Friday, June 25, 2010

Lumber Prices Indicate Next Wave Down Underway

As I’ve been saying all along, nothing is solved until the DEBT SATURATION is resolved. Depressions move in 3 waves, A down, B up, C down. The psychology of each wave is different – wave A equals “oh no!” Wave B equals “we’re saved.” And wave C equals real change is forced to occur – no fooling around this time. You can clearly see how the psychology is different now than it was during the plunge in 2008. Instead of “stimulus” the buzz word is “austerity.”

No where else are the A,B,C waves more clear than in the price of lumber. First let’s look at a monthly chart of lumber going back to about 2001. You can see a sharp rise into a $460 peak, then a plummet that led the stock market by nearly 3 years all the way down to $140 – a stunning 70% collapse! That would be wave A. Note on this chart that the current month’s price of $182.80 is not yet reflected:



Then we bounced smartly all the way back to a recent April peak of $325, that would be wave B.

Since April, lumber prices have collapsed 44%, dipping below $180 and today is sitting at $182.80 – here are a couple of daily chart presentations, the top one is most current, but the bottom one is a better candlestick presentation:





Sure looks and feels like wave C.

And who could have guessed? Housing sales/prices have not bounced one iota… “It’s contained,” became “It’s stabilized.” Riiight, just like this ten year chart of New Home Sales shows:



I have repeatedly been showing this chart of mortgage loan balances that are subject to recasting. The wave of subprime loans is mostly behind us, but the wave of option-ARMs is still largely in front of us:



This is going to dramatically impact the price of upper-end homes. As upper-end homes fall further in price, it will pull the median price of homes down with it. This is the Baby Boomer’s wave of folly! The largest player in this space was Washington Mutual, now defunct and a part of JPMorgan, the collector of all trash – as they are the center of the derivative trash world.

As a side note, you know that it used to be illegal to play “the shell game” by moving assets into shell companies for the purpose of bankrupting or isolating those assets? Well today, not only is that highly immoral practice not prosecuted, the latest (yuk) Dodd/ Frank “Financial Reform” bill would legislate exactly that, according to Bloomberg:
"The most contentious part of the derivatives rules is a provision that will force banks to push some of their swaps- trading into subsidiaries, on the theory it would reduce taxpayers’ risk if the trades are walled off from depositary institutions that enjoy federal benefits such as access to the Federal Reserve’s discount lending window. "

Protect taxpayers my rear... In other words, dump the trash into shell corporations to protect the criminals who produced the trash in the first place! That’s our new rule of law? Bring on wave C, it obviously has more work to do and I have a feeling that one of its primary duties is to ensure that neither Dodd nor Frank ever have a chance to damage our country again.

The price of lumber is shouting something at us, are we listening? Debt stimulus? Austerity? Of course neither of those is appropriate. The real solution can only be found outside of the central banker debt backed money box which they created to serve themselves. See Freedom’s Vision.

Morning Update/ Market Thread 6/25

Good Morning,

Equity futures are basically flat this morning. The dollar is up, euro down, bonds are lower for now, while oil and gold continue to bounce higher off up trending support.

The third revision of quarter 1 GDP was released today, well below expectations at 2.7% annualized growth. The consensus was for 3.0% and it was first reported at 3.2%. That’s a 16% downward revision from first announcement. It is also a very rapid deceleration from Q4’s 5.6% spike. I think it’s obvious that Q2 is going to be flat or even slightly negative, even with their misreporting. Here’s Econoday:
First quarter growth turned out to be notably less robust than expected. First quarter GDP was revised down to an annualized 2.7 pace from the prior estimate of 3.0 percent and initial estimate of 3.2 percent. The market forecast had called for an unrevised figure at 3.0 percent. The downward revision to GDP growth primarily reflected an upward revision to imports and a downward revision to personal consumption expenditures that were partly offset by upward revisions to exports and to private inventory investment. Real final sales to domestic purchasers was revised down to 1.6 percent from 2.0 percent. Final sales of domestic product was revised down to 0.8 percent from the prior estimate of 1.4 percent.

Economy-wide inflation was little revised at 1.1 percent annualized for the first quarter, compared to the prior estimate of 1.0 percent annualized. Analysts expected no net revision to the previous estimate of 1.0 percent. The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.7 percent in the first quarter, unrevised from the second estimate and down from 2.0 percent in the fourth quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 1.2 percent in the first quarter, compared with an increase of 1.5 percent in the fourth.

The recovery slowed significantly in the first quarter from the strong pace of 5.6 percent in the fourth quarter of last year. Normally, markets do not pay much attention to final revisions to GDP but today may be an exception. There is much uncertainty about forward momentum given the expiration of tax credits for housing purchases. Equity futures slipped on the news. Focus will now be on the 9:55 release of consumer sentiment.

Tax subsidies end for housing, housing is back to record low sales. Today the politicians are voting on “financial reform.” Yet JPM and GS are going up on expectations that it’s been so gutted they will continue to operate as usual. We are tightening up, but we still can’t seem to go all the way yet – and thus more cleansing is needed, it will be until debt saturation is resolved.

But money certainly isn’t flowing as easily as it was, here is more proof that the psychology of wave C is vastly different than wave A:
Unemployment benefits extension nixed for nearly 1 million

NEW YORK (CNNMoney.com) -- Nearly a million people have lost their unemployment benefits because the Senate failed for the third time Thursday to extend the deadline to file for this safety net.

Hoping to overcome deficit concerns, the Senate trimmed down the bill yet again on Wednesday night so that it would only increase the deficit by $33.3 billion over 10 years, instead of $55.1 billion. The main changes were to scale back additional Medicaid funding for the states and to reallocate some stimulus and Defense Department spending.

The legislation failed by a 57-41 vote. Democrats needed 60 votes to overcome the GOP fillibuster of the bill.

The bill will now be pulled, according to two Democratic leadership aides. This leaves many groups in flux, including the jobless who have lost their safety net, companies who are waiting to learn what tax breaks are extended, and governors who were counting on the additional funds to balance their budgets.

The bill they just voted down would have also pushed back the deadline to close on home purchases until Sept. 30 and still qualify for a tax credit of up to $8,000. So you now have 1 million people going to fall off unemployment. This is exactly what happened in Germany prior to the rise of Hitler. This will cut approximately $22 billion out of the economy and likely will cause further damage as all income disappears for the long term unemployed. How many will become homeless, or fall into needing other forms of help? Different psychology, all of the sudden debt matters.

Yesterday’s further market decline caught many off guard – it even left me a little bit puzzled as I could clearly count 5 waves down, yet we were making more downward movements – now seven in all. This is rare, I expressed discomfort with it in the daily thread yesterday and McHugh picked up on it as well in his evening report. He thinks that it’s likely there was a very weak wave 2 bounce in the middle and that we may have just immediately pressed into wave 3 of 3 of 3 down. If this count is correct, we should descend hard over the next few days. Other indications lead one to expect a bounce – we stopped on support in the 1070 area, just below the 61.8% of the prior up wave:



Volume is coming up as we descend but is not heavy yet, certainly not even close to washing out. The 50dma and the 200dma are now moving together very rapidly – I calculate that unless we bounce immediately we will receive the death cross within the next two weeks. The emerging market death cross is now separated by more than 2%, this makes the odds very high that prices will be lower over time.

The bond market diverged yesterday as the TNX bounced off the bottom Bollinger Band. Keep an eye on bonds, they need to start rising in price and descending in rates again if equities are going to keep the downtrend rolling:



So, the waves are acting funny and not in a good manner if you are expecting a meaningful bounce. Hang ten if you’re going to ride them, it’s going to be a wild ride! And don’t forget the expectation is for everyone to jump on Friday ramp wave into Monday – when that doesn’t appear it’s going to toss a lot of surfers off their boards…

Thursday, June 24, 2010

Graham Summers - Will Gold Miners Act Like Stocks or Gold During the Crash?

Graham writes newsletters for his company, Phoenix Capital Research. I have followed Graham’s writing for quite some time and have found his knowledge to be both deep and consistent. He is not a “willow in the wind” when it comes to understanding the predicament of our economy and of our debt based monetary system.

He writes a daily newsletter that he provides for free, called Gains Pains & Capital, you can sign up at his site here, there is a sign up block in the upper left hand corner: Gains Pains & Capital. Of course he does offer paid for services of which I have no personal experience and receive no compensation or any other consideration for sharing Graham’s work. I always recommend caution in paying for and following the investment advice of others.

For educational purposes, I have agreed to occasionally reprint some of his articles, I think you’ll find them insightful and you will surely pick up a nugget or two with every installment. In the following piece, Graham performed a small study of the relationship in performance between gold stocks and gold miners, especially during times of equity stress – I think you may find it interesting.

Will Gold Miners Act Like Stocks or Gold During the Crash?

With stocks collapsing and Gold rallying to new all-time highs in both US Dollars and the Euro, the key question for precious metals investors is:

Will gold miners act like stocks or Gold during the Crash?

Unfortunately, there is no simple answer; it all depends on how you look at it. Historically, when the going is good, miners act like Gold. However, when things get ugly, they tend to act like stocks.

Let me explain…

As you know, over the last ten years Gold has rallied roughly 340% from $250 to its all-time high of $1,242 yesterday. Over the same time period stocks, as measured by the S&P 500, have actually fallen some 27% in value. That’s a heck of a difference in performance.



When you add Gold miners to this mix (as measured by the HUI Gold Bugs index), you find that in the long-term, miners have not only acted like Gold, they’ve acted like Gold on steroids: since 2000, the HUI Index has rallied more than 500% compared to 340% for Gold bullion over the same time period.



So over a ten-year horizon, the answer is quite simple: miners follow Gold more than stocks. A chart plotting the three assets makes this clear:



However, very few investors only look at their portfolios every ten years. Most of us tend to look every week, if not every day. Which is why it’s important to note that anyone who invests in Gold mining companies expecting to mirror Gold’s performance needs to have an unbelievably strong stomach. Because when the going gets bad, miners have a tendency to mimic stocks.



The above chart (weekly) shows the performance of Gold vs. the S&P 500 vs. the HUI index during the 2008 Crash. As you can see, miners took it on the chin nearly as much as stocks during the collapse. In 2008, stocks fell 37%, Gold miners fell 30%, and Gold actually ROSE 5% (despite an extremely volatile year).

So the last time things got really ugly, Gold mining stocks acted more like stocks than Gold. However, if you could hold on through the gut-wrenching drops, mining stocks rebounded much more quickly than stocks (though not as quickly as Gold).

Personally, I doubt anyone has a pain threshold high enough to sit through a drop like that of Autumn 2008 without panicking and selling. However, those who did stomach the drop quickly saw their mining shares rise along with Gold, and start outperforming stocks handily.

Which brings us back to my original statement: historically, when the going is good, miners act like Gold. However, when things get ugly, they tend to act like stocks.

That is until today.

During this latest market rout started at the end of April 2010, the HUI index and Gold initially fell along with stocks. But then something odd happened: the HUI and Gold both stopped collapsing and actually began to rally while the S&P 500 continued to collapse:



Miners now appear at a crossroads. They have not yet totally decoupled from stocks, but are showing much greater relative strength compared to the S&P 500. In plain terms, we appear to be nearing a time in which mining stocks will trade almost entirely along with Gold rather than stocks. We’re not quite there yet, but it is approaching.

What does this mean? If a Crash were to hit right tomorrow, mining stocks would likely fall along with the S&P 500. However, they would fall less, rebound more quickly, and outperform the general market.

Will this always be the case? I cannot say. But if miners ever DO become totally decoupled from stocks, they’ll be a phenomenal investment. Remember, Gold only fell a mere 5% during this latest market rout. And it reclaimed ALL of its losses in roughly two weeks.

Meanwhile, stocks continue to dive.

Which asset do you want to own?

Good Investing!

Graham Summers

Damon Vrabel – McChrystal vs. Obama

Damon talks a lot about the CFR (Council on Foreign Relations). That’s because the power players behind the political and money scenes comprise the management of the CFR. They use it to advance their agenda under the cloak of promoting global cooperation. However, their idea of cooperation is massive debt for everyone, issued, controlled, and profited upon by them! Since they profit from interest, they are motivated to produce more interest and conveniently it compounds upon itself to create a never ending paradigm that feeds up the pyramid as Damon puts it.

To counter the CFR, Damon is forming CSPER or the Council on Renewal. He is starting a blog and will be promoting the Council. He is currently setting up methods for membership, I encourage everyone to bookmark Damon’s site and to register to his site in order to receive updates from him. Also note that I have included his blog in my blogroll in the lower right hand column of this blog. Here’s Damon’s statement about the opening of his blog:
I decided to launch a blog so the Council on Renewal could quickly respond to important news that gets funneled to us in the fake left vs. right stage show called the mass media. The corporate/state controlled media industry is designed to hide the truth and keep us fighting each other in Dem vs. Repub cheerleading groups--just like the Celtics vs. the Lakers, or Apple vs. Microsoft. We need to remember that just like the Celtics and Lakers or Apple and Microsoft, the Dems and Repubs are controlled by money powers and compete in a corporate-controlled arena. My goal with this blog is to expose that and discuss the news from the perspective of the corporatocracy that controls everything mainly through their policy group and networking clique called the Council on Foreign Relations (CFR).

Writing articles for my Canada Free Press column allows me to flesh out the big issues, but it’s not appropriate for daily “quick hits.” This blog site will be the quick hits.

Damon has a gift of creating a clear and concise message. We need efforts like his to counter the BS and to bring light into the motives of those in power. I agree that there’s more to this McChrystal/ Petraeus move than meets the eye, please be sure to view it within the context of other moves now occurring in the Middle East as well as in the political arena. I also would like to note that our own media is now working very hard to discredit McChrystal…
McChrystal vs. Obama

By Damon Vrabel

The mass media stageshow is a hoot. Remember that all of this is controlled by the top folks in CFR (the inner financiers behind the Wall St cartel). Just like Tom Cruise in The Firm, those top folks use CFR membership to control/influence/co-opt the rest of the people in the group. Who are some of those people? McChrystal is CFR. Petraeus is CFR. James Jones is CFR. Gates is CFR. Eikenberry is CFR. In fact, Obama’s entire team is CFR, just like Bush’s was. Much of the media is also CFR.

The motive of the top controllers in this McChrystal vs. Obama episode could be any one of many possibilities…

- CFR wanted to stoke an Obama vs. military fight to rally the “raging war machine right” for the 2010 elections against Obama rather than leaving room for 3rd party and other efforts to save the US from Wall Street.

- CFR simply wanted to put Petraeus back on the front page as they groom him for the 2012 presidential campaign. He has been a good yes-man for his Wall Street CFR controllers. They like careerist generals like Petraeus and Richard Myers who are subservient yes-men doing whatever they’re told to feel the affirmation of pleasing their bosses and getting more medals. They also like ruthless frigid generals like Barry McCaffrey (or lower ranks like Oliver North) who massacred thousands on orders even though they were retreating, which violated every sense of morality and international law, but that’s not Petraeus.

- CFR needed to replace McChrystal because he started seeing the truth, feeling his conscience, and siding with his soldiers vs. his controllers back in NY. CFR would’ve had insiders close to McChrystal to know his general mindset and even overhear his private conversations to detect if he was straying from their desired goal to maintain their presence in Afghanistan perpetually to control all the natural gas, mineral deposits, opium, and otherwise keep the process on track of managing young Americans to their deaths in order to convert Afghanistan into a satellite state of our banking/corporate empire. By the way, this doesn’t mean they’re necessarily using secret people. They simply surround executives (from the President all the way down through civilian and military chains of command) with big staffs, and those staffs report up their own chains of command where they all eventually reach the top of the Pentagon, State, etc where inner CFR members typically rule. But it could be secret people as well. The CIA uses assets inside all sorts of organizations–foreign governments, corporations, military units, state governments, etc–to ensure they’re secretly staying on top of things. And CIA serves CFR/Wall St.

Overall this media stageshow is probably a strategic chess move to accomplish a combination of all 3 of these things and then some. Just don’t let yourself be caught in their manipulations. And help explain this to your friends, family, neighbors. The media is used to accomplish strategic objectives, NOT to report news.

Morning Update/ Market Thread 6/24

Good Morning,

Equity futures are lower this morning. The dollar is up slightly, bonds are up once again running with an apparent breakout, while both oil and gold are flat trying to hold onto support.

Weekly Jobless Claims fell by 15,000 last week from 472,000 to 457,000. This was better than consensus that was looking for 465k. Note the revision upwards in the prior week from 472k to 476k. Here’s Econoday:
Highlights
Jobless claims thankfully fell back in the June 19 week, down 19,000 to 457,000. But taking some of the shine off the numbers is a 4,000 upward revision to the prior week. Like the latest week, the four-week average also fell, though only by a very slight 1,500 to a 462,750 level that is still 5,000 higher than mid-May -- a reading that does not point to improvement for the June employment report.

Clearly good news is a 45,000 decline in continuing claims to 4.548 million. Here the four-week average is modestly lower than mid-May, at 4.667 million in a reading that points to improvement for June payrolls. The unemployment rate for insured workers, which has been see-sawing, slipped back one tenth to 3.5 percent.

The Labor Department is upbeat about this report, saying it re-establishes a downward trend for the series. The department says claims in the two preceding weeks were skewed higher by seasonal adjustment problems tied to the Memorial holiday. Even so, claims are not falling by very much and are showing no month-to-month improvement. Stocks are moving higher following the report and also following a solid ex-transportation headline for the durable goods report.



Hmmm… last time I checked one data point in the other direction does not a trend make. Take a look at that chart, it’s been nearly two years now with every single week above 400k. That’s a disaster, month after month, week after week the population is still growing yet there are fewer and fewer jobs while the government is deeper and deeper in debt.

Durable goods solid? Sure, ex-this and ex-that, they always find something positive to say. But the headline number was not positive, it was minus 1.1%! This was lower than consensus that was looking for a -.5% print:
Highlights
The May durables report showed a headline number slipping from an April spike. But there was moderate strength in the details. New factory orders for durable goods in May declined 1.1 percent after jumping a revised 3.0 percent in April. Overall new orders for durables were worse than the market forecast for a 0.5 percent dip.

Excluding the transportation component, however, new durables orders rebounded 0.9 percent, following a 0.8 percent decrease in April. Capital goods orders continued to gain, rising 0.5 percent after a 0.7 percent boost in April.

The big negative in the report was the transportation component which dropped 6.9 percent in May. Nondefense aircraft swung down 29.6 percent after spiking 215.7 percent in April. Yes, you might call that category volatile. Defense aircraft slipped 7.1 percent in the latest month. But a very notable positive in transportation was a 0.7 percent boost in autos, continuing several monthly gains.

Advances were widespread in other components-including primary metals, machinery, computers & electronics, and other durables. Declines were seen in fabricated metals, communication equipment, and in electrical equipment. The last was negative but essentially flat

Nondefense capital goods orders excluding aircraft in May made a 2.1 percent comeback after falling 2.7 percent the month before. Shipments for this category fell 1.6 percent in May, following no change in April.

Year-on-year, overall new orders for durable goods in May were up 14.9 percent, compared to 19.1 percent in April. Excluding transportation, new durables orders came in at up 17.6 percent, compared to 18.5 percent in April.

On the release, equity futures rose, turning less negative. Also, initial jobless claims dropped more than expected. The good news is that manufacturing remains on an uptrend-a nice contrast to housing currently.

Well, if one data set makes a trend, then the trend is now down again. LOL, don’t you love the inconsistency? Manufacturing in the U.S. has been decimated! It is now such a small influence on the economy that it pales in comparison to the service industry and the consumer. Housing had become a bigger influence, and look at where it is.

Yesterday, New Home Sales were reported at just 300,000 units in May. This was down from April’s initially reported 504k, that was revised dramatically lower – March and April combined were revised 107k lower. That 300k print was the lowest new home sales total EVER recorded, with the data series tracked beginning in 1963. Note that the population of the United States has grown 64% since 1963:



Yet the number of new housing units sold has now plummeted to the lowest during that time, the result of simply creating too much supply:



Too much credit, too many government programs supporting home ownership. That report showed a 33% one month plummet, also the largest percentage drop ever. In the West, New Home Sales plummeted 53% in just one month:



The supply of homes measured in month’s supply has begun rising sharply again. Take a look at the home vacancy rate which continues to climb unabated, but you can't see it in the Fed data because they stopped reporting it in 2008, wonder why?



Are permits showing any sign of life? You tell me, here’s a current chart of housing starts:



There never was an economic “recovery,” there was only massive deficit spending to create the illusion of growth. Double-dip? Hardly.

I was reading yesterday how half of stock analysts believed the market was undervalued, leaving the obvious other half to think it was overvalued. Hard to believe that anyone thinks historically high P/E ratios is justified with the underlying economic and debt condition. Whatever, they have stocks to sell. This is exactly why you should listen to those who understand what real valuation is. Those who have been around the block a time or two, guys like Richard Russell who just said, “We’re now in the process of building one of the largest tops in stock market history. The result, I think, will be the most disastrous bear market since the ‘30s, and maybe worse.” Oh, and he has data to back it up. He also sees the destruction of our currency and sees the major change on the way.

I don’t often talk about geopolitical events, but I think we need to pay attention to those “other” events that are coming to usher in that change. Things are heating up with Iran, they are taunting the Israelis by moving to break the blockade of Palestine. The U.S. and Israel just moved more ships through the Suez Canal and Israeli jets have been seen positioning supplies in Saudi Arabia. Any actual engagement here would have a very significant impact and is a huge risk that should not be ignored or downplayed.

Politics is becoming more volatile too. Australia just removed their Prime Minister and installed their first woman, Julia Gillard. The main issue? Economics of course:
June 24 (Bloomberg) -- Julia Gillard will become Australia’s first female prime minister after ousting Kevin Rudd following a slump in his approval ratings and a clash with the resources industry over a plan to increase taxes.

Gillard, 48, will be sworn in at 12:30 p.m. after challenging Rudd for the leadership late last night. Welsh-born Gillard was elected unopposed by Labor party members this morning in Canberra after Rudd, who won office in 2007, withdrew from the ballot.

The change in leadership spurred gains in BHP Billiton Ltd. and Rio Tinto Group in Sydney trading on optimism the government will compromise on its mining profit tax. Rudd’s support started to crumble in April after he shelved his emissions trading plan. His approval rating fell further as the fight over the resources tax intensified, with the spat coming to a head over the past 24 hours as colleagues switched their support to Gillard.

“This is the most dramatic leadership change in Australian political history,” Nick Economou, a lecturer in politics at Monash University in Melbourne, said in a phone interview.

Higher taxes means businesses unhappy which leads to workers unhappy which brings about political change. That’s how it’s supposed to work. However, when you are debt saturated, you can swing from the left to the right, and back to the left, but you won’t change a thing until the underlying problem is fixed – namely DEBT. That's what brought about the need for higher taxes to begin with. The debt's still there, so removing the tax increase only returns them to their prior condition - one that structurally cannot be maintained.

Turning back to our markets, yesterday produced a small movement in the McClelland Oscillator, expect a large directional movement today or tomorrow. Yesterday’s sideways motion appeared to be a small degree wave 4, today should be wave 5. Below is a 30 minute chart of the SPX showing the Fibonacci levels. It’s pretty easy to see the waves in the current downtrend which may be the beginning wave of 3 of 3 down. We are now beneath the 1090 area and will likely find some support in the 1070 to 1080 area. After that there’s not much until we get back to the neckline in the 1040 region:



The bond market is signaling Trouble, note the capital T. Below is the TNX, breaking down to new lows after breaking out of a very bearish pennant – again the target on that break is 2.3%:



Don’t be surprised when we bounce, it’s going to happen. However, the daily stochastic is a long way from being oversold so we’ll just have to keep a close eye on it…

Doobie Brothers – Minute by Minute:

Wednesday, June 23, 2010

Morning Update/ Market Thread 6/23

Good Morning,

Equity futures were slightly higher this morning, but fell sharply into the bell as we move into today’s FOMC announcement (2:15 Eastern, 11:15 Pacific). Expect head shaking drivel from the announcement, a headfake by the HFTs following the announcement, followed 20 to 30 minutes later by a real directional move, most likely lower. Not that there’s any type of predictable pattern, like the Monday morning ramp – naaaawww.

The dollar is down slightly to flat, the Euro is slightly higher, oil and gold are both lower. Overhead resistance is now SPX 1100, then 1111. Support is 1,090, then 1,070, and below that the 1040/1050 neckline area awaits. Below is a 3 month daily chart of the SPX:



Yesterday’s rout was yet another 90%+ down move (92.4%), the score now sits at 9 down, 6 up, 15 total since mid-April. Unprecedented lopsided volatility, again proof that the only real players left are the ones operating HFTs. Note in the chart above that it won’t be long before the 50dma crosses under the 200dma, a “death cross.” That is an ominous indicator that happens very infrequently. There are false crossovers, but if the 50 gets more than 1% below the 200, the odds of a false cross are almost nothing. Below is a 2 year view showing the last death cross that occurred in late 2007:



I recently did a quick study of just the 200 day moving average and found that another very good indicator is when the average changes directions by 1% that it makes an excellent long term sell or buy signal. You can see that it is now rising very slightly but is likely to be pointing down soon with any further downward movement. Of course a shorter term signal is a falling 50dma, and it is falling steeply at this time, that really pressures prices and presents stiff overhead resistance as was just proven.

The (worthless) MBA Purchase Applications composite index fell 5.9% in the prior week. Purchase applications fell 1.2% and refinance applications fell 7.3%. Here’s Econoday:
Mortgage activity contracted in the June 18 week led by a 7.3 percent decline in refinancing applications. The dip retraces only a small degree of a two-month surge triggered by the dramatic drop underway in mortgage rates. Thirty-year mortgages fell 7 basis points in the week to 4.75 percent for the lowest rate since May last year.

On the home-buying side, purchase applications, which in the prior week rose for the first time in six weeks, resumed their steep post-stimulus decline with a 1.2 percent dip. The housing sector appears to be in trouble following April's end of second-round stimulus. Today's new home sales report at 10:00 ET will offer a key look at post-stimulus demand.

As they said, new home sales coming at 10 Eastern this morning.

Did you see that the White House’s Budget Director resigned? That was followed yesterday by the House Republican Leader, John Boehner, who announced that there would be no work on the Congressional budget this year? He’s accusing politicians of not facing up to the trillions in shortfalls prior to the November elections and that they want to hold off on dealing with the reality of their mess until afterwards… this should not give you or the markets a warm fuzzy feeling, in fact it is a giant red flag, a confidence destroyer.

Then, the General McChrystal’s comments were a direct embarrassment to the administration and he has now tendered his resignation. Do McChrystal’s comments build confidence? I’d say not.

Then we have George Soros come out and say that Germany may cause the collapse of the Euro! Ahhh, poor guy. Can’t stand the heat of a little austerity. Bond spreads widened considerably on his comments.

Another ominous development in the charts yesterday occurred when the TNX (ten year Treasury fund) broke a bearish pennant. The staff of the pennant goes from 4% to 3.1%, a .9% move which is huge. The break lower from the flag break then targets 2.3%, again a huge move that would have to correspond to a large move lower in equities:



There are corresponding breaks in the long bond and TLT is still maintaining its uptrend line as well as breaking higher as seen in this daily chart below:



Below is a daily chart showing the Emerging Markets death cross again. Monday’s action attempted to gap higher, but collapsed and that led to yesterday’s move dumping below both the 50 and 200. Again, this is a warning about global emerging markets and the U.S. does not operate in isolation:



The markets are signaling the psychology of wave C down in my opinion. Much of the world is being forced into austerity, the U.S. will eventually have no choice should we fail to look beyond the edges of the central banker’s debt backed money box. Inside of that box resides the left/right paradigm, both sides are funded by the same people. Inside that box the math of social security, of Medicare, and of our very money do not work. Solutions inside that box are debt on top of debt, or austerity. In other words no solutions at all. People need to pull their minds outside of that box. Don’t listen to the fools!

Doobie Brothers – What a Fool Believes:

Tuesday, June 22, 2010

Interview with Steve Patterson of “Two Beers with Steve” fame…

Steve and I have great conversations – they’re usually best when we’re not recording an interview, they just flow. I was listening to one of his interviews a while back and the thought occurred to me that Steve has something to say... but because he’s always in the role of interviewer, he seldom has the opportunity to express his thoughts in depth. I was also interested in what Steve’s background is, so it dawned on me that I should turn the tables on him and ask him the questions!

What came out is a fairly lengthy, free-flowing type of conversation, Two Beers style. And I learned a lot about Steve and what makes him tick. It’s a little on the long side, about an hour and a half, but listening to Steve’s professional sounding voice and calm demeanor makes it a comfortable listen.

Here’s Steve’s Two Beers introduction:
The table gets turned in this episode and Nathan Martin (A two time guest on 2BwS, woop-woop) asks the questions. We explore topics such as my background, which tends to go on longer than it should have... but who doesn't like talking about themselves, c'mon! We also talk about the show; past guests, thoughts I've pulled away from my guests, what I've learned, yadda-yadda.

The interview eventually breaks down into the typical type of conversations that me and Nathan have had. The conversation seems to follow a narrow stream of consciousness and I think most everyone will appreciate the candidness of both Nathan and I. These are the types of conversations that more people should be having.

I don't think anywhere in the interview are we complaining about what THEY are doing to US. That is an important statement for me to make, because I don't want to view myself as a victim of the system, or some higher power (Royal Order of the Frog? hmmm.).

I hope you enjoy this episode






Steve Patterson Two Beers Interview (.mp3)

Morning Update/ Market Thread 6/22

Good Morning,

Equity futures are close to even after being lower overnight. The dollar is up, bonds are up, while oil and gold are slightly higher.

The FOMC meeting begins today with the word smithing designed to condition weak minds to be released tomorrow. At 10 Eastern this morning we’ll get Existing Home Sales data. The consensus is expecting 6.2 million, but I think this data may start to disappoint this month and by next month is very likely to disappoint. Remember, sales take roughly two months to complete, so we are still under the influence of the tax credits that expired at the end of April.

There certainly seems to be a riff in logic between the U.S. and Europe developing. Europe has awakened to the fact that they are throwing very large sums of completely ineffective money around. In fact they see the loss of confidence and thus are talking about ways to get their budgets balanced – higher taxes and less spending which equals austerity. Geithner and crowd, of course, want the debt game to continue to get larger.

These two reactions are a FALSE CHOICE. It only has to be one or the other if you are living inside of a central banker debt money box. I say that the appropriate choice is to tear down their box and run them out of power – Freedom’s Vision.

Yesterday’s gap higher open and collapse was a Key Reversal for the market. A key reversal occurs when prices open higher, produce a new high, and close below the prior day’s close. It was also a bearish engulfing day on the SPX, NDX, and RUT – this is when the high is higher than the previous day and the close is beneath the previous day’s low. Both are indications of a potential trend change.

This is dangerous as we ran up into resistance at the 50dma and failed. The collapse returned the SPX to just above the 200dma which is acting as support for now, but I think the odds of it holding for long are small. Below is a 3 month daily chart of the SPX, you can see that we threw over the down channel but returned to within the confines. Also note that the daily stochastic is overbought and just now rolling down:



SPX 1111 is support, that is where the 200dma is located. Get below that level and I think the odds favor a return to 1040, the right shoulder of the H&S pattern would then be fully formed. Below is a chart where this formation is clear – it is a longer term pattern which makes the odds of it playing out higher. Should the 1040 neckline be broken, the downside target would be approximately 860 – 22% lower than here:



Also note in the chart above that the 50dma is descending rapidly towards the 200dma. Should they cross, it will produce what’s known as a “death cross” and that would be a very bearish indication. The financials are very weak, GS and JPM stocks are languishing, their stocks produced death crosses several months ago. Below is a daily chart of the XLF, you can see that overall the financials failed in their attempt to regain the 200dma:



Yesterday’s failed rally caused TLT, the 20 year bond fund, to break beneath its uptrend line. However, by the close it had regained it and is higher this morning. This trendline is important as it tells you which direction funds are flowing – right now that would be to perceived “safety,” if you consider owning debt in a debt saturated and insolvent environment safe:



We may very well be witnessing the end of wave 2 of 3. I will not be surprised if we attempt to rise a little further, but I think overhead resistance has proven to be too strong. Keep an eye on the currencies which were looking very unstable after China’s propaganda over the weekend, and then watch the bond market to tell us which way the money is really flowing. Hey, the economy and markets are playing a tune – there’s a rhythm and a beat, all we have to do is listen:

The Doobie Brothers – Listen to the Music:

Monday, June 21, 2010

Damon Vrabel - PR vs. Truth: Corporate Charity and the Billionaire’s Ruse

When I heard that Buffett and Gates were calling on all billionaires to donate half their money to charity, I instantly had many of the same thoughts as Damon - PR spin:
PR vs. Truth: Corporate Charity and the Billionaire’s Ruse

By Damon Vrabel

Warren Buffett and Bill Gates are acting as if they’ve discovered the fountain of youth as they are now telling other billionaires they don’t need to spend their lives addictively pursuing and hoarding wealth. On the surface this is noble, even though most people learned such things from their pet as a kid. They’re inspiring other billionaires to follow their lead. So we’re supposed to cheer right? Many people are cheering. The comments range from “thank you!” and “bless you Warren!” to the more worshipful “you are a hero!” and “this proves Microsoft’s commitment to humanity!”

Wow—the power of corporate PR. It’s unfortunate that snake oil has always been a bestseller. So rather than cheer, I’ll give a different perspective on what this billionaire PR campaign might be all about.

The real reason Gates and Buffett are doing this in the media now is because they’re still doing what they’ve done their whole adult lives—serving their bosses, the moneyed establishment behind Wall Street. While the exponential growth machine was inflating, the establishment wanted them addictively pursuing EPS and share growth, and they dutifully did so better than most. But now that the machine is shutting down, the fact is that billionaires won’t be able to pursue wealth—the game is over for a while. And now that we’re headed for a major dose of deflation that will cause a lot of pain for a lot of people, the establishment wants Gates and Buffett on TV talking about charity. Why?

Among other things, it’s a preemptive strike against the rage of the lower classes that will result from the final reckoning with our broken monetary system and the fact that the corporate system has shifted American jobs and production offshore. This is an orchestrated billionaire PR campaign, kicked off at a dinner with David Rockefeller himself, “lord” of the US banking establishment. Gates and Buffett are providing strategic marketing through CFR (Council on Foreign Relations) mouthpiece Charlie Rose and other major media arms of the establishment, then companies and smaller billionaires are following their lead and giving away money in return for more PR effect. Two examples:
Corporate charity: JP Morgan Chase got a lot of bang for its buck on June 9th announcing a $5 million charity program for education. CEO, billionaire, and inner CFR member Jamie Dimon said, “As a company, we’re highly committed to serving our local communities…We’ve now seen that when corporations listen to the communities they serve, they can learn a great deal and, in turn, help worthy causes achieve goals that would have never been possible.”

Billionaire charity: Marc Benioff, CEO of salesforce.com, billionaire, and CFR member just gave away $100 million to a hospital in San Francisco. The PR master has stirred many on Facebook to lawd him with near religious fervor and thank him for caring so much for his community. It’s the corporate suit equivalent of a rock concert.
Again beyond the PR, this is part of an organized campaign being run by the corporate ruling class. While the most powerful folks at JPM Chase know the truth, the non-profit team inside the bank and an individual like Marc genuinely believe in what they are doing. They’re decent people. They just don’t realize how their compartmentalization within the mega corporate structure keeps them from seeing the truth of the debt-based corporate empire they’re serving. So what’s the truth?

Will the Real JP Morgan Chase Please Stand Up?
Let’s start with JP Morgan Chase. It is a voracious institution driven by ruthless usury putting people, towns, counties, states, and countries in debt. It has fed the multi-generational billionaire families that have controlled the bank through history (the merger of JP Morgan interests and Rockefeller interests behind Chase) while making a few of its operating officers like Jamie Dimon billionaires as well. It has done so by being the most powerful member of the Federal Reserve cartel that puts the US government in servitude and forces all of us to borrow and pay interest in order to have money, i.e. in order to survive. So the bank effectively controls the rest of us in an economic structure similar to the old days of feudalism.

Some specific examples are useful to help understand the true character of this institution. The bank, sometimes through foreign surrogates, has a track record of being involved in the financial crises that put foreign governments under even more debt from the Anglo-American banking establishment and give western corporations more power and control over natural resources and other assets. The bank helps drive smaller levels of government into insolvency, with Jefferson County Alabama being the most obvious current example. The bank has been accused of insider market manipulation, most recently in the silver market. The bank has participated in the general banking attack on much of the world having blown indebtedness, and therefore asset bubbles, to such stratospheric heights that major “discontinuous adjustment” is guaranteed, to use an innocuous Greenspan phrase for “unprecedented catastrophe.” And the bank showed how ruthless its operating officers can be in the aftermath of the collapse of 2008 when they had no problem jacking up credit card rates and kicking people out of their homes as Jamie Dimon went on CNBC to tell Americans they better pay up so his team can keep pocketing millions. At the same time, the powers behind the bank were extorting the government to put the nation in even more debt, transfer billions to them, and hand them valuable assets like WAMU.

This should reveal the truth behind Jamie Dimon’s claim that Chase “serves its communities.” That is PR spin straight out of Orwell’s 1984 where corporate propaganda from a smooth Harvard billionaire replaces truth. I also hope this helps put in perspective a $5 million charity handout designed to give them PR value. $5 million isn’t even pocket change to Chase. It’s a tiny drop in the ocean of money that has been stripped from the population in the first place through usury. So a helpful analogy to this Chase charity stunt might be a viciously abusive husband who gives his wife a Reese’s peanut butter cup after 10 years of broken bones, hospital visits, and psychological horror. Don’t be a sucker.

Marc Benioff and the Truth of the Tech Boom
In Marc’s case, the story is far less severe. He’s not in the dark usury business. He’s not evil. But the gap between truth and PR is still wide. He became a billionaire in the 2nd phase of the tech boom in which the establishment chose Web 2.0 technologies for its corporate empire vs. the old client/server architecture from the 1st tech boom. At the micro level, people inside his company think they’re benevolently serving human progress. But the macro perspective reveals that salesforce.com is just one small component of the overall new world economic order being built by the financial empire that rules much of the world. His product helps the corporate system go global and turn away from national and community loyalties. So salesforce.com’s gain is, for example, the industrial midwest’s ruin—so much for the idea that he loves community. As a few comfy employees in the company have gotten rich IN the tech bubble, manufacturing towns have been destroyed BY the tech bubble. His product also puts data in the “cloud computing” architecture on the internet beyond corporate firewalls and national borders so the banking establishment can further consolidate power and control. This explains why a CFR lawyer was a top officer at the company for a few years and why a public CFR representative like Colin Powell would speak at a Benioff conference for techies, not typically a venue where one sees national leaders who have more important things to do.

What’s really sad about the tech billionaires is that their wealth was driven by putting the rest of the world in massive debt. They don’t understand this. They think they really are “self-made” billionaires as described by establishment rags like Forbes. But as Teddy Roosevelt said, business elites don’t know much outside their own business, so they don’t realize the true mechanism that funneled so much wealth into the tech industry and their personal bank accounts. As a result of Greenspan and team driving the real estate debt boom and the US government massively increasing its debt at the same time, the Wall Street cartel had new unprecedented levels of liquidity to funnel into the corporate empire system. This gave corporations billions to allocate to new capital projects, and since Wall Street governs the corporate system, it dictated how that money would be spent. So guys like Marc saw their share prices shoot to the stratosphere as corporations funneled to them billions in funny money backed by the debt that would soon drown millions of people.

Truth vs. Corporate PR
This is the truth of the corporate system, our supposed captains of industry, and the tech billionaires we admire for entrepreneurial efforts. This is the truth that more and more Americans are waking up to. And this is therefore likely the reason the CFR corporate establishment is encouraging guys like Marc to dole out money in a coordinated campaign designed to make people admire billionaires and the corporate system that rules them. If they can buyoff enough of the population with charity PR, they might avoid the reckoning that would otherwise be coming their way. They will be able to stay peacefully in their billionaire enclaves separate from real communities as the rest of the population suffers in the next phase of deflationary decline coming our way.

So Warren, Bill, Jamie, Marc, am I glad some of the money that was sucked into your accounts by the debt system is being given back to the community? Absolutely. But will you go further? Will you learn the truths this article discusses? Will you actually get out in your communities, meet real people, learn about how their indebtedness is directly proportional to your wealth, and work with them to change the system rather than writing a check, hiding behind PR professionals, and serving the CFR agenda?
The people are awake to the truth now. The system is reverting back to reality. The PR matrix is coming down. You should move beyond the fake PR facades as well. Warren, you said the dinner with Lord Rockefeller was almost like a therapy session. I promise you’ll feel even better if you simply choose truth over PR. As opposed to the narcissists that Rothkopf calls the “superclass” which surrounds you, most people are forgiving by nature. You don’t have to hide behind PR any longer.

Martin Armstrong – Can the Euro Survive a Sovereign Debt Crisis?

Here Martin starts off with a forecast for the DOW. Before you read it, I will remind you of his prior forecast from August 2009, “Will the DOW Reach 30,000 by 2015?” This is where he said, “The main resistance area is 11,000 on the DOW. We need a monthly closing above that level to signal that the March 2009 low will hold. Otherwise, we should expect a retest of the lows or still even perhaps new lows going into 31.4 months down from the October 2007 high with a rally into the next target 2015.75 reaching 30,000+.” We did not receive that close, so keep his prior work in mind when reading his latest update – there are inconsistencies here.

In the rest of the paper Martin tries to explain MONEY. He fails miserably in my opinion, but does have some good points. He talks about velocity and he talks a little about DEBT, but he still fails to see how the central bankers are using debt for profit, power, and control. He is failing to see how debt saturation is responsible for killing velocity, and he clings to the idea that the gold standard is what caused the Great Depression and that therefore it’s not going to happen again – yet the world economies are in severe danger! LOL, well which is it?

Thus, we are getting closer to drivel in terms of forecasting the FUTURE which he also talks about as a focus of money. What he doesn’t mention about the future is how the central bankers have worked tirelessly to pull forward in time people’s FUTURE incomes! When income cannot support debt you have a mechanical problem in terms of velocity. He also fails to account for the accounting fraud and the leverage effects that derivatives are playing. M3 is negative, he does not talk about that.

So, I continue to post his work because there are valuable nuggets of information to consider – pieces of history and concepts about capital flow that are important. I think Bob Prechter puts together a more coherent overall thought process and ultimately what neither discusses is how the mechanics of DEBT affect both psychology and velocity. There is an underlying problem with the math that is at the root of it all.

Morning Update/ Market Thread 6/21

Good Morning,

It’s a Monday… so of course it was an obvious opportunity to gap the futures over resistance and thus keep the 90% trend for Monday ramp jobs in tact. It’s certainly is not a good thing, it’s a symptom of the disease.

Announcements out of China that they are going to allow more freedom for the Yuan to float caused our dollar initially dump on the news, but it has since recovered back to its previous level. The Euro is weaker and the correlation between the EUR/JPY and equities that was perfect over the past couple of weeks has subsided. Oil is up sharply, gold is down after reaching another new high at $1,266.

Bonds fell sharply, returning back inside of its triangle. Was the breakout higher just an overthrow? This is a bullish triangle, so a break downwards in the wrong direction could be violent. A break downwards would be bullish for equities and a break upwards would be bearish. Below is a chart of the dollar on the left and long bond futures on the right:



There is no economic data today, but later in the week we’ll get to look at Existing and New Home Sales, the FOMC monkeys meet this week and will attempt to manipulate our market psychology with their announcement on Wednesday, the final revision to Q1 GDP and Citizen Sentiment come this Friday.

China not only announced they were going to let the Yuan float more freely, but they also announced that they were going to buy up some of Greece’s debt – debt that no one else would. China is definitely playing a game… indeed, they do have a credit bubble going in China, but China also is printing money that is not backed by debt. Because their currency is perceived to be stronger than market, they are using the opportunity to buy debt, and why not? By printing and owning other nations debts, it gives them power, control, and influence.

Of course I’ll believe the currency moves when I see them. The knee jerk was a very large move downwards in the dollar this weekend that is already gone. There is obviously instability in the currency markets and we need to watch closely to see how those moves are impacting markets.

Russia also dropped a bomb this weekend when they announced that they are ending capital gains taxes. This is the type of move that will cause capital to be drawn into Russia, that’s the intent. And money will always flow to where it’s treated best, so this may set up some interesting dynamics as well. In any case, we can certainly see that the dynamics are changing and so we need to stay aware of the flow of capital.

Returning back to our markets, getting over the SPX 1120 overhead resistance level will cause much short covering and thus it appears that we are getting the run into the 1140 to 1150 overhead area. A break above 1150 will signal that a run to new highs is likely.

Earnings season starts soon, we’ve already seen some negative commentary, and so the odds are rising that we’ll start to see some earnings disappointments. The financial stocks are lagging the latest bounce in the market, a sign once again that all is not well under the surface – as we are all aware.

The 50 dma is at about 10,600 on the DOW, or about 1138 on the SPX. That will offer up our next overhead resistance area. This is an important area, a break above the 50 will likely cause more short covering. If it holds, however, the wave count still says wave 3 of 3 of looming. I think the markets are highly unstable still and obviously full of risk. The Monday long train is certainly running, but it’s also forming a very pretty right shoulder… I wouldn’t want to be near the tracks when this train derails. I sure hope those putting on end of month and quarter window dressing are nimble when it comes time to take it back down.

The Doobie Brothers – Long Train Running: