Saturday, December 12, 2009

Steve Keen with Max Keiser...

Please feel free to zoom this video ahead to the 12:40 point and begin watching Steve Keen from that point. He understands debt, money and banking. Listen closely to what he is saying about fractional reserves and how it just doesn’t and isn’t working as most people think. He is correct! To produce more and more money means more and more DEBT. This is one reason why I say that we have another bout of deflation coming UNLESS they get serious about printing money without debt behind it.

Note that Steve states that banks should have been nationalized, but otherwise does not present solutions as to how to get from our present state to an unsaturated debt state. Defaulting the debt away on all levels is the only way under the current system, and that is simply not being allowed. So, the alternative is to change the game. We are about to present answers…

Enjoy this video, Keen is always a pleasure to listen to because he understands the debt dynamics… Oh, and he even understands that debt affects the velocity of money! His thinking backs our position in finding the correct solutions..


“It’s not WHAT backs our Money, it’s WHO controls the QUANTITY!”
- Bill Still


What’s clear is that the QUANTITY of money is out of control. Since our money is backed by debt, debt is also out of control.

History shows that when this happens certain historical “events” tend to follow. We would like to avoid those events, this is our goal.

Some people believe that those events need to transpire before enough people will rise up to make the necessary changes. But we believe that YOU HAVE the POWER to make it happen NOW.

No, it won’t be easy. But like all things complex, it’s much easier if we break things down into their constituent parts and handle them one at a time. Take the cockpit of a large airliner for example – knobs, switches, and dials everywhere. This is very overwhelming for a novice to understand at first glance. But conquer each switch, each dial one at a time, and the next thing you know it no longer seems so overwhelming. The essence of Swam Politics is the same, SWARM to conquer ONE AT A TIME.

Take, for example, the pressure we placed on the Federal Department of Prisons regarding their intended illegal move of Martin Armstrong. This was a wrong that was so compelling that word quickly spread and literally thousands of people flooded the prison and judges’ phones, fax lines, and emails. We effectively shut them down to the point that they agreed not to move him and simply said, “Make it STOP!”

And at the same time this was going on, had banned Bill Still’s movie, The Secret of Oz. Again, thousands of people wrote in and let Amazon know, in no uncertain terms, that their actions were unacceptable and if they didn’t knock it off then a boycott of Amazon would follow. Again, under heavy pressure from YOU, they capitulated.

We didn’t just sign our names on a petition. We didn’t get down on our knees and beg our corporate sponsored politician to please help us out. No, we took the action directly to the source, and you may note that capitulation occurred rather quickly. To begin with, WHAT WE WERE ASKING FOR WAS JUST. We were on the right side of the argument and they knew it. They knew that if they resisted that it would only get worse and worse. In fact, sales of The Secret of Oz skyrocketed as a result of their impropriety.

Out of these successes was born the concept of “Swarm Politics.”

The two root problems at the heart of our financial crisis are: 1. Debt backs our money; and 2. Mammoth and overleveraged banks and their money are entangled with and control government, thus encouraging the quantity of money to get out of control. If we wish to affect change in this regard, we must acknowledge the realities of our political world. The wealthy large corporations in America today finance the multi-million dollar campaigns that are now necessary for politicians to run and to hold office on the national level. This is a large part of the entanglement mentioned above.

How leveraged and out of control are these behemoth banks? According to the latest OCC Report (Treasury’s Comptroller of the Currency), JPMorgan Chase holds $80 Trillion in derivatives all by themselves! This is an amount of notional value equal to 6.5 years of the entire gross national output of the United States, in just one bank! Their derivatives outweigh their own assets by 48 times! Goldman Sachs’ derivatives outweigh their assets by a startling 367 times! The top 5 banks control 90% of the TRACKED derivatives in the United States:

These derivatives are nothing less than ticking time bombs. There are very little real assets backing them. The banks have used them to pay themselves huge bonuses and to take your productive efforts in the form of present and future tax dollars. They also use the money THEY CREATED to control our government who is now complicit in sweeping bad assets under the rug at your and our country’s expense.

These behemoth banks control other corporations that have all become puppets of the New York money center banks. They use Republican/ Democrat labels to box in issues and to encapsulate the “solution” as either ‘this’ (liberal) or ‘that’ (conservative). Of course sometimes the real solution lies entirely outside of their box, much like the solutions we are proposing. TRUTH and JUSTICE simply don’t matter to corporations for they are NOT people – they are profit centers, not that there’s anything wrong with that! To be clear, we are not against corporations or business, we believe that capital needs to concentrate for a healthy economy, but these supposedly “too big to fail” companies have taken complete control. These non-human cash rich entities have garnered many times more influence in politics than do the humans who in a Republic are supposed to be running the show!

In this way, we have become servants to corporations and their big banking masters, instead of the original intent which is that corporations serve man so that exploration and ventures otherwise too large for an individuals can be financed and accomplished in a group effort.

Corporate interests are not dumb. They simply create or possess the money to buy BOTH SIDES of the issues, thus ensuring their voice is represented regardless of the outcome – Republican/ Democrat. They are profit driven and so they take advantage because people LET THEM! Now it’s time to restore balance.

Making headway against the current tide of money will be difficult inside of conventional channels. Thus the idea for a third party was born.

But let’s face facts. Third parties do not have a good track record against the corporate backed “mainstream” of our current two party system. Sure, they can bring attention to the issues, but actually affecting change is quite rare. And so, it’s time to try something different – to develop a strategy that stands a chance of success in the real world.

The idea here is to first present a plan that is both FAIR and JUST, one that restores balance and lays a solid long term foundation so that our nation, and even the world, can thrive and prosper. We do not claim to have all the answers and thus we are open to improving our ideas and will be seeking your input as this plan is presented. When people have transparency and can contribute, then they will be more likely to participate, open their minds, and can find a way to “buy in.”


The goal of Swarm Politics is to effect monetary and political reform. Frankly, we don’t care who or what party supports our concepts and ideas, the point is that they get implemented!

The strategy then is to garner support. Who is most likely to support our proposals? Those who see and understand the problems this country faces, along with those who are most in need of relief! Can you image being a state Governor who is facing billions in shortfalls with no solution in sight? There are many politicians on all levels who are floundering for real solutions.

Imagine, if you will, a year-long campaign moving from one state to the next, 50 states in one year, one per week. We start with the weakest states first, those hardest hit by the financial crisis. We locate and target all that state’s top politicians including their Federal level Congressional and Senate representatives. We approach one at a time and respectfully present the benefits of our ideas and ask for their support – in swarm fashion, of course. Should we receive their support, great! We would then take them into our fold and would guarantee them our support – the backing of all of YOU. Then we move onto the next, and so on.

However, should we not receive a politician’s support, then we SWARM them with thousands and thousands of people all writing, faxing, phoning, emailing, visiting, basically overwhelming their offices and staff in a campaign that will simply not let up until they support our worthy cause. Key people will stay on the “call list” longer. Should they fail to offer support, then the outcome for them is known – their job is at risk!

This populist movement – and be careful to draw the distinction – this is a “populist” movement, not a “progressive” movement - WILL support ANY candidate who in turn supports this plan – Democrat, Republican, or third party, doesn’t matter. If elections are soon approaching or are in progress, the FIRST to support our plan will receive our backing. If no candidate for an open office supports our plan, then we will run our own third party candidate for that position. They will have the instant advantage of a sizable contingent who supports this movement. The number of supporters will inevitably swell as people realize what this plan will mean for them, their family, and their country. If incumbent politicians wish to keep their job, they simply would be wise to support this initiative. Otherwise they will be looking for work elsewhere – it’s as simple as that.

Swarming is aggressive in nature, and it is out in the open. Those who support the plan before the swarm will be rewarded with support. Those who offer their support under the pressure of the swarm will be rewarded with support in return. Those who resist will hopefully be removed from office come election time. Once we find success in a few of the hard hit areas our tactics will become known. This will work to our advantage as everyone will see the SWARM coming. The smart ones will jump into the swarm and go along for the ride. In this way there is a progression… this strategy will get more effective as it grows. The hardest part will be getting the backing of the first few targets.

Of course there will be resistance, but what can they do? Our tactics, while aggressive, are not illegal, they are not violent, and they allow everyone to be active and involved if they simply contribute a few minutes of their time each week in support of the SWARM. They can even do so from the comfort of their own home. Yes, we would like to meet with politicians and have PEACEFUL events in each state, but the bulk of the swarm will be doing so electronically over public communication channels.

This is not simply putting your name on some petition… No, YOU WILL BE DEMANDING that every politician REPRESENT THE PEOPLE for who they truly work. In this way, we are not just limiting our contact to OUR OWN representative. We are all contacting everyone’s representatives, one at a time to DEMAND that they STAND UP and do what is right for this country and its PEOPLE.

We will organize in each state quickly and only temporarily, but we will return to a state if necessary. We will locate key politicians and will disseminate their PUBLIC contact information on the web via our network of bloggers and others who support this cause. At the end of each week, we roll over to the next state, not forgetting those left behind in the last state that refused. Those individuals will remain on the list and the list of contacts to SWARM will grow. As time and experience are gained, we will get better and more efficient with our swarm techniques.

Frankly, there is going to be every reason in the world for politicians to want to support this proposal, and there will be only one reason for them NOT to – the influence of big money, be it corporate, or the big banks behind them. We encourage politicians to look at the level playing field it will create and how our proposal benefits everyone – individuals, state and local governments, businesses, banks, the Federal Government, and even other countries around the world.

In summary, we will:

- Get our proposal out and then get organized.

- Start a one year long 50 state campaign.

- Target key politicians one state at a time.

- Start with the weakest states first, target all their top state politicians, including their Federal level Congressional and Senate representatives. Present them the plan and ask that they support it while showing how it would benefit them and their constituents.
Those who do not endorse it, we target them one at a time with a focused campaign in an attempt to garner their support. Should they not back Freedom's Vision, we let them know that we don’t care who supports it, Republican, Democrat, or third party. The candidate who first endorses this plan is the one that is going to get the People’s backing, and the rest are going to be looking elsewhere for employment! If we roll a few, then the snowball is started, especially if we convince a state Governor to support it.

Then it starts gaining steam and getting new supporters will become easier. They will know our tactics, but what can they do? Eventually politicians know they are next in line and simply join in.

We will focus on our targets one at a time, so as to literally overwhelm their office until they capitulate. If no candidate backs us, then we look to run a third person against them who our supporters can get behind. This is SWARM politics… this stands a good chance of affecting change in the real world, especially if events in the economy begin to heat up. Yes, this is a blatant frontal attack… either they join the side that’s JUST or they lose their job.

This tactic is being presented before the release of the main body of ideas so that we don’t have to release so much information at once. Again, one piece at a time… but when it comes to the body of the plan, all the parts work together, so they must come to you all as one. We will still work together to improve them later.

Remember, Americans have the AUDACITY TO TAKE ACTION, not the audacity to hope that someone else will.

Artwork by AZ Rainman

There’s Something Happening Here…

What it is ain’t exactly clear...

Does this chart with the precipitous fall and the rising wedge look familiar? This is a weekly chart of the DOW from 1929 and into 1930. Note the last positive weekly candle and that it finished at roughly a 53% retracement, just above the 50% mark.

Now take a look at this weekly chart of the DOW, look kind of similar? Yep, big fall, big bounce, rising wedge. Note the last weekly candle is a hammer and that it’s getting just above that 50% retrace mark:

So, while this bounce has been spectacular, it is most certainly NOT unprecedented. Now, there’s a chance that the similarities end right here and we go rocketing higher. Hey, history never duplicates but it does often rhyme. What’s the risk if it does rhyme? Oh, nothing much.

So, you have to ask yourself, are the underlying forces that produced that wave C different this time? Have we entered a new, more modern era where things like that just don’t happen because we are so much smarter? Remember what was being said about the internet in the year 1999 and what the experts said about the valuations in the market being the new norm? It’s just different this time, isn’t it?

I mean back then we were on a gold standard that held the quantity of money constant, RIGHT?

Hmmm… well, according to Wikipedia discussing the gold standard during the Depression, “Fearing imminent devaluation of the dollar, many foreign and domestic depositors withdrew their funds from U.S. banks in order to convert them into gold or other assets. Since the gold standard depressed demand for dollars, interest rates rose.”

Sound like anything familiar? Umm, let’s see, converting to gold and other assets, CHECK! Umm, Interest rates rose? Oh, oh…


Long Bond P&F target = 94:

So, back to the gold standard keeping the supply of money under control… let’s take a look at this chart of debt dating back to 1920… Yes, that is a parabolic rise in debt, and note the year the debt peaked – it wasn’t 1929, no, it peaked in the year 1932, the same year the stock market finally bottomed. Did gold really keep the supply of money under control?

And get a load of the direction of debt now! Will our current curve just continue straight up like that forever and ever? NO! It will begin to fall, THAT is when we will be on the road to recovery. But because of the government pumping trillions and trillions in new debt, that is not being allowed to happen – yet.

Now, let’s look at a seven month and a 3 year chart of the dollar. Here you see a descending wedge and a clear breakout higher. Note that stock prices have remained flat while this breakout has occurred. Look back at this chart at rising dollar times and look at the action in stocks, then do the same on the longer term dollar chart:

Since March, Oil has risen right alongside the market while the dollar fell. Now we have a clear breakdown in oil that coincides with the breakout in the dollar:

Next is a longer term chart showing the correlation between oil prices and stock prices. Not always perfect, but in general, falling oil has equaled falling stocks… will this time be different?

And finally, I was playing around with the charts over at the St. Louis Fed like I like to do and I came up with a chart that at first glance just looks like a bunch of squiggly lines, but I want you to look at this carefully. There is a thin horizontal line sitting at about 1 to 2%... that line is the population of the United States, growing steady.

Now, I took and drew the large line across the chart at ZERO. The other lines are PPI, CPI, and M2 money supply. In other words, money and prices. Now pull back from the chart and just look at the balance… money and prices predominate at a growth rate much greater than zero and MUCH greater than the growth in our population. There are only momentary corrections. This is the essence of the bad math! Over time these numbers compile upon themselves, eventually producing parabolas and collapses. Why do we do that to ourselves? It’s a function of the way we back our money with debt! That causes bankers and politicians to always produce more. This is NOT a natural state of being, it sets up a very unstable economy, one where the swings get larger and so do the inputs, as we’re experiencing now!

Is it just me, or is there something happening here?

Friday, December 11, 2009

Bill Black – On the Edge with Max Keiser…

Once again, Mr. Black is sharp as ever and simply tells it like it is…

Bill Black – Part I (5 minutes):

Bill Black – Part II (5 minutes):

Small Business Economic Trends…

Rarely do I get to see such an honest account of small business conditions. This report is startling, never in our life times have conditions been so hostile to small business.

I took the liberty of breaking a few of the charts out of this report for you. Let’s start with Sales, Expected versus Actual. Here you will find that expected sales jumped tremendously since the beginning of the year, almost like you would guess they are by listening to CNBS, but just look at how different reality turned out. Now look over at the left scale at that reality figure! That’s right, it says down almost 40%. My critique here is that we don’t get to see the raw data and so we don’t know what the baseline is. Still, there have obviously been many months in a row of decline without a like recovery:

Next is Small Business Earnings, again take a look at the percentage declines:

And this is the table form of presenting their earnings data, 2009 is at the bottom:

Note that Increased Costs is not as big a problem as it was two years ago, now Sales Volume is the problem, which reflects a debt saturated consumer who is 70% of the economy:

The next chart shows Credit Conditions via loan availability – DOWN:

All in all, a fairly bleak report. I would like to see them report some raw numbers, but otherwise it seems relatively honest and worth a good look-over (ht idoc)...

Morning Update/ Market Thread 12/11

Good Morning,

Equity futures were pushed higher last night, once again returning to near the top of its range where resistance is found. Below is the overnight action in the DOW and S&P futures:

The dollar wandered higher, then lower, and now higher again, back above the 76 level. This is a disconnect from equities as the last few times the dollar was at this level, stocks were lower. The long bond continued lower after clearly breaking down yesterday on the last and worst performing 30 year bond auction of 2009. This is a clear break, charts later. Oil is up slightly overnight, gold was up quite a bit but has returned closer to where it closed yesterday.

Retail sales for November came out higher than expected. These are month over month numbers and November’s increase was less than October’s yet Econoday calls it a spike at 1.3%. It did turn positive year over year and thus means that sales are not deteriorating below last year’s disasterous levels for now. Keep in mind that other indicators I follow, such as Tax receipts, have not risen, credit transactions are still falling in the background:
The consumer decided to come off the sidelines and jump back into the economy, boosting November retail sales-and beyond just autos and gasoline. Overall retail sales in November posted a 1.3 percent spike after a revised 1.4 percent gain in October. November's increase was well above the consensus estimate for a 0.9 percent increase. Excluding autos, sales gained 1.2 percent in the latest month after no change in October. The market consensus had expected a 0.5 percent gain in ex autos. Even excluding both autos and gasoline, November sales were up a healthy 0.6 percent, following a 0.1 percent uptick the month before.

The November increase in overall sales was led by a 6.0 percent jump in gasoline sales with notable strength also seen in electronics & appliance stores, up 2.8 percent, and in auto dealers, up 2.0 percent. Also rising were building materials & garden equipment, food & beverage stores, health & personal care, sporting goods & hobby stores, general merchandise, nonstore retailers, and food services & drinking places.

Declines were seen furniture & home furnishings, clothing & accessories, and miscellaneous store retailers.

Overall retail sales on a year-ago basis in November improved to up 1.9 percent, from down 2.0 percent in October. Excluding motor vehicles, the year-on-year rate increased to up 1.3 percent in November from down 2.8 percent the previous month.

Today's release indicates the consumer has more strength than previously believed. The remaining question is whether consumers can continue the pace through December. The strong November sales numbers will add to estimates for fourth quarter GDP growth.

Import and Export prices strengthened in November, mainly on the back of a falling dollar. As Econoday points out, the dollar has now turned up – so, it’s become perfectly obvious that the only way they can generate positive numbers is to destroy the currency, not what I’d call a picture of health, let’s see what happens when the dollar strengthens:
The dollar's steep drop in November drove prices for imported goods sharply higher. Import prices rose 1.7 percent vs. a steep 0.8 percent gain in October and a 1.5 percent gain back in August. It was back in July that the dollar began a steep descent, down 6 percent on the dollar index out to the end of November. Import inflation swept across November's non-finished goods: industrial supplies up 4.8 percent compared to October, fuels & lubricants up 7.3 percent, crude up 5.0 percent, foods & feeds up 0.5 percent. Excluding petroleum, prices rose 0.7 in November vs. a 0.6 percent rise in October. Excluding all fuels, and in this case a 30.0 percent spike in what are still depressed natural gas prices, import prices rose 0.4 percent to extend a building four-month trend of palpable increases.

What isn't increasing yet are prices for imported finished goods. Capital goods imports did rise 0.2 percent in the month, which is a comparatively strong rise for the category and double the 0.1 percent increase in October, but the gain is offset by a 0.1 percent decline in prices of imported consumer goods. Several months of price inflation for inputs have yet to appear in outputs.

Export prices also show significant pressure, up 0.8 percent in the month. The gain reflects month-to-month pressure across most input components with an outsized 0.3 percent rise for capital goods and a large 0.2 percent rise for consumer goods. Here the gains hint at pricing power for U.S. exporters who, because of the weak dollar, are perhaps raising their dollar prices a bit for their foreign customers.

But the scene is changing for December as the dollar has taken a turn higher, up 2 percent so far this month. The gain in the dollar will limit foreign demand for U.S. goods. Nevertheless, today's report points to trouble for Tuesday's producer price report for November.

Consumer sentiment comes out at 9:55 Eastern time.

Reader, Joe, posted some very telling revenue figures for the state of California yesterday:
Compared to this date in November 2008, revenues were down $2.33 billion (-7.4%). This was primarily driven by personal income taxes, which came in $2.63 billion below (-15.8%) last year’s figures, and corporate taxes, which were $293 million under (-11.8%) the same point in 2008.

The State started the fiscal year with an $11.9 billion cash deficit in the General Fund, which grew to $24.4 billion by November 30. Those deficits are being covered with a combination of $15.6 billion of internal borrowing from special funds and $8.8 billion in short-term revenue anticipation notes.

Total and complete disaster. Note the use of accounting gimmicks. This actually only works to worsen the situation for there will come a day very shortly where such gimmicks will no longer work.

The dollar, by the way, is spiking as I type... Watch out equities, this is very interesting as the long bond is still falling. This is not a good condition, to say the least. After yesterday’s bad 30 year auction, prices broke below key support. Below is a 9 month chart of USB, the 30 year bond fund. That large flag, now broken, has a downside target that is substantially lower, meaning substantially higher interest rates:

Here is the Point & Figure diagram, you can see that it has a target of 94, that’s a long way down:


To those who think higher rates in this condition are good, I have a news flash for you… it’s not good when your entire society is saturated with debt and your government and everyone else is borrowing short. If you look at the history of the Great Depression, there was the initial stock market collapse in 1929, there was a 50% retrace, and just about this time in the sequence of events the bond market began to collapse. No, it wasn’t an earth shattering collapse, most historians don’t even acknowledge it. But to their then society that was full of debt, it brought about harder times and thus was born their ‘C’ leg down, a drawn out grinding affair that bankrupted thousands of companies, millions of individuals. Guess what? Our inflation adjusted per capita debt is over TWICE what theirs was. It’s interesting to me that this break in bonds occurred exactly on our spiral Fibonacci date that emanated from this exact same era that I’m discussing. Pay attention here to the sequence of events that follow.

By the way, many “events” that receive a lot of attention in the media are simply SYMPTOMS of this debt problem. Take the “Dust Bowl” of the Great Depression era, for example. The drying up of credit preceded the drying up and availability of water and farmers were left helpless as they watched their fields literally blow away.

Below is the P&F chart for gold, new target is $1,010:

Below is the P&F for oil, target is $65:

This action looks very unstable again this morning, the dollar is headed straight up, currently at 76.43… Short term stochastics are overbought, this could get interesting.

Eagles – Take it To the Limits:

Thursday, December 10, 2009

FREEDOM’S VISION – Introduction…

The only thing to fear is that history repeats and tyranny follows a melt down... we are going to sow the seeds of truth. Once planted, the truth will be obvious and the seeds will grow. We are NOT powerless to affect REAL change. It's coming; this is an opportunity, not something to fear.

- Nathan A. Martin

“It’s not WHAT backs our Money, it’s WHO CONTROLS the QUANTITY!”

- Bill Still


America, along with most of the world, is standing on the precipice of monumental change. The EVENTS that accompany this change are about to cascade upon and around the globe.

These HISTORICAL alterations WILL OCCUR due to the mathematical limitations of our interest-bearing debt-backed money system. This window of change is both a CRISIS and an OPPORTUNITY. The PEOPLE of the world have a choice to make, and THEY MUST MAKE IT SOON!

Fortunately, the choice is an easy one to make. On one side are the dark and secretive self-serving forces of GREED and EVIL. And on the other side is the transparent and illuminating force of GOOD, it is a self-preserving force that is found within FREE people’s collective souls - the very same energy that propels Americans' strong spirit of exploration and advancement.

FREEDOM is a choice followed by a responsibility. It is both collective and individual in its nature. You can choose, for example, to assume debt and thus to sacrifice your personal freedom. Collectively we have the same choice. What is NOT tolerable is when the greed of a few forces debt upon the masses and thus robs them of their freedom! It is our collective responsibility to make the appropriate corrections.

Our VISION OF FREEDOM includes the task of untangling the web of DEBT and DERIVATIVES that saturate our lives.

- It will provide IMMEDIATE RELIEF to every U.S. Citizen by reducing their debt burden thereby freeing up incomes that will propel the economy forward.

- When people’s balance sheets are repaired, in turn it will provide great relief for businesses and for banks who will be cleansed and who WILL go on to survive and thrive.

- We can and will provide immediate debt relief and a sustainable path forward for each and every State in the Union.

- The Federal Government need not live under the mounting pressures of never ending DEBT.

YES, it is possible to do all these things, the RIGHT and JUST THINGS, and to do them WITHOUT creating severe inflation or deflation; without creating a supreme moral hazard; and without crashing the entire global system getting from here to there.

While this seems to be a tall order, it simply returns to us to the place we should have been all along. The moral hazards, the monetization, the DEBTS, and the derivatives that exist already are what are hard to believe. UNFATHOMABLE, in fact!

THIS IS A KEY CONCEPT: Deleveraging the paper economy gives the world an OPPORTUNITY to turn the deflationary forces of clearing out the leverage into a COUNTER FORCE AND DIRECTIONAL CHANGE. Our world is built on an unsustainable platform of debt and leverage. One way or another, this over-leveraged system is going to crash and be replaced by something else. Those who believe in the march of human freedom have a historic opportunity to guide human kind into a new money system that is sustainable because it is JUST.

Based upon a program that realistically controls the quantity of money, the needs of the world can be met monetarily, allowing PRICES to remain steady overall AND over time. REAL ECONOMIC GROWTH is thus accommodated but growth in prices is not. Shocks are absorbed, but then cleansed. In this way, a dynamically stable and enduring system is built.

Many of us tend to lament our economic state. We feel powerless against seemingly insurmountable odds and the twisted complexities of economics. Many will question our ability to implement change of this magnitude, just as people underestimated the ability of a ragtag bunch of American colonists to break free of the debt money system of the world’s preeminent military power of the eighteenth century – and yet they did. Collectively we do have the POWER to turn FEAR into a future of FREEDOM and PROSPERITY.

How do you turn FEAR into FREEDOM?
1. By acknowledging that which is real.

2. By discovering the true and common roots of the problems - the rest of the events are simply symptoms and will go away when the disease is cured.

3. By TAKING ACTION to fix the root problems.
The greatest power a nation has is its RULE OF LAW. Even the GOLDen RULE is not more powerful! If it were, then the nations of the world that produce the most gold would have the strongest economies, and yet that’s not what we find in the real world. In the real world, the nations that have the strongest rule of law are the ones that prosper! Let me ask, WHO is ultimately responsible for enforcing the rule of law? Is it not YOU? WHY, YES IT IS! YOU are the check and the balance. In fact, ONLY YOU ultimately have the POWER to turn fear into freedom by setting and upholding the rule of law. Not just any law, there are laws that are JUST and there are laws that are made on behalf of special interests. When the laws get so out of balance that they favor a narrow group of people over the many, then it is the obligation of the People to restore proper balance with regards to the law.

The People of the United States of America have been told to hang on tight and to HOPE for CHANGE – that solutions to their debt problems are coming. And what happened? The banks were flooded with cash, the central bankers continued to pay out Billions of YOUR dollars to themselves in bonuses and here we all sit, BURIED under a MOUNTAIN OF DEBT. Not to worry, you are told, more credit (DEBT) is on the way.

While people need to dream, to set and to have goals, the condition of hope is a condition of waiting for someone who believes they hold POWER OVER YOU to come and rescue you. That is simply NOT the way that AMERICANS ARE. We stand up to face our problems, we set goals to overcome our problems, and then we set about doing so. Americans have the AUDACITY TO TAKE ACTION, not the audacity to hope that someone else does.

There are currently two ROOT PROBLEMS that plague the United States:
1. Our current money system is comprised almost entirely of debt backed money. This system is only 38 years old and yet it has already reached the limits of mathematical growth. The economy, on every level, is saturated with debt. There is not enough income to mathematically EVER repay this debt, and thus CHANGE IS GOING TO HAPPEN, whether we like it or not, or whether we believe it or not. Any system that is designed in such a manner is mathematically destined to fail from conception.

2. We have lost sight of the purpose of CORPORATIONS. The concept of a corporation first came about when Europe was exploring the new world. This was a very expensive and risk filled proposition, wealthy individuals could lose everything by losing a ship at sea and subsequently having family members of the deceased sue them. Thus the necessary capital for exploration and advancement dried up. And out of that came the concept of limited liability. Thus the Corporation was born as a way to serve mankind so that exploration could continue.

Today, corporations seem to have risen to a special place, one that is higher than man. This is because capital has concentrated so greatly that corporations use their money to influence politicians and to write laws in their favor. Yes, this is an extension of the Golden Rule, whereby those with the gold make the rules. But it is now at such an extreme that politicians on the national stage cannot get elected without massive infusions of their money – and thus there is a circle that feeds into them and makes them even larger and more powerful.
These two root problems are now intertwined as some of the largest corporations in America are the ones who are producing and controlling the quantity of our money. They use their vast money to buy BOTH SIDES of political issues thus ensuring that their interests are represented. This super representation has got to stop as it affords a few individuals power and control over the majority who do not have the same access. This is NOT how our political system is supposed to work. This is why our solution addresses BOTH of these key issues – a sustainable future will not exist unless the balance of power is restored – that political and power balance will help to bring the quantity of money back under control as well.

Quite literally, the QUANTITY OF MONEY IS OUT OF CONTROL, especially when one considers the shadow banking world of derivatives. Just look at how quickly the math of debt went from millions to billions and now on to trillions. Did YOUR income advance by a like amount? No! And that is exactly why the inflationary math of debt backed money does not work.

To understand the history of how we got to where we are in this regard, we are suggesting that all Americans view Bill Still’s new movie, that is now no longer banned on Amazon, “The Secret of Oz”.

To understand the mathematics behind DEBT and how our money and debt system have grown out of control, we are suggesting that everyone Spend some Time with the Good Dr. Bartlett…

While the mechanics of how our money system works are complex, there are some basic properties our current version of the dollar has (we are on our 5th + version of the dollar now):
- First, let’s talk about FIAT. Fiat simply means “by decree,” usually by a King or by government. Thus ALL MONEY that is either supplied by the government, or that the government agrees may be used in conducting trade is “fiat.” Even money that is backed by a commodity is still allowed by governmental decree, and is therefore fiat money. The difference is that it is made from or is backed by a commodity.

- One feature of our current dollar is that it is FRACTIONAL in nature. For every dollar a bank holds, they can lend out more than just that dollar. This feature, known as fractional reserve banking, by itself, is not necessarily inflationary, IF the fractional ability is held constant. What has happened in our system is that derivatives and other means have allowed the EFFECTIVE RESERVE PORTION of the fraction to diminish to near zero resulting in banks that are now way overleveraged.

- Another feature of our dollar is that it is debt based. Every dollar in our system is borrowed into existence. When the government issues dollars, they borrow it from lenders first by selling bonds – all at interest. Most people do not realize this. They think the government merely prints the money and sends it out into the world. Interestingly, they think that to be the case, because that is, in fact, the only equitable way for a nation to create its national money supply.

- Those who benefit from the current system – mostly big banks – have done a splendid job of creating the illusion that the government does issue the money. That’s why they named the Federal Reserve System to sound like a government agency when the U.S. Supreme Court and other Federal Courts have ruled that it is no more federal than Federal Express.
So the truth is that all our money – with the exception of coin money – is borrowed into existence at interest! This interest mathematically erodes the value of money over time and is why the central banks always want more and more as they take and take. This one feature, more than any other, is what dooms our government and our lives to a cycle of debt and ever increasing PRICES, the root of inflation. This feature of our dollar simply does NOT have to exist and never did!

This brings us to Bill Still’s quote from The Secret of Oz, “It’s not WHAT backs our money, it’s WHO CONTROLS its QUANTITY!”

There are four key words in that sentence that are simple to understand:
WHAT – The problem is that our money is now backed by debt. In the past, our dollar has been backed simply by the rule of law, debt free – supported by the “good faith and credit of the United States.” Such was the case with Colonial Script or Lincoln’s Greenbacks. The dollar has also been backed by both gold and by silver. While those who support commodity backed money have the right idea in that they seek to control the quantity of money, this has proven to be much harder in practice than in reality and is why today no modern country uses commodities to back their money. Yes, it is possible to create the national money debt free AND to control the quantity of money. What most reasonable people can agree is that of all the things NOT to have behind our money, debt is it!

WHO – There are two choices here, the government who represents the collective People, or the bankers who represent themselves as individuals. Currently it is the BANKERS who issue and control the quantity of money, not the government as most are led to believe. By design, the system is backed by debt and PRIVATE central bankers collect interest payments on the debt backed money from YOU. In other words, big banks get to collect hundreds of billions of dollars annually just so we can have the “privilege” of trading for goods with their private debt-based money. We know this sounds harsh, but it is true! This system concentrates the money power into the hands of a few allowing them control over politics and works to MINIMIZE FREEDOM for the vast majority of Americans.

CONTROL – Here’s the simple truth – NO SYSTEM OF MONEY has ultimately withstood the test of time. WHY? Could it be that regardless of WHAT backs the money or WHO controls the quantity, any time that the quantity of money gets out of control CONFIDENCE will eventually be lost? Of course. But throughout history, some systems have fared better than others. Is it possible to have the advantages of flexibility and to still keep prices under control? We think so, and we’re going to spell out how.

QUANTITY – Too little quantity and the economy will suffer. Too much quantity and the economy will also suffer, just in a different way. Finding the right balance, then, is where a sustainable and productive system will be found.

The problem would be MUCH simpler if one were starting from scratch. But we live in a world that is extremely interconnected and one that is filled with debt and derivatives of all kinds. This complicates matters greatly. Even if one were to place the perfect money into circulation they would still have to deal with:

- A $12 Trillion national debt, growing exponentially and now headed for $14 Trillion by the end of 2010.

- Individuals who are saturated with debt while the value of their assets are falling, and dreams of retirement fade.

- States on the brink of bankruptcy when the law doesn’t even have provisions for that.

- Many municipalities on the brink of bankruptcy.

- A broken Social Security system with Trillions in unfunded liabilities.

- A broken Medicare system with many more Trillions in unfunded liabilities.

- Trillions in questionable loans that saturate Fannie Mae, Freddie Mac, and the FHA.

- Literally Hundreds of Trillions in derivatives, infesting every nook and cranny of the globe.

- A stock market that has turned into a casino where the market makers rig the game to take your money regardless of the outcome. These markets have forgotten their purpose.

- Crumbling infrastructure with expert’s estimates of needing a couple more Trillion in the next five years just to maintain what we have.

And the list goes on, and on, and on. Simply stated, there is NO POSSIBLE WAY, without major changes, that all that can ever be paid, especially when our money is backed by debt.

How do we get from THAT to a sustainable and productive system going forward? One thing’s for certain, it WON’T BE EASY. But, we believe that it IS DOABLE, and the sooner we start, the less pain we will all have to endure. And don’t be fooled by your own personal situation if you are personally getting by okay today – there is your children’s and grandchildren’s futures to consider, and there are many, many people who are in dire need of help NOW, not at some fantasy filled point in the future.

Look for more information coming soon, to include information on gold backed money and why it’s included it in our equation but we do not base everything upon it. In other words, please hold your gold backed money questions and comments for later, we will answer those. We will also be providing more on why these changes need to happen now and we will be laying out our strategy to get these ideas implemented with YOUR backing and support. We are going to be introducing a new and powerful strategy we call “Swarm Politics!” WE are all a part of this strategy, and we’ll explain exactly what this is in our next installment of Freedom’s Vision.

We do NOT have to sit back and just watch DEBT driven events unfold. When it comes to these issues, WE are not Republicans, WE are not Democrats, WE are AMERICANS - WE STAND STRONG AND WE STAND FREE!

Artwork by AZ Rainman

Debt Ceiling to be raised by $1.8 Trillion before year’s end?

In a move that would take the debt ceiling higher than previously envisioned, politicians hope to take the issue off the table for the next year or so. This large of a move would push the ceiling from $12.1 Trilllion to $13.9 Trillion, a staggering increase. My prediction is that will buy them only another year, as the exponential growth in the national debt numbers continue to go parabolic. This is a trend that is not mathematically sustainable. When this trend ends, and it will, you are going to see events that are eye opening, that’s a guarantee (ht Bubba).

Dems to lift debt ceiling by $1.8 trillion, fear 2010 backlash

In a bold but risky year-end strategy, Democrats are preparing to raise the federal debt ceiling by as much as $1.8 trillion before New Year’s rather than have to face the issue again prior to the 2010 elections.

“We’ve incurred this debt. We have to pay our bills,” House Majority Leader Steny Hoyer told POLITICO Wednesday. And the Maryland Democrat confirmed that the anticipated increase could be as high as $1.8 trillion — nearly twice what had been assumed in last spring’s budget resolution for the 2010 fiscal year.

The leadership is betting that it’s better for the party to take its lumps now rather than risk further votes over the coming year. But the enormity of the number could create its own dynamic, much as another debt ceiling fight in 1985 gave rise to the Gramm-Rudman deficit reduction act mandating across-the-board spending cuts nearly 25 years ago.

Already in the Senate, there is growing pressure in both parties for the creation of a novel bipartisan task force empowered to force expedited votes in the next Congress on deficit reduction steps now shunned by lawmakers.

As introduced Wednesday, the legislation sets no specific targets for deficit reduction, but its 18-member task force — 16 of whom would come from Congress — is promised immense leverage to force change if they can first come together behind a plan.

“This is a defining moment,” said Senate Budget Committee Chairman Kent Conrad (D-N.D.), one of the lead sponsors, and New Hampshire Sen. Judd Gregg, the panel’s ranking Republican, is already maneuvering to try to add the legislation as an amendment to any bill tapped to carry the debt increase.

As explained by Hoyer and other Democrats, that will almost certainly be a pending $636.4 billion Pentagon appropriations bill that includes $128.3 in contingency funds for military operations in Iraq and Afghanistan.

The House leadership has held back the bill for weeks, saving it for this moment, but now appropriations clerks have been instructed to have a final package ready to go by Monday.

Leadership staff stressed that nothing was yet final in what has become a year-end negotiation between top Democrats in the House and Senate. But the Senate appears to have been the first to put the $1.8 trillion number on the table. And Hoyer’s comments are the clearest yet on the scale of the increase and the expectation that it will be part of a larger year-end legislative train pulled along by the must-pass military bill.

House Appropriations Committee Chairman Dave Obey, who is pursuing job-related measures he would also like to add, insisted that the debt issue is a “leadership call” alone. But the Wisconsin Democrat showed no sign of opposition to the strategy outlined by Hoyer.

“It is December. We don’t really have a choice,” Obey told POLITICO. “The bill’s already been run up; the credit card has already been used. When you get the bill in the mail you need to pay it.”

Though Treasury can buy itself time by moving assets around, it is already coming close to the current debt ceiling of $12.1 trillion. Last spring, the Democratic-backed budget proposed to raise this to about $13 trillion, but given the current pace of borrowing, no one now expects that will be sufficient to get through 2010.

In fact, fiscal year 2009 ended Sept. 30 with a $1.4 trillion deficit, which demanded higher-than-expected Treasury borrowing. Most of that was due to the downturn in the economy and spending commitments in place before Barack Obama took office. And as much as Republicans point to the president’s economic recovery bill last February as the culprit, only a small share of that $787 billion package was spent by Sept. 30.

The picture in 2010 is different. The administration is predicting the stimulus will hit its stride with much more spending. And there will be a steady escalation of outlays driven by back-to-back increases in 2009 and 2010 appropriations for domestic agencies.

The White House has vowed to be more deficit conscious in its forthcoming 2011 budget due out in February. But the House could vote as early as Thursday on a $446.8 billion year-end package covering more than a dozen Cabinet departments and agencies and representing a healthy 9 percent to 10 percent increase over current spending for the same accounts.

Morning Update/ Market Thread 12/10

Good Morning,

Equity futures are up a little this morning after being down sharply overnight. Below is the overnight action in the DOW and S&P:

The Dollar is almost flat, right at the 76 area, while bonds are down a little. Oil and gold are close to even following very large down moves yesterday. Oil is now down 13.4% from its recent $82 peak, while gold is off about $100 an ounce from its peak, about a 9% fall in just the past 5 days.

I turned on my computer this morning and found that I was viewing some sort of totally bizzaro sick and twisted zombie flick! There stands President Obama accepting the Nobel Peace Prize stating that “peace requires sacrifice” while having just ordered 30,000 more troops to go fight in a very pointless war, one in which any sane person has to ask, “What does victory look like?” Sick and demented is all I can really say. Wait, no, actually I can also add that this twisted rational for “security” is accelerating the process of bankrupting our nation and will ultimately make us far less secure.

Speaking of bankrupt, yesterday, New York Governor Patterson got up and said that he’ll probably be sued for saying that “New York has run out of cash,” and for making the following statement, "You can't spend money that you don't have."

BLASPHEMY! What do you mean you can’t spend money you don’t have? That is the great new American tradition, I think I’ll sue!

But here’s the reality… one state after the other is going bankrupt. This is a tremendous problem that is going to become more fully evident as time passes. According to the Census Bureau, state revenue fell by a whopping 16% last year while at the same time their expenses skyrocketed. Their fastest growing expense? Welfare. Eleven states spent MORE THAN 25% OF ALL THEIR MONEY ON WELFARE.

And I hope that everyone is paying attention to what is going on at Citi Bank. They took your money and lent $8 Billion of it to Dubai. Strange, but the U.A.E. was one of the largest investors in Citi and bought a large stake in Citi which they are now selling. Two entities that need the cash, both want it. And at the same time Citi is being pressured to pay back the TARP. Could there be more to these events? How about the fact that the speculation is all of a sudden is coming out of oil. Are messages being sent? I don’t know the game, but I am paying attention.

The media is touting that foreclosures are slowing because there was an 8% month over month decline in foreclosure filings, the 4th monthly drop in a row. Ahhh, hello, McFly? Foreclosures are UP 20% over this time last year, and we are dead in the middle of the trough with massive Option-Arm resets coming up.

The monthly report on International Trade came out this morning, showing a narrowing of the trade deficit and improvements in the amount of both imports and exports that is causing the year over year decreases to narrow from the prior 30% drop to a little less than 20% year over year for imports, and from the prior nearly 20% yoy drop in exports to “only” an 8.6% yoy drop. Remember that these figures are now compared to a time a year ago when these figures were in free fall.
The latest international trade report shows exports continuing an uptrend, boosting U.S. manufacturing. Imports also rose, likely reflecting inventory rebuilding for autos and cautious hope about the consumer and business investment. The overall U.S. trade deficit narrowed to $32.9 billion from a revised $35.7 billion gap in September. The deficit was smaller than the market forecast for a $36.4 billion differential. Exports advanced 2.6 percent while imports gained 0.4 percent. The improvement in the trade deficit was primarily due to a narrowing in the petroleum deficit, which came in at $17.8 billion compared to a gap of $20.5 billion the previous month. The nonpetroleum gap shrank to $25.2 billion from $25.7 billion in September.

The really good news in today's report is that exports are benefitting from a lower dollar and reasonably healthy demand abroad. Exports were led by a $1.2 billion jump in capital goods ex autos in October, followed by gains in consumer goods and autos.

But apparently, U.S. businesses are a little optimistic about domestic demand for both capital equipment and consumer goods. Import gains were led by a $1.1 billion boost in capital goods ex autos, followed by a $1.0 billion rise in consumer goods imports and $0.4 billion for autos. Industrial supplies imported fell $1.8 billion, with the crude oil component falling even more-by $2.4 billion. However, some of the auto imports may be lagged effects from the surge in auto sales under the cash-for clunkers program as import auto dealers restocked.

The narrowing in the petroleum deficit was due to both fewer barrels imported and slightly lower prices. Physical barrels imported decreased 9.6 percent in October after rising 6.6 percent the month before. The price of imported oil slipped to $67.39 per barrel from $68.17 in September.

Year-on-year, overall exports in October improved to minus 8.6 percent from minus 12.2 percent the month before while imports increased to down 18.8 percent from minus 20.3 percent in September.

Overall, today's international trade report is good news for fourth quarter estimates for economic growth. The lower trade deficit adds to GDP growth. Equities should like today's report but initial claims rose instead of declining as expected and it is uncertain which report will get the most attention by traders. At time of release, markets were little changed, indicating that the two reports initially were a wash.

Weekly jobless claims rose by 17,000 over last week. In the background sits a record number of unemployed, nearly 16 million in all. And also keep in mind that with huge numbers falling off the roles, any increase here means that the situation is very poor:
Initial jobless claims ended five weeks of improvement, rising 17,000 in the Dec. 5 week to 474,000 for the highest level since mid-November. But the four-week average continues to improve and is right at the current level, down 7,750 to 473,750. Market News International also notes that seasonal contraction in construction, tied to heavy weather, is another offsetting factor in the latest week's rise. Continuing claims in data for the Nov. 28 week fell very sharply, down 303,000 to 5.157 million. The drop in continuing claims reflects an uncertain mix of new hirings and the expiration of benefits. The unemployment rate for insured workers continues to come down, 2 tenths lower to 3.9 percent. This rate peaked in July at 5.2 percent in a major contrast with the overall unemployment rate which, at 10.0 percent in November, hit a 10.2 percent peak in October. Today's report is a bit of a disappointment and will lend modest support to those who question whether the November jobs report, with its big improvement, will prove to be a fluke.

So, here we sit on the 10th of December, the last spiral Fibonacci date of the year that emanates from the top and bottom of the market in 1929 and 1932 respectively. Remember to give these dates a couple of days to see what happens, and certainly don’t bet the farm on something that has only proven to be interesting, nothing more as of yet.

Yesterday’s action actually produced another small movement on the McClelland Oscillator, thus you should expect a rather large movement today or tomorrow. Back to the top of the range? Yes, I’m as tired of this range as anyone, it is definitely testing everyone’s patience. Yet, I know that gravity cannot be ignored forever and I remain clearly focused with my eye on the ball – the ball in this situation is DEBT. Until the financial system and the burden of debt is lifted, real progress will be impossible. Obviously that doesn’t mean that the hot money won’t head into equities pushing them to formerly unheard of valuations. For me, I view that game as extremely risk filled and it’s not the place I will place my personal money. Thus I sit patiently watching until we see a break of the range and we see a clear E.W. count that eliminates possibilities and provides some clear direction.

It’s interesting to watch the Utilities here as they went onto a new high yesterday and again are doing so today. Meanwhile the XLF still languishes and looks plain old sick.

1,090 is still support, 1,100 is overhead followed by the 1,107 pivot...

I am coming out with what I hope is a motivational outline of our proposal today. I won’t be releasing details of the plan until next week, but I want to start laying a foundation of understanding now. I have developed what I think is a workable plan that includes incentives for individuals, states, businesses, and even banks to get behind it. Additionally I am working on some innovative ways to get this in motion, the last thing we want is to just jawbone a bunch of ideas to death! We want action and I am working towards that and will be discussing that, too, in the next day or two.

Hey, eventually the market will surrender to the forces of gravity, and it’s going to be our job to get the politicians to surrender to a wise and stable system of money moving forward!

Cheap Trick – Surrender:

Wednesday, December 9, 2009

Martin Armstrong – The DOW and the Future, Theory & Myth…

First of all, it is my understanding that the Prison does not want Martin writing a public statement about what happened! Gee, I wonder why? At any rate, we have all gotten a verbal thank-you and we’ll just have to be satisfied for now knowing that he is extremely grateful for all your help in keeping him safe! It is my understanding that we have been successful in preventing any type of retribution and he is back to writing as you will see.

When it comes to Theory & Myth, Martin claims that we are “clinging to old ideas.” I wholeheartedly agree with him on that and point to the lack of understanding of what happens when society becomes saturated with debt. For example, economist’s formulas to calculate the velocity of money do not account for debt despite it being intuitive that if one is debt saturated that when they get their hands on new money, that money must be used to service those prior obligations. Thus, the money does not circulate through the economy as it would without debt saturation. This is a most basic concept, but one that eludes our current crop of bankers, economists, and politicians who continue to ram debt down our collective throats, much as they have done for the past twenty years in Japan.

Martin spends most of this paper discussing international flows and updating his take on our major indices as well as the rest of the world’s. He sees NEW HIGHS in the stock market, despite a continued weak economy. I have to tell you that I have great difficulty seeing that in the short term, perhaps in the longer term, but not short. While I enjoy reading his work and I post it here, I don’t have to agree with ALL his thinking. I do agree with a lot, but I feel that in this case he is overlooking a key ingredient… in fact we ARE facing a bubble top. It may not appear at first glance to be a market bubble top, but what it was is a debt bubble top. The United States ALONG WITH most of the rest of the globe have money systems that are backed by debt. This causes a mathematical dilemma. The more money that comes into the system, the more debt there is. Eventually the weight of the debt PROHIBITS further expansion – this debt saturation is what happened in Japan, and it’s exactly what’s happening to us now. Now, that said, should the world decide to print and print without the backing of debt, then the conditions described by Armstrong will occur – a fate that will eventually KILL the confidence in the currency itself. Yes, Zimbabwe had a roaring stock market for a while under those conditions, but not any more. Despite the twisted logic of many, the United States does NOT operate under a different set of money rules and should we make the decision to print to that degree will suffer as our money shoots overseas and inflates away our ability to afford an resemblance of our current lifestyle. The status of "reserve currency" is a privaledge, one that if abused will be lost.

So, I am not so sanguine about new highs in the market. Should they occur under these conditions the end result will be far worse than a depression. I believe that the dollar carry trade that Martin refers to is changing as we speak. The dollar has broken a descending wedge upwards – we will just have to see how long this new upwards trend lasts. The flows around the world are very dynamic. As countries make decisions, their actions rapidly change the dynamics. The OVERARCHING dynamic, however, is one of debt backed currencies, further spending causes rising levels of debt, while incomes on all levels cannot support those levels of debt. Regardless of how the future unfolds, it’s going to be interesting for sure, and I appreciate the fact that we have Martin’s take and that he is still able to share his thoughts with us:

Below is a request for Bail from Martin Armstrong. There are people working on strategies to help him most effectively move forward – as is strategically necessary and we are able, we will step in if needed.

Yves Lamoureux -The carry trade is now in trouble…

Yves is calling it - the carry trade is officially in trouble. Of course my readers know that I have seen and reported the same with the dollar breaking up and out of its descending wedge formation:

This move up in the dollar was first precipitated by action versus the Yen as Yves points out, but is now being fed also by action in the Euro. This is an important point as it is more than one region that is contributing. The following chart is quite telling, it shows the EUR/USD cross that has clearly broken its uptrend with an ascending wedge formation. That type of formation when it breaks generally targets the base, or the beginning point of the formation. This is the same formation that exists and has also already broken in our stock indices:

The carry trade is now in trouble…

I don’t share the recent stock optimism as the tail is wagging the dog. The higher the stock index goes the greater the number of bulls and the greater the amount of decimated bears. Those burned bears will not be adding to the buy side at lower prices to cover shorts. See chart courtesy Market Harmonics). Good news about this will also turn out to be bad when the party is up.

The party by the way is almost up. The not-so-smart money of 2008 might be getting its mojo back. If the commercials are getting it right in the futures market then they might as well be calling the top of many markets.

One huge problem is that the bulk of the long side is now carried by speculators with cheap money. A simple rule of Wall Street where bulls die from their own weight may apply right here. Its all about mechanics rather than economics and becomes self-reinforcing. That’s been my point throughout 2007. Perhaps an early call but the right one nevertheless. We have come full circle once again. Leverage has been put back on as if nothing ever happened. I have underestimated the great desire of participants for suicidal tendencies. The cracks start to appear in select markets first. We have observed a number of those already. We did fire our first gold warning recently even though we have been long term bulls.

The second warning concerns the Japanese currency. I show a timing model based on expansion/contraction of the Japanese monetary aggregates. The recent stimulus from Tokyo is too small to make a large contribution to things. However it is relevant to us because money is already expanding and just might act to depreciate the yen at a faster rate.

You can see here another version of the same timing model showing the recent bump up in monetary aggregates. I have been a very long-term bull on the yen. If relative money expands in Japan while American money contracts then you have us bullish on the USD to come.

I have studied the behavior of commercials in the futures market for a long time. They usually have a success rate of over 8/10. The year of 2008 was not so gracious to the not looking so smart anymore crowd. The commercials would appear to have gotten their mojo back. They are relatively short in big ways in too many markets. For that reason alone it bears watching as this is a significant development.

The carry trade as a barometer of things to come will show the unwind at the early stage. From my perspective it is here & now that the carry trade ends.

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. or Yelnick. 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.

Morning Update/ Market Thread 12/9

Good Morning,

Equity futures are flat overnight with prices on the /ES so far supported by the 1,090 level but held so far below 1,096. In the chart below, DOW futures are on the left, S&P on the right:

The dollar slipped back down to just below 76 in what could be a kiss back of support. There is pretty heavy resistance at the 76.33 area, it will need to break over that if it’s going to head higher. Bonds are down a little, but have come back closer to level this morning. Both oil and gold are up slightly.

Yesterday, President Obama, was giving away more billions that he simply does not possess. Call this program “Cash for Caulkers.” I’d laugh if it weren’t so pathetic. The man and his central banker team simply will do anything but the right thing, this time Americans will simply go deeper into debt while buying appliances made in Korea, Japan, and China – up to $12,000 per home.

And here in the land of deception, the lone “economic report” this morning is the equally pathetic MBA Purchase Applications which supposedly rose 4.0% following last week’s 4.2% rise. Again, this report is beyond meaningless, in fact the meaning to me is just how far people will go to hide what’s really happening. A classic example of why the raw data should ALWAYS be provided with every economic release. We are not playing “hide and seek” here, we are playing with the real economy that affects real people’s lives. The folks at MBA should simply be ashamed for ruining this report.

But who can we trust? Yesterday Japan reported that their previously reported 3rd quarter GDP was not really the 4.8% they initially reported, no, it was only 1.3%! This is a miss of 3.5%!! Can we have any faith in their reports with revisions this large? I don’t. I don’t believe the U.S.’s numbers, I don’t believe China’s numbers, and now I don’t believe Japan’s numbers. I’ll stick to believing tax receipts – Ooops, down again - and shipping numbers.

Wholesale trade numbers are released today at 10 Eastern, the Petroleum report at 10:30.

The overnight pattern in the indices produced a classic ‘w’ pattern. This pattern can break in either direction, the tell for me is what happens immediately following the end of the w… normally there will be a pullback right off the end. My rule is that if the pullback retraces less than 50% of the w, then it’s a bullish pattern and prices are about to go higher, but if it retraces more than 50%, then generally prices are about to go lower. Just before the open, they retraced 100%, so my guess is that 1,090 may not hold, but it is heavy volume support. If it doesn’t, the next level of support is 1,080, the bottom of the flag or range that we’ve been in.

The dollar also just rose back above 76 and is running at overhead resistance. That will be the key for today. Also, the XLF is just looking very weak still, closing yesterday right on the lower Bollinger band. Failing to hold this level will be quite bearish.

The short term stochastics are mostly oversold, but there is plenty of room for more decent on the Daily charts. There’s not really a lot else to say until this range breaks. It’ll get exciting when it does.

You may have noticed less posts from me the past couple of days. I’m hard at work on my proposal and am intentionally trying to focus on that – it doesn’t come out as quickly because there’s a lot to consider and get right before release. I’m close enough now, however, that I’m going to kick it off by releasing my initial introduction either today or tomorrow. It won’t have the guts of the program in it because I’ve decided that those ideas need to come out all at once so that people can view all the parts and how they work together.

Hang in there, I know that being in this trading range tests the limits of people’s patience. That’s a part of the market psychology. Don’t blink, though, because we could be out of the range in as little as 60 seconds from here!


Shawn Beamer | MySpace Video