m hearing those bells again myself as I just do not believe that the upside potential of this market represents anything other than the destruction of our currency. That’s simply not a winning strategy. I’m going to be working hard in the days ahead to develop and to present a real winning strategy. Thus, you’re going to see me a little bit less in the daily thread, but you’re going to start seeing what I consider to be more important work coming out. I’m going to need your help and your input. In the meantime, the most important help you can give me is to keep the thread running and update one another on events. I’ll swing by as I can. Are those bells I hear?

Thursday, November 12, 2009

Technical Update…

Since yesterday’s new high in the SPX eliminated the possibility that wave C down had started, the current wave count indicates that we are in the final wave up of B up. The final leg should take the form of an a,b,c. It is very likely that wave b of that a,b,c is what started today, and if so there will be one last wave higher. Last waves, however, can truncate and they can also extend, they are not easy to predict.

Yesterday’s high may be the high… it is close to the phi mate and Bradley turn date that fell on Monday. Today’s action produced predominately bearish patterns with today’s close generally below yesterday’s low. There are signs of reversal out there, let’s take a look.

The most telling signal to me at this juncture is actually in the VIX. Below is a 3 month chart showing an expanding bottom. The most recent high, however, was higher than the previous high, and now what appears to be a new low is higher than the previous low. Yesterday’s candle is a reversal marker, now confirmed by today’s action:



Of course the dollar had a very strong up day while commodities took it on the chin. Oil, in particular was hard hit, both because of the dollar rise and because inventories were way up, demand down – again:
Highlights
A big build across petroleum stocks is sending oil lower. Crude stocks rose 1.8 million barrels in the Nov. 6 week to 337.7 million, swollen by a rise in imports of 530,000 barrels a day to 8.7 million a day. Gasoline stocks rose 2.5 million barrels to 210.8 million with distillate stocks, reflecting weak demand for diesel and heating oil, up 0.3 million barrels to 167.7 million. Demand for gasoline sank for a third week, down 100,000 barrels a day to 8.9 million barrels a day. The bottom line is that supplies are swollen and demand has yet to strengthen.

Oil closed down 3.2% at $76. 75. There’s that darn real world stuff getting in the way of their never ending growth plans.

Gold bearishly engulfed yesterday’s candle and could be starting a correction. Below is a daily chart of oil futures on the left and gold futures on the right:



In the past two days the NDX 100 index went on to barely eek out a new high. The more broad NASDAQ index did not. In fact, just that fact alone tells you that the market breadth is thin, it is being led up by a narrow range of stocks, that is typical of tops. But if you look at the 9 month chart of the NASDAQ below, you will see that yesterday’s candle is a potential top and that today’s candle closed beneath its low, thus confirming a reversal. But that’s not why I’m showing you this chart, I’m showing it because there is the largest divergence on this chart that I’ve ever seen on the daily timeframe in the RSI. Look at the last four peaks over the last four months… Lower peaks in RSI, higher highs in price. That is a massive divergence, one of many, I don’t even need to draw the line for it to stand out:



Next, let’s look at the Utilities. This interest rate sensitive index is SICK. While the rest of the market over the past 9 months rallied wildly, the Utilities, like the financials, have failed to even rise to a 38.2% retracement. It has now clearly made a lower low, and now a confirmed top for a much lower high. It closed back below its 50dma and is coming out of overbought on the daily stochastic:



The XLF is just plain old weak, even with mark to fantasy. It has failed to retrace to 38.2% and on this latest run up it topped at 61.8%, diverging from the Industrials and SPX that made new highs. Today’s action confirmed yesterday’s candle as a potential top and prices returned back below its 50dma as well:



Here’s the DOW Industrials, the strongest index of them all. It did make a new high, but today it closed below the previous two days low. The volume pattern is screaming non-confirmation and the RSI here is divergent too. The weekly MACD is rolling over, even in the face of new highs. Sick.



So, not a huge move down today, but it is looking very heavy with the SPX closing just beneath the 1,090 pivot. The action in long bonds, the dollar, commodities, and the VIX all look suspect. Stay sharp, the criminals and their computers are IN FACT conspiring to take your money, just like all the marketing companies conspire with the corporations to take your money. It is time for your family and friends to be conspiring to take some of it back.

David Bowie – Ziggie Stardust:

Record October Deficits, Jaw Dropping Cliff Dive in Tax Receipts…

Is that headline hyperbole? Does a 29% year over year drop in personal income tax receipts qualify as jaw dropping? How about a cliff dive?

How about NEGATIVE corporate income tax receipts? Huh, how does that happen?

Got your attention? It should, because our entire financial system is in ruins, despite the daily manipulated data you receive. Please pay attention to the numbers buried in this report and keep in mind that it’s very difficult to manipulate the amount of tax money received. It’s easy to manipulate GDP and also things like retail sales where stores that go out of business are no longer counted. Look at the REAL data in the REAL economy and there is no real good to be found. Don’t shoot the messenger, I am going to offer solutions, REAL solutions.
U.S. Oct. Budget Deficit Rises to $176.4 Billion, Revenue Falls

By Vincent Del Giudice

Nov. 12 (Bloomberg) -- The U.S. budget deficit widened in October from a year earlier, reaching a record for that month, as rising unemployment cut revenue at the start of the first full fiscal year under President Barack Obama.

The excess of spending over revenue widened to $176.4 billion last month, compared with a deficit of $155.5 billion in the same month a year earlier, the Treasury Department announced today in Washington in its monthly budget statement. It was a record 13th consecutive shortfall and the fifth-largest monthly gap on record, the department said.

Unemployment in the U.S. at a 26-year high of 10.2 percent in October and spending from the $787 billion economic stimulus plan are straining the Treasury’s finances. The government is headed for a second straight year of a deficit exceeding $1 trillion.

“Tax revenue is down, incomes are down, profits are down and there are not many capital gains to tax out there,” David Wyss, chief economist at Standard & Poor’s in New York, said before the report. “On top of everything else going wrong, you’ve got the baby boomers just hitting retirement age, so there’s going be an increase in entitlement programs,” such as Social Security and Medicare, he said.

Economists surveyed by Bloomberg News forecast a deficit of $165 billion in October, according to the median of 29 estimates. Projections ranged from deficits of $125 billion to $199.4 billion. The non-partisan Congressional Budget Office predicted a shortfall of $175 billion for the month.

Debt Limit
Officials have estimated that the country’s legal limit on debt of $12.1 trillion may be reached in December. During the fiscal year that ended Sept. 30, the Treasury reported a record deficit of $1.4 trillion.

Spending for October declined 2.7 percent from the same month a year earlier to $331.7 billion, and revenue and other income fell 17.9 percent to $135.3 billion, according to the Treasury’s budget data.

Individual income tax collections fell 29 percent to $61.2 billion in October from a year earlier, and corporate tax receipts last month were a negative $4.5 billion on the government’s books, the statistics showed.

In other categories, spending by the Social Security Administration rose to $65.2 billion last month from $59.2 billion; spending by the Department of Health and Human Services, which administers the Medicare and Medicaid health programs, rose to $85.9 billion from $76.5 billion and spending by the Defense Department rose to $67.8 billion from $66.1 billion, according to the data.

TARP Rescue
The Treasury also spent $175 million last month on the financial rescue plan called the Troubled Asset Relief Program compared with $33.4 billion a year earlier, the budget statement showed.
Wyss is forecasting a $1.4 trillion shortfall for fiscal 2010, which started Oct. 1, matching the deficit the CBO predicted in August.

The economy probably will grow 2 percent next year, and “that’s just enough to hold things steady” for the government’s fiscal situation, Wyss said. Any improvement in the budget deficit will bring the total to a level “that would have been a record before last year,” he said.

Over the past week, the Treasury auctioned a record $81 billion in its quarterly sales of long-term debt. The Treasury’s debt-management director, Karthik Ramanathan, told a meeting of bond market participants last week to anticipate another year of government debt sales of $1.5 trillion to $2 trillion, according to minutes of the session released on Nov.4.

All receipts DOWN, corporate receipts negative, and at the same time all categories of spending up!

And today’s 30 year bond auction had a bid to cover of only 2.27. A healthy auction is 3 or higher. But that’s all just a game, the Primary Dealers (private banks) are required to buy. Those banks comprise the “Fed,” they are who the Fed is. It is a circle jerk without end, that is until people figure out their game and lose confidence in their ability to keep it going.

Oh yeah, sure, “the economy probably will grow at 2 percent next year.” What bullshit! Do you buy it? I don’t. Did you know that 2% growth per year will kill a currency dead in less than a century? Is that a stable system? Or is it a system designed to rise up and be skimmed along the way, only to be taken down and done again, and again?

Let’s look at the real economy, shall we? Below is the chart I showed earlier from the Association for Manufacturing Technology (AMT) and The American Machine Tool Distributors’ Association (AMTDA) showing machine and machine tool consumption:



That’s a 75% decline and is nowhere near back to previous levels.

Here’s today’s chart showing the current Baltic Dry Shipping Index (BDI). While the bounce appears large when calculated off a nothing bottom, the collapse was the result of an exponential rise. The collapse is historic in nature, it has not and will not return to previous levels any time soon.



Numbers are a funny game, the human mind has trouble processing percentage and exponential moves. Those who know how, play games with those numbers. These raw data charts do not lie, and the raw data tax receipts do not lie either.

It’s time for real and meaningful change. It’s time for the truth to rise to the surface. There is no bullish case or bearish case. The issues are not just what this Democrat says or that Republican says – they are both backed by the same purveyors of debt backed, fractional money. The issue of money is likewise boxed in by the same purveyors on one side and the gold bugs on the other. Guess what? The bankers don’t really care what backs the money, they are going to profit, control, and manipulate them either way. It’s time to put the money function back in the people’s hands where it rightly belongs, THE one purpose of government that is most appropriate.

David Bowie – Rebel:

Morning Update/ Market Thread 11/12

Good Morning,

Equity futures are down a little this morning, but the S&P is still above the 1,090 pivot after being rejected from yesterday’s low volume run up to the 1,107 pivot (1,105 high):



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

The now worthless MBA purchase index fell a whopping 11.7% last week, here’s Econoday:

Highlights
Demand for purchase applications plunged in the Nov. 6 week pointing to the risk of a dip backward in home sales. The Mortgage Bankers Association's purchase index fell 11.6 percent in the week to a nine-year low (MBA did not release index levels, only percentage changes). In contrast, the refinance index surged 11.3 percent in the week. The proportion of refinancing applications to purchase applications is 71.5 percent, the highest since May. Mortgage rates are at rock bottom with 30-year fixed averaging 4.90 percent, down 7 basis points in the week. Refinancings will give a big lift to homeowners, cutting down monthly costs and allowing the hardest pressed to stay in their homes. But the indication on home sales is a disappointment. Next data on the housing sector will be housing market index on Tuesday.

All I can say is wait until rates move higher. They will.

Jobless claims fell to 502,000, yet another print above the half million mark – we haven’t had a print under 500k since December of last year (December prints tend to be lower):
Highlights
Jobless claims continue to come down. Initial claims fell 12,000 in the Nov. 7 week to a level of 502,000 (prior week revised 2,000 higher to 514,000). The four-week average shows the progress that's underway, down 4,500 to 519,750 for the lowest level since last November. Continuing claims extended their long downward trend, falling a very large 139,000 to 5.631 million (Oct. 31 week). Though some of this improvement may reflect new hiring, much of it unfortunately reflects the expiration of benefits. The number receiving extended benefits fell 28,243 to a level of 523,061, while those receiving emergency compensation rose more than 20,000 to 3.52 million (both Oct. 24 week). The unemployment rate of insured workers continues to fall, down another tenth to 4.3 percent and in big contrast to total unemployment which has continued to rise, jumping to 10.2 percent in October. Unemployment remains high but initial jobless claims are definitely improving in what is a big plus for the labor outlook. Though better than expected, today's report is having no initial impact on financials markets.



No impact? The market has already priced in zero unemployment for cripes sake! We need to create 150,000 jobs a month just to keep up with population growth and we’ve been losing massive jobs for months and months. There are people that have been unemployed for so long that they simply run out of benefits and are no longer counted here. Thus the government does everything they can to make the data and themselves look as good as possible. This is the same reason MBA no longer reports real index values, they simply do not want you to see the truth.

Little Timmy Geithner was flapping his lips yet again about how important our strong dollar policy is! Talk about a joke of a “man.” He’s a little boy who can’t say no to his pals. In fact, I can’t really point to an adult in the entire administration, it reminds me of a teenage binge. But, the dollar is higher overnight getting back above the 75 support level, and the EUR/USD is falling back from its run above 1.50.

To say that the market is overbought is literally the understatement of the year. Divergences abound, and now 100% of stocks in the DOW are over their 5 day moving average. Yesterday’s low volume ramp up set a new high in the S&P and changed the Elliott Wave count there to still being in wave B up, this would be the final wave higher. According to Tony Caldero, all the major overseas indices are in confirmed downtrends, meaning that their wave B’s have been completed and that the wave count has now eliminated those indices from being in an uptrend. Thus the markets are in a complex state with divergences all over the place. I think this is screaming TOP at us… it is near, but blow off tops can run irrationally, especially with all the teenagers running our country and our markets.

Want to see a snapshot into the REAL economy? Here’s a chart from the Association for Manufacturing Technology (AMT) and The American Machine Tool Distributors’ Association (AMTDA) showing machine and machine tool consumption.



Look at the current levels compared to the bubble days. Looks like less than 25% of the peak value. And how about that bounce upwards at the end, looks just like the stock market, no? Anybody remember the line, “Subprime is contained?” And the same people who made statements like that are still running our country and lying to us.

Hey, the candles from yesterday could represent a top, Monday was a turn date and the turn has yet to happen, it should happen this week. 1,090 is support, if it falls, 1,061 is next.

David Bowie - Changes

Wednesday, November 11, 2009

Martin Armstong – Gold $5,000+

This article is very timely. It dovetails perfectly into what I have been saying about debt based, fractional reserve, fiat money systems and also about the beliefs in gold backed money systems. Again, I used to spout the line, “no fiat system has ever stood the test of time!” But the truth, as Martin aptly points out here, is that the gold standard has NOT stood the test of time either!

That doesn’t mean that gold is not a hedge against a LOSS OF CONFIDENCE, it is. What it is NOT is a hedge against inflation, again, as Martin points out.

This is one of his best articles ever. What he says here is extremely important. He is saying that the gold standard is not the answer, that both systems fail because politicians (and bankers) cannot be trusted! Thus, we circle back to what Bill Still is saying, “It’s not WHAT backs the money, it’s WHO controls its QUANTITY!” I encourage everyone reading this to view Bill Still’s movie “The Secret of Oz.” Once you have seen the movie, please join our discussion, I will be doing several articles on it.

Armstrong makes the following points in this document that are key to what I’ve been saying:







I agree with Martin that the gold backers will hate this language, but it is true. You must judge history for what it is, not what you hope it was. There is a better way forward, and I’m going to present that path to you in the days ahead.

All this does not mean that I don’t own gold, I do! Martin goes through key levels of support and resistance and lines them up with his turn points to give you a better feel for the market. A terrific read, I hope you enjoy it and please take what he’s saying here to heart.




What follows is Martin’s Petition for Habeas Corpus addressed to Justice Scalia. In it, Martin once again lays out his case and why he believes justice has not been served. An interesting read, I encourage supporters to write to the list of parties within this document to complain about the way that his case is being ignored. He deserves to be answered and those answers need to stand up to the law…

Habeas Corpus

Dollar Downer…

Hey, you can believe whatever you want about the situation in the world today… there are certainly a lot of opinions being tossed about. Are we in a bull market or in a bear market; is the outlook bullish or bearish? Well, from my perspective, all that talk is just BULL! We have become such a fuzzy society that we can’t see what is and what is not, reality from fantasy.

There is only ONE reality… you can create alternative realities if you wish, but they will live only in your mind as nature only allows one mathematical reality to exist at any given time (don’t get all quant on me about alternative realities). If you want to see the one and only reality, then simply take out your calculator, add up all the debts… your personal debts, the debts of your family, the debts of your town, your county, your state, your federal government, all the corporations, and then add up all the income, THEN you will meet and come to know reality. The rest is simply bull.

Overnight the dollar broke below the 75 level, the last bastion of support prior to heading back to the previous lows in the 71/72 area. The Point & Figure chart still is showing a target of only 63.



The longer term chart has a huge Head & Shoulders pattern with a broken neckline (confirmed pattern) and a target of only 40!

Now, let’s look at some recent charts and do some math. If you look on the following three year chart of the dollar (candles) with the SPX (solid line) in the background, then you can see that the dollar made a low of 70.70 back in March of ’08, one year prior to the low in equities. The last time the dollar was at 75, the SPX was at 1,300. Today it is at 1,100, a 15% decrease in equities for the same dollar level. You can see that the current inverse relationship does not always hold.



Now, when we look at correlation since the March lows, the relationship has been inverse and it has been nearly perfect. In that timeframe the dollar has lost 18% of its value (a tax on everything you own), while the S&P has gained 65%. That’s a leveraged advantage of 360%, or for every point lost in the dollar, roughly 36 points are added to the S&P 500 (33 S&P points per dollar point over the past 9 months).



Now, IF THAT RELATIONSHIP WERE TO HOLD (it won’t), then when the dollar reaches its P&F target of 63, we can expect that the S&P will be at 1,532! When it reaches the H&S target of 40, it would be at 2,360!!

Guess what… that’s NOT going to happen! Here’s why. As the dollar continues to plunge, the amount of goods that consumers can buy goes down for a given quantity of dollars. The only way consumers can continue to buy the same or more is if their wages keep up with the decline. Wages have been FALLING because we don’t make anything to mention but derivative products anymore, and overseas workers still earn less and thus arbitrage wages downward. Thus, the conclusion is that as the dollar continues to plummet, at some point stocks will plummet because earnings will not be able to keep up. Do not buy into the hype that a falling dollar is good for exports and that corporations will do well – that’s only true to a point and only for a few companies who do the majority of their business overseas. It is BUNK for the market as a whole.

So, watch these levels, and watch the EUR/USD relationship. It went above 1.50 this morning, but then collapsed back beneath. That is a very important psychological level:



And once again LITTLE Timmy Geithner flaps about a strong dollar policy. Again, more bull, but the dollar is up today. They do know what a dollar crash would do to the economy and you never know what their little immature brains will concoct. They do have the power to manipulate this relationship… they can pull liquidity, manipulate interest rates, and they can even attempt to balance our impossible budget. So, don’t count the dollar out entirely yet, something’s going to give soon, either the dollar gives, or equities give… the distance between the rock and the hard place is getting smaller by the second.

Morning Update/ Market Thread 11/11

Good Morning, and Happy Veterans Day to all my fellow Vets who have served your country, thank you!

Equity futures went on to push to a new high overnight in both the DOW and the S&P. Amazing how major events like hurdling major resistance occur at night… simply amazing. Oh, and oh so not real. But it is what it is, and it’s exactly why I’m not gambling in the current market. Here’s a computer generated image of overnight computers generating the image for us:



I am seeing massive INSTABILITY in the markets. Bonds, in particular, are zooming upwards this morning (actual bond market is closed, but futures are trading). That is usually the direction bonds go when stocks are going down. BE CAREFUL, a major top is approaching in equities. The dollar did break to a new low beneath the 75 level. There is no more support for the dollar until the 71/72 area and below that there is NOTHING. A dollar collapse will NOT be good for equities. It will KILL the middle class, as in DEAD. And we don’t know how much more abuse the dollar can take before intervention comes into play – there is simply no guessing what the knuckheaded mental teenagers running our country will do next. At any rate, gold went on to make a new high at $1,118, and oil is back above $80 a barrel.

Here's an hourly chart of the dollar, the double red lines were the last area of support prior to the 71/72 level:



I hope everyone watches the movie “The Secret of Oz.” I am going to propose exactly how to cure these problems once and for all. The solution will not be found in either the gold standard nor debt based fiat. Bill Still’s saying, “It’s not what backs the money, it’s who controls the quantity,” is spot on (the money). Keep that in mind. I also want to highlight an area in which I’ve been mistaken, namely I have always sided more closely with the gold bugs when I used to say, “Every fiat money system in history has failed.” While that’s true, it ignores the fact that every gold backed currency in history has also failed! What’s the answer? I’m going to lay it all out there in the days ahead and my hope is that a political movement can rise up around it.

Meanwhile, big bank bonuses are up 40%! Does everyone see the flow of money here? The government bails out the banks with zero interest loans, oh and by exchanging their worthless debt instruments for cash, then the banks use that electronic money not to lend to you at a reasonable rate, no, they use it to back their HAL 9000’s who monkey and play with the markets running over resistance levels at night while you’re asleep. Of course the government doesn’t really have the money to give them in the first place and thus they print up more interest bearing credit dollars and buy up their own debts, thus circumventing the very way the system is supposed to work as they designed it! That process drives the dollar down in value, in essence a hidden TAX on the American public. In other words, you and your money is financing the games in the market and you are absolutely paying the record bonuses to the Bozo’s on Wall Street. And yet, the whole system is going to come down, the outcome of which will be a result of those involved. They are guilty, and history shows that much real pain can and will follow their highly immoral actions.

China claims to have created something like 16% growth in sales and production!!!
Production rose 16.1 percent from a year before, the most since March 2008, the statistics bureau said in Beijing today. Retail sales gained an annual 16.2 percent in October, it said. The trade surplus almost doubled from September, to $24 billion, as the slide in exports eased to the slowest pace this year.

Of course they directly injected something like a quarter trillion dollars and exports are still way down. Huge bubble, massive collapse, now another HUGE bubble! What a roller coaster ride! Anyone thinking this is TERRIFIC, it’s the future, is NUTS. It’s a recipe for disaster, it is the very definition of high risk. To those pumping overseas markets, I say GOOD LUCK, you will need it. There is not a REAL economy out there that I can see… the world is devolving due to the massive debts and derivatives, and interventions that now permeate the globe.

Tomorrow we finally will get a little economic data with the weekly jobless claims, the worthless MBA Purchase Applications, the petroleum report, and we’ll get to peak at the completely untrustworthy Treasury Budget report and Fed Balance Sheet.

We all better hope that the dollar does not degenerate into a free fall. In my opinion, that outcome is far, far worse to a country and its people than a deflationary depression. The dollar can be saved by pulling liquidity and by making moves to balance our budgets, but who believes that’s going to happen any time soon with the bonus boys fingers on the computers? At any rate, the technicals have so many divergences that their little computers are going catch fire sooner or later. We are actually doing the same exact thing that occurred at the ‘07 top where we broke beneath the rising wedges and then followed them up to new highs before rolling. Roll it will, it’s just a matter of time. By the way, the gaps left in the RUT and NDX are still there, they did not fill yesterday.

Dollar going down, market going up, it’s simply the Oligarch’s Grand Debt Based, Fractional Reserve Illusion…

Styx – The Grand Illusion:

Tuesday, November 10, 2009

The Secret of Oz – “IT’S NOT WHAT BACKS OUR MONEY, IT’S WHO CONTROLS ITS QUANTITY”

After viewing Bill Still’s award winning movie, “The Secret of Oz,” you will never view “The Wizard of Oz” or our economy with the same child eyed unawareness as I once did.

The Secret of Oz is a terrific analogy and Bill walks us all the way to REAL solutions that can move us past naive HOPE, and into a fulfilling future, one without debt based money and one without the manipulations and flaws of a gold standard. Bill pulls back the curtain of history and together we will show how the issues have been boxed in over time – Republican/ Democrat, Gold Standard/ DEBT based fiat.

Pay no attention to that man behind the curtain!


Bill’s movie, “The Secret of Oz” presents history in a fascinating way, he then picks up on author L. Frank Baum’s symbolisms and spells them all out for you – The yellow brick road, the silver slippers, the Emerald City, the mindless Scarecrow, the heartless Tin Man, the cowardly Lion. Even the witches and flying monkeys have meanings that you will find fascinating.



Bill takes you on a trip around the world and through time, his journey returning us from the land of OZ back to the reality of Kansas. He spent a great deal of time and money bringing us this film, I highly encourage everyone to buy it and then show it to family and friends. Discuss it, but then ACT on it. Don’t leave it to HOPE that others will jump up and save the day, for we must all seize it, because hope is but a dream, it requires ACTION to make dreams come true.

I’ve been looking for the right way to move forward and Bill’s movie has opened up a window of understanding. Yes, he presents some answers in the end, but there are many details to be worked out… How in the world would you ever implement such an idea? Well, don’t hold your breath waiting for the central bankers or our beholden politicians to do it for you, they are much too busy building boxes.

I realize that as many view this trailer they will scream, “INFLATION!” They may even think that Nate’s gone off the deep end… but I am sincere in saying that I believe we can rise up from our unworkable debt based math and return quickly to a prosperous future, but first we must pull back the curtain and view history as it is, not how the men behind the curtain box it and present it to you!

I think this film can help spark a movement… I would like to see a new political party spring up, one that understands history, how the current money system works, and how to implement a money system that will really work for a sustainable and prosperous future. I will help to lay the foundation for such a party and will do so by laying out in a series of chapters a new path forward. Not a fanciful yellow brick road and not a fractional debt based bubble highway either.

Please view the film and enter into a healthy discussion. Help me prove that the people’s heads are not filled with straw, that we have heart, and that with lion-like courage we can have the AUDACITY TO ACT and turn our discussion into reality.


CLICK HERE to buy the film – “The Secret of Oz.”


“IT’S NOT WHAT BACKS OUR MONEY, IT’S WHO CONTROLS ITS QUANTITY”

Morning Update/Market Thread 11/10

Good Morning,

Equity futures are down this morning following yesterday’s melt-up (now up after the open):



The Dollar is up slightly, bonds are up sharply, oil and gold are flat to a little bit down.

Yesterday was the best fit for the Bradley and phi mate turn dates, we got a new high in the DOW, will we get a turn this week to finally put a nail into the heart of the zombified wave B? The action over the past week or so sure looks like a parabolic liftoff into a blow-off top, we’ll see.

Of course there’s a divergence with the DOW making a new high while all the other indices did not. That is a sign of a lack of breadth. A healthy market moves up together, not just a few of the large cap stocks. Even if the other indices go on to new highs, the divergence in breadth remains, it is quite large and it is one of the indicators that a top is approaching.

Below is a 3 month daily chart of the SPX. You can see that yesterday’s rocket-shot took us into the neighborhood of the old highs, but right into that resistance area. It did manage to close over the 1,090 pivot, but just barely and may open below it this morning (didn't). If you note, that close did put it back inside the rising bearish wedge. It is common to overthrow those wedges in the final blow-off move, but it’s also possible to fall short of the top. Interestingly, I think, is that the top of the wedge is currently coincident with the 1,133 pivot point. There’s a pivot at 1,107 first, but that 1,133 number could be a destination.



The Redbook and Goldman ICSC are the only data released today, the bond market will be closed tomorrow, but the stock market will be open – sounds like a great chance for low volume “tinkering.” As flawed as those two releases are, I’ll talk about them because they’re the only game in town today… The ICSC showed a .1% decrease in sales week over week, but a larger yoy gain as last year’s number makes for a much easier comparison. The Redbook also increased its yoy gain. Neither of these indicators are reliable indicators of actual economic activity. It should be noted, however, that last year’s comparables are at a juncture where the comparisons will start to look favorable. That is also true in the Fed charts where yoy is presented. Any indicator at this point that is negative yoy is in pretty sad shape, that would be consumer credit.

Hey, the money is sloshing around and I see that just after the open stocks are climbing their (pretty damn steep) stairway to their eventual heaven…

Led Zeppelin - Stairway To Heaven:

Monday, November 9, 2009

Technical Update…

Quick update due to the decline in the dollar and new high made in the DOW Industrials…

I would first like to point out that the IMF, the world bankers, this weekend talked down the dollar while the G20, many of whom are the same central bankers, talked up the strong dollar policy. Meanwhile they reiterate their never ending stimulus ways. Is it any wonder that the dollar is sinking? To those who say that ½ or even 1% currency moves in a day are no big deal, I will simply remind them to look at the dollar action prior to the crash of 1987.

Can you imagine the government coming out and placing a 16% tax on everything you own and every dollar you hold, just for this year? Well, from the dollar’s most recent peak in March of this year, the dollar is down 16.4%, it is down more than 8% since the beginning of the year! Thus, if your dollar based assets and cash holdings exceed your stock market holdings by a great degree, as is true for the vast majority of Americans, then your real net worth is still going down. If you’re one who is gaining from this stock market melt-up, then you are a big time risk taker from my perspective, as the divergences in the market are huge and are growing larger. At some point, a declining dollar will hurt equities, do not be fooled by the soothsayers who chant that a falling dollar is “good for exports.”

We have an interesting situation between the Industrials and the Transports in that the Transports had made a new low, but the Industrials had not. Now the Industrials have made a new high, but the Transports have not. That’s a potential Dow Theory non-confirmation set up once again, something I will be watching.

Below is a 6 month daily chart of the DOW Industrials. The volume pattern is overall extremely bearish, in fact a historic bearish divergence. The latest downtrend was once again on higher volume, while the most recent uptrend is on lower volume – again, volume confirms price. Note the RSI… at each peak the RSI’s peak is lower than the previous. Now we are making another new high, yet the RSI is not nearly as high as the last peak or the last time that we were in this position, a large bearish divergence, the last time I saw one this large on the daily timeframe was at the ’07 top. The same RSI divergence is occurring on the weekly timeframe as well, the peak in RSI occurring the second week of September, nearly two months ago. Today’s daily bar closed above the upper Bollinger Band, and it did close above the bear market downtrend line the way that I have it drawn (there’s another one further out, drawn on the candle wicks, not the bodies). The Industrials did break that same line several times during the Great Depression, so I don’t think that’s too important technically and the larger indices have not:



Here, you can see that the Transports made a new low and have so far not made a new high. Divergences also abound here, as they do in all the indices. The Industrials are the only index to not break the rising wedge, but only with the logarithmic function turned off as is the case in the previous chart. Most of the other indices have reentered the wedge, the exceptions being the NDX and the RUT. I note that at the 2007 top, prices fell below that rising wedge, but then slid back along it to new highs in the DOW before rolling over. The fast stochastic is again overbought on all timeframes:



The NDX and the XLF both left sizable gaps below today’s candles. Those gaps will be filled sooner or later.

On the DOW Industrials, the new high eliminates the possibility that wave C down has begun in that index. Thus, Elliot Wave rules tell me that I was wrong to believe we had made wave 1 down and are now making wave 2 up, at least in the Industrials. That’s all I need to know to go back to sitting on my hands and waiting patiently. I guarantee you that I have more patience than Goldman has quant computers. No need for panic on the part of the bears, the fundamentals are well on your side as are the technicals. Now, many are going to decry the technicals as no longer working. To which I say again, patience. This reminds me of the signs of a bubble; the wise market observers trust the historical references and are gone. It is the new money that remains, and eventually they will all be caught at the exits at the same time. Patience, all the divergences WILL RESOLVE, the further out they are, the more likely the real correction will be swift and very painful.

Oh, and one more development is a sell signal on the weekly MACD indicators as pointed out by McHugh. The MADC rose into the same extreme overbought region as the 2007 top and has produced a sell signal despite a rising market, the same divergence produced then. Yeah, it’s a big bad scary market, if you’re in it. I still say that being in is nuts, let the criminals have their fun, history has a way of catching up to them, and averages are averages because as much time and deviation is spent below the line as is spent above… no one, not even the inventors of derivatives, can create valuations that go on forever, any more than someone has invented a machine with perpetual motion.

While the top may still not be in, if you are playing for the odds, you will remain calm and not jump to any undue emotional conclusions. Hey, if you need to, just take a drive out into the country to clear you thoughts…

Three Dog Night - Out in the Country:

The Still Report…

Still Reporting on the economy, it’s Bill Still of Money Masters fame and the producer of “The Secret of Oz.”

I just watched the Secret of Oz this weekend and can tell you that he is on the right path, it’s a terrific movie, one that ties together the history of money, our current problems, and solutions that would work. This clip touches on some points, but the movie does an even better job of explaining how our money can be non-debt based and at the same time still not produce inflation by creating self-correcting and other controls to manage the quantity of money.

Money production and control belongs in the hands of the people… it is us, the people of the nation who own that system, not a few private bankers. But Bill makes a great point in that there still needs to be private banks! That's why he points to models like that used by the Bank of North Dakota.

Morning Update/ Market Thread 11/9

Good Morning,

Equity futures are jumping this morning, below is a snapshot of DOW and S&P action over the weekend and overnight:



The dollar is down a huge amount, nearly a whole percent. That type of move is getting to the “unorganized” type of level. Caution though, as the bond market that was lower is now higher, signaling that not everyone and everything is heading in the same direction. Gold set another new high, touching 1,111, while oil is still in the $79 range.

Remember my article over the weekend where the IMF was talking down the dollar? Here’s a news flash, the IMF needs to be disbanded! If you are an official outside of the U.S., I would strongly encourage you to not even talk to one of these criminals, much less do business or certainly not take a loan from them. They are the world’s current mafia, their crimes are on a much higher level than anything ever seen in the history of man. They, their debt based money from nothing, and their manipulations need to be stopped.

Then the G20, a group entirely beholden to the same central bankers who run the IMF, come out with statements like this:
“Policy makers from the U.S., U.K., Japan and 17 nations said on Nov. 7 that it’s too early to withdraw spending intended to revive growth. European Central Bank President Jean-Claude Trichet said before the G-20 meeting that “excessive volatility” in currency markets is damaging and a strong dollar is important for global economic stability.

“Markets don’t need to be worried that these governments and central banks are suddenly going to take away all the stimulus measures,” Stuart Bennett, a senior currency strategist at Calyon in London, said in an interview on Bloomberg Television. “Risk appetite should remain supported into the end of the year.”

Makes me sick. Well, they will all go down together – the sooner the better. And there’s that “strong dollar” comment again while I literally watch the dollar sink into the abyss.

But guess what… today’s a phi mate turn date combined with a Bradley model turn. They are usually accurate to within a couple of days. There was no turn last week, and thus the odds are high for one this week, although there is very little economic data with which to produce large movements. Wednesday is Veterans Day (stock market open), and the only releases of note are International Trade, International Prices, and Consumer Sentiment all released on Friday.

The 1,070 level in the SPX is important to see if prices can remain over that range. 1,074 is the 61.8% retrace of what should have been the wave 1 decline. 1,090 is the next higher pivot, 1,107 follows that, 1,061 is the support pivot.

The DOW Industrials have now retraced more than 78.6% of their more shallow decline, but wave 2 being the “fool ya” wave can retrace up to 100%. If the DOW makes a new high, then it is likely that we are instead working on the final wave higher of wave B up.

Should be another interesting week, lip service, manipulations, bad data, and mass psychosis abound.

George Carlin Video: The Truth About Wall Street And Washington: