RETEST... not sure now 3 months later if it will go all the way to 666 but it will correct I think(I HOPE)...Well the market has climbed this wall of worry with all this $$$ being pumped into the system... the unemployment numbers are real and will go double digit... with no wage increases, the market up 30+% since the march lows I just can't fathom how much further this market can go to the upside... the RISK is definately to the downside now but congrats to all who have rode the wave in the last 3 months... been waiting for a correction but it hasn't seemed to materialize... WAIT I think it is around the corner... well anyway GL to all and waiting on the correction... DA FIREANT
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Fireant's Account Talk
- Thread starter Fireant
- Start date
Bear Market Enters Final Phase
by Magnus Ekervik
In the beginning of 2009 I predicted that we would see a cyclical bull market in an ongoing secular bear market. With unprecedented financial stimulus packages and record low interest rates my belief was that the cyclical bull would run all year long.
World stock markets has indeed made an impressive recovery and seen increases between 30-80% in just three months. However the stimulatory effect of the massive liquidity injections has already started to wear off and liquidity is once again drying up.
If worldwide multi trillion dollar financial stimulus cannot push markets higher than this, the underlying deflationary forces must be huge and we have now likely entered the famous "liquidity trap", which means that central banks can provide all the liquidity they want but if banks are afraid to lend and consumers are afraid to borrow, credit cannot expand. Combine this with a big and swift increase in consumer savings, rising unemployment and an increased desire to pay down debt and you have the recipe for a severe credit contraction, deflation and collapse in consumer demand.
The background to this situation is the enormous debt burden that has been amassed during the last 25 years. In 2007 this huge debt could no longer be serviced and the contraction started. The bear market so far is the worst since the Great Depression and the trillions of dollars in wealth destruction has turned the psyche of the world from positive/expansion to negative/contraction for the first time in seventy years.
This new negative mood has led to rising risk aversion and geopolitical tension which increases the risk for further market disappointments. The saluted recovery seems to be on thin ice and when it breaks (probably this summer or early fall) market participants are likely to panic as the market enters its final phase of liquidation. The last phase is usually the worst, where markets tend to collapse by more than 40% usually in less than a month. I would not be surprised if this final liquidation is preceded or shortly followed by some geopolitical event of great magnitude.
The last bear market phase is likely to pull the rug from all asset classes so there will be nowhere to hide except cash. When the dust settles the best stock buying opportunity of the century will emerge, make sure you are liquid now to take advantage of it.
by Magnus Ekervik
World stock markets has indeed made an impressive recovery and seen increases between 30-80% in just three months. However the stimulatory effect of the massive liquidity injections has already started to wear off and liquidity is once again drying up.
If worldwide multi trillion dollar financial stimulus cannot push markets higher than this, the underlying deflationary forces must be huge and we have now likely entered the famous "liquidity trap", which means that central banks can provide all the liquidity they want but if banks are afraid to lend and consumers are afraid to borrow, credit cannot expand. Combine this with a big and swift increase in consumer savings, rising unemployment and an increased desire to pay down debt and you have the recipe for a severe credit contraction, deflation and collapse in consumer demand.
The background to this situation is the enormous debt burden that has been amassed during the last 25 years. In 2007 this huge debt could no longer be serviced and the contraction started. The bear market so far is the worst since the Great Depression and the trillions of dollars in wealth destruction has turned the psyche of the world from positive/expansion to negative/contraction for the first time in seventy years.
This new negative mood has led to rising risk aversion and geopolitical tension which increases the risk for further market disappointments. The saluted recovery seems to be on thin ice and when it breaks (probably this summer or early fall) market participants are likely to panic as the market enters its final phase of liquidation. The last phase is usually the worst, where markets tend to collapse by more than 40% usually in less than a month. I would not be surprised if this final liquidation is preceded or shortly followed by some geopolitical event of great magnitude.
The last bear market phase is likely to pull the rug from all asset classes so there will be nowhere to hide except cash. When the dust settles the best stock buying opportunity of the century will emerge, make sure you are liquid now to take advantage of it.
Pay Attention to What the C-RSI Indicator is Telling You
by Marty Chenard
Charts can be confusing ... can't they?
Take the Relative Strength for example. It moves from zero to 100. The half way point has to be ascertained visually, because 50 is a critical level. So, you have to watch for 51 or 49 to know when you are above or below that critical mark.
Doesn't it just make more sense to subtract 50 from the index and calculate a new index based on that?
For example: A RSI reading of 50 (neutral) minus 50 would reset the the base line to zero. So zero would become the base line, and any movement above or below it could be seen visually without even looking at the number. That is why we reset many indicators to a zero base ... so we can see them fast and efficiently without any required interpretation.
So, that is how our C-RSI Indicator was born. Today's C-RSI vs. the S&P chart is very interesting and clearly shows where we are in this rally cycle.
Take a look at the posted C-RSI chart below. There were 2 decent upside rallies since 2008 and our C-RSI was trading positive (above zero) for both rallies.
Both of these rallies ran into trouble when the C-RSI fell below its red support line. The first one ran a positive C-RSI from April 2008 to June 2008. In late May 2008, the red C-RSI support line was broken to the downside, but it wasn't until June 2008 that the C-RSI finally went negative ... and that is when the S&P went into a correction.
So, let's look at the current rally again. Our C-RSI indicator has been positive since the end of March. On June 15th. the first "crack" appeared when the C-RSI fell below its support line. Check your own charts ... the market has essentially gone nowhere since June 15th.
The positive right now, is that the C-RSI has not gone into negative territory ... at least as of yesterday's close. But, the reality is also that "risk levels" are substantially elevated when the C-RSI is below its red support line and "testing" its zero line ... so, now is a good time to be cautious.
(Note: The C-RSI is posted in many charts on our paid subscriber sites every day. Today's C-RSI chart is being shown as a courtesy to our free members today.)
Please feel free to share this page with others by using the "Send this Page to a Friend" link below.
by Marty Chenard
Take the Relative Strength for example. It moves from zero to 100. The half way point has to be ascertained visually, because 50 is a critical level. So, you have to watch for 51 or 49 to know when you are above or below that critical mark.
Doesn't it just make more sense to subtract 50 from the index and calculate a new index based on that?
For example: A RSI reading of 50 (neutral) minus 50 would reset the the base line to zero. So zero would become the base line, and any movement above or below it could be seen visually without even looking at the number. That is why we reset many indicators to a zero base ... so we can see them fast and efficiently without any required interpretation.
So, that is how our C-RSI Indicator was born. Today's C-RSI vs. the S&P chart is very interesting and clearly shows where we are in this rally cycle.
Take a look at the posted C-RSI chart below. There were 2 decent upside rallies since 2008 and our C-RSI was trading positive (above zero) for both rallies.
Both of these rallies ran into trouble when the C-RSI fell below its red support line. The first one ran a positive C-RSI from April 2008 to June 2008. In late May 2008, the red C-RSI support line was broken to the downside, but it wasn't until June 2008 that the C-RSI finally went negative ... and that is when the S&P went into a correction.
So, let's look at the current rally again. Our C-RSI indicator has been positive since the end of March. On June 15th. the first "crack" appeared when the C-RSI fell below its support line. Check your own charts ... the market has essentially gone nowhere since June 15th.
The positive right now, is that the C-RSI has not gone into negative territory ... at least as of yesterday's close. But, the reality is also that "risk levels" are substantially elevated when the C-RSI is below its red support line and "testing" its zero line ... so, now is a good time to be cautious.
(Note: The C-RSI is posted in many charts on our paid subscriber sites every day. Today's C-RSI chart is being shown as a courtesy to our free members today.)
Please feel free to share this page with others by using the "Send this Page to a Friend" link below.
Where Are We in This Bear Market?
by Adam Brochert
The short answer: somewhere around halfway through it. The long answer follows. The price to earnings ratio for the S&P 500 is currently greater than 100 and earnings are not coming back strong in the next few quarters, I can assure you. If you think so, stop reading here and go back to CNBC to get your analysis. Cramer has a hot stock tip for you right now!
This is not a regular bear market. This is a credit contraction bear market like the one in the 1929-1932 time frame or the Japanese 1990-1992 bear market. Those who go on and on about money printing fail to realize that most of the money printing over the last decade didn't come from the private, for profit federal reserve corporation or the government. It came from bankstas and Wall Street leveraging the printed money via loans and other credit instruments.
In a sense, we've already had a hyperinflation in asset prices and now asset price collapse is causing a deflationary storm before the next inflation can begin. If you wipe out half of Wall Street, leave the other half begging for money at the government teat, and also wipe out the banking system, you get asset price deflation and credit contraction. Yes, fiscal and monetary "stimulus" will eventually cause some inflation in asset prices, but a deflationary collapse is in progress and won't be stopped by incompetent apparatchiks. And the private non-government agency known as the federal reserve corporation will buy as many assets as it can for pennies on the dollar before the next inflation begins (which they will profit from, believe me).
The inflation versus deflation debate rages on and I am no expert compared to some of the commentators out there. However, regardless of what is happening at the pure monetary level, asset prices will continue to collapse. Price changes are not inflation or deflation, I understand. But when you're making investment decisions, aren't you trying to guess whether asset prices (e.g., stocks, commodities) will rise or fall rather than whether or not we are in deflation or inflation?
If I am wrong and monetary purists are right that we are in inflation because money creation is net positive right now, I don't care. Because what I do know is that the stock market is going much lower and commodities are going to get crushed. Real estate is dead for the next decade. Gold, the ultimate form of money and a good deflation hedge, and fiat cash (better pick the right country's currency, though) are the only places to hide if you don't like to short the markets.
Anyway, this cyclical bear market has a long way to go. I have two fractal-like patterns that I am following right now as a general "road map" to this bear market, although these are just rough guidelines. The most relevant in my opinion, is the stock index of the last country that went through a real estate and stock market collapse due to asset price deflation: Japan. The Japanese bear market from 1990-1992 is shown below in chart form with where I think we are in a relative sense using this template as a guide for what's in store for the US stock market:
by Adam Brochert
This is not a regular bear market. This is a credit contraction bear market like the one in the 1929-1932 time frame or the Japanese 1990-1992 bear market. Those who go on and on about money printing fail to realize that most of the money printing over the last decade didn't come from the private, for profit federal reserve corporation or the government. It came from bankstas and Wall Street leveraging the printed money via loans and other credit instruments.
In a sense, we've already had a hyperinflation in asset prices and now asset price collapse is causing a deflationary storm before the next inflation can begin. If you wipe out half of Wall Street, leave the other half begging for money at the government teat, and also wipe out the banking system, you get asset price deflation and credit contraction. Yes, fiscal and monetary "stimulus" will eventually cause some inflation in asset prices, but a deflationary collapse is in progress and won't be stopped by incompetent apparatchiks. And the private non-government agency known as the federal reserve corporation will buy as many assets as it can for pennies on the dollar before the next inflation begins (which they will profit from, believe me).
The inflation versus deflation debate rages on and I am no expert compared to some of the commentators out there. However, regardless of what is happening at the pure monetary level, asset prices will continue to collapse. Price changes are not inflation or deflation, I understand. But when you're making investment decisions, aren't you trying to guess whether asset prices (e.g., stocks, commodities) will rise or fall rather than whether or not we are in deflation or inflation?
If I am wrong and monetary purists are right that we are in inflation because money creation is net positive right now, I don't care. Because what I do know is that the stock market is going much lower and commodities are going to get crushed. Real estate is dead for the next decade. Gold, the ultimate form of money and a good deflation hedge, and fiat cash (better pick the right country's currency, though) are the only places to hide if you don't like to short the markets.
Anyway, this cyclical bear market has a long way to go. I have two fractal-like patterns that I am following right now as a general "road map" to this bear market, although these are just rough guidelines. The most relevant in my opinion, is the stock index of the last country that went through a real estate and stock market collapse due to asset price deflation: Japan. The Japanese bear market from 1990-1992 is shown below in chart form with where I think we are in a relative sense using this template as a guide for what's in store for the US stock market:
We have started the first leg down of the final big leg down, but nothing moves in a straight line. A re-test of the fall '08 and/or March '09 lows is in order, followed by a bounce into the early fall, followed by more devastating downward moves that will likely last into early-to-mid 2010. Note the duration of the bear market at roughly 2.5 years.
Another potential crude template (off in magnitude and timing) is the Panic of 1907. The following chart is stolen from www.thechartstore.com with my scribbles on it:
A similar conclusion is reached for the shorter-term: re-test the fall '08 or March '09 lows, then a weak bounce into the fall. This template, however, suggests the final leg down will be the most severe and worse than the Panic of 2008. This is certainly not out of the question!
And finally, the ultimate bear market of 1929-1932, during which the Dow Jones lost 89% of its value (chart stolen from http://www.technicalanalysisbook.com):
Even I'm not quite this bearish for the current cyclical bear market at this point, but I can't rule out the possibility that this replays. We're talking Dow 1400 and S&P 500 at 175 if a similar decline is coming.
In any event, this bear has a long way down to go and this is why my bullishness on the Gold mining sector is geared towards realism rather than irrational exuberance. No stock sector can make much progress higher under such conditions. Of course, once the dust settles, it will be time to bet the farm on Gold miners. But until the S&P 500 gets below the 500 level, I won't be looking to "buy and hold" anything besides physical Gold as the ultimate cash equivalent.
Another potential crude template (off in magnitude and timing) is the Panic of 1907. The following chart is stolen from www.thechartstore.com with my scribbles on it:
A similar conclusion is reached for the shorter-term: re-test the fall '08 or March '09 lows, then a weak bounce into the fall. This template, however, suggests the final leg down will be the most severe and worse than the Panic of 2008. This is certainly not out of the question!
And finally, the ultimate bear market of 1929-1932, during which the Dow Jones lost 89% of its value (chart stolen from http://www.technicalanalysisbook.com):
Even I'm not quite this bearish for the current cyclical bear market at this point, but I can't rule out the possibility that this replays. We're talking Dow 1400 and S&P 500 at 175 if a similar decline is coming.
In any event, this bear has a long way down to go and this is why my bullishness on the Gold mining sector is geared towards realism rather than irrational exuberance. No stock sector can make much progress higher under such conditions. Of course, once the dust settles, it will be time to bet the farm on Gold miners. But until the S&P 500 gets below the 500 level, I won't be looking to "buy and hold" anything besides physical Gold as the ultimate cash equivalent.
Death of the American Empire...
by Clive Maund
Originally published September 24th, 2009.
The general public, who never understood the global financial crisis in the first place, have been hoodwinked into thinking it's over. It's not. None of the underlying structural abnormalities, distortions and excesses within the global financial system have been addressed and rectified, because to do so in a meaningful way would involve allowing a constructive depression to purge the system of dross and parasitic elements (like much of government itself) in what would amount to a teardown and rebuild. Instead, the same crew who got us into this mess are still in charge, and their "solution" to the global financial crisis has been even more extravagant helpings of what created the mess in the first place - namely money and credit creation. This shameless procrastination has not and will not fix anything - all it has done is postpone the day of reckoning and guaranteed an even worse crisis later.
Recession, depression and deflation have their rightful place in the scheme of things, which is to straighten the system out after a prolonged period of profligacy. The willful obstruction of these forces is ultimately counterproductive and futile. Almost all of you will be aware of the longstanding inflation versus deflation arguments, which still rage. What happened last year is that the deflationary forces that had built up to explosive proportions suddenly burst into the open. However, instead of allowing these cleansing forces to do their grim work, The US Fed and government and then Central Banks worldwide decided to beat them back with a massive inflationary frontal assault of money and credit creation. There should by rights have been many more bloated carcasses like Lehman Brothers floating down the river, but instead we have the legacy of an army of zombie corporations, hopelessly corrupt and mismanaged, lurching towards us like the figures in the The Night of the Living Dead. The same rotten management with their crony connections in government, the same leeching off shareholders and the public purse, and the same soaking of gullible foreigners with share and bond issues. However, there is a limit to everything, and as made clear by Karl Denninger in his recent article "WARNING: Deflationary Collapse Dead Ahead", the US debt is continuing to accelerate into the stratosphere, racing way ahead of GDP so that it is effectively unserviceable already. Any significant increase in interest rates would make it blatantly obvious that it is unserviceable and lead to default - this is why interest rates have been held at such an artificially low level for so long, but this itself is creating massive problems. For a start it is undermining the dollar which is threatened with collapse, and extremely low rates and inflation of the money supply are also encouraging another carry trade boom in commodities and other assets. Another big danger is that the US can no longer count on dull-witted foreigners to keep buying increasingly large tranches of Treasuries to keep the party going. Foreigners are slowly wising up and refusing to fall for it, which means that in order to meet its funding requirements the US Fed and government are having to buy their own garbage, which is of course hugely inflationary. So what we have is a bizarre stagflationary situation, where an attempt is being made to beat back massive deflationary forces by means of further money and credit creation. This continues to ramp up the national debt to astronomic levels requiring a continuance of zero interest rates to avoid default. The zero interest rates and continued expansion of the money supply threaten to destroy the dollar, but if rates are raised significantly default will rapidly ensue. This is a classic Catch 22 situation and it is quite clear that the United States is on its way to becoming a third world country. If default occurs and the banks in the US close their doors things could get ugly really fast, with the prospect of 100 million people with guns going on the rampage looking for food and essentials - and someone to blame. Martial Law and a curfew with a "shoot to kill" policy would have to be declared instantly - fortunately this has been catered for by the provisions of the Patriot Acts.
There is however one escape route that might enable the US to avoid the indignity of ending up like Zimbabwe, and that is for it to "surrender" to its creditors and submit to being economically carved up by them. In effect sovereignty would be lost, but face-saving measures might be permitted such as allowing the inhabitants to continue to celebrate Independence Day, and to fantasize that the Constitution of the US still applies and to plaster flags everywhere, provided that the "Made in China" reference in the corner of the flag is clear to see. On the plus side the paranoid nonsense at airports will probably be curbed and meals may even be reintroduced on flights, with curries and sushi as an option. The creditors will call the shots and the US military machine will be neutered, so that there will be no more military adventures on the other side of the planet to secure geopolitical objectives. US military bases will all be closed down or maybe refurbished as schools. Israel could find itself with a sudden severe funding crisis. Major US corporations will effectively be run by foreigners who will restructure them as they see fit - which could be good news for US waistlines as workers start their day with Tai Chi and a session on the treadmill. Large tracts of Real Estate and other assets will be taken over in lieu of debt repayment. The Hamptons may be largely peopled by Asian entrepreneurs. There will be work for Americans in their own country, however, with plenty of vacancies bagging groceries and stacking shelves in supermarkets at decidedly modest rates of pay and plenty of other service opportunities for their new masters such as gardening and window cleaning. "Green cards" may even be permitted for the lucky few - not to enter the country but to leave.
Since those in control of the US have demonstrated their unwillingness to allow recessionary forces to do their necessary work of correcting the extreme imbalances within the economy, there are only two options left - default and deflationary implosion - ruin, or a comprehensive takeover of the country by its creditors, both of which options probably occurring after a period of runaway inflation as the Fed and government desperately try to stop the inevitable. If the former occurs the shockwaves will reverberate around the world, like last year, and we can expect a collapse in commodity and stock markets. Until that happens it will be case of inflate and inflate, to forestall rising rates and liquidity problems, which will make gold and silver probably the best investments around, but you sure don't want to be around once the music stops. It is therefore to be hoped for the common good that the US authorities make the right decision and surrender to the mercy of their creditors before it's too late. Either way the American Empire is finished.
by Clive Maund
The general public, who never understood the global financial crisis in the first place, have been hoodwinked into thinking it's over. It's not. None of the underlying structural abnormalities, distortions and excesses within the global financial system have been addressed and rectified, because to do so in a meaningful way would involve allowing a constructive depression to purge the system of dross and parasitic elements (like much of government itself) in what would amount to a teardown and rebuild. Instead, the same crew who got us into this mess are still in charge, and their "solution" to the global financial crisis has been even more extravagant helpings of what created the mess in the first place - namely money and credit creation. This shameless procrastination has not and will not fix anything - all it has done is postpone the day of reckoning and guaranteed an even worse crisis later.
Recession, depression and deflation have their rightful place in the scheme of things, which is to straighten the system out after a prolonged period of profligacy. The willful obstruction of these forces is ultimately counterproductive and futile. Almost all of you will be aware of the longstanding inflation versus deflation arguments, which still rage. What happened last year is that the deflationary forces that had built up to explosive proportions suddenly burst into the open. However, instead of allowing these cleansing forces to do their grim work, The US Fed and government and then Central Banks worldwide decided to beat them back with a massive inflationary frontal assault of money and credit creation. There should by rights have been many more bloated carcasses like Lehman Brothers floating down the river, but instead we have the legacy of an army of zombie corporations, hopelessly corrupt and mismanaged, lurching towards us like the figures in the The Night of the Living Dead. The same rotten management with their crony connections in government, the same leeching off shareholders and the public purse, and the same soaking of gullible foreigners with share and bond issues. However, there is a limit to everything, and as made clear by Karl Denninger in his recent article "WARNING: Deflationary Collapse Dead Ahead", the US debt is continuing to accelerate into the stratosphere, racing way ahead of GDP so that it is effectively unserviceable already. Any significant increase in interest rates would make it blatantly obvious that it is unserviceable and lead to default - this is why interest rates have been held at such an artificially low level for so long, but this itself is creating massive problems. For a start it is undermining the dollar which is threatened with collapse, and extremely low rates and inflation of the money supply are also encouraging another carry trade boom in commodities and other assets. Another big danger is that the US can no longer count on dull-witted foreigners to keep buying increasingly large tranches of Treasuries to keep the party going. Foreigners are slowly wising up and refusing to fall for it, which means that in order to meet its funding requirements the US Fed and government are having to buy their own garbage, which is of course hugely inflationary. So what we have is a bizarre stagflationary situation, where an attempt is being made to beat back massive deflationary forces by means of further money and credit creation. This continues to ramp up the national debt to astronomic levels requiring a continuance of zero interest rates to avoid default. The zero interest rates and continued expansion of the money supply threaten to destroy the dollar, but if rates are raised significantly default will rapidly ensue. This is a classic Catch 22 situation and it is quite clear that the United States is on its way to becoming a third world country. If default occurs and the banks in the US close their doors things could get ugly really fast, with the prospect of 100 million people with guns going on the rampage looking for food and essentials - and someone to blame. Martial Law and a curfew with a "shoot to kill" policy would have to be declared instantly - fortunately this has been catered for by the provisions of the Patriot Acts.
There is however one escape route that might enable the US to avoid the indignity of ending up like Zimbabwe, and that is for it to "surrender" to its creditors and submit to being economically carved up by them. In effect sovereignty would be lost, but face-saving measures might be permitted such as allowing the inhabitants to continue to celebrate Independence Day, and to fantasize that the Constitution of the US still applies and to plaster flags everywhere, provided that the "Made in China" reference in the corner of the flag is clear to see. On the plus side the paranoid nonsense at airports will probably be curbed and meals may even be reintroduced on flights, with curries and sushi as an option. The creditors will call the shots and the US military machine will be neutered, so that there will be no more military adventures on the other side of the planet to secure geopolitical objectives. US military bases will all be closed down or maybe refurbished as schools. Israel could find itself with a sudden severe funding crisis. Major US corporations will effectively be run by foreigners who will restructure them as they see fit - which could be good news for US waistlines as workers start their day with Tai Chi and a session on the treadmill. Large tracts of Real Estate and other assets will be taken over in lieu of debt repayment. The Hamptons may be largely peopled by Asian entrepreneurs. There will be work for Americans in their own country, however, with plenty of vacancies bagging groceries and stacking shelves in supermarkets at decidedly modest rates of pay and plenty of other service opportunities for their new masters such as gardening and window cleaning. "Green cards" may even be permitted for the lucky few - not to enter the country but to leave.
Since those in control of the US have demonstrated their unwillingness to allow recessionary forces to do their necessary work of correcting the extreme imbalances within the economy, there are only two options left - default and deflationary implosion - ruin, or a comprehensive takeover of the country by its creditors, both of which options probably occurring after a period of runaway inflation as the Fed and government desperately try to stop the inevitable. If the former occurs the shockwaves will reverberate around the world, like last year, and we can expect a collapse in commodity and stock markets. Until that happens it will be case of inflate and inflate, to forestall rising rates and liquidity problems, which will make gold and silver probably the best investments around, but you sure don't want to be around once the music stops. It is therefore to be hoped for the common good that the US authorities make the right decision and surrender to the mercy of their creditors before it's too late. Either way the American Empire is finished.
Geaux4it
Member
Death of the American Empire...
by Clive Maund
Originally published September 24th, 2009.
The general public, who never understood the global financial crisis in the first place, have been hoodwinked into thinking it's over. It's not. None of the underlying structural abnormalities, distortions and excesses within the global financial system have been addressed and rectified, because to do so in a meaningful way would involve allowing a constructive depression to purge the system of dross and parasitic elements (like much of government itself) in what would amount to a teardown and rebuild. Instead, the same crew who got us into this mess are still in charge, and their "solution" to the global financial crisis has been even more extravagant helpings of what created the mess in the first place - namely money and credit creation. This shameless procrastination has not and will not fix anything - all it has done is postpone the day of reckoning and guaranteed an even worse crisis later.
Recession, depression and deflation have their rightful place in the scheme of things, which is to straighten the system out after a prolonged period of profligacy. The willful obstruction of these forces is ultimately counterproductive and futile. Almost all of you will be aware of the longstanding inflation versus deflation arguments, which still rage. What happened last year is that the deflationary forces that had built up to explosive proportions suddenly burst into the open. However, instead of allowing these cleansing forces to do their grim work, The US Fed and government and then Central Banks worldwide decided to beat them back with a massive inflationary frontal assault of money and credit creation. There should by rights have been many more bloated carcasses like Lehman Brothers floating down the river, but instead we have the legacy of an army of zombie corporations, hopelessly corrupt and mismanaged, lurching towards us like the figures in the The Night of the Living Dead. The same rotten management with their crony connections in government, the same leeching off shareholders and the public purse, and the same soaking of gullible foreigners with share and bond issues. However, there is a limit to everything, and as made clear by Karl Denninger in his recent article "WARNING: Deflationary Collapse Dead Ahead", the US debt is continuing to accelerate into the stratosphere, racing way ahead of GDP so that it is effectively unserviceable already. Any significant increase in interest rates would make it blatantly obvious that it is unserviceable and lead to default - this is why interest rates have been held at such an artificially low level for so long, but this itself is creating massive problems. For a start it is undermining the dollar which is threatened with collapse, and extremely low rates and inflation of the money supply are also encouraging another carry trade boom in commodities and other assets. Another big danger is that the US can no longer count on dull-witted foreigners to keep buying increasingly large tranches of Treasuries to keep the party going. Foreigners are slowly wising up and refusing to fall for it, which means that in order to meet its funding requirements the US Fed and government are having to buy their own garbage, which is of course hugely inflationary. So what we have is a bizarre stagflationary situation, where an attempt is being made to beat back massive deflationary forces by means of further money and credit creation. This continues to ramp up the national debt to astronomic levels requiring a continuance of zero interest rates to avoid default. The zero interest rates and continued expansion of the money supply threaten to destroy the dollar, but if rates are raised significantly default will rapidly ensue. This is a classic Catch 22 situation and it is quite clear that the United States is on its way to becoming a third world country. If default occurs and the banks in the US close their doors things could get ugly really fast, with the prospect of 100 million people with guns going on the rampage looking for food and essentials - and someone to blame. Martial Law and a curfew with a "shoot to kill" policy would have to be declared instantly - fortunately this has been catered for by the provisions of the Patriot Acts.
There is however one escape route that might enable the US to avoid the indignity of ending up like Zimbabwe, and that is for it to "surrender" to its creditors and submit to being economically carved up by them. In effect sovereignty would be lost, but face-saving measures might be permitted such as allowing the inhabitants to continue to celebrate Independence Day, and to fantasize that the Constitution of the US still applies and to plaster flags everywhere, provided that the "Made in China" reference in the corner of the flag is clear to see. On the plus side the paranoid nonsense at airports will probably be curbed and meals may even be reintroduced on flights, with curries and sushi as an option. The creditors will call the shots and the US military machine will be neutered, so that there will be no more military adventures on the other side of the planet to secure geopolitical objectives. US military bases will all be closed down or maybe refurbished as schools. Israel could find itself with a sudden severe funding crisis. Major US corporations will effectively be run by foreigners who will restructure them as they see fit - which could be good news for US waistlines as workers start their day with Tai Chi and a session on the treadmill. Large tracts of Real Estate and other assets will be taken over in lieu of debt repayment. The Hamptons may be largely peopled by Asian entrepreneurs. There will be work for Americans in their own country, however, with plenty of vacancies bagging groceries and stacking shelves in supermarkets at decidedly modest rates of pay and plenty of other service opportunities for their new masters such as gardening and window cleaning. "Green cards" may even be permitted for the lucky few - not to enter the country but to leave.
Since those in control of the US have demonstrated their unwillingness to allow recessionary forces to do their necessary work of correcting the extreme imbalances within the economy, there are only two options left - default and deflationary implosion - ruin, or a comprehensive takeover of the country by its creditors, both of which options probably occurring after a period of runaway inflation as the Fed and government desperately try to stop the inevitable. If the former occurs the shockwaves will reverberate around the world, like last year, and we can expect a collapse in commodity and stock markets. Until that happens it will be case of inflate and inflate, to forestall rising rates and liquidity problems, which will make gold and silver probably the best investments around, but you sure don't want to be around once the music stops. It is therefore to be hoped for the common good that the US authorities make the right decision and surrender to the mercy of their creditors before it's too late. Either way the American Empire is finished.
And to think Orson Wells freaked everyone out.
Thank god I have that progressive press at the ready.
Geaux
GDP number... don't believe it... unemployment going above 10... no way we are in a recovery with that #... don't know which or what numbers are real... 2.3 billion of TARP went into CIT... taxpayers get to eat that... this is like VEGAS... when do you roll the dice... we'll correct but then the government will throw more TARP money at the probem... not solving nor can it solve the real issues... fasten the seat-belts ladies and gentlemen... it is going to start getting interesting... DA FIREANT
Show-me Monday will probably be an UP day in this Wizard of Oz fairy-tale we are in... I'm just waiting for a correction to get back in... I'm content with where I am ytd and love being IN the market but this thing has me totally perplexed... anyway believe some fireworks might be in the offing this week and presently I am just watching from the sideline... best of luck to you... DA FIREANT
Ancient History Or Imminent Future?
by Nico Isaac, Elliott Wave International | October 30, 2009
Print The following article includes analysis from Robert Prechter’s Elliott Wave Theorist. For more insights from Robert Prechter, download the 75-page eBook Independent Investor eBook. It’s a compilation of some of the New York Times bestselling author’s writings that challenge conventional financial market assumptions. Visit Elliott Wave International to download the eBook, free.
Once upon a time, the term "Black Monday" was to Wall Street what the name "Lord Voldemort" was to Hogwarts. It turned the air freezing cold and sent traders flinching around every corner in fear of a repeat of the October 19, 1987 or October 28, 1929 meltdown.
Case in point: The 2008 "Black Monday" anniversary. At the time, the U.S. stock market was locked in a ferocious downtrend that included regular, triple-digit daily declines of 400 points and more. Needless to say, when the final two Mondays of October arrived, the least superstitious investors surrounded their portfolios with more good-luck talismans than a Bingo player. See October 19, 2008 AP headline below:
"Black Monday: Stocks Sink As Gloom Seizes Wall Street. Prolonged Economic Turmoil" is seen.
That was then. Today, the usual dread surrounding the back-to-back string of "Black Mondays" is nowhere to be found. In its place, media reports abound of a new, global bull market "shrugging off," "ignoring," and "making a distant memory" of the event.
For one, "gloom" hasn't "seized" the U.S. stock market in quite a while; from its March 2009 low, the Dow has risen more than 50% to above the psychologically important 10,000 level. For another, the mainstream experts insist that today's financial animal is unrecognizable to that of 1987, and especially 1929. In their eyes, it's a completely different -- i.e. safer, smarter, and sounder system.
We beg to differ.
See, while the usual experts want to put as much mental distance between today's market and those that facilitated the 1987 recession and 1929-1932 Great Depression -- the physical similarities are impossible to ignore; more so, in fact, to the latter scenario.
Here, the October 2009 Elliott Wave Financial Forecast presents the following news clip from the October 25, 1929 New York Daily Investment News.
Now, take a look at these headlines from the week of October 12-17, 2009:
"The Great Recession Is Over." (Reuters) --- "80% of Economists Say The Worst Is Behind Us." (CNN Money) --- "The Bull Is Back" (AP) --- "The Economic Recovery Is Well Underway" (Wall Street Journal)
They're interchangeable -- Eighty years later.
Along with a similar extreme in bullish sentiment, the performance of stocks between now and the 1929 situation is cut from the same cloth. After an initial plunge from August 1929 through late October 1929, the US stock market enjoyed a powerful rally well into the following year. NOW: After a steep freefall from its October 2007 peak, the US stock market is once again enjoying the fruits of a powerful rally back to new highs for the year.
Also, on closer examination, the October 19 Elliott Wave Theorist (EWT, for short) uncovers an even deeper parallel between the 2009 rally and the 1929-30 one. Here, EWT presents the following snapshot of the Dow during the Depression-era advance:
As Bob Prechter points out -- in 1930, stocks rallied to the level of the preceding year's gap. Bob then reveals that the same level has been reached now.
So, we all know how the 1930 rally ended. The question is whether the 2009 advance will experience the same fate. As Bob explains in the Theorist, the only way to know for certain is to "look at the reality of the situation."
For more information, download Robert Prechter’s free Independent Investor eBook. The 75-page resource teaches investors to think independently by challenging conventional financial market assumptions.
Copyright © 2009 Elliott Wave International
Editorial Archive
contact information
Nico Isaac | P.O. Box 1618 Gainesville, GA 30503
800-336-1618 Toll Free | 770-536-0309 Phone | 770-536-2514 Fax | Email | Website
The opinions of FSU contributors do not necessarily reflect those of Financial Sense.
Has the Bull Market Also?
by Sy Harding, StreetSmartReport.com | October 30, 2009
The Great Recession has ended. Halleluiah! It was the worst recession in many ways since the Great D. Just imagine. After four straight negative quarters the economy recovered in the third quarter. Not only did it recover, but GDP rose 3.5% in the third quarter, even more than the consensus forecast of a gain of 3.2%.
The relief is so great you can . . . . well, you can hardly detect it.
The stock market loved it – for about seven hours, with the Dow closing up 200 points on Thursday after the report was released. The market certainly deserved a day of celebrating that it had been right in anticipating the end of the recession by rallying all summer.
However, the market began declining ten days ago, as the GDP report time approached. And after only a one-day rally to celebrate the report, it turned back down with a vengeance the next day.
Was it a classic example of buying on the rumor and selling on the news, or perhaps of reality setting in?
Some quite savvy analysts began warning in May that the rally was getting well ahead of reality in its excitement, factoring into prices not only that the recession was bottoming, but that the recovery is going to be spectacular.
There have been warning signs lately, with economic reports coming out over the last month indicating the recovery might instead be problematic.
Even a peak behind the curtain to see how the GDP growth in the third quarter was achieved raises questions about the sustainability of the improvement, casting doubt on whether it can flow over into coming quarters, or even the current quarter.
For instance, consumer spending rose 3.4% in the third quarter, providing a good part of the improvement in GDP (gross domestic product). That was terrific since consumer spending accounts for 70% of the nation’s economy, and the economy can hardly be expected to recover without a big improvement in consumer spending. Unfortunately, the 3.4% increase in spending was accompanied by a 3.4% decrease in consumer income, not a sustainable situation.
The extra spending also showed up mostly in sales of big-ticket items like houses and autos, which produced a rebound in home-building, and auto manufacturing. However, we all know the catalyst for much of that spending was not normal, but due to the government’s ‘cash for clunkers’ program, and bonuses to first-time home-buyers.
Indeed, the bottom literally dropped out of auto sales once the ‘cash for clunkers’ program ended.
And unfortunately it was reported on Wednesday that new home sales declined 3.6% in September, even though the bonus for first-time home-buyers was still in effect. That was versus the consensus forecast that new home sales would rise 5% in September, and came on the back of the previous week’s report that ‘existing’ home sales fell 2.7% in August, the first decline since March, and the report that permits for future single-family home ‘starts’ fell 3% in September.
Third quarter GDP also got a boost from inventory building. Businesses had allowed inventories to drop at a record pace during the worst of the recession last winter, and began replenishing their shelves in the third quarter, encouraged by improving consumer confidence and rising retail sales. But that increased economic activity will not continue if the replacement goods don’t move off the shelves any faster than they have for most of the year. Whether they will or not will depend to a great extent on consumer confidence.
Unfortunately, the latest reports on consumer confidence are not encouraging either.
The Conference Board reported this week that its Consumer Confidence Index fell to 47.7 in October from 53.4 in September. On Friday Reuters/University of Michigan reported their Consumer Sentiment Index fell to 70.6 in October from 73.5 in September. The majority of consumers in the poll also reported that their financial condition had worsened in October for the thirteenth straight month, the longest decline in the history of the survey. It shouldn’t be a surprise, given the staggering number of people who have lost their jobs, and the surprising percentage of homes that are no longer worth as much as their owners owe on them.
What consumer confidence does not need right now is another substantial decline in the stock market, mutual funds, 401K plans, and IRA’s.
But in spite of the GDP report, or perhaps because of it, the market has returned to the decline that got underway a couple of weeks ago. Its focus is now on further down the road, which means wondering if the Q3 economic improvement is sustainable.
The important report in that regard may be the Labor Department’s employment report for October, next Friday, and whether it will show fewer job losses than recent reports.
Meanwhile, I hope the market can avoid a panic while waiting.
Short-term traders, including the big-program trading firms continue to dominate the market. When they reverse from selling into rallies to buying the dips, as they did in early March, it can make for an exciting and explosive upside reversal. But if they reverse again, from buying the dips, to selling into the rally attempts it can lead to panic, especially after an unusually large rally has investors confident that they will see only higher prices, and are unprepared for something different.
Copyright © 2009 Sy Harding
Editorial Archive
Peter Schiff's Commentary
October 30, 2009
Hair of the Dog
The GDP numbers out yesterday, which showed economic growth at 3.5% in the third quarter, brought a deafening chorus from public and private economists who all agreed that the recession is officially over. With such a strong report, they are happy to tell us that not only has the Fat Lady finished her aria, but she has left the building and is sipping champagne in the bath. As usual, it falls on me to rain on the parade.
Even the giddiest commentators admit that the upside GDP surprise resulted almost entirely from government interventions. But, by pushing up public and private debt, expanding government, deepening trade deficits, and pushing down savings rates, these interventions have succeeded only in putting our economy back on an unsustainable path of borrowing and spending. Accordingly, they have prevented the rebalancing necessary for long-term health. Could there be a simpler illustration of trading long-term pain for short-term gain?
Rather than asking these pre-K economists to make such a three dimensional leap, it may be easier just to give them a brief history lesson.
During the decade that corresponds to the Great Depression, annual GNP expanded for six years and contracted for four. After nose-diving in the early years of the decade, GNP turned positive in 1934 and then logged three more years of solid growth (the four year average annual growth rate was 8.5%). But does anyone really believe the Great Depression ended in 1934, when the economy first stopped contracting? Unemployment reached 19% in 1938, nearly the peak of the entire Depression, almost a full decade after the stock market crashed! Why will we be so much luckier this time around?
The unpopular truth is that rather than curing the economy, government stimulus has made it sicker. The Bush Administration and the Greenspan Fed pursued this policy recipe in the 2002-2003 recession. The result was four years of phony growth, greater global imbalances, and the development of unsupportable asset bubbles. Clearly we have learned nothing from those mistakes.
Third quarter 'growth' was largely driven by a 23% increase in residential construction (the largest quarterly increase since 1986) and a 3.1% increase in consumer spending, which included a 22% jump in durable goods purchases – mostly automobiles – and 2.3% gain in government spending. Since the increase in consumption outpaced the increase in production, the trade deficit expanded, reversing the positive trend for most of 2008 and 2009. Because the increase in spending outpaced the increase in incomes, the savings rate plunged from 4.9% in the prior quarter to 3.3%.
The sizzling numbers for housing and autos resulted from heady cocktail of policy stimulants: near-zero interest rates, government-guaranteed mortgages, Federal Reserve purchases of mortgaged-backed securities, tax credits for homebuyers, bailouts for auto finance companies and 'cash for clunkers' for car buyers.
But the last thing our economy needs is for scarce resources to be wasted through uneconomical incentives.
If the government were not 'stimulating the economy,' higher interest rates and falling home prices would have hamstrung residential construction. That would have been the right move. Instead, based on the false economic signals of the 'stimulus,' we continue to build houses for which no legitimate demand exists.
The same is true for cars. Because of stimulus money, Americans are buying cars that they otherwise would not have. In a free market, the money would have been used for a more constructive purpose. Perhaps it would have been saved, used to pay off existing debt, or spent on a less expensive mode of transport, like a used motorcycle.
The economy ran into a wall in 2008 because consumers bought houses and cars that they really could not afford. That is why the institutions that provided the loans, such as banks, Fannie & Freddie, and GMAC, went bankrupt. It should be obvious that the solution to our economic problems will not be found by redoubling these efforts. This is akin to a drunk having a few more drinks in order to get sober!
A recent article in the Wall Street Journal detailed the myriad ways in which Senators and Congressman are now compelling General Motors to make business decisions that are solely driven by the legislators' own political considerations, not the best interest of the taxpayers who now own the company. Such a dynamic is now underway in nearly every facet of our economy. An efficient allocation of resources – the only path to economic growth – is only possible when market forces, not Beltway bureaucrats, call the shots.
In the end, this stimulus, just like prior doses, will only worsen the condition it is meant to cure. When it wears off, the resulting recession will be even bigger than the one that everyone assumes has just ended. Until the impulse to fight recessions with government stimulus is quashed, genuine economic growth will never return. A string of ever-worsening recessions will eventually lead to what will be the next Great (Inflationary) Depression. But for now, enjoy the bubbly.
October 30, 2009
Hair of the Dog
The GDP numbers out yesterday, which showed economic growth at 3.5% in the third quarter, brought a deafening chorus from public and private economists who all agreed that the recession is officially over. With such a strong report, they are happy to tell us that not only has the Fat Lady finished her aria, but she has left the building and is sipping champagne in the bath. As usual, it falls on me to rain on the parade.
Even the giddiest commentators admit that the upside GDP surprise resulted almost entirely from government interventions. But, by pushing up public and private debt, expanding government, deepening trade deficits, and pushing down savings rates, these interventions have succeeded only in putting our economy back on an unsustainable path of borrowing and spending. Accordingly, they have prevented the rebalancing necessary for long-term health. Could there be a simpler illustration of trading long-term pain for short-term gain?
Rather than asking these pre-K economists to make such a three dimensional leap, it may be easier just to give them a brief history lesson.
During the decade that corresponds to the Great Depression, annual GNP expanded for six years and contracted for four. After nose-diving in the early years of the decade, GNP turned positive in 1934 and then logged three more years of solid growth (the four year average annual growth rate was 8.5%). But does anyone really believe the Great Depression ended in 1934, when the economy first stopped contracting? Unemployment reached 19% in 1938, nearly the peak of the entire Depression, almost a full decade after the stock market crashed! Why will we be so much luckier this time around?
The unpopular truth is that rather than curing the economy, government stimulus has made it sicker. The Bush Administration and the Greenspan Fed pursued this policy recipe in the 2002-2003 recession. The result was four years of phony growth, greater global imbalances, and the development of unsupportable asset bubbles. Clearly we have learned nothing from those mistakes.
Third quarter 'growth' was largely driven by a 23% increase in residential construction (the largest quarterly increase since 1986) and a 3.1% increase in consumer spending, which included a 22% jump in durable goods purchases – mostly automobiles – and 2.3% gain in government spending. Since the increase in consumption outpaced the increase in production, the trade deficit expanded, reversing the positive trend for most of 2008 and 2009. Because the increase in spending outpaced the increase in incomes, the savings rate plunged from 4.9% in the prior quarter to 3.3%.
The sizzling numbers for housing and autos resulted from heady cocktail of policy stimulants: near-zero interest rates, government-guaranteed mortgages, Federal Reserve purchases of mortgaged-backed securities, tax credits for homebuyers, bailouts for auto finance companies and 'cash for clunkers' for car buyers.
But the last thing our economy needs is for scarce resources to be wasted through uneconomical incentives.
If the government were not 'stimulating the economy,' higher interest rates and falling home prices would have hamstrung residential construction. That would have been the right move. Instead, based on the false economic signals of the 'stimulus,' we continue to build houses for which no legitimate demand exists.
The same is true for cars. Because of stimulus money, Americans are buying cars that they otherwise would not have. In a free market, the money would have been used for a more constructive purpose. Perhaps it would have been saved, used to pay off existing debt, or spent on a less expensive mode of transport, like a used motorcycle.
The economy ran into a wall in 2008 because consumers bought houses and cars that they really could not afford. That is why the institutions that provided the loans, such as banks, Fannie & Freddie, and GMAC, went bankrupt. It should be obvious that the solution to our economic problems will not be found by redoubling these efforts. This is akin to a drunk having a few more drinks in order to get sober!
A recent article in the Wall Street Journal detailed the myriad ways in which Senators and Congressman are now compelling General Motors to make business decisions that are solely driven by the legislators' own political considerations, not the best interest of the taxpayers who now own the company. Such a dynamic is now underway in nearly every facet of our economy. An efficient allocation of resources – the only path to economic growth – is only possible when market forces, not Beltway bureaucrats, call the shots.
In the end, this stimulus, just like prior doses, will only worsen the condition it is meant to cure. When it wears off, the resulting recession will be even bigger than the one that everyone assumes has just ended. Until the impulse to fight recessions with government stimulus is quashed, genuine economic growth will never return. A string of ever-worsening recessions will eventually lead to what will be the next Great (Inflationary) Depression. But for now, enjoy the bubbly.
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