Wednesday, September 21, 2011

Morning Update/ Market Thread 9/21 - Doing the Twist Alright…

Good Morning,

Stock futures are mixed this morning with tech leading and transports lagging. The dollar is higher, bonds are slightly higher, oil is slightly higher, gold is down a sliver, while silver is up, and food commodities are a mixed can of veggies.

The hypocritical Mortgage Bankers Association says that Purchase Application fell 4.7% in the past week, but that Refinancing activity increased 2.2%. At least we don’t have phony double-digit one week moves, here’s Econoday:
The purchase index fell 4.7 percent in the September 16 week to end a brief run of improvement. On a four-week basis, the purchase index is down 1/2 percent in a reading that doesn't point to strength in underlying home sales. The refinance index rose 2.2 percent in the week with the four-week average down 3.9 percent. The average rate for 30-year fixed mortgages with conforming loan balances ($417,500 or less) is unchanged at 4.29 percent with jumbo loan balances ($417,500 or more) down two basis points to 4.55 percent.

Existing Home Sales are released at 10:00 Eastern, followed by Bernanke flapping his nonsensical lips about the “Twist” at 2:15 Eastern. Remember that home sales are now transitioning to the back side of the Option-ARM reset curve, a heavy anchor that is now in the process of getting lighter.

Again, for those who are being fooled by this “Twist” operation, please wake up and smell the coffee. Think about the math… you cannot have something for nothing, you cannot take from short yields to suppress the long end without losing control of the short end. Math. That’s why I say that “Twist” will NOT be net neutral, they MUST backfill that which they take from the short end, and that means more money printing – period.

Should they not backfill the short end, then you would see the money aggregates begin to collapse – they cannot let that happen, even though at some point it MUST happen.

Once again for anyone who hasn’t read this before… We have experienced Macroeconomic debt saturation. Adding more debt into that situation beyond the saturation point only works to drag down the economy which must service all the principal and interest. Servicing all that debt is what kills monetary velocity – the money simply circles back around to the bank. Past the saturation point new debt is used to service old debt, and there is not enough income left over to create real growth or real jobs.

Below is the chart of the Base Money versus the Mean Duration of Unemployment. This relationship will not change until the debt is cleared back below the saturation point:

Those closest to the production of money win, while those farther from it lose. CNN finally did an article showing the effect this has had on the middle-class over the past decade. I wrote an entire chapter on it in my book called “The Middle-Class Squeeze,” and here is the chart depicting it after the fact:
A rough 10 years for the middle class

NEW YORK (CNNMoney) -- It's official. The first decade of the 21st century will go down in the history books as a step back for the American middle class.

Last week, the government made gloomy headlines when it released the latest census report showing the poverty rate rose to a 17-year high. A whopping 46.2 million people (or 15.1% of the U.S. population) live in poverty and 49.9 million live without health insurance.

But the data also gave the first glimpse of what happened to middle-class incomes in the first decade of the millennium. While the earnings of middle-income Americans have barely budged since the mid 1970s, the new data showed that from 2000 to 2010, they actually regressed.

For American households in the middle of the pay scale, income fell to $49,445 last year, when adjusted for inflation, a level not seen since 1996.

And over the 10-year period, their income is down 7%.

"Economists talk about the lost decade in Japan. Well, with these 2010 data, we can confirm the lost decade for the American middle class," said Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities.

Keep in mind that they are using FALSE government statistics to correct for inflation. Real inflation is multiples of reported inflation, and therefore the real effect of the middle-class squeeze is even more dramatic than that chart depicts. Lost decade? Get ready for more. Get real, stay real. Get involved in things not built around paper fluff.

Here’s Arnie Gunderson with more solid information on the Fukushima disaster and the way in which these reactors are designed with vulnerabilities which leave many around the world exposed to these dangers:

Hey, anytime your government is backing up private central bankers who refer to themselves as a branch of the government - when in fact they are not Federal, they possess NO reserves, and they are not even a bank – and now they are talking about the “Twist?” Oh yeah, it’s twisted all right, don’t be fooled by their slight of hand tricks, keep your eye on the ball, and don’t let them twist reality into something it’s not!