Saturday, March 20, 2010

THE Most Important Chart of the CENTURY

The latest U.S. Treasury Z1 Flow of Funds report was released on March 11, 2010, bringing the data current through the end of 2009. What follows is the most important chart of your lifetime. It relegates almost all modern economists and economic theory to the dustbin of history. Any economic theory, formula, or relationship that does not consider this non-linear relationship of DEBT and phase transition is destined to fail.

It explains the "jobless" recoveries of the past and how each recent economic cycle produces higher money figures, yet lower employment. It explains why we are seeing debt driven events that circle the globe. It explains the psychological uneasiness that underpins this point in history, the elephant in the room that nobody sees or can describe.

This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.

Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.

This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt.

The data for the diminishing productivity of debt chart comes from the U.S. Treasury’s latest Z1 data, the complete report is posted below:


On page two of that report is the following table showing the Growth of Non Financial Debt:

I included Financial debt onto the end of the table, that data comes from page 14 of the Z1 report.

This table makes clear what is happening. Business, household, and financial debt is trying to cleanse itself, to bring the level of debt back within the ability of incomes to support it. Our governments, armed with people who cannot explain the common sense behind debt saturation, are attempting to compensate by producing prolific amounts of Governmental debt.

They feel they must do this because if they do not, then debt and money – since debt backs our money – would both decrease and that would cause the economy to slow. But by adding money, and debt, they have created a sovereign issue where our nation’s income cannot possibly service our nation’s debt. In just the month of February, for example, our nation took in $107 billion, but spent $328 billion, a $221 billion shortfall. That one month shortfall exceeds all the combined shortfalls of the entire Nixon Administration – one month.

This is like an individual earning $5,000 but spending $15,000 a month. Would you lend your money to such an individual?

Last year we spent just under $400 billion on interest on our current debt, plus we spend another $1.5 Trillion buying down rates via Freddie, Fannie, and Quantitative Easing. That’s $1.9 Trillion spent on interest, most of which wound up in the hands of the central banks and their surrogates. Compared to our $2.2 Trillion in income, interest expense last year nearly took it all. That means that nearly all your productive effort used to pay Federal taxes last year were transferred to the central banks.

Modern monetary theory does not understand, nor does it correctly describe the debt backed money world in which we live. Velocity, for example, slows as debt saturation occurs. This is only common sense, and yet the formulas do not account for the bad math of debt, nor its non linear function. Velocity is blamed partially on the psychology of “consumers.” What nonsense. It is as mechanical as the engine in your car, it was designed that way. Once people, businesses, and governments become saturated with debt, new money/ debt when introduced can only be used to service prior existing debt.

Thus money creation at the saturation point stops adding to productive efforts and becomes a roll-over affair with only the financial services industry profiting via interest and fees. In other words, money goes out and circles right back around to the banks instead of rippling through a healthy non saturated economy. If you cannot follow that most simple logic, then going to Harvard will not help you.

Below is a chart of the Gross Federal Debt, it is now $12.6 Trillion dollars and headed straight up, a classic parabolic rise:

Below is a chart of the Gross Federal Debt expressed in year-over-year change in billions of dollars. The same phase transition of debt saturation is clear as a bell.

Below is a chart of Federal Net Outlays, parabolic and again headed straight up:

Clearly this is not sustainable and that means that change to our monetary system is rapidly approaching. No, it will not be left to your children or your grandchildren. It is an immediate problem and fortunately there is an immediate solution. That solution is called “Freedom’s Vision.” It can be found at

That chart of diminishing returns is the window to understanding why humankind is trapped in a central banker debt backed money box. No money for NASA manned space flight – NASA’s total budget a puny $18 billion in comparison to the $1.9 Trillion that went to service the bankers last year. One half the schools closing in Kansas City, states whose debts and budget deficits seem insurmountable all pale in comparison to how much money went to service the use of our own money system.

It doesn’t have to be like that, in fact it’s a ridiculous notion that the people of the United States, or any country, should pay private individuals for the use of their money system. Ridiculous!

It’s difficult to see this from inside the box, so let’s look at what happened to Iceland to illustrate. The central banks of the world created financial engineered products and brought them to the banks of Iceland. These products created a boom in the amount of credit. Prices of everything rose, and the people of Iceland then had no choice but to go along for the bubble ride. Then with incomes no longer able to service the bubble debt, the bubble collapsed.

To “save the day,” the IMF and central bankers around the world rushed in to “rescue” the people, banks, and government of Iceland. They did this by offering loans... documents that create money simply by signing a contract of debt servitude. That contract demanded ownership of Iceland’s infrastructure such as their geothermal electrical generating plants. It also demanded the future productivity of the people of Iceland in that they should work and pay high taxes for decades to pay back this “debt.” Debt that they did not create or agree to service in the first place!

There were some wise people who saw through this central banker game and started a movement. They DEMANDED that the President of Iceland put the debt servitude to a vote and the people wisely said, “Central Bankers Pound Sand!”

Thus they now control their own destiny, their future productive efforts still belong to them.

It’s easy to see from the outside looking in, but it’s not so easy to see that it's EXACTLY the same thing occurring in the United States and no one is rising up to stop it. No one, that is, except the movement of people at

To all the naysayers who think the people do not have the power to make the change, I say take a look at history and how humankind has overcome its obstacles to progress with each new step. Mankind is now teetering between the brink and the dawn of a new renaissance. A new renaissance is coming because mankind is about to free itself from the chains of needless debt that are holding humanity back.

*Note: A follow-up to this article exists here: Guest Post and More on THE Most Important Chart of the Century

Thursday, March 18, 2010

Nathan Martin Interviews Gerald Celente

Thank you to Gerald Celente for taking the time to talk to an up-and-coming movement, the act of doing so shows that he’s willing to support positive change.

People who frequent Economic Edge are familiar with his message. While his message of current and future trends sounds negative on their face, the reality is that we must have the fortitude to face our problems or we will never overcome them. If you listen to Celente, he is actually speaking some very positive messages as well, I would ask you to please focus on those. Here is an exchange that I think is the takeaway from this interview:
Martin: “Do you think it’s possible to change directions?”

Celente: “Of course it is! Yes, yes! That’s one of the things that your group is doing, that’s what prompted me to respond. It’s people standing up, speaking out, and taking action! That’s the only thing that’s going to change it… It has to come from the bottom up.”
That’s exactly what Freedom’s Vision and are all about. He recognized that immediately and that’s why he did the interview.

One person at a time. There are solutions outside of the current debt-backed money box. As more people become aware and as more people stand up for themselves and refuse to live inside of that box, the more likely that we will effect positive change – it is truly up to us.

Nathan Martin

Gerald Celente

Trends Research

* Intro and Outro provided by Jason Paige at Celebrity Radio DJs

Morning Update/ Market Thread 3/18

Good Morning,

Equity futures are slightly lower overnight, tomorrow being quadruple witching. Below is a 60 minute chart of the DOW on the left and 5 minute chart of S&P futures on the right:

The dollar is higher, retesting the breakdown of the upchannel that it broke. The Euro is lower. Bonds are higher once again, it is very unusual to have money flowing both into equities and into bonds, a condition that when it occurs, usually doesn’t last long. Oil is about flat after running higher even against building crude oil inventories which were reported up again yesterday. Gold is higher at $1,125 an ounce.

CPI came in at 0.0% for the month of February, reflecting the same type of pullback in the year over year number as PPI - here’s Econoday:
Temporarily soft energy costs pulled down the headline CPI for February while weak shelter costs kept core inflation very sluggish. Overall CPI inflation for February eased to no change from 0.2 percent the month before. The latest came in just below the market forecast for a 0.1 percent uptick. Core CPI inflation rebounded a modest 0.1 percent, following a 0.1 percent dip in January and matching consensus expectations. A number of weak components point to the fact that inflation pressures, indeed, are subdued. Shelter costs were flat in the latest month while declines also were seen in apparel and recreation.

Looking at detail, the energy component of the CPI declined 0.5 percent in February after jumping 2.8 percent the month before. Gasoline temporarily eased 1.4 percent, following a 4.4 percent jump in January. Food inflation slowed in February to 0.1 percent from 0.2 percent in January.

There were other notable component declines, including apparel, down 0.7 percent; household furnishings & operations, down 0.4 percent; recreation, down 0.1 percent; and public transportation, down 0.1 percent (largely airline fares). The notable increases included medical care, up 0.5 percent, and used cars & trucks, up 0.7 percent.

Year-on-year, overall CPI inflation fell to to 2.2 percent (seasonally adjusted) from 2.7 percent in January. The core rate was slipped/rose in February to 1.3 percent from 1.5 percent the month before. On an unadjusted year-ago basis, the headline number was up 2.1 percent in February while the core was up 1.3 percent.

Weekly jobless claims fell by 5,000 to 457,000 for the prior week. The consensus was calling for 455,000. This number is extremely elevated still, being now almost two and a half years since this markets peaked in late ’07.
Weekly jobless claim are indicating only the slightest improvement in the labor market. Initial claims fell 5,000 in the March 13 week to 457,000, following a 6,000 dip in the prior week. The four-week average fell 4,250 to 471,250, showing no significant change from February and well above readings in January.

Continuing claims, up 12,000 to 4.579 million in data for the March 6 week, are likewise indicating no improvement in the labor market. The four-week average for continuing claims, at 4.575 million, is only slightly lower than February levels. The unemployment rate for insured workers is unchanged at 3.5 percent.

The economic recovery may be emerging but it looks to be a jobless recovery, at least so far. Markets were little changed in reaction to today's report which was accompanied by benign consumer-price headlines.

The large bubble of people who filed last year are still unemployed as new jobs simply are not being created. From the weekly DOL report:
States reported 5,888,048 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending Feb. 27, an increase of 360,123 from the prior week. There were 2,086,682 claimants in the comparable week in 2009.

That’s 3.8 million more people on EUC this year than last year! This says that once a person is unemployed, they are staying unemployed, in fact the length of time spent unemployed is at historic highs still.

Yet the market powers into a ballistic parabolic move based not upon a productive economy, but on hot money that ultimately is robbing Americans of their purchasing ability.

The DOW managed to barely make a new closing high and thus produced a new DOW Theory buy signal. This move looks parabolic, no corrections, this is not healthy, it is a buying panic. The internal indications are at insane readings. The number of new 52 week highs on the NYSE hit 601 yesterday a number that is unfathomable, readings in the mid 300’s usually produce significant tops.

The VIX reached the lower Bollinger band after breaking below support. This too shows extreme complacency. When people believe that they can’t be out of the market or else they will miss it, then you know all is not well. Yes, the breakouts, as contrived as they appear, happened and thus they indicate that higher prices are on the horizon. Should they continue higher without correction, that would not be a good thing.

During the FOMC, Bernanke and the boys indicated that they were going to let the GSE money wind down. It will certainly be interesting to see if they actually allow that and what the reaction will be. Is the public sector really healthy enough to pick it back up? Not by my reckoning, and not with the coming wave of option-ARM mortgage resets. What I see is a government liquidity pump, not a healthy economy and not a healthy market.

I now have conflicting opinions on the market. Fundamentally I see hot government money, a bond market bubble, parabolic government spending, but a consumer who still wears the weight of too much debt and is faced with higher taxes as a result of the government giving their money to the bankers. Technically I see what clearly looks like a 5 wave structure in the markets, normally a sign of a new bull market. Tony Caldero sees this structure as a bull market, McHugh still sees this as a bear market rally and even with the breakout believes it is simply a continuation of wave B up and that it is likely making a complex wave structure and that it’s not as simple as it looks on the surface. My personal motto is that when the experts don’t agree and when what I see fundamentally doesn’t jive with the markets, I’ll leave it to the people who like to play games have at it, it’s not what I would term investing.

When the government is underpinning the bond market and the mortgage markets, that money then affects ALL markets as it’s impossible to target one asset class without affecting all the others. DEBT is an asset to the person who holds it as a receivable.

I have to keep this one short this morning, I have the Gerald Celente interview first thing, then I have to spend the day prepping for a presentation this weekend in Florida. I probably won't be able to get an update out tomorrow, I’ll be gone until most likely Tuesday and do not plan on making any significant posts from the road. Just because I won’t likely be able to bring you the Sunday Funnies, here’s Jon Stewart with one of the best explanations yet of what’s occurring:

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Wednesday, March 17, 2010

Nathan Martin Interview - 1090 Radio, Little Rock

What follows is a good discussion that we’ll call an introduction to Freedom’s Vision, it aired live and was recorded this morning. Buster Godbee was a gracious host and offered to have me back for more. Next time we dive into the solutions that reside outside of the boxes being presented.

Thank you to Swarm volunteer Jason who provided the great voice introduction!

Buster Godbee

Nathan Martin

Click here download the mp3

Morning Update/ Market Thread 3/17

Good Morning,

Equity futures are higher once again this morning following the S&P 500 breaking out after the dovish FOMC meeting release. Below is a 60 minute chart of the DOW on the left and 5 minute chart of the S&P on the right showing the overnight action:

The dollar is roughly flat but has broken its uptrend that began late last November. Bonds are up again, once again moving in a direction that is generally not friendly to stocks as they have done for the past three days. Oil is higher, gold is down.

The worthless MBA Purchase Index, reported only in percentage moves, fell again this week, but did not present the completely impossible mathematic moves that have been reported recently:
The Mortgage Bankers Association's purchase index fell 2.3 percent in the March 12 week. Despite the fall, two prior weeks of strong gains still hint at month-to-month strength for home sales. The refinance index also fell, down 1.7 percent. The declines weren't due to high mortgage rates which fell sharply in the week with 30-year loans down 10 basis points to an average 4.91 percent. The MBA has been warning that low rates are no longer boosting refinancing demand.

Low mortgage rates cannot get any lower, the Federal Funds rate is at zero. The central bankers spent $1.7 Trillion last year buying down these rates. They have now saturated the world with debt and that debt will be an anchor around the economy until it is cleared. The bankers will continue to siphon off money – the productive capacity of YOUR labor – until they are stopped.

It’s easier to see what they are doing to Iceland to gain control over the people – they try to take their infrastructure in exchange for issuing DEBT. They also want the future productivity of the people for decades in exchange for DEBT. The people of Iceland told the central bankers to “pound sand!” If you can see that’s what happened there, then you should be able to understand that’s EXACTLY what is happening here.

The PPI inflation number came in negative for the month of February and the yoy number eased somewhat as well, but is still at 4.6% which is very elevated. Here’s Econoday:
PPI inflation reversed course in February, coming off strong numbers the month before. The overall PPI dropped 0.6 percent after spiking 1.4 percent in January. The February fall was more negative than the consensus expectation for a 0.2 percent decline. At the core level, the PPI inflation rate eased to a 0.1 percent rise from a 0.3 percent gain in January. The latest core number matched expectations.

The drop in the headline PPI was led by a 2.9 percent decrease in energy costs after 5.1 percent surge in January. Gasoline fell 7.4 percent, following an 11.5 percent spike in January. Food cost inflation held steady at 0.4 percent. Within the core, tobacco prices dipped 0.1 percent as did light trucks.

For the overall PPI, the year-on-year rate declined to 4.6 percent from 5.0 percent in January (seasonally adjusted). The core rate year-ago pace slipped to 0.9 percent from 1.0 percent the month before. On a not seasonally adjusted basis for February, the year-ago increase for the headline PPI was up 4.4 percent while the core was up 1.0 percent.

The bond market was little changed on the news despite a weak headline number. That was due to the core being on target and with traders discounting the February drop in gasoline prices, given the sharp jump seen at the pump in March.

No, it won’t take long for those numbers to translate into more expense for Americans. Wages will not keep up.

More warnings on the bubble in China:
March 17 (Bloomberg) -- China is in the midst of “the greatest bubble in history,” said James Rickards, former general counsel of hedge fund Long-Term Capital Management LP.

The Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

“As I see it, it is the greatest bubble in history with the most massive misallocation of wealth,” Rickards said at the Asset Allocation Summit Asia 2010 organized by Terrapinn Pte in Hong Kong yesterday. China “is a bubble waiting to burst.”

Rickards joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s economy. The government has raised banks’ reserve requirements twice this year after economic growth accelerated and property prices rallied.

The bubble in China goes right alongside the bond bubble in the United States that is based upon nothing but financial engineering fluff.

Speaking of financial engineering, it seems the people in Italy have had enough of being abused:
March 17 (Bloomberg) -- Deutsche Bank AG, JPMorgan Chase & Co., UBS AG and Hypo Real Estate Holding AG’s Depfa Bank Plc unit were charged with fraud linked to the sale of derivatives to the City of Milan.

Judge Simone Luerti scheduled the trial of the four firms, 11 bankers and two former city officials for May 6, Prosecutor Alfredo Robledo said after a hearing in Milan today. The banks allegedly misled the city on swaps that adjusted interest payments on 1.7 billion euros ($2.3 billion) of borrowings.

Prosecutors across Italy are probing banks as local and national government agencies face potential losses of 2.5 billion euros on derivatives, lawyers say. The Milan probe may also affect cases as far away as the U.S., where securities firms have faced charges for price-fixing and bid-rigging in the sale of derivatives to municipalities, though not for fraud, according to former regulator Christopher “Kit” Taylor.

There are now a string of lawsuits cropping up regarding derivatives around the world. People are figuring it out more and more.

Here’s someone who has figured out the impossible math of Greece:
March 17 (Bloomberg) -- Harvard University Professor Martin Feldstein, who warned almost two decades ago that the euro would prove an “economic liability,” said Greece’s austerity plan will fail and the country may quit the single currency to fix its fiscal crisis.

Under pressure from investors and fellow policy makers, Prime Minister George Papandreou’s government is striving to knock four percentage points off its budget gap this year from 12.7 percent of gross domestic product and has vowed to meet the EU’s 3 percent limit in 2012 for the first time since 2006.

“The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy,” Feldstein, an adviser to U.S. presidents since Ronald Reagan, said in a March 13 interview in Geneva. “The alternatives are to default in some way or to leave, or both.”

His diagnosis clashes with that of European Central Bank President Jean-Claude Trichet, who calls Greece’s strategy “convincing” and rejects as “absurd” any speculation it might leave the euro zone. Investors nevertheless aren’t ruling out Feldstein’s analysis. Billionaire George Soros said last month that the euro “may not survive,” and credit default swaps indicate a 22 percent chance Greece will default within five years, up from 16 percent a year ago.

Once the math has gone exponential like it has in Greece and in the United States, there is no turning it around on a dime without literally crashing the economy. That is what austerity means. Feldstein is talking default or leave the Euro. Yes, there is a way out that does not include austerity or becoming a forever debt slave to the central banks. Of course the right answer is that all countries need to do exactly what Freedom’s Vision does – produce their own sovereign money, clear out the debts, and put methods in place to keep the quantity of money under control for the very long term.

Turning to the markets, it has been longer than a week since the Transports made a new high, the Industrials have still not confirmed but are getting close. The markets were pumped overnight in the futures, the entire rally of the past year is on lower and lower volume. Even the breakouts to new highs have not been followed with volume increases a sign of a bear market rally. Bull markets have increasing volume as prices rise.

Below is a 10 minute chart of the DOW showing a rising wedge. Today’s open is creating an overthrow of that wedge, typical of the final wave higher:

Many technicians are looking for a run up to 1,220 on the S&P. That and a new high on the Industrials will suck in the remaining die hard bears, as many of the holdouts who are short will be forced to cover with that type of a move and breakout. It is extremely dangerous, the market is historically overbought on many indicators. Today the percent of stocks above their short term moving averages is at a place where turns occur. Money flows are at an extreme as are several other indicators that have already issued warnings.

Now, let me tell you what I just witnessed while I was typing this report this morning - I got the first sentence typed and then…

I hear a bullhorn but it is unintelligible. I hear a couple of loud explosions, I crack my window open so I can hear and hear the police on a bullhorn yelling panic instructions and I see blue lights one block from my home. More explosions, BOOM, BOOM, BOOM, then what sounded like 30 to 40 rapid fire shots from small arms, then BOOM, BOOM, then silence and blue/red lights!

I am not joking, this happened right in front of me, across the block only about 3 houses away. NUTS! I moved last year to a small and “quaint” town to ensure that I wasn’t around anything remotely like that. It only occurred about 40 minutes ago now, I have no idea what happened, but it certainly wasn’t good. Once I find out, I’ll let you know.

Bruce Springsteen – Badlands:

Tuesday, March 16, 2010

Bill Still - Media Hits and Misses

Morning Update/ Market Thread 3/16

Good Morning,

Equity futures are higher this morning in front of the FOMC meeting whose results are announced at 2:15 Eastern time. Below is a 60 minute chart of the DOW futures on the left and a 5 minute view of S&P futures on the right:

The dollar is down, bonds are higher, both oil and gold are shooting higher just prior to the open.

I think the scariest thing I read this morning is “Pelosi says that Democrats will have the votes to pass health bill in the House.” After having flown into the Soviet Union at the height of the cold war, I saw first hand how the socialist economy did not work for the people. Health care? They got to say they had it, but it was awful, like walking back in time to 1930. Heading down that slippery path is not a win for America, it is another step in the wrong direction.

From CNN:
Delinquency rates have hit historic highs. More than 7.4 million home loans nationwide are in some stage of delinquency or foreclosure, with another 1 million properties either bank-owned or sold out of foreclosure. An incredible 10% of all U.S. loans are delinquent.”

Ten percent are delinquent! Not just underwater, but delinquent as in behind on their payments, amazing. And what’s even more amazing is that the government has seemingly, for now, transferred all that risk onto itself yet a large percentage of the banks still hold enough bad debt to make them insolvent and the game of pretend and extend continues.

Housing starts fell in February, of course everyone blames the weather like there’s never any bad weather in February, so just ignore it… here’s Econoday talking about the weather, isn’t it a beautiful day outside?
Snow storms bumped down housing starts in February but from upwardly revised January numbers. Housing starts in February dropped 5.9 percent, following a 6.6 percent rebound the month before. February's annualized pace of 0.575 million units beat the market consensus for 0.565 million units and was up 0.2 percent on a year-ago basis. January was revised up to 0.611 million units from the original estimate of 0.591 million units. The decline in February was led by a 30.3 percent decrease in multifamily starts, following a 18.5 percent gain in January. The single-family component slipped 0.6 percent after a 4.4 percent rise the prior month.

By region, the February drop in starts was led by a 15.5 percent fall in the South with the Northeast decreasing by 9.6 percent. Both regions were hit by heavy snow storms during the month. Starts in the Midwest rose 10.6 percent while the West gained 7.9 percent.

Starts are under downward pressure in coming months as housing permits declined 1.6 percent, following a 4.7 percent fall in January. The February pace of 0.612 million units annualized was up 11.3 percent on a year-ago basis.

Starts clearly were hit by atypically adverse winter weather-most of the decline was in the South which was hit by unusual snow storms. But permits also fell which are not as susceptible to weather. Basically, inventories still need to be worked down as demand needs to pick up and homebuilders cannot afford to ignore these supply and demand facts.

“I know… now that the sun is out, the snow is away, the birds are singing, let’s head out and buy a house for twice what our incomes can support, shall we?”

“Oh sure, dear, let me pop another Prozac before we head out and indebt ourselves to servicing a loan that will be underwater six months from now.”

That interlude was brought to you by Eli Lilly, the makers of Prozac, and by the National Association of Realtors who say to America, “Go ahead and take the double plunge! Prozac and housing are the perfect combination, they go together hand in glove!” See you in the food stamp line!

Meanwhile, Import and Export Prices were released for February, data that is very close to the one year anniversary of the bottom in the markets. Year over year import prices are up an amazing 11.2%, while Export prices are up only 3.5% - only. Month over month there were price declines in both imports and exports, something to keep an eye on.
Inflation pressures from import prices, after building sharply in January, eased back in February, pointing to benign readings in tomorrow's producer price and Thursday's consumer price reports. Import prices fell 0.3 percent following January's 1.3 percent jump. The decline reflects a 2.2 percent fall back in petroleum prices which in January jumped 4.4 percent. But the key reading for this report excludes petroleum and here too pressures eased, at plus 0.2 percent following a four-month streak of 0.5 and 0.6 percent gains.

Import prices for industrial supplies fell 0.8 percent with capital goods down 0.1 percent in what will firm expectations for a 0.2 percent decline in tomorrow's producer prices. A 0.1 percent decline for imported consumer goods is in line with the marginal 0.1 percent gain expected for consumer prices.

Export prices also reversed in February, down 0.5 percent and show wide declines across agricultural and non-agricultural components. Agricultural export prices fell 3.8 percent in the month to end a long string of sharp gains.

Declines in today's report are the first in about six months and largely reflect a swing lower in oil and in agricultural products. The outlook for March so far is favorable with both oil and agricultural prices easing slightly. But the dollar has also eased this month, an offsetting factor that raises the cost of foreign imports. There is mild talk perking back up over deflationary risks, but these risks remain low as long as consumer spending remains solid and as long as oil, holding at $80, remains high.

I don’t like the chart above for a couple of reasons. It is hard to read and it doesn’t give you a feel for the real level of activity in relation to the past because it is expressed in percentage terms. In other words, zero percent is a lot better than -10%, but it simply means that price is level, not that activity has picked up to near where it was prior to the fall.

It will be interesting to see how prices behave after the FOMC announcement. While I’ve been typing the markets have turned negative, I would expect a pause until the announcement and then we’ll get a direction following the usual head fakes.

Yesterday’s slightly positive close was divergent with the internals that were negative on the day. That is a sign of weakness, of a market that is heavy and topping. The volume was pathetic, and there has been no relief of the severe overbought condition. Despite the rotation trade attempting to pump up the DOW, it has yet to make a new high and the non-confirmation remains in place. The longer it takes to confirm, the more tenuous the market is. Hey, take a Prozac and go long, you’re going to make it to the big time!

Peter Gabriel - Big Time:

Monday, March 15, 2010

Dylan Ratigan – Explanation of ‘Repo 105’ Transactions and Accounting Fraud…

Great video explanation of the fraud that not only was occurring just before Lehman was failing, but is still ongoing today. Don't misunderstand, this is just one part of the accounting fraud, not anywhere near the whole enchilada. Nothing has changed, other than the FASB being rolled under pressure to accept worse and worse practices. This is what happens when you back your money with debt requiring never ending growth.

What's important is WHO controls the quantity of money. Please support Freedom’s Vision and register for the Swarms!

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Martin Weiss - The Great Credit Squeeze

Every once and awhile, Martin Weiss simply comes out and speaks the truth. Putting the numbers into perspective is why I am posting this piece. What he fails to mention is WHY, much less what to do to resolve it. Here’s why, the numbers are progressing in an exponential manner due to the math of interest backing our money. This construct was created by the central bankers and will not end until the central bankers are removed from being in control of this nation’s money system.

Freedom’s Vision, of course is the answer. Until the people of the U.S. have the courage to stand up, like the people of Iceland now have, we will continue to experience crisis. It’s easy, take back what belong to you, tell the central bankers to pound sand!

The Great Credit Squeeze

By Martin Weiss

If you think that the sovereign debt crisis is mostly behind us … that America’s federal deficit is turning into a non-issue … or that we can just go back to business as usual … you’d better consider the drama now unfolding in the hard numbers just released last week:

February deficit: In February alone, the official U.S. federal deficit was a monstrous $221 billion, far greater than anything we have ever experienced in history.

Back in the 1980s, for example, President Reagan was plagued with the worst string of federal deficits ever recorded until that time. But with February’s deficit, Washington has managed to run up just as much red ink as it did in all of 1986, the single worst deficit year under Reagan.

Going back further, to the 1970s under President Nixon, we also had a rash of deficit spending that sent chills up the spines of economists. But last month’s deficit of $221 billion was more than TRIPLE the sum total of ALL deficits during the six years under Nixon.

Ever since America’s Declaration of Independence, deficit spending has been a recurring theme in Washington that invariably returns with a vengeance, especially during wartime. But it took 169 long years and seven major wars — from 1776 to 1945 — to rack up a cumulative deficit that matches the gaping budget hole of just 28 short days in February.

What does the government resort to in order to finance these humongous deficits? The answer is obvious…

Unprecedented borrowing: In just one week last month (ending 2/26), the U.S. Treasury issued…

  • $32 billion in 7-year Treasury notes,
  • $42 billion in 5-year notes,
  • $44 billion in 2-year notes,
  • $8 billion in 30-year TIPS bonds,
  • $26 billion of 3-month bills,
  • $28 billion of 6-month bills,
  • $31 billion of 4-week bills, and
  • $25 billion of cash management bills.

Grand total: $236 billion in government debt issued in a single week, the most in the history of the world.

This means that Uncle Sam borrowed new money — and replaced old debt — at the rate of $390,212 per second … $23.4 million per minute… and $1.4 billion per hour — around the clock!

It is a pace of debt issuance that simply cannot be sustained without disastrous consequences.

Why not? One reason is because of…

Dreadful crowding out of the private sector: As long as Uncle Sam is continuing to hog most of the available credit, it’s going to be increasingly difficult — sometimes nearly impossible — for most businesses and consumers to get their share of desperately needed funds.

Consider the fourth quarter of last year, for example. The Fed’s Flow of Funds report, just released on Thursday, tells the story…

Fourth Quarter Credit Market Squeeze

Government borrowing was massive: The U.S. Treasury jumped into the credit markets and grabbed up new funds at an annual pace of $954.7 billion, while local and state governments raised $114.2 billion. Total government borrowing (after some reduction in gov’t agency bonds): $1,040.4 billion.

In contrast…

Most business borrowers were shoved out of the credit markets: Not only did they have a tough time getting new loans, they also cut down their EXISTING debts — either voluntarily or not — at the breakneck annual pace of $1,097.5 billion.

Millions of consumers were virtually ostracized from the credit market: They were forced to cut their existing mortgages at the annual rate of $365.1 billion and their consumer credit at the rate of $145.3 billion — a total annualized cutback of $510.4 billion.

Don’t underestimate the potential impact of this phenomenon on the economy and your investments.

Remember: We are not just witnessing a decline in new business and consumer borrowing — a trend that typically signals economic weakness. Rather, what we have here is…

  • A decline to ZERO on a net basis! Plus…
  • Massive pressure on consumers and businesses to actually PAY DOWN debts outstanding! Plus…
  • Widespread defaults and foreclosures forcing the lenders to WRITE OFF massive amounts of debts

My main point: It’s bad enough when you see credit flowing to consumers and corporations at a slower pace. But what’s happening now is far, far worse! Credit is actually being sucked OUT of the consumer and corporate economy at a torrid pace.

In fact, if you step back from the trees, you see an even uglier picture:

Huge amounts of credit being denied — or even taken away from — those who could fuel a recovery … plus, at the same time, huge amounts of credit being grabbed by federal and local governments to finance their giant deficits.

Now do you see why we’ve been saying all along that this recovery is bought and paid for by Washington?

Now do you see why a sovereign debt crisis — and future difficulties by governments to continue borrowing — is such a threat?

Heck! If the U.S. economy is just limping along even with massive government support, imagine the paralysis that’s likely if the government cuts back that support to curtail out-of-control deficits!

Bottom line:

First, the massive supply of government bonds on the way will drive their prices down and long-term interest rates up. Short of a miracle, we see little hope to avoid this outcome.

Second, as the federal deficit continues to grow out of control, the Great Credit Crunch is going to get even worse.

Third, don’t jump to the conclusion that the credit crunch will immediately topple the U.S. economy or stock market. With all the money that Washington has pumped in, a weak recovery can continue and stocks could still enjoy an extension of their rally.

But it cannot last. In the long term, corporate profits cannot be sustained without credit. If credit remains scarce, forget about a long, multi-year recovery … and brace yourself for a violent double-dip recession beginning later this year.

Good luck and God bless!


Morning Update/ Market Thread 3/15

Good Morning,

Welcome to the Ides of March, yet another Monday, another options expiration week, and yet the normal ramp job has not shown up… yet. Ahh, come on guys, you’re laying down on the job, we all know the market only goes up, right? In Roman times the Ides of March was a festive day to celebrate Mars, but famous today as the day that Julius Caesar was stabbed to death in the Roman Senate. Beware.

The futures are fairly close to flat after being down overnight. Below is a 60 minute chart of the DOW on the left, 5 minute S&P close-up on the right:

The dollar is up strongly, though, after bouncing perfectly right off the bottom of its current uptrend channel. Below is a daily chart of the dollar showing the trend, the question here is did we just finish wave 4 and are about to make a 5th wave higher, or was it an a,b,c correction and it’s going to break down? It’s an important question, another inflection point in the markets that happens to be coincident with the long term bond market sitting right on critical support, the neckline of a very large H&S pattern. Should the dollar break down, equities up, the bond market will have a hard time holding – yet again up against a rock and a hard place.

The Euro performed three perfect waves right into the target area I pointed out a long time ago, found support and now the question is the same as it is for the dollar.

Two more bank failure this weekend, bringing the year’s total so far to 30.

Senator Dodd is pressing for bank reform. The draft is supposed to come out today calling for higher capital requirements, creating exchanges for some derivatives, and limiting the size of big corporations. Baby steps in my opinion, can it happen against the will of the special interests? I doubt it, not from within the box they created and they own. They set the rules, not Dodd, even though he’s the illusion of the person who the people believe makes the rules. If it does come into being, and if it is not just another platitude to make people think meaningful change is occurring then once again the banks are way, overvalued. Heck, any value above zero is simply fantasy in my world of accounting.

Here’s a good one:
March 15 (Bloomberg) -- U.S. stock futures fell after Moody’s Investors Service said the nation has moved closer to losing its AAA credit rating and concern grew that China and India will restrict economic growth to curb inflation.

They also put Britain in the same camp as the U.S.. This from a ratings agency that can only change a rating AFTER failure has occurred. They are part and parcel a part of the problem, still. Nothing has changed. Let me ask you a simple question. Would you lend me your money if I told you that I earn $5,000 a month and yet I spend $15,000 a month, month after month? No? So why would anybody buy a U.S. Treasury bond? This is exactly the situation our country is in, it is no different other than the ability to print which, again, if you’re foolish enough to lend money to they will simply pay you back with money that is worth less because they devalued it for you. Deficits DO matter, it is very close to time where the debt situation comes home to roost. I know, people have been saying it for years, but the math is so far gone now that we are literally living on borrowed time.

The Empire State Manufacturing Index was released this morning and did show growth pretty much in line with expectations, here’s Econoday:
New orders, shipments, inventories, delivery times and employment are all posting month-to-month increases in New York state's manufacturing region, offering a convincing indication of building strength at the national level. The Empire State's general business conditions index did slow by more than 2 points to 22.86 in March, but the reading is still far over zero to indicate significant month-to-month expansion.

The headline reading masks wide strength in the individual indexes: new orders 25.43 in March vs. 8.78 in February, shipments 25.58 vs. 15.14, inventories 4.94 vs. 0.00, delivery time 2.47 vs. minus 6.94, employment 12.35 vs. 5.56. The rise in inventories is of special note, offering a new indication that the manufacturing restocking cycle is safely underway. The rise in delivery times is also of special note, indicating a slowing that supports the prospect for new capacity investment in the manufacturing supply chain.
Remember, these indexes are surveys, and it’s difficult as heck to survey a company that is no longer there. The premise that all these data are built upon is flawed because there is no accounting for survivorship bias.

The Treasury International Capital flows (TIC) for January went negative again, this time down $33.4 billion. The United States took in $107 billion in February and spent more than three times that amount, $328 billion. Insane, the whole bond market is now a rouse. Yet somehow Econoday finds a way to report it as positive number, the NET number was negative.
Foreign investment in long-term U.S. securities slowed in January, to a net $19.1 billion vs. $63.3 billion in December and an exceptionally strong $126.4 billion in November. Breaking the data down, U.S. investors bought a net $17.0 billion of foreign securities while foreigners bought a net $36.1 billion of U.S. securities for the weakest reading since May. Weakness in January was centered in corporate & other bonds where private foreign investors were heavy sellers. Foreigners were also heavy sellers of agency debt but, importantly, were heavy buyers of Treasuries and solid buyers of equities.

Country data shows Chinese Treasury holdings at $889.0 billion, down nearly $6 billion from December and compared against $938.3 billion as recently as October. Japanese holdings, in contrast, have been on the rise, at $765.4 billion. Note that benchmark revisions released earlier this month added significantly to Chinese holdings.
More “revisions?” Riiight, they mean more creative accounting, what normal people call fraud.

Note what’s happening in this line from the report, “Monthly net TIC flows were negative $33.4 billion. Of this amount, net foreign private flows were $0.6 billion, and net foreign official flows were negative $34.1 billion.”

Private flows have been running quite negative while “official” flows had remained slightly positive. Central banker games from my point of view, but this reading shows negative official flows. I actually don't trust these reports either, we’d all have to see the books and trace the flow of money. Of course it would be far easier just to replace the Fed and create a system that doesn’t rely on this type of fun and games that is controlled by private bankers who refuse to open the system up to the light of day.

For the curious, here’s the entire TIC report:
TiC for January 2010
Industrial Production figures came out for February, again, here’s Econoday:
Although overall industrial production managed to pull off a modest increase for February, it was mainly weather related from higher utilities output. The manufacturing component, however, dipped. Overall industrial production in February posted a small 0.1 percent rise after a 0.9 percent jump in January. The latest increase beat the market forecast for no change.

The manufacturing component, however, fell back 0.2 percent, following a 0.9 percent spike in January. Weakness was led by motor vehicles-other components were mixed. For the latest month, utilities output jumped 0.5 percent after rising 0.6 percent the month before. Mining output increased 2.0 percent after advancing 1.1 percent in January.

Indeed, the motor vehicles & parts component pulled down manufacturing as it fell 4.4 percent after jumping 4.7 percent in January. Excluding motor vehicles, manufacturing nudged up 0.1 percent, following a 0.7 percent boost in January.

On a year-on-year basis, industrial production rose to plus 1.7 percent from 0.8 percent in January.

Capacity utilization remains low as it edged up to 72.7 percent in February from 72.5 percent the month before. The latest number topped the market expectation for 72.4 percent.

Overall, today's report was marginally weaker than at face value as manufacturing slipped and the headline was basically boosted by cold weather raising utilities output. But manufacturing appears to still be trending upward with the February dip coming after a strong gain the month before. On the news, markets had little reaction. Also, earlier in the morning, the March Empire State index came in as expected.

Turning back to the markets, there was some funny activity just prior to the close on Friday that was noticeable in a few names, one being GE. It sure looked like front-running sparked by some insider type of activity. Funny, but just as I was typing this the market began to zoom higher, GE is headed straight up. Again, these markets look as wild as Juarez Mexico to me, lawless.

There are so many indicators at extreme overbought readings that it’s just sad because any rational person knows what’s coming. This move has been parabolic and it has been completely irrational, the money flows are lopsided, and once all the money is headed in the same direction then there is a change of direction afoot. The possibility of a DOW theory non-confirmation remains in place as the Industrial have yet to be gunned to new highs. I’ve been preaching patience, I still think this is extremely dangerous, a time where patience will eventually be rewarded, but that certainly does not mean buy and hold.

Just remember that the volatility and crazy things we see are an expression of the bad math at work. It corrupted everyone. The banks had to keep the growth going somehow or they would die. Thus they did anything and everything they could to continue to crank out debt backed money. It was destined to happen from the beginning because of WHO controlled the money.

Emerson, Lake & Palmer – From the Beginning:

Sunday, March 14, 2010

Uncle Jay Explains...

Yes, it's time once again, boys & girls, for Uncle Jay to explain the news!