Saturday, January 9, 2010

Bill Gross Talking Political Reform…

Bill Gross, Managing Director of one of the world’s largest bond management companies, Pimco, spoke out about the need for political reform in his latest Investment Outlook for 2010. I view this as quite ironic as Gross and Pimco are themselves huge special interests that have advocated taking tax payer money and using it to back some of the very instruments he holds and he sells. Keep in mind that “The Bond King” buys and sells DEBT. That what bonds are.

Now, however, he is stepping out on a limb in favor of some of the very proposals in Freedom’s Vision. Has he finally seen the light? Regardless of his motivations, his thinking is spot on in his latest article and I will gladly use his words to back my own Quixote push for reform. What follows are excerpts from his work, please follow the link to read all his comments including charts:
Bill Gross Investment Outlook 2010

"Question: What has become of the American nation? Conceived with the vision of liberty and justice for all, we have descended in the clutches of corporate and other special interests to a second world state defined by K Street instead of Independence Square. Our government doesn’t work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people. Washington consistently stoops to legislate 10,000-page perversions of healthcare, regulatory reform, defense, and budgetary mandates overflowing with earmarks that serve a monied minority as opposed to an all-too-silent majority. You don’t have to be Don Quixote to believe that legislators – and Presidents – often do not work for the benefit of their constituents: A recent NBC News/Wall Street Journal poll reported that over 65% of Americans trust their government to do the right thing “only some of the time” and a stunning 19% said “never.” What most politicians apparently are working for is to perpetuate their power – first via district gerrymandering, and then second by around-the-clock campaigning financed by special interest groups. If, by chance, they’re ever voted out of office, they have a home just down the street – at K Street – with six-figure incomes as a starting wage.

"What amazes me most of all is that politicians can be bought so cheaply. Public records show that combined labor, insurance, big pharma and related corporate interests spent just under $500 million last year on healthcare lobbying (not much of which went to politicians) for what is likely to be a $50-100 billion annual return. The fact is that American citizens have never been as divorced from their representatives – and if that description fits the Democratic Congress now in control – then it applies to Republicans as well – past and present. So you watch Fox, or is it MSNBC? O’Reilly or Olbermann? It doesn’t matter. You’re just being conned into rooting for a team that basically runs the same plays called by look-alike coaches on different sidelines. A “ballot box” pox on all their houses – Senators, Representatives and Presidents alike. There has been no change, there will be no change, until we the American people decide to publicly finance all national and local elections and ban the writing of even a $1 check for our favorite candidates.

"If 2008 was the year of financial crisis and 2009 the year of healing via monetary and fiscal stimulus packages, then 2010 appears likely to be the year of “exit strategies,” during which investors should consider economic fundamentals and asset markets that will soon be priced in a world less dominated by the government sector. If, in 2009, PIMCO recommended shaking hands with the government, we now ponder “which” government, and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries."

…Germany, in fact, has just passed a constitutional amendment mandating budget balance by 2016. If these trends persist, the simple conclusion is that interest rates will rise on a relative basis in the U.S., U.K., and Japan compared to Germany over the next several years and that the increase could approximate 100 basis points or more. Some of those increases may already have started to show up – the last few months alone have witnessed 50 basis points of differential between German Bunds and U.S. Treasuries/U.K. Gilts, but there is likely more to come.

The fact is that investors, much like national citizens, need to be vigilant and there has been a decided lack of vigilance in recent years from both camps in the U.S. While we may not have much of a vote between political parties, in the investment world we do have a choice of airlines and some of those national planes may have elevated their bond and other asset markets on the wings of central bank check writing over the past 12 months. Downdrafts and discipline lie ahead for governments and investor portfolios alike. While my own Pollyannish advocacy of “check-free” elections may be quixotic, the shifting of private investment dollars to more fiscally responsible government bond markets may make for a very real outcome in 2010 and beyond. Additionally, if exit strategies proceed as planned, all U.S. and U.K. asset markets may suffer from the absence of the near $2 trillion of government checks written in 2009. It seems no coincidence that stocks, high yield bonds, and other risk assets have thrived since early March, just as this “juice” was being squeezed into financial markets. If so, then most “carry” trades in credit, duration, and currency space may be at risk in the first half of 2010 as the markets readjust to the absence of their “sugar daddy.” There’s no tellin’ where the money went? Not exactly, but it’s left a suspicious trail. Market returns may not be “so fine” in 2010.

William Gross
Managing Director

I have never agreed more with Mr. Gross than in this article and will be discussing it more in my next Freedom’s Vision piece on Political reform. Hey, good song choice, Bill, you are exactly right – “There’s no tellin’ where the money went!”

Robert Palmer – Simply Irresistible:

Friday, January 8, 2010

Employment Situation in Charts – A Walk Back in Time…

“Subprime is Fully Contained…”

Remember all these brilliant forecasts and observations from Time’s Man of the Year?

At 1:17, “I don’t think it’s going to drive the economy too far from its full employment path, though.”

And we have experts who say time and again, “Don’t fight the Fed?” Give me a break. I will take the other side of the Fed any day. To say that they don’t know what they are talking about or doing is the understatement of the century.

Debt saturation is the point where attempting to put more debt into the system results only in future defaults. Once it is reached, it also results in higher unemployment. In other words, debt or leverage helps to grow employment up until the point that saturation is reached, and then it begins to work in the opposite direction because debt service prohibits real growth. Each new up cycle produces more debt, recession follows, clears out the debt and allows growth to resume. But when you interrupt the debt clearing process, real growth cannot resume as incomes cannot support more debt and therefore cannot support more employment.

Here’s what your government is doing in terms of debt. They do not understand the connection between this chart and the unemployment charts:

The following chart from Calculated Risk shows the current employment recession in comparison to all the others since the Great Depression. Did Bernanke see this coming?

Bernanke’s own Fed produces the following charts. I’m assuming he has access, what do you think?

Here is the population of the U.S., it is growing at about 1% per year, a pretty straight line. But note that even that very small growth rate over time led to a doubling of the population since only 1950:

Despite the increase in population, the civilian labor force is falling sharply as this chart shows that the change from one year ago is a fall of nearly 1.5 million people:

The Civilian Participation rate, in total numbers despite the growth in population, is falling sharply and is now back to where we were in 1984. The rise in this chart from the mid-sixties to peak was largely due to women entering the workplace. Considering the rise in the population, this is quite an unwind:

The following chart shows the change in Civilian Employment from one year ago. Still nearly 6 million have lost their jobs in the past year. What is that claim about making jobs from Obama and his administration? Are they being truthful?

The total number of counted unemployed has risen to over 15 million:

Those unemployed 27 weeks or longer continues its meteoric rise:

The Median Duration of Unemployment gave the greenshoots crowd a headfake and is now rocketing higher. At no time in modern recorded history have these figures been higher:

Amazingly, All Employees of Goods Producing Industries, this is all goods producing industries, now employ the same number of people as we did in the year 1943. This is the actual number of people who make everything in the U.S.! This number is despite the fact that the population has more than doubled since that time! Yes, we are more productive, but we are importing way more than we export. Our economy is completely out of balance and that’s because our economy is based on the printing of financial engineered products, not on real products. Can these trends continue? Can we be a nation that produces nothing but paper while we all consume real things made in other parts of the world?

Total employees in all Manufacturing is now back to the same number as in 1941:

All Employees producing Non Durable Goods has not been lower since this chart began in 1938 near the height of the Great Depression. That’s right, our population has more than doubled and we employ fewer people making durable goods now than then. Do you feel like you’re living in a truly prosperous country knowing that? Think we will retain our wealth on that path? Did you know that Boeing, one of the largest manufacturers and exporters in America took in only 1 order in 2009 for every 10 they had in 2008? That’s a 90% loss in aircraft orders in just one year. That’s all history, though, right? We’re looking ahead to the future and it’s all good, buy stocks!

The number of employees now working in Construction jobs is back to the mid-nineties. Not so bad right? Well, when presented in the amount of year over year change, Employees in Construction recently set a new record low comparable to the losses experienced in the early 1940s:

So, in what area are we proficient at creating jobs? Oh yeah, I remember now… Comrade.

Do we dare look at all the money sloshing around? Because, you know, hyperinflation is imminent and all…

Remember debt saturation? My common sense says, and I challenge anyone to dispute this, that when an entity is saturated with debt and they get their hands on new money, they MUST use that money to service their prior debts! This is what brings the Velocity of money to a stand still, yet debt is not even a function in the economist’s formula for velocity. Related is the money multiplier which is an indication of the leverage the banks are able to create. Not much:

Now, remember that all money, except coins, are brought into this system as someone else’s debt obligation. When you reach saturation and incomes can no longer support more debt, then pushing newly created money/debt into the system accomplishes NOTHING. It simply makes a round trip into a debtors hands and circles right back to the bank to pay off a prior debt. No velocity, no motion in the money, no motion in the real economy.

In fact, we are so saturated with debt that pushing new debt into the system actually is negative to GDP growth! Each dollar of new debt SUBTACTS 15 cents from GDP!

The U.S. Treasury needs to roll $2+ Trillion this year! Think about that.

And now we know that Bernanke is talking about ending support programs. Everyone knows that should he pull the support that the markets will not stay up on their own. Many experts doubt he really means it and that he’ll find a way to force more debt into the system. That will not be a good thing, for sure! If he tries, he will simply push to the point that he finds the limits of government debt and he will irreparably damage the United States, as he already has. We have entrusted our nation to a group of fools who don’t even realize, I think, that they are beholden to thieves. They are so beholden that they lie, and manipulate to keep the money flowing for their master oligarchs.

What are Institutional Money funds doing? Running for the exits:

Sure, government debt is growing gangbusters. Take a look at what’s happening with Commercial and Industrial Loans on a year over year change basis expressed in billions of dollars:

And here’s the Total Loans and Leases at all Commercial Banks:

Real Estate loan creation negative for the first time since the Great Depression. The GSE’s now have their hand in 9 out of 10 residential home loans. What would this look like without that?

Consumer Loans are now falling at just under a 20% year over year clip:

Yes, the Fed’s foot is letting off the gas. M1 is now declining rapidly from its peak in terms of year over year change:

Same goes for M2:

And although our government doesn’t track M3, the largest money measurement, John Williams at Shadowstats does. According to him, total M3 is now DOWN year over year:

Chart of U.S. Money Supply Growth

Let’s see… do you remember when they said that there was no housing bubble? Then they said not to worry, subprime was all contained? How about when they were talking about “greenshoots?” And now what are they saying? That the recession is over and we’re off to infinity? Riiight, play us some more… funky white boy.

Wild Cherry - Play That Funky Music:

Simon Johnson…

If you remember, Simon Johnson is a former central banker, a rare person who understands the risks his industry created and he has been willing to smartly discuss it (ht Yabs).

Simon Johnson on CNBC (5 minutes):

Morning Update/ Market Thread 1/8

Good Morning,

Equity futures are down on the unemployment report which came in much worse than expected. Below is a snapshot of the overnight action in the DOW and S&P:

The dollar fell hard on the release, bonds rose (hmmm, could that be by design?), gold rose and oil fell.

I have to laugh because I watched this supposed expert on CNBS yesterday at lunch time convinced that there would be 100,000+ jobs created! Well the headline number is -85,000 jobs and 10% unemployment rate. This headline number is much worse than expected, well below the bottom of the range and the zero number that was the consensus. However, the consensus of the household survey was that the rate would rise to 10.1%, instead it held steady.

From a technical standpoint, I would have probably preferred a rosy report and a spike to really draw in the last remaining bears. Sorry to be a cynic, but there are definitely games galore being played in the markets, very little of what we see can be taken at face value in my opinion. So, this report is cold enough to not cause a spike and warm enough not to cause collapse. Ahhh, just right if your goal is to keep confusion and the deception running…

Not seasonally adjusted U-6 jumped from 16.4% to 17.1%. Seasonally adjusted U-6 rose from 17.2% to 17.3%. Note the December ’08 not seasonally adjusted U-6 of 13.5%. It has risen 27% in the past year, that’s quite a year over year increase, a number I’m sure you won’t be reading or hearing on CNN.

Here’s the entire report:

December Employment Report

Interestingly, they revised November’s numbers all the way to positive 4,000 from the prior report of -11,000. Oh boy, we were saved and didn’t even realize it, lol! The fervor put into these numbers is ridiculous. They definitely cause people to take their eyes off the real ball that is driving it all right now, and that’s debt.

At any rate, here’s Econoday’s first cut at it:
Payroll jobs finally turned positive with today's employment report but the problem is that it was in revised November data. Markets quickly looked past the gain in November as December fell back significantly. Nonfarm payroll employment in December fell 85,000, following a revised gain of 4,000 in November and a revised fall of 127,000 in October. For the latest month, the consensus had forecast a rise of 10,000 in payroll jobs. November and October revisions were down 1,000 net for the two months.

From the household survey, the unemployment rate was unchanged at 10.0 in December. Today's report includes household survey data reflecting annual revisions to seasonal factors. November had originally been estimated at 10.0 percent and was unrevised. For December, the market had anticipated an uptick to 10.1 percent.

Wage inflation in December was unchanged as average hourly earnings rose 0.2 percent and also matched the market forecast. The average workweek was steady at 33.2 hours in December.

The economy is in recovery but it is still a jobless recovery. Productivity will be up in the fourth quarter and that will be good for near-term profits. But without a healthy consumer sector, the profits picture is not so rosy. On the release this morning, Treasury yields eased, equity futures declined, and the dollar slipped.

LoL, there’s that old “jobless” recovery line of bull again. Those unwilling to consider debt saturation will never figure out why each time the paper economy cycles upwards the real economy is left to suffer. Each cycle producing a larger disconnect between false paper statistics and the real world production of goods and services.

Frequent reader, Joe, dug a little deeper in to the household survey and found that it is a “disaster.” Here are the numbers he found, they are astonishing:
Here are some year over year stats first:

In December 2008, there were 235.035 million working-age adults. In December 2009 there were 236.924 million, an increase of 1.889 million in a year. During the same period of time, the size of the labor force (those actually looking for/holding a job) decreased from 154.3 million to 152.6 million, a drop of about 1.7 million. This creates a gap of about 3.6 million people who are working-age but who either can't or won't find a job. About 3 million new jobs would need to be created just to be at the same employment/population percentage we were at a year ago. That would be break even. [about 250,000 per month]

Actually employed working-age adults dropped from 143.3 million in Dec of 2008 to 137.95 million in Dec 2009. A drop of 5.35 million working people in one year.

In month over month terms, things look pretty bad. The number of employed people dropped by 1.1 MILLION from November to December. The number of people who dropped out of the labor force (not looking for work any more) increased by 1 million.

Combine this with the stories yesterday about the colossal increase in number of people on emergency unemployment in the last month, and you have an employment mess on your hands.

Wow, Joe. More than 1 million dropped out of the work force in one month and amazingly they are able to hold the unemployment rate steady at 10%. Amazing what seasonal adjustments and changes to their procedures can accomplish at covering up.

Here's John William's chart, it will automatically update with the latest figures. Note that his rate is now just under 22%, but may have gone over once this updates:

Chart of U.S. Unemployment

While I'm on Shadowstat's site, let's take a look at the money aggregates. Wow! What was M3 is plunging and is now NEGATIVE year over year. The smaller aggregates are plunging as well, but still up on a year over year basis:

Chart of U.S. Money Supply Growth

Wholesale trade is released at 10 Eastern.

Yesterday’s action produced potential topping hammers on most of the indices. It was yet another small move on the McClelland Oscillator, the third in a row. Expect a large directional move. With this report, severely overbought short term stochastics, overbought and divergent daily and weekly stochastics, a weekly MACD that is rolling over despite rising prices, a historic divergence of price and volume, the highest stock valuations in the history of mankind, new highs seen only at major tops, bullish percent indications only seen at major tops, why heck, the direction ought to be up.

And with funny money and mark to fantasy still supreme in the banking sector, there is no doubt they can make that happen if they so desire. Just borrow money from the Fed (create it) and buy up one another’s stock. See, it’s simple to have a roaring economy, you unemployed simpleton, you.

LOL, seriously, I would expect today’s move to run further than most think because of the small changes on the McClelland. Next week is options expiration already, so don’t get too excited until you see support fall. The small rising wedge I’ve been tracking will break at about 1,125, and that occurring will signal that a correction of some magnitude has begun. The current pivot is 1,133, next support is 1,107.

The following was from last month, but the headline rate and game have not changed…

The Unemployment Game Show

Thursday, January 7, 2010

Martin Armstrong – Behind the Curtain, The Full Monty!

What follows is 62 pages of Martin Armstrong spilling what he knows about the club, about politicians, about Goldman Sachs, Warren Buffett, murder, international intrigue, and his own involvement in all of it. We’ve seen a lot of it before, but this is certainly the most comprehensive and reads like a mini-epic in the making.

Those who have not followed Armstrong’s case will learn a great deal about it from reading this. Here you will get a good narrative of his perspective and how the events of his case are related to world happenings and market manipulations by members of the “club.” There is so much here to point out that I’m not even going to try and instead just recommend that you designate a couple of hours this weekend, sit down and read it.

One aspect I really like about this paper is that he sees the need for political reform. His suggestions are close to mine in that he sees the need to separate the special interests and their money from politics. This is exactly what the political reform part of Freedom’s Vision would accomplish:
We need elected posts with term limits. In other words, we elect the BUREAUCRACY and that is the head of all departments. There is a term limit to one appointment, and no election should be subject to any private contribution. The revenue of the government must pay for all elections. Stop the buying of any influence. This would (1) prevent the "Club from spinning any committee,(2) would prevent donations that buy political appointments such as Secretary of the Treasury. There would be no succession of CEOs from Goldman Sachs. And above all, we would get rid of this clever view of politicians that they exercise the NATIONAL POWER but do not answer nationally to anyone. That allows corruption to keep a particular senator in place in say Vermont and that then controls the entire Judiciary. This is a system doomed to corruption and manipulation.

… We MUST end political contributions. ALL elections should be funded by taxpayer money period. We cannot afford this nonsense anymore. We will be reduced to wearing just sackcloth unless we get political reform and fast.

Part I:

Part II:

Part III:

Freedom’s Vision – Answers to a Reader’s Questions…

Frequent Economic Edge reader and poster, “Blonde Guest,” has taken the time and effort to parse through Freedom’s Vision and came up with a set of excellent questions. Indeed, when one is not familiar with the concepts it’s difficult to explain it to other people as it touches on a lot of issues, especially if you get to the depths where deeper knowledge is required. However, when explained in simple terms that people can understand, it is not complex and will actually produce a system that is far less complex than the current one.

With that I present the many questions that are embedded in Blonde Guest’s post and subsequently attempt to answer them in order below:
Good Morning Nate,

Many questions on Freedom's Vision. How do you sell that we are on the precipice of monumental change to the people? Just came from a dinner of Ivy league, Big Ten etc... educated women, and although most sense that something is not right, they cannot comprehend that the economy is in grave danger. These highly educated women admit they do not speak the language. I referred then to your site, and the rest of your blog list prior to our dinner and they frankly told me they could not comprehend 90%. When they do not comprehend it, they shut down and move on. We need to get this out in easily understood concepts and terms. If I cannot explain the basics in 15 minutes or less the audience shuts down. The attention span may increase as the economy gets worse and people are looking for answers. And no one will swarm (an active component) if they don't understand and buy into the vision.

Can you explain the bankruptcy component and how our foreign creditors are going to be satiated? Where does the money to return the past two years of income taxes come from? (One of my women said it sounds like the mythical Obama money) and how does the government continue functioning with no income? or pay off the interest on current debt? or current debt? More printing? I understand how paying off 2.6T in consumer debt would help the citizens and everyone loves free money, but what are the strings?

How is this clearing of Federal debt being paid off entirely during the transition period with old dollars/ new dollars not a national default?(sovereign debt crisis)? How is the rest of the world going to handle this reset? How do we deal with the unfunded mandates?

Is this vision based on Still's story of Gursey? We issue the money, extra money and tax (inflate) the money out of the system? We make a new financial infrastructure completely made with made up money and citizens take the hit of inflation equally? New leverage limits are put in place and something like Glass-Steagall is actually enforced. Rule of law is established, and enforced.

Sorry for all the questions, but I am just trying to get a handle on Freedom's Vision.

Good Morning Blonde,

Those are all great questions! It is my pleasure to answer them for you because it gives me another chance to say it in a different way and maybe that will help people understand.

Please keep Bill Still's quote in mind, "It's not WHAT backs our money, it's WHO controls the QUANTITY."

In regards to the need to “sell” that we are on the verge of monumental change… indeed, the events we have experienced lately have people “sensing that something is just not right.” They have seen the transition from millions to billions to trillions and no longer comprehend the figures. There are disconnects in the data and in the story line that contribute to that uneasiness. When I go to the barber, as I talk to the older generations, most are very angry and are aware that the path we are on is unsustainable. Even younger people know that they cannot count on SS or other forms of retirement to be there for them.

Yes, most people shut down and cannot handle going too deeply into the truth. I see it all the time, even my good friends who know cannot go far into the depths of conversation with me – it’s too much for them. It is possible to summarize in 15 minutes, just hit the highlights. No it’s not possible to explain in great detail in that amount of time, this is due to the complex nature of our current economy – Freedom’s Vision is actually much more simple with fewer moving parts. It’s transitioning from debt saturation and derivative entanglement that makes it seem difficult.

It is, however, a historic opportunity to use the deleveraging to make the transition to a non debt-backed money system on the federal level and to create a sustainable and recognizable system going forward. And we need to emphasize how Freedom’s Vision benefits the people, the states, businesses, banks, Federal Government programs, basically everyone but the current crop of casino managers.

This is exactly why our citizens need leadership and why they need an easy task to accomplish, one that makes them a part of the solution. They know that all is not well and that change is appropriate and thus I believe many will join into the SWARMS so that they feel empowered. Fortunately, they will be supporting a good cause with their best interests squarely in focus.

The TRUTH does not require a hard sell! There will be enough people who get it that the SWARM will be HUGE. Just imagine if “only” 10 or 20 thousand people all bombard a person’s office and points of contact in a day. They would literally be immobilized by legitimate requests from citizens to support change.

Regarding foreign creditors, they will be paid off in full during the transition period. Again, this would be inflationary as you are changing DEBT into money. That money then will go someplace into some other asset groups. That inflationary force is balanced by removing debt and derivatives (leverage) from the system. With firm but accommodating monetary controls, weighed against ALL asset classes, zero inflation is targeted, thus holding the value of the dollars that are paid back steady. Again, should you simply print dollars and pay back your debt it would be inflationary. The ability to take down leverage is what makes this a historic opportunity. The monetization already occurred when the debt and other leverage was created… this undoes it, and when done correctly will not change the overall quantity of money in the system.

The money to return the past two years of taxes is simply created without debt backing. Once again, should you do that and just send it out there devaluation of the money will ensue. However, by ensuring that the vast majority of that money is used to pay down debt, it will not be nearly as inflationary, it will be an act of deleveraging. Again, these inflationary forces will be offset by other deleveraging as well, there are historic amounts of it out there that need to be removed.

Who said the government would have no income? Freedom’s Vision does not touch the tax structure, although I’d love to. And for those who can really handle the truth, the government does not need to collect taxes at all. I’m not going to go there, our purpose is to keep the system as close as possible to what people currently recognize.

There will be no more current debt and thus no more interest payments in the Federal Government’s budget. Currently those payments go to PRIVATE banks and bankers, they are dollars that come from you to pay someone else for your own money system!

“Printing” will only happen once the system is in place when the IP determines that PRICES need it to maintain the zero price target. As the economy cycles, there will be times when adding quantity happens and there will be times when subtracting quantity happens (right now it is add only). This is a simple mechanism as prices reflect all the underlying forces when measured correctly. Instead of moving 14 different levers, the IP will only be moving one, and they will be keeping the money and our economy in the center of its operating envelope instead of trying to create never ending growth that must happen when debt backs our money.

I know that it sounds “magical” that the majority of the $2.6 trillion in consumer debt can just disappear. No magic trick is necessary. The truth is that much more than two years of taxes has been STOLEN from everyone. It has been funneled into the large banks to create their mythical profits and “assets.” This process will cleanse those assets back out of the banks via the bankruptcy process and they will be disposed of in accordance with the current rule of law as dictated by the bankruptcy process. A judge will evaluate each “asset” (debt) and decide if it is serviceable or not. If not, it is cleansed. This is what should have happened all along. The act of clearing out these debts will de-lever the banks and the entire system. This deleveraging allows the treasury to return money to the citizens to pay back their debt, money that rightly never should have been taken from them. This is simply undoing what’s been done and allows the people to pay down debt, and this in turn is virtuous because the deposits and paying down of the consumer credit will by itself greatly add to bank health. This in turn makes the people more solvent, the banks more solvent, and businesses more solvent. Again, it won’t be inflationary because debts will be repaid and leverage taken down. So, NO STRINGS, there is no reason not to support this.

It is NOT a national default… we will be paying back all creditors with sound dollars. It is a change to the way our money system works, but it is a sound change, unlike the change that created the current debt backed money system in the year 1913. Our money system has changed many times in our history. This will be a progression forward that will cure many of the faults of our previous dollar systems. If you wish to see national default, look no further than the current program of “Quantitative Easing.” This buying up of one’s own debts fools no one but ourselves. It is piecemeal default and it does nothing but damage the people and future generations of the United States.

This is going to create the most sound money system on the planet… there will be no debt at the Federal level. Interest rates will normalize and be driven by free market forces. The dollar will become much stronger against other currencies that are still backed by debt. It would behoove other countries to accomplish the same cleansing and transition at the same time. Should they fail to do so, they will wind up paying the price as all debt infested currencies should. They will be encouraged to make the transition and we recommend that the U.S. form transition teams to go to the other countries of the world to help them transition in a like manner.

Another ramification for other countries is that the special bankruptcy courts in the U.S. will be defaulting on a lot of debt and derivatives in the banking system. A lot of counterparties will be overseas. They will, of course, not be happy that defaults will ripple. Defaults of debt and derivatives in the current system is going to happen regardless! This is simply a controlled way of accomplishing the cleansing. Again, if other countries are running the same procedures at the same time then the transition for them will be much smoother as they will be clearing out unserviceable debt and derivatives on their end as well.

Unfunded liabilities instantly get better under the new system because zero percent price inflation is the target. Thus the payout assumptions no longer have exponential math behind them. This is addressed in the outline. A fund is also created to ensure solvency and to absorb future fluctuations in the country’s demographic composition.

Initially the monetary reform and the political reform work together. Those are the first goals. Then we go on to develop a “Future’s Vision” where we can talk about providing leadership for the economy and how to create jobs. While the general thinking is expressed in the third section of the outline, those ideas are somewhat similar to the story of how the Channel Island of Guernsey created money, spent it into existence to build public infrastructure, and then taxed the money back out of the system. What is suggested in Freedom’s vision would be different in that seed money would fund research and development, much like NASA has done in the past. This needs to be done to create the energy and infrastructure of the future and cannot be done by current corporations or the way our government works now. It would partner with and send the fruits of the research into private enterprise, again, nothing new, look at how NASA used to do research that benefited and created giant strides in aviation. We need to do the same thing for even more important future needs like energy. The seed money can be recaptured by sharing in the profits generated by the new technology world wide. Once the seed money is recovered, that money can then fund further research or be taken back out of the system. Again, overall price inflation is still being controlled in the background by the IP who is monitoring ALL asset category prices.

Again, there should not be overall inflation over time if this is implemented. There will be periods of mild inflation or deflation (as is normal in cyclical movement), but they will be corrected early and not allowed to compound upon themselves. Thus giant booms and busts will be avoided, but a healthy and robust economy will result, one that has the ability to absorb shocks and keep on going.

Yes, new limits resembling Glass-Steagall will be put in place and ENFORCED. The goal is to get the banks to a strict 10 to 1 reserve and cap it there. By restricting derivatives and other forms of modern leverage, we believe that this is achievable, especially when the special interest money can no longer be used to get involved in politics to make the rules go away, as has been the case! When leverage and effective reserve capability are allowed to get out of hand, that is one of the ways that inflation is created! The central bankers MUST create inflation or deflation results. This is because they are skimming interest and fees, constantly taking and taking money from the system. They have to continually make more money, this is one way they do it and why the quantity of money (debt) is currently out of control. Under Freedom’s Vision, those pressures either go away or are held steady.

No problem in answering your questions, that’s what needs to happen, they are all good and legitimate ones. Once you see the truth behind our money system and a clear path out of our problems, providing solid answers requires little effort. People need to realize that money is a creation of man and that certain men have set the system up to profit from the fruits of our citizen’s labor. This simply undoes much of that and returns the power of our money back to the people where it belongs. In doing so, we have tried to maintain a system that will be virtually indistinguishable from the way most people currently conduct their business.

While the underlying concepts are difficult to grasp, they are only difficult because of the distortions and opaqueness intentionally created by the men behind the curtain. Freedom’s Vision will bring checks and balances, transparency, and the rule of law back to where they belong.

Artwork by AZ Rainman

Morning Update/ Market Thread 1/7

Good Morning,

Equity futures are down this morning, here’s a snapshot of the overnight DOW and S&P action:

The Dollar is up very sharply, bonds are flat, oil and gold are both down a little after oil’s rocket ride of late. In fact, oil’s gone straight up ever since Dubai’s debts were backed.

Both the Yen and the Euro are lower. Below is a chart showing the Yen on the left (up is lower Yen), and the EUR on the right (down is lower here). Note the flag that has formed on the EURO. Should that flag break downwards as I’m expecting, the target will be about 1.33ish:

The Monster employment report fell from 119 to 115. Here’s their and Econoday’s spin:
Monster's employment index fell 4 points in December to 115 reflecting what the report said is seasonality during the month. The year-on-year reading, which limits the effect of seasonality, is the best in 18 months at minus 12.2 percent.

“Reflecting seasonality?” Gee, I thought December was supposed to have increases in employment as people are hired for the Christmas season? The BEST year over year reading is minus 12.2%? Oh my. They don’t normally report that, if they want to spin the positive, then maybe they should have waited a while longer to come out with the yoy figures!

Weekly jobless claims rose last week to 434,000. This is better than the consensus read of 450k, here’s the positives:
Initial jobless claims were little changed in the Jan. 2 week, up 1,000 to 434,000 (prior week revised 1,000 higher to 433,000). The Labor Department reported no special factors. The four-week average extended its long streak of improvement, down a sizable 10,250 to 450,250 for its lowest level since September last year. Continuing claims continue to show improvement, down 179,000 in the Dec. 26 week to 4.802 million.

I’ll dig up the report and we’ll take a look at the number of emergency claims later in the daily thread. Tomorrow is the monthly employment report.

There are a ton of Treasury auctions that are supposedly going to run this afternoon. The Treasury’s site is not indicating in its normal spot that there are any, much less the amounts. In a different location they posted a tentative schedule but not with amounts. I’m guessing there’s a lot of issuance today, we’ll keep tabs on that, too, as results come in.

Yesterday’s movement produced another small change of the McClelland Oscillator, therefore expect a large move either today or now tomorrow. I will not be surprised by a large move tomorrow on the jobs report.

Still no sizeable volume, this market is WAY overbought, divergences are everywhere I look. The VIX bounced off of support yesterday, and the XLF continued rising above the upper Bollinger. Prices are still within the new smaller rising wedges and so the odds of them being in play is good. A break below about 1,125 would break the lower boundary on the SPX. The support pivot right now is 1,133, then 1,107. Resistance is at 1,168.

Did everyone catch Barney Frank’s handiwork in trying to sneak rules about shorting equities into his latest bill? Here’s the story at ZH if you missed it: In Order To Make The Ponzi Market Keep Going Ever Higher, Barney Frank Tries To Make Shorting Virtually Impossible . And thus stocks can only go up and the games people play continue:

Joe South – Games People Play:

Wednesday, January 6, 2010

Total U.S. Savings Rate Lowest in Recorded History…

Usually when we talk about savings rate, we talk about the savings of our citizens. This personal “savings” rate should not be confused with money that is in savings accounts. No, the savings rate is a calculation based upon how much money is not being spent on other things. And this means that DEBT REPAYMENT generally counts as personal savings.

The personal savings rate went negative (although no longer reflected on the Fed's charts), but since this crisis began has turned back positive, the result of citizens pulling in their spending while deleveraging by paying off debt. Below is the chart of the Personal Savings rate, it is currently just below 5%:

The next chart shows the personal savings AMOUNT in billions of dollars:

What is occurring is that the government, of course, is trying to make up for the slowing by spending themselves into huge deficits. Below is the chart showing Gross Government Savings, a hugely negative figure, one that I contend in reality is many times larger:

If you take personal, corporate, and government savings and combine them into one chart, you wind up with the lowest overall savings rate since the Great Depression, and once the 4th quarter is tallied, 2009 will likely wind up being the worst year ever:

Below is the Bloomberg article that discusses this chart:

U.S. Savings Rate Falls to Depression-Era Levels: Chart of Day

By David Wilson

Jan. 6 (Bloomberg) -- Government deficits have caused the U.S. savings rate to turn negative for the first time since the Great Depression, and the gap is widening even as households and companies put away more money than ever before.

The CHART OF THE DAY shows net savings, adjusted for depreciation and changes in the value of business inventories, as a percentage of gross income. This rate is provided by the Commerce Department on a quarterly basis since 1947, when the chart begins. Annual figures go back to 1929.

The savings shortfall widened to negative 2.3 percent in the first three quarters of last year from negative 0.2 percent in all of 2008. Before 2008, there hadn’t been a full-year drop since 1934, the last year of a four-year period when rates were below zero.

Deficit spending by the federal government reduced net savings at an annual rate of $1.33 trillion during last year’s third quarter. State and local government deficits widened the gap by another $14.9 billion. At the same time, personal and corporate savings increased by a record $983 billion.

Health-care outlays represent “the key for savings” in the next few years, according to Michael Mandel, president of South Mountain Economics. The former chief economist at BusinessWeek magazine -- now owned by Bloomberg LP, the parent of Bloomberg News -- published a similar chart two days ago on his Innovation and Growth blog.

“The U.S. will be stuck between a rock and a hard place” if costs keep soaring, Mandel wrote yesterday in an e-mail. “If health-care reform manages to restrain spending, then we’ll see net national savings eventually head upwards.”
What all this shows is simply that your government is spending your savings faster than you can save. This is a symptom of DEBT SATURATION and attempts to create never ending credit growth. We are all just going along for the mathematical ride at this point, that is until and unless we can resume control of our government, and take it back from the hands of the central bankers and other special interest groups.

Speaking of special interest groups, LOL, “If health-care reform manages to restrain spending?” Is he kidding? That’s the funniest one I’ve heard yet from an "analyst." Sure, we all expect such lies now from our politicians. Want to know why we have come to expect it?

Try $126,536,249 reasons why. This is how much money was contributed to the campaigns of 100 Senators who voted on the latest health care "reform." Please review the table at the following link: The Senate Passes Health-care Bill - A look at how members of the U.S. Senate voted (ht W.S.).

I'm not even sure if that includes money from the insurance industry or not. I'm guessing not, and they are likely to be the largest winners. This is how things currently get done in the United States, not on your behalf, but on behalf of those who make the largest contributions. The largest contributors of them all? Central bankers, of course.

Ace – How Long:

Please help put an end to this type pandering, support FREEDOM’S VISION and "Swarm Politics", thank you!

Morning Update/ Market Thread 1/6

Good Morning,

Equity futures are pretty close to level this morning after falling in the evening and rising this morning. Below is the action in the DOW and S&P:

The dollar, of course, did the opposite and is up just a little, with bonds on the long end down a little. Both oil and gold are higher, oil now closing in on $82 a barrel.

The MBA Purchase Index rose by a supposed 3.6% in the prior week. Completely worthless index, give me transparency or don’t give me any bull. Here’s Econoday’s take, gee they are actually worried about rising rates?
MBA's purchase index rose 3.6 percent in the Jan. 4 week after falling 4.0 percent in the Dec. 25 period (data for the latter period had been delayed due to the holiday). The refinance index fell 1.6 percent in the Jan. 1 week after plunging 30.5 percent in the Dec. 25 week. The average 30-year mortgage rose to 5.18 percent in the latest week, up from 5.08 percent in the prior week. Concern is building that interest rates may begin to rise if economic growth picks up and as the Federal Reserve winds down its purchases of mortgage-backed securities.

On the Job front, Challenger’s layoff announcements fell in the month of December. No surprise there, December is not a month associated with mass layoffs unless management is doing serious battle with labor:
Challenger's count of layoff announcements fell to 45,094 from 50,349 in November and compared against 166,348 in December 2008. The results are consistent with expectations for incremental improvement in Friday's jobs report.

The ADP job report estimates that 84,000 lost their jobs in December, an improvement, but more than estimates. Here’s what Bloomberg is reporting:
Jan. 6 (Bloomberg) -- Companies in the U.S. cut an estimated 84,000 jobs in December, according to a private report based on payroll data.

The drop, the smallest since March 2008, was larger than forecast and compares with a revised 145,000 decline the prior month, data from ADP Employer Services showed today. ADP figures overstated the Labor Department’s estimate of private payroll losses by 85,000 per month on average in the six months to November after today’s revisions.

Last month ADP reported 169,000, so the 145,000 is a favorable revision. The trend in both these reports is better, but we’re still adding to the scores of unemployed, certainly not keeping pace with what’s required just to break even. Of course the DOL’s jobs report comes out on Friday, the Bloomberg consensus is that the number will reach ZERO, and that the rate will remain 10%. I’m not sure about this one, that consensus may be a little too wishful, but the release in February is the one that usually contains adjustments and can be kind of wild.

The non-manufacturing ISM comes out at 10 Eastern, the petroleum status report at 10:30, and the FOMC minutes at 2 Eastern.

The McClelland oscillator had a small movement yesterday with the down, up, down, up action and thus we can expect a large directional move in the near future, likely today or tomorrow.

Yesterday’s move in the XLF was ridiculous, sending prices way above the upper Bollinger band. Sorry, but I have to remain very cynical on action like this. GS rose greatly even after a downgrade from Meredith Whitney. What I see are a bunch of children running our banks and our government and they have this neat little toy where they snicker and manufacture bizarre derivatives and debt backed money and force interest rates to zero while they whisper about one another’s stock and buy or sell at will with no adult supervision anywhere. Truly, it’s like watching an unsupervised daycare. Below is the XLF, it still looks like it’s gunning for a gap fill up at $15.40?

Here’s a 3 month daily chart of the DOW. Yesterday’s action produced a small red hammer. It is a potential reversal indicator, of course it needs confirmation by today’s action, volumes still have not gotten above Christmas week’s, the daily stochastics are overbought and the RSI is still diverging, literally it’s been diverging for months now, I’ve never seen anything like it, and believe that the divergences in place at this time are historic in size and scope, at least in modern history:

Below is a 60 minute chart of the DOW, it has formed a rising wedge with prices climbing the bottom of the larger rising wedge when in the non log chart mode. The slow stochastic on this time frame is just coming down out of overbought and the RSI is divergent from the last high:

The SPX’s hammer yesterday was not as well defined as the DOW’s. It, too, is forming a rising wedge, but again, it’s not as well formed as the DOW’s. The rest of my Stochastic indicators are in the middle, so not a lot of help with direction for today. If a directional move does transpire, the small move in the McClelland is a good indication to stick with it longer than you might otherwise for those who are day trading.

There were 369 new highs yesterday, this is squarely in the range of prior major tops. For some reason all I see are a bunch of children running around singing, “Come and play, everything’s A-okay, can you tell me how to get, how to get to Sesame Street?”

Tuesday, January 5, 2010

Charles Biderman and Komal Sri Kumart on Money Flows 2009 and Likely for 2010…

Both are people who are seeing bubbles in bonds with a burst nearing… Biderman has a good big picture, and Kumart, of TCW, is yet another expert on bonds who appears headed for the exits. Note that as these people see money flowing out of DEBT (bonds, etc) that they see it flowing into commodities.

The latest rumors are that the Fed is likely to continue purchasing GSE paper basically extending their March deadline as they know that removing that artificial support will result in much higher mortgage rates. In this way, the entire market is FALSE, it is underpinned and propped up. Remove the support and down it goes. Can they keep the support there forever and ever? I think not, eventually we will all pay for their greed and misinformed methodology.

Morning Update/ Market Thread 1/5

Good Morning,

Equity futures are close to even this morning with a quiet overnight period. What, no one with a few billion and some fast machines to play games with the market overnight? How unexciting. Here’s a snapshot:

The dollar was down, but has pulled back to about even, bonds are up slightly, oil down slightly, and gold is about level.

The Goldman ICSC and Redbook were both out with their usual positive week to week growth fantasy, one up from the week prior, the other down, neither anywhere near what’s occurring in the real world where sales tax receipts are still down and falling and where more than 45,000 businesses were forced to close last year, many that had survived for more than a century, but 2009 got them ( 100-year-old businesses we lost ).

Pending home sales and factory orders come out at 10 Eastern, vehicle sales will be reported throughout the day. Yesterday, the manufacturing ISM showed slight growth and came in slightly better than expected, while Construction Spending fell and by a greater amount than expected while including previous months that were revised sharply lower.

The previous article covered the technical landscape pretty well. Bullish sentiment abounds and so many people see that the market is signaling a run up to SPX 1,200, heck, I’ll bet if you stopped any person on the street they would be more likely to give you that number than they would be to tell you who the Secretary Treasurer is. That means caution, especially when the criminals running our markets and our money system are driving fast machines!

Velvet Revolver - She Builds Quick Machines (Libertad):

Monday, January 4, 2010

Technical Update…

Sixteen of the past eighteen Mondays have been up, today was obviously a part of that bizarre trend. On the day, the S&P gained 1.6%, closing at 1,133, the DOW rose 1.5%, the NDX gained 1.4%, and the RUT finished the day leading with a 2.4% jump. The dollar was down significantly, oil closed at $81.57 a barrel, and gold up at $1,121 per ounce.

There were 322 new highs on the NYSE and 1 new low. Not as high as the 404 we had recently, but once again at levels only seen near tops. NYSE upside volume came in at 86%, advancing issues at 77.7%, indicating that the buying was strong but not panic. The volume levels rose over last week, but were still overall quite weak. The indices finished with the 60 and 30 minute stochastics overbought, and there are new and very clear RSI divergences on the 60 minute chart to go along with the daily time frame divergences.

The current support pivot is at SPX 1107 with overhead at 1,133 which stopped today’s rise. Of course 1,115 is the SPX flag top and it acted as a springboard for today’s rocket launch. SPX 1,090 is the next lower pivot and 1,168 is the next higher.

The obvious, probably too obvious, SPX target is 1,200. You can see the flag in the 3 month daily chart below:

On the longer term weekly SPX chart you can see that we have retraced just slightly more than 50% of the bear market losses. The 1,200 flag target is up near the top of the old rising wedge, and 1,227 is the 61.8% retrace of the bear. Here you can see that the weekly stochastic has been overbought for months. There’s actually a small RSI divergence even on this timeframe, a rare occurrence:

Here’s the DOW daily, it managed to climb back into the rising wedge, non log chart only, and back above the top of its flag, right to the top of the upper Bollinger. It is a new closing rally high, but the volume is less than convincing:

The XLF managed to climb strongly, something it hasn’t done for quite some time. To me I see a pretty clear A,B,C type of move forming, this being wave C up. If C is the same length of A, it will make it up to close the little gap at about $15.40. We’ll see, this chart still looks weak, and while JPM and GS made moves today, there is weakness elsewhere:

Here’s a good example of that weakness, PHK, the Pimco High Income Fund (junk bonds). But the weakness seen here is not only in this fund, it is spread across several corporate bond funds. It would seem that someone knows something and is advising their clients to exit. Pimco put out a report that was pretty bearish this morning. As they put it, "You can only eat what’s in the cafeteria, and right now the cafeteria doesn’t have anything particularly appetizing in it." Stress like this in corporate bonds was seen prior to the top in ’07 and again in May of ’08:

Oil broke out of its latest formation and the Point & Figure chart picked up on the breakout producing a new target of $104 a barrel:


It’s freaky but the weirdo’s commenting on our economy call this a good thing! James Kunstler had a humorous quip this morning on the subject:
Yesterday, The Seattle Times published a story with the idiotic headline: Oil Touches $80 on US Economy, Demand Optimism. Apparently, they think high oil prices are "a good sign."

How much can a nation not get it? Would $100 oil ignite a new orgy of "consumer" spending and another round of investment in commercial real estate? Welcome to the Futility Economy. This is the economy where Nature and its material companion, Reality, punish us for our stupidity and fecklessness.
Up is down, right is left, and credit flowing out of control is good.

The bond markets hung right around where they finished last week. In the case of the TNX (10 year treasuries) that is just above the neckline of a two year H&S pattern with a now confirmed target of 5.8%. When achieved, that target will hit mortgage rates hard making houses all the more difficult to afford:

USB, the 30 year bond fund, is in about the same relative position with its massive H&S top as the TNX, except in this case price is on the right hand scale instead of yield. The H&S target is 90, while the P&F diagram has a target of 94:

Last year the SPX rose more than 2.5% on the first trading day of year, but by the 7th of January a decline began that did not let up until March. Bullish sentiment is at an extreme and there are huge market divergences in place… I am therefore practicing extreme patience and not chasing anything, although day or very short term traders may want to play long and if you do I hope you use good stops. Wall Street and their Monday up days game (16 of 18) leaves me in a New York state of mind…

Billy Joel – New York State of Mind: