Saturday, May 29, 2010

Damon Vrabel - Central Banking vs. The Republic and the World

Damon produces another high quality article that is on target in terms of the problem, the people behind it, and in terms of the solution – Freedom’s Vision.

And just to piggyback on Damon’s Ben Bernanke survey, it’s my understanding from talking to people who frequently interact with our politicians that 90% of them fall into the clueless category, but the other 10% are in on what Damon is suggesting. It’s obvious, despite the Harvard lobotomy, that Bernanke isn’t clueless as he funnels trillions at the banks for whom he works… and thus it places him in the other 10% that are in on the debt pushing takeover of the Republic.

Now all we have to do is figure out how Damon escaped the Harvard neuron killing procedure himself and then replicate it… perhaps interfacing with the real world and staying far removed from people like Jamie Dimon is a good start:

Central Banking vs. The Republic and the World

A couple of days ago in Japan, Ben Bernanke said that the benefits of low interest rate policies that politicians want “are not sustainable and will soon evaporate, leaving behind inflationary pressures that worsen the economy’s long-term prospects…...thus political interference in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation.”

[pause inserted so you have time to pick your jaw up off the floor]

We are now in the midst of one of the biggest boom-busts in history, all under the Fed’s watch, caused by its multi-decade low interest rate policy among other things, yet that is the scenario he says government oversight would cause! So what’s really going on here beneath Ben’s Harvard veneer?

He is trying to scare us with a fabricated boogie man—the idea that your elected leaders might do in some imaginary future what the Fed has already done in the unimaginable present. He wants you to be scared of this republic’s legislature reclaiming some power back from the financial empire that runs the global corporate system, and the US government from behind closed doors (article: Wall Street Empire). In other words, he wants you to continue submitting to financial dictatorship rather than rediscovering the principles of freedom, distributed power, and effective government. Will you choose submission or discovery? As more and more people are realizing, we are now in one of the most critical moments “in the course of human events.”

We have seen this moment before, especially from Hollywood. It is the WALL-E moment when the captain of the starship Axiom (our elected leaders) finally wrestles power back from Auto (the Fed cartel on Wall Street) and restores life by saving humanity from its TV programming (our media). It is the Gladiator moment when General Maximus wakes up to the imperial enemy and commits himself to restoring the republic. It is the Star Wars moment when Darth Vader chooses life for his son and the republic by throwing the emperor to his death. Which will you choose? Will real life turn out as well as fiction? Or will Ben’s scare tactics keep you in fear?

The Ben Bernanke Survey

I’m curious for your opinion about why Ben is doing this. Reply in the comments below with your answer to this multiple choice question: Who is Ben Bernanke?

  1. Honest – he actually believes what he says. He’s still a Harvard kid getting gold stars on his homework as he repeats the fraudulent load of crap known as neoclassical economics.

  2. Dishonest – he knows he’s just protecting the powers behind the Fed system and furthering their global restructuring plan by threatening the politicians with more boom-busts if they try to serve the people.

  3. Insane – he’s not in touch with reality.

Folks like Jim Rogers, Marc Faber, and Peter Schiff promote #1, the idea that he’s a clueless theoretician repeatedly making mistakes. No doubt there was a time when he was just a bright-eyed overachiever being pumped full of theory disconnected from reality. But these guys ignore Ben’s comments in Japan. He makes it clear that he knows exaggerated low interest rate policies cause major problems, i.e. he’s not ignorant, but he engages in them anyway! So again I ask what’s really going on?

Feel free to disagree, but #2 is my answer, which means we need to stop believing Rogers, Faber, and Schiff that he’s a pedantic bureaucrat. That’s pure spin that reinforces the idea there’s no strategic plan behind what the G20, IMF, BIS, and Fed are doing in response to the coordinated actions of Rubin, Summers, Paulson, Geithner, Greenspan, AIG, JP Morgan Chase, Goldman Sachs, etc. Those who promote #1 are suggesting that these folks, all part of the elite Council on Foreign Relations (CFR), are basically randomly screwing up a kids’ game of checkers. No chance. The fact is we are in the mist of a global chess game being played above the heads of national governments in which debt and leverage are used to restructure the world under a new global money and banking system (video: Emerging Global Empire). I suggest Bernanke’s sole purpose is to hide the real role the Federal Reserve has played in this game while also helping to keep Congress from asserting its power.

Central Banking: Pro or Con?

The media likes to claim that voicing opposition to the Fed is lower class populism. But of course the media doesn’t think. It just promotes left or right groupthink for the few corporate powers that own the media. They don’t want you thinking about the question of a central bank. If they did, we might better understand the pros and cons.

The pro is that without a central body regulating the value of currency, thousands of banks across the country would be randomly cranking credit up and down resulting in economic turmoil. True. Some of the founders understood that without a controlled currency, private banking institutions could profit massively off whipsawing the people, which is why Article 1 Section 8 of the Constitution says the government should regulate the value of the currency. But of course we know this pro doesn’t apply to the Fed structure because the most extreme periods of economic turmoil have happened since it was created.

The problem with this pro is the first con of the Fed’s form of central banking—it puts currency control in private hands. Rather than the Fed having power over the banks, its structure actually gives the primary dealer banks (mega firms like JP Morgan Chase, Goldman Sachs, and many foreign banks) significant power to tell it what to do. Entrenched powers behind these firms working together in cartel groups like the New York Fed and CFR have far more leverage than the president, i.e. an individual with no financial experience who rotates into office for a short period of time completely surrounded by bankers and their allies. The entire purpose of the Constitution and having a republic, despite its flaws, was to put power in the hands of the public vs. a concentrated private oligarchy. But the Fed system creates such an oligarchy, as many Americans now see since the crash of 2008.

Mathematical con: Basing a currency on nothing but interest-bearing debt as the Fed system does creates the need for perpetual exponential growth (video: Culture of Empire part 1). This feels like a good thing at first, but eventually the accompanying perpetual inflation becomes clear (Bernanke admitted this in Japan by also saying central banks target 2% inflation—a huge indicator economists ignore that the system is unsustainable—a stable system would target zero). The perpetually increasing debt eventually becomes shocking (look around the world). The perpetually increasing scale and velocity of the system starts causing profound harm (Part 2 and 3). Exponential systems are guaranteed to crash. The eventual reckoning with the impossibility of exponential math is not pretty, and we are now entering the reckoning phase for our system (Chris Martenson video on Exponential Growth).

Economic con: Oligarchic monetary systems tend toward a 2-tiered society, money pushing rulers vs. money using servants who scramble to pay the rulers back plus interest. The ruling financial class eventually takes over the productive economy and then parasitically destroys the host upon which it lives as gambling and speculation replace savings and production as the engine of growth. Such is the power of a monetary system based on nothing but debt (Michael Hudson video).

Moral con: A debt-based monetary system enshrines usury, i.e. living off the backs of others by doing nothing but subjugating a population to systemic interest-bearing debt. So the foundation of our monetary system under the Federal Reserve is built upon immorality (article: Usury and the Coming Crash).

Philosophical con: Related to the moral and economic cons is the philosophical ideal of freedom. An oligarchic monetary system forces the great mass of the population into servitude. It effectively creates a predator/prey structure in society. In a system based purely on debt, the banking powers are able to super-inflate the system to drive up asset prices, and then deflate the system sucking value and assets up the pyramid to consolidate power. We saw this over the last 10 years. This is the biggest and brightest example of why Jefferson said “banking institutions are more dangerous than standing armies.” It’s also the best example of why the Constitution demands that government regulate the currency.


So how can we get the one pro of a central monetary authority regulating the value of the currency without any of the cons above? Do precisely what Ben says we shouldn’t do—reestablish the republic by putting currency regulation in the hands of public officials as the Constitutions says. If a country doesn’t have a sovereign currency, it doesn’t have a sovereign government. We are learning that painful lesson now as we see Greece being attacked and taken over by financial institutions. The same thing has happened to many countries in the past and it will happen in the future if governments don’t take charge. At that point everyone will know the truth—governments are held hostage by private financial interests. But more and more Americans are realizing the truth now and pushing for change.

However, the change is not as simple as ending the Fed. Without a transition plan, that would cause a disaster since it is the basis for the money supply. The key is to nationalize the Fed, and possibly its primary dealers during the transition phase, to keep them from holding us hostage with the threat of collapse. Then with honest public officials in Treasury and other agencies that don’t represent Goldman Sachs and the rest of the financial cartel—people like William Black, Brooksley Born, Janet Tavakoli, Michael Hudson, Eliot Spitzer, Harry Markopolos—it will be possible to restructure the monetary system. Other components of the solution involve the US Treasury printing sovereign US notes, state banking systems like North Dakota to restore state power, etc. (see details at Freedom’s Vision)

Just a short time ago things felt hopeless because, as Martin Luther King warned, “One of the great liabilities of history is that all too many people fail to remain awake through great periods of social change.” But the republic has heeded his call. It is awakening. Restoration is on the horizon, and that’s a good thing for America and the rest of the world.

Friday, May 28, 2010

Morning Update/ Market Thread 5/28

Good Morning,

Equity futures are flat following yesterday's 284 point jaunt. That was a ridiculous 97% up day by volume on the NYSE. Now, normally I would consider that a “panic” buying day, but it came on much lower volume. Remember, volume confirms price, and volume hasn’t confirmed any direction but down for the past 3 years.

And last night it dawned on me what’s occurring is not the same thing as what used to occur in the good old days of 90ish percent up or down days… Of course you know that the market is extremely volatile, but we’ve had SIX 90%+ down days in the past few weeks to go along with another couple 90%+ up days (no follow-through on the upside, only on the downside). These have not just been 90%, they’ve been in the high 90’s. Now combine that fact with the fact that four banks had perfect trading quarters… the conclusion is that HFT (High Frequency Trading) has become so good and so fast at chasing short term momentum that all the machines get on the same side of the trade way faster and more efficiently than they used to. I mean, come on – 97% of all the trading volume was long yesterday, that’s simply absurd. Was mom and pop going long because we finally broke back above 1,090? Hardly, these lopsided days are yet another sign of how HFT and a very few players have taken over the markets. I reiterate; the markets no longer exist, they are a computer simulation.

That’s not price discovery, that’s a game designed to print money for those who are in on it, and to steal money from those who are not. You know, an hour before the closing bell yesterday I had to run an errand that took me away until just after the close. As I was walking in the door I wondered to myself if we had managed to close over SPX 1,090 or not… then I thought to myself, you know I wouldn’t bet $5 on it one way or the other! Ah, ha! That’s it exactly, no I wouldn’t and I have NOTHING in the casino at the moment if you’re wondering what “bets” I’m playing.

Oh yeah, the last 5 minute bar rammed over 1,100. Which direction is the momo today? Are you willing to bet? My work says today will be down, let’s see if their computer simulation agrees.

By the way, the dollar is flat, bonds are up (hint to equities), oil and gold are both down slightly.

Hey, how about the way BP sat on the fact that the “top kill” was aborted early yesterday and was not reported for 16 hours? That was nice. The live footage of the leak looked like a mix of mud and oil, and it turned out that it was residual mud being flushed out by the oil. They say it’s still in progress, but to me it should be obvious when it’s working as the color should be consistent – it should be all mud. So we sit and we wait some more. Those who went long BP betting that this would work should be cautious, yesterday produced a shooting star candle and BP is opening well beneath it today:

Consumer spending came in below forecast this morning, flat for the month of April, .2% was expected. Personal Income grew .4% for the month, that is a positive, but without spending it shows that the consumer is “saving.” Of course saving may mean that they are paying down debt (or simply making interest payments on their credit cards):
Consumers are getting healthier-at least financially-as income gains continue. But the consumer paused growth in spending in April after strong gains the prior two months. Personal income posted a solid 0.4 percent increase for April, matching the gain the month before. The April figure came in slightly lower than the market forecast for a 0.5 percent boost. Importantly, the latest increase is in what really counts as the wages & salaries component advanced 0.4 percent after rising 0.3 percent in March.

But spending growth hit a speed bump in April. Overall, personal consumption was flat, following a 0.6 percent rise the prior month and 0.5 percent in February. The April number fell short of analysts' projection for a 0.2 percent increase. April was weakened by a drop in nondurables and was mostly price related.

Inflation is still almost nonexistent. The headline PCE price index was unchanged in April-easing from up 0.1 percent in March. The core rate also was soft, gaining only 0.1 percent and matching both March and the consensus forecast.

Year on year, personal income growth for April came in at 2.5 percent, slipping from 2.8 percent in March. Year-ago headline PCE inflation was unchanged at 2.0 percent. Year-ago core PCE inflation edged down to 1.2 percent from 1.3 percent in March.

The good news is that consumers are finding more greenbacks in their wallets and this should support additional spending and the recovery. April's PCEs number was mildly disappointing but not so much in light of how strong the prior to months were. The consumer on average is now pulling its weight in the recovery. And the Fed likes the inflation news.

Never met a statistic he didn’t like, LOL… and this is the best analysis I can offer. Oh, you can pay for analysis if you wish, but then it’ll be even worse and far more biased. Evidently he hasn’t seen the fact that M3 is down year over year making, “… more greenbacks in their wallets” a statement that simply is not true. M3 measures deposits in banks, and when it’s down, it means the supply of money is falling – that is debt is being paid down. That’s a good thing in the long run, but boy does it have a long way to go to resemble anything healthy.

Chicago PMI and Citizen Sentiment are released shortly after the open this morning.

Both the DOW and the S&P ran right up to their 200 day moving averages and stopped. The up move so far traced out a very clear a,b,c pattern and is probably complete. This pattern is most likely wave A of an A,B,C retrace of the entire move down since April – in other words, it’s likely a wave 2 retrace. Wave A is likely complete, and this move down should be wave B, then I expect wave C will take us up into that inverted H&S target of 1,140ish. If we fail to reach 1,140, that would be quite bearish. Regardless, once this wave 2 completes, wave 3 should follow. That’s going to be exciting, I hope you’re ready.

Admittedly, that count is just one possibility, but it is my highest probability and it is the count that McHugh is working as his top case scenario as well. Alternatively, it is possible that we fail to rise much further and descend from here. When I look at the daily chart there are three clear waves down and this could be a wave 4. If that's true, we should not climb much higher than here, and then we should have a 5th wave lower into new lows. Remember, EW doesn't tell you what's going to happen, it simply eliminates possibilities with its rules thus narrowing the possibilities:

Again, this is most likely a retrace of the entire move and that means it's probably a wave 2 correction. Shorting the top of wave 2’s is the most profitable trade in bear markets, it’s really the only bets of substance I’ll be placing in this casino until it begins to resemble a marketplace comprised of humans. Want to trade in these markets? Your competition are literally supercomputers, you are asking to be Superman…

The Kinks – Superman:

Thursday, May 27, 2010

Nathan Martin Interview – KAAY, Little Rock…

Interview with host Alex Wittenburg at KAAY 1090am

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

Morning Update/ Market Thread 5/27

Good Morning,

Equity futures rallied hard off uptrending support last night, reaching all the way back to the SPX 1,090 resistance area. This produced a pretty clear inverted Head & Shoulders pattern with the drop yesterday and rise this morning being the right shoulder - here's a 15 minute chart showing this pattern clearly:

Should prices rise above the 1,090 level, that pattern will be confirmed and the target would become 1,140, although there are several resistance areas prior to that target. SPX 1,140, by the way, would produce a lower high that is proportional to the last lower high. Should it fail to break 1,090, then we are likely producing a sideways movement prior to the next leg lower.

The down move yesterday was difficult to read, however, it stopped right on the uptrend line from Tuesday’s lows as you can see in this 10 minute chart of the SPX:

Although I keep hearing talk of how oversold the market is, the truth is that’s only on the very short time frames, even the daily is not deeply oversold. There are some small positive divergences in place, the RSI, for example, is showing positive divergence in the 60 minute time frame, the number of new lows dropped dramatically on yesterday’s down move and over the prior couple of days the VIX had been moving lower despite lower prices. Yesterday the Transports rose in a bullish divergence against the drop in the Industrials. These are all indications that downside momentum is slowing – for now.

The most concerning item yesterday is the continued deterioration of the Euro. Yesterday it was lower again, and overnight it bounced back up to its channel downtrend line and turned around there again. The dollar may have put in a double top yesterday, if it makes one more run upwards though, it will probably break through.

Bonds are substantially lower this morning, that is supportive of a short term rally. Oil is higher today despite another large build in crude inventories. Inventories are nearly back to the record levels obtained when the markets were tumbling in late 2008. Obama, by the way, just signed a six month moratorium on new off-shore oil drilling while the top-kill procedure is still in progress – fingers are crossed on that working, evidently it is looking good so far!

On this messy nine month chart of the SPX below, you can see that we did produce an intraday low that is lower than the February low. We have not yet, however, made a closing low below the February closing lows. Also important is the fact that we have yet to close beneath the 1,040 level which is still a potential neckline of a large Head & Shoulders pattern:

The first revision to Quarter 1 GDP came in at an annualized rate of 3.0%. This is below the initial report of 3.2% and is in the opposite direction of the consensus that was looking for and upward revision to 3.4%. Here’s Econoday:
Today's revision to first quarter GDP disappointed as the new estimate was bumped down instead of up. The good news is that there really was little change overall. First quarter GDP was revised down to an annualized 3.0 pace from the initial estimate of 3.2 percent and falling short of analysts' forecast for 3.5 percent. The overall revision was net many small changes and was not a result of a large change to any one component. However, a notable disappointment was that real final sales to domestic purchasers was revised down to 2.0 percent from 2.2 percent.

Economy-wide inflation remains anemic as the GDP price index was revised up incrementally to 1.0 percent annualized from the initial estimate of 0.9 annualized. The market consensus called for no net revision to the prior estimate of 0.9 percent.

Although the latest GDP number was disappointing in terms of expectations, it still reflects a continuation of the recovery. And the mix is improved from the fourth quarter. On the news, equity futures softened but remained up sharply.

My perspective is that our GDP numbers are completely false and vastly overstated for a number of reasons, the most important of which is that it’s built upon engineered financing which is build upon fraudulent accounting. Cash flow is always the killer to false accounting, oh, and look at M3 plummet! Down 5% now on a year over year basis? That’ll eventually get real interesting:

Chart of U.S. Money Supply Growth

Here’s a longer term perspective going back to 1960 - nothing like it in modern history, that's for certain:

Weekly jobless claims came in at 460,000. This is still extremely elevated, it is lower than last week’s 471k (revised to 474k), but it is higher than the consensus that was looking for 450k. Here’s Econoday:
Initial jobless claims fell in the May 22 week but not by much. Claims were down 14,000 to a higher-than-expected level of 460,000. In a partial offset, the prior week was revised 3,000 higher to 474,000. Improvement in the latest week fails to offset prior increases, reflected in the four-week average which rose for a second week, up 2,250 to 456,500. The month-to-month look is mixed with the four-week average showing marginal improvement while the latest week shows a marginal increase.

Continuing claims are going in the right direction, at least for the latest two weeks of data. Continuing claims fell 49,000 to 4.607 million in the May 15 week to bring down the four-week average by 12,000 to 4.637 million. The unemployment rate of insured workers is unchanged at 3.6 percent.

Today's report will support expectations for moderate improvement in the monthly employment report, specifically private payrolls which exclude census workers. But the results don't point to the kind of significant improvement that would end talk of a Europe-led double dip.

LOL, “…end talk of a Europe-led double dip.” Stop it, you’re killing me.

According to the DOL, Emergency Unemployment Claims fell 41,403 during the week, but the 5 million plus people drawing EUC is up still nearly 3 million over year prior figures.

As I type the dollar is strengthening while the Euro sinks once again. Further breakdown in the Euro will drive equities - like always, keep your eyes on the money/DEBT!

The Kinks - The Money Go Round:

Wednesday, May 26, 2010

Fiscal Commission Gives White House dose of Diminishing Productivity Reality…

Sounding like they have paid attention to the Diminishing Marginal Productivity of Debt chart (Chart of the Century), the “Fiscal Commission” gives both the White House and Congress a dose of reality. That is once debt saturation is reached, the velocity of debt collapses and growth diminishes as you place more debt into the system:

Unfortunately, their limited thinking in terms of solutions still can be found squarely inside of the debt-backed money box in which you either assume more debt or live with austerity. Neither is necessary unless you are a central banker who depends on debt to make your living… (ht Kevin)

U.S. debt reaches level at which economic growth begins to slow

By Walter Alarkon

The level of U.S. debt has reached a point at which economic growth traditionally begins to slow, a bipartisan fiscal commission making recommendations to the White House and Congress was told Wednesday.

The gross U.S. debt is approaching a level equivalent to 90 percent of the country's gross domestic product, the level at which growth has historically declined, said Carmen Reinhart, a University of Maryland economist.

When gross debt hits 90 percent of GDP, Reinhart told the commission during a hearing in the Capitol, growth "deteriorates markedly." Median growth rates fall by 1 percent, and average growth rates fall "considerably more," she said.

Reinhart said the commission shouldn't wait to put in place a plan to rein in deficits.

"I have no positive news to give," she said. "Fiscal austerity is something nobody wants, but it is a fact.

Gross debt is at 89 percent and will reach 90 percent by the end of the year, said Sen. Kent Conrad (D-N.D.), a member of the commission.

Another commission member, Rep. Jeb Hensarling (R-Texas), described the situation: "Essentially, the needle is hitting the red zone in respect to economic growth.”

Gross debt, unlike the public debt measure used by the Congressional Budget Office (CBO) and other economic forecasters, includes the money the government owes to all entities it supports, such as mortgage firms Freddie Mac and Fannie Mae, Reinhart said. The CBO expects public debt to grow from 63 percent this year to 90 percent in 2020, largely because of rising healthcare costs.

The bipartisan fiscal commission, which was created by President Barack Obama and contains lawmakers from both parties, is tasked with producing a plan to rein in debt by December 1. Leaders in both the House and Senate have said the commission's proposals would receive votes on the floor later that month.

Reinhart cautioned policymakers against seeing the strengthening of the dollar as a sign that investors can wait for the United States to show how it will deal with the debt.

"I am concerned about complacency," she said. "I am concerned that because the dollar has renewed its role as a reserve currency, we may wait too long."

To quote Kevin, “Ya think?”

Until their models incorporate the fact that we don't live in a linear world and that our money is backed by debt, economists, puppet banker underlings, and politicians will continue to misunderstand what's happening and will keep applying inappropriate solutions. Of course that's giving credit for good intent, that's certainly debatable.

Oh Canada – The Movie…

Below is a link to a very entertaining, creative, and educational movie about the money system in Canada. Yes, it’s almost all applicable to the USA and to the entire debt-backed money world. There are some editorials you may not agree with, but I think it’s worth your time overall. This is a good one to share with those who may not be familiar with the way money works – in other words nearly everyone!

I posted the entire series of Youtube videos at my Swarm Blog so that the videos don’t slow down this site: Oh Canada – The Movie.

Total running length is 1 hour and 36 minutes.

Here's part 2 as a sample...

Oh Canada – Part 2 (6 minutes):

Morning Update/ Market Thread 5/26

Good Morning,

Equity futures are higher after yesterday’s wave 5 and immaculate recovery off the SPX 1,040 support area. Bonds are lower, oil is back above $70 a barrel, gold is climbing well above the $1,200 an ounce level again, but the dollar is higher and euro lower. Hey, the euro still looks sick – the crisis of debt is rippling, it has not been cured and cannot be cured as long as the debt far exceeds income.

The completely worthless MBA Purchase Applications Index which hit an all time record low with the last report descended another 3.3% over the past week – here’s Econoday:
Housing demand in May appears to have collapsed, the result of second-round stimulus which pulled sales into March and April. The Mortgage Bankers Association's purchase index fell another 3.3 percent in the May 21 week to sit at deeper 13-year lows. Ironically, the collapse is hitting at a time when mortgage rates are moving to record lows, the result of the safe-haven rush for U.S. Treasuries. More and more homeowners are refinancing their existing mortgages to lock in the low rates as the refinancing index jumped 17.0 percent. The average 30-year mortgage fell 3 basis points to 4.80
Yeah, how ‘bout that? Record low interest rates and yet historic low Purchase Index. Can you say, “debt saturation?” I thought you could!

So, what happens from here now that the government has lowered rates to zero and basically purchased every worthless mortgage in the country? We’re going to find out, it’s going to get real interesting. Obviously creating bounces by throwing trillions at the problem is a short term thing exacerbating the problem in the longer run. Change is coming and all the while the melt down in the upper end segment is scheduled to kick into high gear shortly with the ongoing wave of Option-ARM resets.

Durable Goods orders are reported up 2.9% month over month mostly due to an influx of aircraft orders. The year over year numbers look spectacular, up 18.9% now year over year, but keep in mind that’s compared to the standstill that occurred over the same timeframe the year prior. Here’s Econoday’s report:
The April durables report lived up to its reputation as a volatile series but this time it was not just in the new numbers but in revisions. Net, durables are still notably healthy. New factory orders for durable goods in April surged 2.9 percent after a revised no change the month before. The headline number topped analysts' projection for a 1.5 percent comeback. The jump in the headline number was led by huge boost in the transportation component.

Excluding the transportation component, new durables orders slipped 1.0 percent after a 4.8 percent spike in March. The swing was largely in civilian aircraft. However, taking into account the March strength in ex-transportation, the relatively small decline in ex-transportation leaves new orders at healthy levels.

Nondefense capital goods orders excluding aircraft fell back 2.4 percent in April after a sharp 6.5 percent boost the month before. Shipments for this category-and source data for equipment investment in GDP-edged up 0.2 percent in April, following a 2.3 percent increase the month before.

Year-on-year, overall new orders for durable goods in April were up a robust 18.9 percent, compared to 17.3 percent in March. Excluding transportation, new durables orders stood at up 18.0 percent, compared to 19.2 percent in March.

The bottom line is that after taking into account monthly volatility, durables orders are still strong at both the headline and core levels. If manufacturing growth is slowing, it is too early to tell from this report.
The overall level of activity is still way down from peak. I don’t think the upwards trend in Durable Goods continues as we head into the second half of the year, but it will be quite some time before we see the possibility of negative year over year numbers again. Once again I point to tax receipts which are still down year over year. As the stimulus in the housing industry runs out, we are going to see the indicators whipsawed as the government now manipulates nearly every segment of the economy.

New Home Sales for April are released at 10 Eastern this morning. The buyer’s credit expired at the end of April, and now in May we are seeing a collapse of Mortgage Applications. Thus, this morning’s number is expected to show improvement, and sales can take a couple of months to close, so in due time the sales figures are going to reflect a less supported reality, probably within the next couple of months. I would not be surprised if this month was stronger than expected due to the government manipulation within the market.

Yesterday, USA Today reported on BEA’s latest income figures:
Private pay shrinks to historic lows as gov't payouts rise

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.

The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says.

The recession has erased 8 million private jobs. Even before the downturn, private wages were eroding because of the substitution of health and pension benefits for taxable salaries.

The Bureau of Economic Analysis reports that individuals received income from all sources — wages, investments, food stamps, etc. — at a $12.2 trillion annual rate in the first quarter.

Key shifts in income this year:
• Private wages. A record-low 41.9% of the nation's personal income came from private wages and salaries in the first quarter, down from 44.6% when the recession began in December 2007.

•Government benefits. Individuals got 17.9% of their income from government programs in the first quarter, up from 14.2% when the recession started. Programs for the elderly, the poor and the unemployed all grew in cost and importance. An additional 9.8% of personal income was paid as wages to government employees.

The shift in income shows that the federal government's stimulus efforts have been effective, says Paul Van de Water, an economist at the liberal Center on Budget and Policy Priorities.

"It's the system working as it should," Van de Water says. Government is stimulating growth and helping people in need, he says. As the economy recovers, private wages will rebound, he says.

Economist Veronique de Rugy of the free-market Mercatus Center at George Mason University says the riots in Greece over cutting benefits to close a huge budget deficit are a warning about unsustainable income programs.

Economist David Henderson of the conservative Hoover Institution says a shift from private wages to government benefits saps the economy of dynamism. "People are paid for being rather than for producing," he says.
Got to love the liberal viewpoint regarding money, “It’s the system working as it should!” LOL, boy, is he in for a bankrupt surprise. Yet more “economists” who do not see the forest and the raging fires that are headed this way. There is absolutely no reason why private wages should pick up anytime soon.

I can’t let this fact go by without mentioning it regarding the latest financial reform bill that recently slid by the Senate…
Senate Democrats Pass Bill Allowing Govt to Collect Addresses, ATM Records of Bank Customers

( – Senate Democrats united to pass a financial regulatory bill that allows the government to collect data on any person operating in financial markets at any level, including the collection of personal transaction records from local banks that list customers’ addresses and ATM receipts.

The Senate voted 59-39 on Thursday to pass the bill, the chief aim of which is to more-heavily regulate the financial industry. The bill now goes to a conference committee in the House of Representatives, where differences between the House and Senate versions will be ironed out.

The bill, if it becomes law, would create the Bureau of Consumer Financial Protection and empower it to “gather information and activities of persons operating in consumer financial markets,” including the names and addresses of account holders, ATM and other transaction records, and the amount of money kept in each customer’s account.

The new bureaucracy is then allowed to “use the data on branches and [individual and personal] deposit accounts … for any purpose” and may keep all records on file for at least three years and these can be made publicly available upon request.

So, instead of getting transparency at the Fed and the ability to audit them, they get to see every single transaction you make. Folks, this is exactly backwards and it is opposite of the rule of law. You are progressively living in a jail, one where your every movement is video taped, and every nickel of transaction is monitored and taxed. If someone in the government doesn’t like you, they can simply have you prosecuted and sent to jail claiming that you intentionally made errors on your tax return with the intent to evade paying taxes. Welcome to prison. Do you think your tax return is perfect with miles of tax code? Who interprets all that language? It’s nuts, and it’s going to evidently require drastic action to remove the people who are doing this to our country.

Yesterday I posted a video in the comments section of a guy who was threatened with 5 years in prison for video taping and posting on Youtube a video of a police officer who pulled him over for riding dangerously on his motorcycle. They are pressing charges, claiming that he doesn’t have the right to record without consent. Of course the police have the “right” to record you without consent, but not the other way around. Backwards! This is not freedom, it’s a police state – and police states always fail, just as micro-managed economies fail.

The down move yesterday was the large move that the prior day’s small movement in the McClelland Oscillator said was coming. The down up action, however, produced another small move in the McClelland which means we should see another large move in the next day or two.

The current downtrend line has broken to the upside and that gives us the appearance that wave 3 down is over, unless this is just a throw-over – now it gets interesting. The bounce yesterday did produce daily candles that look quite bullish and look like a bottom, however, wave 5 did not appear to have all of its subwaves – this does not look correct, although there are definitely 5 distinct waves and we know that wave 5s can truncate as this one may have. If it’s going to produce the rest of its waves, we would need to not advance significantly and would need to descend sometime today – we’ll see.

There’s another possibility that I see has potential for occurring. On the longer term charts there’s a potential Head & Shoulder Pattern setting up. On the one year chart of the SPX below, you can see that we created a left shoulder, a head, and that we just returned to a potential neckline:

If 1,040 is the neckline and we’re going to create a right shoulder, we should bounce over the next month or two, say into July. That actually fits with the June/July summer months which are typically more bullish months, and it fits with the two more months that will be required to work the government manipulated home sales through the system before they collapse as mortgage applications have done. This is very preliminary, I’m just pointing out that the pattern seems pretty obvious right now.

Yesterday's journey to the pin lows produced new bearish targets on the Point & Figure diagrams. Once these levels are breached and targets get produced, an intraday reversal does not undo them! In fact, most of the major indices produced breakdowns including the RUT. Below I've included the P&F charts for the S&P and Industrials:

S&P target = 920:

Industrials target = 8,600:

While it may take some time for those targets to play out, they will not be reversed easily at this point as new highs are a long ways up with a lot of resistance between here and there.

In the short term, getting above the 1,090 pivot is bullish, there is resistance again at 1,100 and then 1,110. Hey, 300 point plunges followed by 300 point advances in the same day are not a sign of health. This type of action is proof positive that our markets are whack. They are run almost entirely by computer trading and only a few large money interests. In other words, they do not reflect reality and the price discovery process is broken.

There certainly seems to be a kink in the machine from my perspective. It seems our leadership has forgotten what it takes to be a well respected man about town…

The Kinks – A Well Respected Man:

Tuesday, May 25, 2010

Martin Armstrong: Immoral – Not – Illegal, A Crisis in Ethics Repeating the 1930’s

This is a very good paper from Martin in which he chastises the argument that Goldman has done nothing illegal… just immoral. He sees and draws parallels to the Great Depression – that’s interesting because he repeatedly claims that we’re not repeating the Great Depression. In fact, the parallels are staggering. However, I agree that this is no Great Depression, it is far worse; it is a nation and possibly world changing series of events.

Martin discusses many legal issues, on this subject he is definitely spot on! The lack of jury trials, the extreme rate of conviction, the growth in the number of Federal Prisoners are all signs of a breakdown of the system. These types of breakdowns occur when the power structure gets one-sided. Once this occurs, rebellion is not far behind. And ultimately what happens is that the people lose CONFIDENCE in the government. This has and IS occurring now. I personally don’t trust ANYTHING I hear or read at this point – economic statistics are a lie, accounting is a fraud, and I am completely unsure how to read the events of the world as I believe what’s really occurring is being spun to the public. And I KNOW that the real power structure is NOT the structure presented for our consumption.

The markets are no longer real, they are simulated and controlled by a very few players! Martin nails the point that the players in the markets are not there serving a purpose for society, they are there for their own “egotistical hedonism.”

Near the end of this paper he quotes Thrasymachus, who discussing how the “just” are always the losers to the “unjust” memorably says, “My meaning will be most clearly seen if we turn that highest form of injustice in which the criminal is the happiest of men, and the sufferers or those who refuse to do injustice are the most miserable – that is to say tyranny, which by fraud and force takes away the property of others…”

It seems to me that we have arrived at that destination… where those who stand behind their morals and ethics suffer while those who stand behind fraud and force take away the property of others. We are there, it is the end of the line for CONFIDENCE, and it is this that is at the foundation of the rule of law upon which capital either forms or flees.

Morning Update/ Market Thread 5/25

Good Morning,

Equity futures are down significantly, the DOW is down approximately 200 points prior to the open. Below is a 5 minute chart of the DOW on the left and hourly chart of the S&P on the right so that you can see the overnight action and the move that comprises a likely wave 3 of 1 of C down. This current move is likely subwave 5 of 3:

There was a small movement in the McClelland Oscillator yesterday, obviously indicating a large move today. When I know those have occurred, I am more likely to hold a position longer for a short term trade.

The dollar is higher, euro lower once again. You can see that the euro appears to be about to break support once more. A daily chart of both follows:

Bonds are significantly higher, oil is lower, and gold is higher.

Yesterday I told you that I thought the movement was a wave 4 and to expect wave 5 lower – that’s what we got. Each of the subwaves of this wave 3 have lasted about a day and a half, that’s it. Thus I would expect that we are not too far away from a short term bottom. Additionally, I have a couple of indicators that are pointing to bullish divergences. Money flows were positive on the DOW yesterday, and the VIX was negative on a down day.

The bounce, when it comes (I’m thinking some point later today or tomorrow), should last about a week – That’s how long wave 2 lasted. This will be a wave 4 move, more sideways than up if I’m reading it correctly. The alternative is that all of wave 1 is finished and we get a larger scale wave 2, but I don’t think so.

The first area of support comes at about the 1,040 level. I’m looking for wave 1 to bottom somewhere near 990 to 1,010 – or possibly lower. That’s where I believe wave 2, a larger scale bounce, is likely to occur.

Obviously this has already gone much farther than most of the pundits were thinking - the flash crash lows are now a ways up there. The February lows have now been exceeded by the S&P and the Industrials. Both the Transports and the Industrials have made lower lows together, the next step for DOW Theory is for the Transports to also break the February lows. That's a ways down, however, and may take awhile.

So now we have the sovereign risk moving into the Spanish banks. The IMF is now making proclamations that Spain should take actions to overhaul their financial institutions. That’s nice for the world’s largest debt pushers to say. There is talk that four large banks in Spain will need to merge. Note the progression of the crisis from one country to the next.

The last famous lie was that Greece was contained, LOL, what a joke – I have the feeling that the word “contained” is going to be a punch line for about the next decade. The truth is that the private banks hold much of the sovereign DEBT instruments that are likely to be defaulted upon. Duh, that makes the private system somewhat insolvent, doesn’t it? So, you now see that the banks pushing their debts onto the public coffers actually caused harm, and did not help. Of course not, that’s what I was screaming as Hank Paulson and his mobsters were driving their TARP get away vehicle out of town - Tommy guns in one hand, billions in the other.

And the distraction of war may be upon us in the Korean Peninsula. The U.S. “fully supports” South Korea and is participating in special joint exercises with the South. The rhetoric is inflammatory on both sides now. Poking Kim Jong Il is a little bit like poking a rabid pit bull who has absolutely nothing to lose and is just looking for a fight. Hey, I’m here to tell you that in another Korean war, it is going to be quite nasty, much more nasty than Afghanistan or Iraq.

Case-Schiller data came out this morning showing a .4% month to month drop in the 10 city home price index. Citizen Confidence will be released at 10 Eastern.

Did you catch that Ing bank in Australia is wanting to issue lifetime no principle paydown loans? Absolutely nuts. Both Australia and Canada’s home markets are bubbles still awaiting the needle to be pricked.

And here in the U.S. we learn that now fully 90% of all mortgages are either Fannie, Freddie, or FHA backed – 90%! That’s certainly not capitalism, it’s certainly not free market, I don’t even know what to call it other than to say I already don’t recognize the America I grew up in and I believe that very large structural changes are coming and they are coming at breakneck pace. These changes are a result of the bad math of DEBT-backed money. Financial reform won’t fix the debt problem, that will require monetary reform. It’s amazing to me that the vast majority of people have yet to really get to the roots of the problem. DEBT – big destroyer…

The Kinks – Destroyer:

Monday, May 24, 2010

Craig Venter unveils "Synthetic Life"

We spend a great deal of our time on this site, and in economic circles, discussing the negative economic situation and the debt in which we find ourselves swimming. I have mentioned before that I am optimistic about the long term future and that when looking at the progression of mankind we have come out of hard times by taking steps forwards, not backwards. While we are likely to go through a period of events and adjustments in the near-term, the end result will be that we progress further.

What does it mean to progress? That’s an interesting debate, but for me progressing means working to ensure the survival of our species (systems must be sustainable - durable - to survive). I have talked about the need for this and how if we were to formalize that progression, then we accelerate the process by creating goals and spending our limited resources more smartly. Species who fail to progress and strive towards survival eventually become extinct – the world has produced a very clear track record in this regard. It is a mistake to think that we can each simply live out our lives “in the pursuit of happiness” without contributing to the progression of survival – that lack of progress will, in the long run, doom our survival.

Is there an “invisible hand” that keeps us moving in the survival direction? Yes, but we are conscious beings capable of controlling the rate of progression. In keeping with this belief, I am going to post some pertinent science pieces as I run across them.

Craig Venter, the American biologist and entrepreneur most famous for his role in being one of the first to sequence the human genome, has now synthesized the first artificial cell. This is a very interesting piece of science, it is historic, and it has very large implications for the future and even the economy. Many people express their fear about what he’s doing, and those fears definitely do justify proceeding with extreme caution. However, the long term benefits may greatly outweigh the risk. Viewing this video will make you aware of what is progressing and who is providing some of the funding.

Richard Sears: Planning for the End of Oil

This may sound like another Peak Oil piece, and it is - just not in a James Kunstler Long Emergency way.

In this short video, Richard Sears acknowledges peak oil yet puts it into a historic perspective that you may not have heard before. Yes, he fails to take into account the expense of getting the remaining oil out of the ground, but what he shows is that we may already be headed in the right energy direction. This view falls more along my more hopeful view of the future. Admittedly, Sear’s limestone, chalk, mother-of-pearl example lacks concrete science details in exactly what the future holds, but the point is that we are progressing to another energy future and that the human mind is capable of inventing and manipulating our world in order to meet our energy needs. Note that he mentions survival of the species.

In fact, much as we are now swimming in debt, the world is quite literally swimming in energy. You are made of it, everything is made of it and the amounts of energy on the subatomic levels are mind boggling. No, we have not unlocked the secrets… yet – and yes, it is going to take a huge effort and plenty of time. That doesn’t mean that we won’t and it certainly doesn’t mean that we shouldn’t get on with it. We should. We certainly need to be putting far more resources into this than we are into worthless wars and into central banker’s pockets.

Richard Sears - Planning for the end of oil:

Damon Vrabel - Jamie Dimon and Wall Street Pathology

Damon doesn't pull any punches and shows great instinct by singling out and then shredding Jamie Dimon, a former Economic Edge "Asshat of the Year" award winner...
Jamie Dimon and Wall Street Pathology

As many people now understand, Wall Street is a monopolistic cartel that thrives on putting the rest of the nation and much of the world in debt (article on Wall Street and the Bankruptcy of America) and controlling all money in the system (video: The Rise of Financial Empire). It has structurally lived as a parasite on the United States for a century. It seemed like a symbiotic relationship for a long time, but it is now clear that it took over the host and now has nearly reached the point of killing it. Such a parasitic structure is fundamentally pathological, one could say immoral (article on Usury), and pathological structures naturally attract pathological personalities (article on Wall Street Narcissism). Here’s a recent case study:

One of the primary personalities currently on Wall Street is Jamie Dimon, CEO of JP Morgan Chase. I ran across a short video clip of his commencement address at Syracuse University earlier this week in which he said, “It should not be acceptable to denigrate entire groups, not all companies, not all CEOs…to categorically and indiscriminately judge them as all equal is simply another form of prejudice and ignorance, and it’s not fair, it’s not just, it’s just plain wrong.”

The crowd applauded. Who wouldn’t applaud such a line? It’s a good one. He uses one of Martin Luther King’s most powerful phrases “it is not just.” The problem is that MLK meant it, whereas Jamie used it here for selfish purposes to skirt the individual judgment he called for. The applause was Jamie’s real goal. He used his power position over the group in that moment to rally the masses behind him and engage group psychology to shutup his critics. It’s a demonstration of how ruthless he can be (a couple of his classmates verified for me the ruthlessness hidden under his frat boy looks and harvard shmarm).

So as a fellow harvard b-school alum, I’ll provide the individual judgment he says he wants by responding to a few key snippets from his speech (my dialogue is purposely direct because guys like this don’t listen to nuance). He’s correct that people should be evaluated on their own merits. The fact is it would be unfair to other bankers to bucket them in with him. He is in a class by himself.

Snippet #1:Many of the lessons I’ve learned I’ve learned by making mistakes. It takes courage to be accountable. Throughout my life, throughout this crisis in the past three years, I’ve seen many people embarrass themselves by failing to stand up, being mealy-mouthed and acting like lemmings by simply going along with the pack.”

Jamie, by implying you are uniquely courageous and others are weak in such a huge public setting, it’s clear you’re not a true leader, but just an arrogant salesman. More importantly, your 2nd sentence is the best example I have ever seen of what psychologists call projection, a vicious trait of narcissism. You say others have failed to stand up, are mealy-mouthed, and act like lemmings by going along with the pack. Wow. I can think of no better description of many on Wall Street.

I guess I need to remind you that Wall Street is a cartel, a pack, created by the Federal Reserve System that lives as a parasite on the backs of 308,000,000 Americans. So your absurd wealth comes from having monopoly usury license to put all of us in debt and then live off our wages that get sucked up to the cartel. Wall Street is full of lemmings, most of whom don’t really understand the truth of the usury system that steals from the American people. But as an insider in the CFR and on the NY Fed, a completely anti-competitive unconstitutional cartel, my guess is that you do understand the truth. Yet you go along with the pack–you’re just a highly paid lemming no matter how hard you try to convince yourself you’re tough and independent.

Snippet #2:Have the fortitude to do the right thing, not the easy thing. Don’t be somebody’s lapdog or sycophant.”

What fortitude do you have besides doing whatever the controllers behind JP Morgan Chase want you to do, i.e. being a lapdog and sycophant? Your firm has built up the most irresponsible derivatives position in the country. Your firm has helped make countries, states, and towns insolvent. Your firm likely manipulates markets as a cartel insider. Your firm jacks up credit card rates on the poor and kicks them out of their homes. You played a role in racketeering and extortion to control the government’s response to the crash of 2008. You call this doing “the right thing?” Mad delusion.

The people behind your firm used their leverage over the US government to ensure JP Morgan emerged from the crash with new levels of concentrated power over the economy, especially in the unconscionable WAMU takeover, yet you took credit for it as if it was all just a result of you being a good CEO. You know JPM’s new lofted status has nothing to do with you but everything to do with those behind the scenes. You’re just a smooth-tongued front man, a sycophant of the CFR crowd, and you provide them cover as the main salesman for one of their key firms. This is not “doing the right thing.”

Snippet #3:At the darkest moments when it seemed like the whole system was unraveling, I saw men and women in my company, and in many other companies and in the governments around the world who took extraordinary action.”

Yes, extraordinary action to seize the American republic, transfer its wealth to your inside club, and move it further toward the single global system that the BIS, IMF, G20, and the people behind your firm are planning. Your salesmanship here is like Michael Corleone convincing Carlo he was ok just before he had him killed in The Godfather. You’re showing no signs of a conscience, which is likely why you’ve been given the JPM job in the first place.

Snippet #4:[My kids] were naturally scared about what it meant for our family and for me to have lost my job. My youngest daughter—she’s here today¬, she was eight at the time, she has not graduated yet, that’s next year ¬—asked, “Dad, will we still keep our house, will we have to live in the street?” and I said “Of course not, darling.”

Have you no shame sir? How many families has your firm kicked out of homes? How many people has your firm put on the street? You are a billionaire because you work for the most powerful people on the planet putting the world’s population in debt and setting up market conditions that will result in many more losing their homes in the future. How dare you use this example?

Of course the only way you could use this example is if you were a narcissist with no empathic connection to what your firm actually does. It’s clear you indeed suffer from this severe personality disorder. Wall Street is a psychopathic organizational structure in terms of how it fits within the economy. Therefore, its most successful members like you are the most ruthlessly narcissistic. You dissociate yourself from the truth, believe the lie that you’re courageous and good, and then project onto everyone else the truth about the life you have chosen. How else could you live with yourself becoming fabulously wealthy off of putting millions in the shackles of usury?

More evidence of your narcissistic personality: in February 2009, after the crash of 2008, you said “we should teach the American people you’re supposed to meet your obligations, not run from them.” This is not normal hubris or chutzpah, but pure ruthless narcissism. First, you somehow consider yourself worthy of “teaching” 308,000,000 Americans. Hardly. If only we could teach you a thing or two the world might be a better place. But also in the midst of jacking up their credit card rates and kicking them out of their homes, like Tony Soprano, you tell them they better pay up. Again, no signs of a conscience.

Snippet #5:It takes humility and humanity to be accountable.”

As a narcissist Jamie, you have neither humility nor humanity. You need help. There are people who know how to help you find some real hope, real compassion, real love in your life. But instead you stay within the pack of lemmings and lapdogs (your words). You have chosen the dark side. Do you have the courage to seek redemption before it’s too late?

Snippet #6:In fact, this wonderful country, whose bounties we all benefit from

Correction: “whose bounties you and your inside club benefit from.” The rest of the country is drowning in debt, scrambling to pay it off, and the people have no equity since it has been transferred up to your cartel. You have largely destroyed this republic and you are playing a key role in the plan to bring it into the new world economic order. Make no mistake, you are an enemy of this country.

Snippet #7:And so it takes courage, knowledge, a strong sense of self, a capacity to overcome failure, and a healthy amount of humility and humanity to be truly accountable. These qualities are at the heart of our success as a nation.”

Yes but since you and your club exhibit almost none of these qualities, you are destroying the nation that indeed was built on them. Your “strong sense of self” is a false sense that relies on big paychecks and affirmation from others to stroke your ego so you can temporarily feel good.

So Jamie, you were right that you deserve to be evaluated as an individual, but the case against you now is even more damning. You were better off hiding under blanket accusations against Wall Street. But healing is possible. I sincerely hope you seek it by heeding the words of Shakespeare that you referenced in your speech: “To thine own self be true.”

You need not continue serving this system. You’ll just go down in history as another rich schmuck to be quickly forgotten. Instead you could turn toward compassion for humanity and help redeem the system. You could fight it. You could serve the people instead of causing them so much harm. You have been blessed with the ability to make a real difference. The moral code of the universe demands that you do so. “To whom much is given, much will be required.” Gandhi said “be the change you want to be in this world.” That’s real courage. But you’re just a debt peddler. Will you finally face the truth and choose courage? Only then will you be remembered as a man who was worth a damn.

Morning Update/ Market Thread 5/24

Good Morning,

Equity futures are down in the premarket, but being a Monday, you should be ready for the attempted run just before and after the open!

Below is a daily chart showing the dollar on the left and the euro on the right. The last candle reflects the movement over the weekend, and as you can see, the dollar is much higher after bouncing off its upper channel trendline, while the euro is significantly lower having fallen back to the bottom of its down channel:

Bonds are higher, oil is close to even, and gold is higher after bouncing off support in the $1,170 area.

Existing Home Sales are released at 10 Eastern this morning. Later in the week we’ll get both Consumer Confidence and Sentiment, a revision to Q1 GDP, and the usual assortment of weekly reports.

Things are getting a little tense on the Korean Peninsula with the North saying last week that should any sanctions whatsoever be imposed on them for sinking the South Korean ship that they would respond with all out war. Of course with Hillary and Obama’s backing, the South Korean President imposed trade sanctions, and threatened the North with immediate retaliation should they enter any of their territory. The drum beat goes on, yet another distraction.

I think this is interesting because it was obvious that the ship had been torpedoed on day one. The reaction was very muted, meaning that no one wanted or was ready for war. Why the change of language now?

Friday’s action in the market produced what appears to be an a,b,c type of correction. If so, wave c was not complete at the close and could possibly travel to the 1,100 area of the S&P if c is equal length to a. This counts pretty cleanly as a wave 4 movement of 3 down of 1 down, possibly of the large wave C down. If this is true, then once this wave 4 is complete (should be soon), then we should get a wave 5 of 1 that takes us to new lows before a larger wave 2 bounce occurs. This was the count I was working last week and it was working well, then I noticed this weekend that McHugh is also on this same count. That’s just one possibility, however, as there are several ways to count the larger picture.

Speaking of the big picture, below is a 5 year chart of the SPX with everything turned off but the weekly candles:

If Elliott Wave guys like Prechter and McHugh are correct and this is a wave C down, then I’d just like to point out that should wave C equal the length of wave A, which is typical, then the SPX would be looking at losing 908 points from wave B’s 1,220 top and that equals a target of only 312. Is that possible? Sure it’s possible… but then again there are a lot of possibilities and much will depend on choices still to be made. It’s a real risk, however, and should not be ignored. That risk is backed up by the fact that in my opinion our entire financial industry is insolvent should they mark their assets to market. Transferring risk onto our government only created another set of problems, it certainly didn’t solve the existing problems.

So yes, it’s fair from my perspective to say that the stock market in the United States, and much of the world, is actually WORTHLESS, or near worthless – as the debt and unrealized losses have not been cleared and far outstrip income’s ability to service it. Thus the fundamental math of debt align with that technical picture from my point of view. There are other EW people who disagree and are in bull mode still. I don’t think the fundamentals back their case, but if the decision is made to decouple from the debt and print, then that possibility could come to fruition. Printing all by itself, of course, would destroy the value of the money. A better and faster path to recovery would occur if nations performed equity for debt swaps, printing money and using that money to pay down debt. Without controls and a clear plan, however, that too will lead to other problems as the quantity of money must be kept under control in order to assure that confidence is not lost. Two words… Freedom’s Vision.

I’d like to point out that on Friday the TNX (ten year Treasuries) matched the inverted peak of its smaller head & shoulders pattern. Any movement beyond the head invalidates the pattern and this is just another signal that deflationary forces are still in control for the time being. The 3.1% area reached Friday is support and thus a bounce here is not unexpected, however, if we get below that point, then a run down to the 2.5% area or even lower may be in store:

Going back to the short time frames in equities here, don’t be surprised if this smaller wave 4 is almost over or is already done. Wave 2 lasted one day and now wave 4 has lasted about a day… to stay proportional, if wave 5 down of 3 is coming, it should start fairly soon. Just keep in mind that wave 5s can end suddenly… they can truncate or extend, and if the count is not what I think it is, then it may not occur at all. That’s the danger in playing in this territory and why I prefer to play on wave 3s.

The bottom line for me is that the central bankers permeated the world with debt, pulling future incomes into the now. They were so successful that incomes can no longer support the debt. This has many people, local and state governments, and even entire nations forced to live on what now seems like a low budget…

The Kinks – Low Budget: