Continued Global Cooling = Dangerous Winter

Update to:
Green-Bubble and What Happens in Vegas Stays in Vegas



One of my easier forecasts was the one at the very bottom of this blog. All of the satellite data agrees, the Earth remains in its macro cooling trend since 1992. Today, we are a full degree colder than the year 1900. Global temperatures have chilled 0.64 degrees just since Al Gore published An Inconvenient Truth in 2006 (apparently more inconvenient than he realized).

Summer 2009 was freakishly cold, more than 5 degrees F below average across North America. It snowed in New York City on July 8. California's desert was 8.5 degrees colder than average. Australia's winter was over 10 degrees cooler than average. It is so cold, that the Obama administration has issued a gag order, threatening people who say that it is cold outside with "endangerment" of society.

Combined with the economic disaster caused by hysterical government borrowing at loanshark interest rates, spending the private-banker peddled cash on such things as starving our green plants of life-sustaining carbon, an anticipated extremely frigid winter presents a serious danger to those robbed of their money from our government's unfolding depression.

Go long blankets.

Sheila Bair's Subprime Mentality

Sheila is a friend of mine. She consistently does things that make me money shorting our financial system. So don't get me wrong, I don't want her to heed my advice. But unlike our current crop of insanely selfish, self-righteous mega-borrowers, I actually care about the debt they leave our children.

My advice? Sheila, stop feeding the bears.

Why in God's name would any thinking person borrow from broke banks, especially to pay bills associated with more bank breakage. Sheila has a subprime mentality in a post-subprime world.

Q: What will borrowing 3 years of insurance premiums do to the private FDIC's insurance fund?

A: Severely deplete it.

Why? Because it will raise $45B and cause at least 10% of the banks on the FDIC's own rosy $450B ailing list to go under (a list that our profit-driven government refuses to share with its owner citizens). Then, big surprise, the FDIC is still broke, but now with no income. The private FDIC's bankruptcy is our problem, it is not our solution.

It's almost like - Shiela is getting advice from people who make tax-payer-guaranteed money by loaning paper to our childish government officials. Hmmmm, I wonder.... ... .. .

Ayn Rand Predicts Current Disaster in 1959

Ayn actually understood that the U.S Constitution restricts government's right to seize citizens' Property, disrupt their peaceful Lives, and halt their Pursuit of Happiness. All while self-righteous socialists blow smoke in her face. Worth a listen:

1959 Interview Part I
1959 Interview Part II
1959 Interview Part III

If You Own a Pack of Chiclets...

...you are worth more than the private FDIC:

"Pursuant to these requirements, staff estimates that both the Fund balance and the reserve ratio as of September 30, 2009, will be negative."

- FDIC Memorandum, September 28, 2009

Screeeeeeeeeech!!

Propaganda Watch

Date	Propaganda	Market Snapshot	Market Performance
October 15, 2007	Bernanke: "Rather than becoming more crisis-prone, the financial system is likely to emerge from this episode healthier and more stable than before."	Dow 14,100	-6,700
December 1, 2008	BLS: Economy is in recession.	Dow 7,400	+2,500
September 15, 2009	Bernanke: "The recession is very likely over."	Dow 9,900	Ongoing loss of -150

Fed Deletes Bernanke's Multi-Trillion $ Error

I was looking for a new Quote of the Day from Bernanke's "I missed subprime" speech. In the process, I ran across an incredible find on naked capitalism.

Many will recall Bernanke's call for a rousing housing recovery starting in May of 2007. At which time he admitted he hadn't understood the subprime scandal, and estimated his mistake could cost the taxpayers as much as $50-$100B in total market losses.

That was several trillion dollars ago.

As embarrassing as it is that Bernanke proudly paraded his utter incompetence in front of the world, it is far more chilling that his clueless testimony has been deleted:

http://www.federalreserve.gov/boarddocs/hh/2007/july/testimony.htm

Link Reference:

http://www.marketwatch.com/story/subprime-losses-are-bumps-in-road-of-innovation-bernanke

Monday PM Update

The market rallied today on very low volume. Cashzilla was unimpressed and decided to wait for more people to eat tomorrow. The dollar continued it's 16 month march higher.

Blog rule:

Price sans volume = the wrong price.

Fed Working Hard to Deflate Home Prices

"The government-backed mortgage financier Fannie Mae is tightening its lending standards. The GSE says it will require a credit score of at least 620 for all mortgage loansdelivered in accordance with its Selling Guidelines, including loans guaranteed or insured by a federal government agency, such as the Federal Housing Administration (FHA), Veterans Affairs (VA), or HUD.

The new minimum will take effect for manually underwritten loans and all government loans on November 1, and for loans underwritten using Fannie’s Desktop Underwriter, when the software is updated on December 12. Currently, the minimum score for most loan types is 580, with no minimum for government loans."

http://www.dsnews.com/articles/fannie-mae-raises-lending-criteria-2009-09-28

Tougher appraisals make home sales harder.

""I’ve been doing this for 32 years, and I’ve never had four that didn’t appraise in a period like this,” Schemm said. “It’s definitely much tighter.”

The new requirements hold appraisers to higher standards, and severely restrict contact between them and lenders to prevent fraud."

http://www.buffalonews.com/145/story/809190.html

Sell Bumps Early in the Week

We should near 9,100 late this week (the timing isn't as important as meeting the condition) then sharply retrace the majority of the loss since the Dow's recent 9,900+ high.

Federal Reserve Failure

"FDR you said that the FED will soon be gone , give or take a couple of years to 5 years from now.If that is the case then will everything will be back to normal and we continue to prosper again? So i presume that if the FED is gone within 2 to 5 years from now , DOW may not go below 1000?"

---

There is no doubt in my mind the Federal Reserve will fail, though I've never given a precise time frame and obviously no one knows how it will play out on the political/economic/military stage. We know that the same people who run the Fed today started major wars the first two times we kicked them out of our country. I would bet on that.

Today, we have a situation similar to the Dark Ages, where 99% of the citizenry was kept illiterate and used to the advantage of a few. 99% of Americans have no idea how their money is stolen by private bankers who make up the Federal Reserve crime ring. The People are systemically poorly educated to keep them in the dark. I think we are in the midst of a sea change, as the internet slowly self-educates the citizenry to read their plight.

Your question about the Dow rising above 1,000 after the Fed dies is interesting, because it illustrates how deeply they've indoctrinated our citizens to want their inflationary snake oil. Rising prices are bad, it means we all can afford less, not more. If the Fed ever truly dies, and isn't reincarnated by the next band of thugs two years down the road, prices should stabilize then slowly fall.

In such a scenario, capital gains speculators (99% of Americans actually think price speculation = "investing") would again be replaced with investors, and people would once again value purchasing assets that produce a genuine cash flow. In other words, you'd buy a share of stock, not to unload it to some sucker after Federal Reserve inflation has wrecked our financial system, but to hold on to it forever in exchange for a share of the company's profits. You would be able to pass the shares on to your kids, as the cash flow would only increase in buying power.

The picture of economic prosperity is falling prices. Everyone should want falling prices. Rising prices result when the privileged steal your wealth by printing extra paper, then use that paper to purchase things that those who cannot print must work to buy. Falling stock prices in a fair economy means existing cash flow buys more stuff, including assets to produce cash flow.

So if the Federal Reserve crime ring is slain and the United States Constitution restored, we would, once again, back all Congressionally issued USA cash (not Fed cash) with money. A dollar would again become a credit, not an ultra-high interest rate debt to some faceless international financier. In a constitutional system, the money supply cannot and should not grow, and as a result our money grows in buying power as assets are added (from productivity) and prices correspondingly fall. Prosperity would again break out, and freedom would ring.

That's a long way of saying, in an ideal world, the Dow should slowly fall in price. Falling prices are a great thing, as long as thieves go punished.

Vacate Money Market Funds

Dave wrote:
I appreciate all the commentary you have provided and will never be able to thank you enough. Thank you. I am concerned about this latest rumor of the fed doing reverse repo's on mmf's. I large portion of my portfolio in currently in a treasury mmf with schwab. Would you advise purchasing treasuries outright or is it okay to leave them in the treasury mmf
----------------------------------------

A long time ago, I think it was on MW around end-2007, I pointed out that almost all MMFs were secretly broke or about to go broke. Since then, many major MMFs have been shut down after breaking the buck. 100% Treasury backed MMFs are the strongest of the weaklings, but as you point out, at best they are a source of funds to garner against the named beneficiary's other losses, so they will eventually get drained.

There is no reason to accept high risk for little cash when you can buy Treasuries yourself. Even Treasury's C of I at 0% is a fine place to park and will return anywhere from 10% to 200% in annual increased buying power for many years to come.

Purchase Treasuries through treasurydirect.gov

Over the next decade or two, no "investment" will be able to deliver a fixed interest rate of return above a small fraction of a percent without the ability to go short. Nothing can. Get out.

Government-Produced Volt Meets $1 Gas

Before the Government seized Chevrolet and sent the stock price to 27 cents, the Chevy Volt concept looked like this:



The Government-produced Volt looks like this:



This is why our old-style Soviet, Government-run economy is a bad idea.

The car conceals a massive Korean-built, highly toxic and intensely flammable Lithium battery that runs on our 70% coal-fired electrical grid. It can run on pure electricity for the first 10 to 40 miles. During that time, it produces about 5x more carbon (which green plants love, of course) per mile than gasoline powered cars. After that, it gets 15 to 25 mpg under gasoline power at typical speeds with the headlights and A/C turned on, or up to 50 mpg if driven slowly with no additional electric demands, according to Government press releases.

The U.S. Government says its car will use a 1.0L gasoline engine that drives the wheels electrically, but will not recharge the battery. It has a total range of "several hundred" miles between gas stations, and also requires 6-8 hours charging time on a household plug. The cost is about $1 per charge at off peak rates, which equates to the cost of gasoline power under most driving conditions.

The good news is that the Government has decided to grant itself an arbitrary "230 mpg" rating, which assumes daytime driving of 50 miles between charges, traveling at low speed without the air conditioning, stereo, or wipers, and assuming you have access to free electricity. During those 50 miles, system carbon emissions are similar to burning about 5 gallons of gasoline. Unlike their usual gasoline mpg rating system, the government seems to be calculating mileage expectations based on constant-speed city driving, since highway air resistance discharges the car's battery system more quickly.

Government workers needed more time than originally anticipated to "re-invent" things like windshield wipers and radios that didn't quickly drain the battery, so the Government Volt will be released late for model year 2011. It will cost north of $40,000, and arrive just in time for 99 cent gas.

I can't wait.

An EW Embryo?

***** ***** *****

4:15 EST Update:

Nice. Right on track for a great Bear week into options expiration. Look for as low as 9,100 into late next week.

***** ***** *****

***** ***** *****

2:33 EST Update:

A better count looks like my blue 5 (in the 11:20 update) probably completes the first mini 3 wave. No change to outlook, we still get a nice W1-2 fractal, with W2 potentially ending at 2pm EST, or if not, soon.

***** ***** *****

***** ***** *****

11:20 EST Update:

Again, this is just a possibility:

***** ***** *****

***** ***** *****

IF Dow 9,916 was the kickoff off Wave 3 of Wave C, then we might look to embryonic fractal similarity to find a lottery ticket today.

This is certainly not set in stone, it is so early in the 3 of C downturn, if we are even there at this point, anything can happen. This is a "best guess" right now. Wave C's, and especially 3 of C's, are the most destructive waves, so it is entirely possible that the wave form morphs to a plain crumble instead.

The best idea isn't to day trade this baby, rather, "sell and hold."

Yes, there could be an obvious "options lottery ticket" for sale later this morning, for those who understand how to create it, but it is only a lottery ticket. A better entry will be at an even larger degree after some level of confirmation into next week. So don't go play the lottery with capital you might need; capital preservation will be critical in the looming Mother of All Depressions.

With that said, as an interesting exercise, let's look into what is, potentially, the forming DNA of wave 3 of C. This 3 wave could be the most devastating wave Mother Nature has ever crafted to break the stock market. I post this in advance because everyone else talks about stuff after it happens, when it is too late.

Here is the Dow over the past day and a half, since making the recent "Fed-is-a-joke" 9,916 high. I used different colors to discuss various embryonic fractal similarities and their potential implications:

(CLICK TO ENLARGE)

Wear an Ounce

Since the Romans plundered their hemisphere and then some, a fine Toga (later: fine business suit), belt, and pair of handmade leather shoes has always very closely equated to the price of an ounce of gold.

Bugs,
Jos. A. is telling you something about deflation:

A Timely EW Lesson

Also Reference:
http://fdralloveragain.blogspot.com/2009/01/elliott-thumbnail.html

Elliott Waves describe how nature weaves her incantations through similarly programmed, but differently sized, groups of people.

A perfect example looms large.

Remember, the basic magic of EWs is that nature's waves are fractal, or self-similar. Knowing how to identify and label patterned waves is an essential skill, because we can then apply known fractal patterns from large degree to small degree, or vice versa, to ascertain how we humans will create future events, react to them, and then drive future stock price movement.

Remember the following chart from The Correction Zone?

















Speaking of self-similarity, do you notice that the entire wave, from the left edge to the right edge, is self-similar with another piece of the picture. What part? I will give you a moment to stop and stare...

..... .... ... .. .

That's right, the complete wave pattern is self-similar to any degree Wave 1-2 completion within the whole, or that the whole will someday form. This very interesting and useful correlation always occurs, as any degree, large or small, Wave 2 reaches for completion:
















And by extension, in bear markets, we see the following:




Do you notice any application to today?

(CLICK TO ENLARGE)

FDIC Failure was Expected, but is Nevertheless Alarming

I'm upping my probability that the USA fails as a functioning nation from 70% to 85% by 2020.

It's all very interesting, because the stone-broke FDIC is forcing the better banks to merge with poison ones, instead of paying their own insurance obligations, because they lack mere pocket change to reimburse a relative few displaced depositors.

Ironically, if we didn't have the FDIC wrecking ball, U.S. banking might survive after a few unremarkable losses. But with a bankrupt FDIC promising some $15T they obviously don't have, and opting to extract it by wiping out stronger bank shareholder equity and exposing otherwise unrelated depositors, there is simply no way our banking system can survive.

Breaking News: FDIC Announces Imminent Bankruptcy

The FDIC's plan to borrow from banks it insures won't come as a surprise to readers of this blog:

http://www.nytimes.com/2009/09/22/business/22bailout.html

When's the last time your insurance company asked to borrow against your totaled car so they could pay for it? You can't make this stuff up. The strongest leg down in the total financial collapse of the United States is underway. Hold on.

One year of emergency cash held at home or in relatively liquid U.S. Treasuries/C of I is a must.

IMF's "Gold for Drugs" Program

Yes, yes, it must be harvest season, the IMF has announced another $13B installment (403 Tons) under its "Gold for Drugs" program. Careful readers of this blog understand that the IMF's primary purpose is, and always has been, to finance the modern trillion $ drug trade between East and West.

Our President once wrote that his favorite professors were the Marxists:

"To avoid being mistaken for a sellout,I chose my friends carefully.The more politically active black students.The foreign students.The Chicanos.The Marxist Professors and the structural feminists and punk-rock performance poets." - Barack Obama, Dreams From My Father

He probably didn't know anything about "punk-rock performance poets," but one thing Karl Marx actually understood was the British gold for opium trade:

"The English East India Company, as is well known, obtained, besides the political rule in India, the exclusive monopoly of the tea-trade, as well as of the Chinese trade in general, and of the transport of goods to and from Europe. But the coasting trade of India and between the islands, as well as the internal trade of India, were the monopoly of the higher employés of the company. The monopolies of salt, opium, betel and other commodities, were inexhaustible mines of wealth. The employés themselves fixed the price and plundered at will the unhappy Hindus. The Governor-General took part in this private traffic. His favourites received contracts under conditions whereby they, cleverer than the alchemists, made gold out of nothing." - Karl Marx, Genesis of the Industrial Capitalist

95% of today's heroin producing opium originates in Afghanistan (street price: somewhere between $500B and $1T), where the USA and NATO have successfully monopolized, cultivated, and more than doubled world opium production. It is then laundered through the traditional British outpost banks to find its way to the big time consumers like China, and other old fashioned dopers that still do business in specie.


It is no coincidence that Britian's HSBC bank (Hong Kong and Shanghai Banking Corporation) hosts the paper gold ETF, GLD, which is designed to pump the price of gold by issuing fractionally backed paper-gold shares. GLD claims to hold physical reserves, but no one knows how much because "physical reserves" can be paper gold, according to Exchange Rule 104.36:

"The purpose of this Notice is to confirm that the Exchange would accept gold-backed exchange-traded funds ('ETF') shares as the physical commodity component for an EFP transaction involving COMEX gold futures contracts, provided that all elements of a bona fide EFP pursuant to Exchange Rule 104.36 are satisfied."

And from the GLD Prospectus (bold emphasis added):

"The creation and redemption of Baskets [= 100,000 shares] requires delivery to the trust of the amount of gold and any cash represented by the Baskets being created or redeemed."

"The number of ounces of gold required to create a basket or to be delivered upon the redemption of a Basket gradually decreases over time due to the accrual of the Trust's expenses and the sale of the Trust's gold to pay the Trust's expenses."

In other words, we systematically steal gold to pay our own salaries and bonuses. The GLD prospectus is careful to prohibit anything resembling an audit:

"the Trustee may have no right to visit the premises of any subcustodian for the purposes of examining the Trust's gold bars or any records maintained by the subcustodian, and no subcustodian will be obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such subcustodian."

Nor will HSBC say where, whatever metal they might own, is:

"the Custodian has agreed that it will hold all of the Trust's gold bars in its own London vault premises except when the gold bars have been allocated in a vault other than the Custodian's London vault premises"

Readers of this blog also understand that a pound of 70% opium traditionally commands one ounce of gold on the Hong Kong/Shanghai underground market. These conduit banks have every interest in a high gold price... ...at least... ...while they are selling.

My question is, after the IMF recently announced another 400 ton payment of physical metal, a full eighth of their alleged total gold reserve, why does HSBC hold one of the largest short positions against gold on the COMEX? Hmmm, I wonder...

Ted Spread Shows Banks in Extreme Distress

A lot has been made in the MSM of the falling Ted spread, or the difference between the 3-Month Treasury rate and the interbank lending rate. A high Ted is commonly viewed as a sign that banks are not very creditworthy.

In absolute terms, the Ted is rather low at .18%. But a closer examination shows the Ted is trading at extremes never before explored. Let's take a look:















Even a Yale-trained economist can see that over the past decade the Ted has generally hovered around 50 basis points, or a 1/2 percent above the 3-M T. But obviously absolutes don't matter, what matters is what the premium represents in terms of the anticipated return. If I'm expecting a return of $5 per $100, a 0.5% premium of is a 10% surcharge. If I'm making $1 per $100, a 0.5% premium is a 50% charge.

With common sense in mind, the chart below shows what the Ted has actually been doing. Historically, banks have paid a relatively stable 10% to 20% premium for each dollar earned. With that in mind, a "drop" to 400% doesn't sound quite as wonderful:

5% Rate of Return?

I've posted similar tables to this in the past, but it's worth a reminder. The Main Stream Media will call the following a 5% avg annual return:

Annual Return	Starting Price = 10
-50%	5
+60%	8
-50%	4
+60%	6
-50%	3
+60%	5
-50%	3
+60%	4
-50%	2
+60%	3
-50%	2
+60%	3
-50%	1
+60%	2
Avg Return = + 5%	Loss = 80%

Don't be a sucker.

Hi Ho

PM prices continue to crumble in the face of near 100% optimism. Look for a Silver price in the neighborhood of $7, gold should run to $450 in the next year or so.

Cashzilla is awake.

The Fed Rate, and Why?

A lot of people buy into the absurd notion that the Federal Reserve, an exclusive ring of politically connected private banks, exists to help the public make money. It is truly funny that virtually everyone in America has bought into this audaciously cynical scheme.

"So, if these 12 banks, led by the Bank of NY, don't exist to guaranty my investment returns at their own private expense, why do they exist at all?", John Doe inquires. Hmmm, John, I wonder...

The interesting thing about the privately held Federal Reserve banks, which makes them different from other banking corporations, is that they operate with the blessing of Congress and they only make loans that are backed by the U.S. tax base. In other words, they never take any risk. Why does congress facilitate such a deal? For a cut of the action, of course, the same reason every thug protects their bookie instead of going into business themselves. Sure, it's "technically" illegal for bankers to print new cash and immediately spend it. That's why they loan it to you instead, at interest, of course. It's also "technically" illegal for politicians to pay cash for votes. That's why they borrow it on your behalf, at interest, of course. Both of these dubious deeds are big, big business in the modern USA.

Let's ignore the fact that central banking (the Fed's business) is expressly illegal per Article I, Section 8 of the Constitution of the United States of America, an Article that has never been amended. To save some readers a bit of time, that Article reads:

The Congress shall have the Power:

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; provide for the Punishment of counterfeiting the Securities and current Coin of the United States

No wiggle room there, the Bank of NY and other private banks in the Federal Reserve system have no Constitutional authority to print a national currency. Preventing private profiteering from legitimate governmental function (known in dumber parts of the world as "royalty") is the primary reason the U.S. Constitution exists.

Clear illegality of the Federal Reserve racket aside, why do they set their rates where they do? I have already explained at length how the Fed steals hundreds of billions of dollars annually from U.S. citizens, flagged in the blog section labeled "Please Read Me First." In this post, I want to look at the rate at which the Fed rakes in private profits, and why they do so.

First, it is important to understand why the Fed claims they exist, which is, specifically, to keep the world spinning on its axis. Yes, I'm serious. The Fed actually says the world will stop spinning if they are ever shut down. Don't believe me? Watch the Fed's own propaganda video: here.

After keeping the Earth rotating, the Fed's next big lie is that they were formed to prevent another Great Depression, conveniently forgetting that the Federal Reserve was created in 1913 and was the sole reason the Great Depression was perpetrated on America. After that, they have no good explanation for their own existence.

In fact, the USA was formed to rid us from the scourge of corrupt British profiteering from central banking, and we operated for the first half of our national existence without the Federal Reserve private central banks. During the times the Constitution was observed, and we had no central banking, the cumulative national inflation rate was 0%. This is easily confirmed by the dollar price of an ounce of gold between the American Revolution and 1913 when the Federal Reserve was formed: a steady $20/ounce. Since then, the Federal Reserve corporation's private shareholders have looted 98 cents of every U.S. dollar. The same ounce of gold now costs over $1,000, and the Fed managed to inflate the price of most other assets even more.

So if the Fed doesn't actually make the world turn on its axis, as they claim to, do they control anything? Well...

Does a Vegas sports bookie control the Superbowl by setting the point spread? Does a loan shark control the city by cracking knee caps for interest payments? Does the Federal Reserve control global capitalism by selling freshly printed FRNs?

The answer to all of these questions, is "no."

The Fed controls nothing. That's right, nothing. Like all the shysters listed above, the Federal Reserve corporation simply tries to maximize profits by operating within existing markets. Everything they do is aimed at this singular goal, to increase their shareholders personal wealth at the most expeditious rate the market will bear. The best rate the market can deliver is what determines the Fed's own interst rate, and the Fed constantly adjusts their rate as they chase daily market action.

Most economists firmly believe (not to be confused with "think") the Fed changes rates preemptively, you know, to keep the planet aligned and spinning properly on its axis. In fact, it is trivial to prove that the Fed controls absolutely nothing in a macroeconomic sense. Lots of intelligent people scream this, but they are shut up or shut down by unthinking robots in academia and the main stream media (which are, btw, the two worst places to actually learn something).

So, if the Fed actually does nothing to facilitate global utopia, what are they doing when they cut or increase interest rates? The answer is simple: the Fed cuts rates when banks can no longer profitably markup the Fed's freshly printed new cash. In other words, the Fed adjusts their rate to follow major markets, not to influence them. If individual investors believe their economic investments will bear fruit, then they are willing to borrow lots of bank cash, and the Fed can charge more for new bank reserves. If investors choose, instead, to place money in hiding, they will not borrow, and the Fed must reduce their markup in order to keep selling new cash. In other words, they have no choice but to discount their profits in order to keep buying hookers and blow.

"So if this is trivial to prove, prove it." John requests.

Ok. Below, is a chart of 3-Month Treasury rates, which is the market rate (determined by global auction) at which investors will opt to protect money rather than put it to work. The Fed loans freshly printed cash to their Primary Dealers for less than 60 days, but clearly they have the ability to mark their loot up a bit since they historically chase the 3-M Treasury rate when "setting" even shorter term rates. The Fed is always behind the 3-M T-Bill rate; the rate the market will bear. There is no other method to their madness, ever. Bob Prechter's elliottwave.com illustrates this nicely for his members (no affiliation), and well in advance of Fed actions:



There is a good reason for this, ask any Vegas bookie: if they try to play in the market instead of following it, they risk actually developing a position, or take risk, which is tantamount to placing a bet. That is what every bookie works to prevent by discounting spreads: becoming a player, instead of a kingpin.

Behold, Cashzilla!

***************

Thursday 10:10pm EST, Update:
A butterfly flapping its wings can cause a hurricane:

***************

US dollar strength has been growing into a juggernaut for more than a year, doubling in asset buying power in no time, after steadily falling since 1913. US Dollars are so strong now, it actually takes more than a year for the government to create a single penny (2 Year T-Bill yield is 1%).

The $ is getting ready to morph into a giant lizard, shoot fire out of its mouth, screech and stomp all over the stock market, California real estate, ravage prices across the nation, then ultimately, destroy the world.

3M T-Bill Yield

USD/EUR

Proof the Stimulus Package is Working

GM share price is down 99.25%. After the "Stimulus" package, GM's total debt has grown to 200x their Market Cap of $433M. Annual interest on their debt is about 10x the company's total value. About 3.2M jobs depend on GM products.

GM now trades under the stock liquidation symbol MTLQQ.

Meanwhile, the recession that never started is officially over. In a way it is true, there is nothing left.

Food Price Deflation

Food prices are clearly coming under pressure. I guess with 22% total unemployment, that shouldn't be surprising.

You know "Customer Appreciation Day" has been around for a while when the pizza size increases from Medium to Large and the price drops (note the "paste overs"). ...but only 5 large pizzas per customer :)

TRADING ALERT - LIQUIDITY CRISES TO RAPIDLY INTENSIFY

Wednesday Update:

I'm leaving this TRADING ALERT up. Look Out! This counter-trend rally is done. Any mini blow off will give way to steep declines, sooner rather than later.

11:01AM EST UPDATE:
BERNANKE DECLARES RECESSION OVER
***** WARNING WARNING WARNING *****
MARKET CRASH POSSIBLE
***** WARNING WARNING WARNING! *****

Please see my previous TRADING ALERT for perspective. Wave 3, the most powerful leg of the liquidity crises, is likely underway!

USD against the EUR:


Apologies for the quick screenshot, I'm not at my desktop and I want to publish this before the market opens.

A 1 year long Wave 1 and 2 has now completed, or is extremely close to complete. The USD will move strongly higher from here in a powerful several-year upshot; asset prices will fall in proportion. The most powerful leg of the liquidity crises is starting!

Interesting Budget Numbers

As many who read my blog know, the CBO-estimated 2009 deficit (the annual contribution to the national debt) is currently at a raging $1.85T shortfall. The 2009 budget estimate used to look like this:

OVERVIEW OF THE PRESIDENT’S 2009 BUDGET

• Estimated receipts for fiscal year 2009 are 2.7 trillion(+7.1%).
• Mandatory spending: $1.89 trillion (+6.2%)
• Discretionary spending: $1.21 trillion (+4.9%)

Even though the original estimate assumed a near-record $400B shortfall, we've managed to miscalculate by a mere $1.45T, in just one year, according to the most rosy estimate on planet earth. In fact, the current CBO growth model, one that still tacks $5T in new debt on to the total national debt by 2019, assumes 4.1% annual GDP growth out to 2019.

My question is a simple one: Gee, do you think 4.1% annual GDP growth is just a bit optimistic?

The current math looks something like this:

Let's assume the government's $1.5T unforeseen shortfall is half revenue loss and half spending gain. That amounts to $2T in revenue (shockingly, our current deficit now = our total revenue; like charging up $200K per year on credit cards if you make $100K), a 25% annual decline from the projected number. Spending works out to be a similar a 25% annual increase.

Now, if you extend the actual trend to 2019, you find a mere $200T in new debt. Probably closer to the truth. ...at least for a few years, until something snaps.

Abandon Hope All Ye Who Enter Here

It didn't take long for the Bear to swallow the stimulus package. With a $2T annual deficit and nothing to show for it, down, down, we go.

The Fall and Rise of the American Dollar

The "Fall" is easy to understand:
When strictly-for-profit private banks, like our privately held Federal Reserve System, print, then lend the American people new currency, it floods our economy with spending cash. This means loads of freshly printed paper dollars (not to be confused with money) must compete with existing paper, driving prices higher. This is known as Inflation, an expansion of the currency supply; existing dollars buy less and less as prices rise.

The idea behind inflation is for bankers to profit at the expense of the American worker by:

1. Printing (legally counterfeiting) up to 40x more currency than they have money

2. Lending (legally laundering) it to third parties who are genuinely creditworthy; people who can pay them back, plus interest

3. Collecting about 40x more interest than they should collect, on what is, technically, nothing

In addition to commercial lending, politicians quickly volunteer their constituents' credit, and request the maximum credit line that the banks will support so that they may buy votes with the new currency. They lay the payments on children they will never see and utterly do not care about. This goes for both Republicans and Democrats, their desire to borrow and spend is in direct proportion to their stupidity in thinking that "borrowed cash" is tantamount to "free" money. Most of our politicians are simply too dumb to comprehend what a "loan" is, thus their term "spending" instead of "borrowing." This is why for-profit bankers support/contribute/bribe political campaigns in inverse proportion to the politician's intelligence.

The net effect of the group stupidity is rising prices, an "inflation tax" levied for the direct and exclusive profit of bankers and bribed politicians. The value of the U.S. dollar has been steadily plummeting since the private Federal Reserve bank system was put in place in 1913, as connected central bankers systemically steal American wealth via the act of government-condoned counterfeiting. It is worth noting that from 1836 to 1913 we had no central bank, and the inflation rate over the entire period was 0%.

As a pathetic side note, today we have the precise situation our Constitution was designed to prevent, and does prevent, but career politicians and bankers systemically break the law. The U.S. Constitution absolutely forbids printing more cash than you have money, by ingeniously requiring Congress alone (not banks) to coin all US currency, and back 100% of it with precious metals (defined as gold, silver, and later copper) in the Coinage Act of 1792.

The "Rise" of the American dollar is not as intuitive:
After the U.S. (which = world) economy is awash in phony, unbacked paper dollars loaned at interest, all the loans actually have to be paid back or go into default. While the credit ponzi scheme still has room to expand, new credit naturally springs from old in typical pyramid fashion, assuming valid future earnings haven't already been exhausted.

The key to identifying the impending collapse of the phony cash pyramid is to identify the exhaustion of genuine credit (see #2, above).

They key to understanding why credit exhaustion implodes the system is to understand the difference between "spending" and "borrowing." The essence of the difference is that a borrower spends future earnings. This future production capacity is the true source of the cash inflow that bankers sell to create and profit handsomely from Inflation.

It should be clear by now that falling employment is the death knell of the bankers' profit pyramid scheme. The more employment (more accurately, equivalent employment) falls, the more it falls further, and that is the source of Deflation, or a reduction/implosion of genuine creditworthiness.

Why does Deflation skyrocket the value of the dollar while the "system" of corrupt, systemic crime crumbles? Simple: printed cash evaporates due to inability to find an expanding number creditworthy borrowers to support the pyramid. The weight of the required interest payments falls on fewer and fewer working people. Loans go bad which means, at best, fewer borrowers, or implosion of the lenders themselves.

Spending currency dries up. Existing cash dwindles. Prices fall. Surviving dollars buy more and more and more; they get stronger and stronger and stronger. The stronger the dollar gets, the more collateral prices tumble; the more people who cannot support existing credit; the more lending deteriorates; the more the cash supply shrinks; the more prices fall; the more surviving dollars rise in buying power.

Time to Rag on Criminals

It's been a while since I've ragged on the criminals hellbent on destroying America for personal profit. Roughly in order of danger to the American People, they are:

1) The strictly for-profit "Federal Reserve" corporation of privately held banks, who print then sell counterfeit cash (euphemistically called, financing our deficit spending at interest) to crooked politicians. We currently pay these world crime king pins 16% of our total Federal income in interest payments, every year and growing, according to the CBO.

2) About 90% of D.C. politicians (Republican & Democrat), including our current President, who desperately want to buy #1's freshly printed spending cash they so they may take their petty cut.

3) Islamic and Red Chinese Nationalists, who have been disenfranchised by #2 and now hold $trillions of private stock in #1, trying to displace European old money by learning the art and science of siphoning American productivity.

TRADING ALERT - DOW TGTS

Dollar is poised to explode in buying power. Expect no significant upside to the Dow between now (9,600) and the following targets:

DOW below 8,000 by year end
DOW 3,800 by 2012

My previous TRADING ALERT to short Precious Metals is now FLASHING. Sustained PM decline imminent; likely within days.

Retro Market

Please read The Correction Zone for a lead-in to this post.

We left off with a discussion of a useful correction guideline that indicates where C waves tend to end in the middle of strong impulsive market moves.



I have already discussed the smaller degree, or short term implication, of the guideline, which is the prediction of an impending reversal of corrective trend and a return back to the impulsive trend of price movement. So, what about the larger degree implications?

Since EWs are fractals that are self-similar at all degrees, one has to note where we are in the big picture to better understand where the market is headed. Exactly where we are, of course, is up for debate. Many EWers, myself included, believe that Y2000 was the top (the center line of the diagram, above) of a multi-century impulse wave.

Interestingly, the large degree impulse waves shown above, 1, 3, and 5, roughly align to the three waves of technological progress as manifest in American markets noted by people like Alvin Tofler and Newt Gingrich, who empirically determined a similar truth to the one R.N.Elliott resolved analytically. They are: an agrarian push to Wave 1, an industrial push into Wave 3, and an informational push up to Wave 5. Perhaps unfortunately, one key difference between RNE and Tofler is that EW theorists are most certainly not looking for a fourth wave of advance, but rather Wave A of similar proportion.

Expounding on the three waves that have unfolded over America's brief history:

Wave 1 likely peaked in the late 1830s, with the massive depression caused when Andrew Jackson killed the sale of government-sponsored inflation for well connected corporate profiteers and associated politicians. In other words, the first defeat of the use of a U.S. government-condoned central bank, to massively tax and profit from the work of the American people, was the end of the first wave of intentional mega-inflation in American markets.

Wave 3, which intrigued R.N. Elliott enough to identify the occurrence of EWs in nature, likely peaked in 1929. Industrialization laid the foundation for an incredible surge in general prosperity. Like all Wave 3s, the fundamentals are extremely solid even if the price moves are not. This wave characterizes the age of American factories, railroads, road systems and runways, from the mid 1800s into the great inflation at the end of the "Roaring '20s."

Wave 5 was the final, information age enabled, inflationary push into the Y2K peak. Like all Wave 5s, this was characterized by heavy public participation in not as sound market fundamentals. In extended wave 5s like these, prices move much faster than fundamentals. Wave 3 industrialized the nation and produced a 400 point Dow gain; Wave 5 layered a lot of paper and elections on top of that and added a whopping 14,000 points to the Dow. Wave 5s, in general, are characterized by people throwing their money at manias without understanding where their money is going, or why.

Examining the 1932-2000 Wave 5 more closely, we have the small degree Wave 1 of 5 peaked in 1939. This was the first push of a large scale, Wave 5 mania, it was induced by FDR's rampant government spending, which certainly fits the profile. Wave 3 of Wave 5 was the refined industrialization of America; the rise of modern industrialized giants like GM, BA and GE. Wave 3 peaks in the mid 60's, and still only takes the Dow to about 1,000 even though Wave 5 fundamentals are never stronger than at the Wave 3 of 5 peak. Wave 5 of 5 takes us from the early 1970s into the 2000 surge. It is characterized by raging, unprecedented, though mostly clueless, public participation in the stock market via the appearance of mutual funds, and is heavily IT enabled in keeping with the personality of a true information age Wave 5 push.

After the 2000 peak, the first signs of our multi-century decline manifest via the age of hedge funds. Hedge funds are also large scale pooled funds designed to steal the wealth of slower, dumber public money. The initial decline, from about 2000 to 2003, cuts the Dow in half. But is that where the fall ends?

Let's examine further.

Remember our guideline from The Correction Zone, that the decline following a full scale Wave 5 peak should take us to somewhere between the previous Wave 4 of similar degree and Wave 2 of 5 of one lesser degree. Where would that put the Dow? Initially, to the 1,000 mark of the mid 1960's, and then, ultimately, to the the larger degree Wave 4 target of less than 400, formed in the early 1930s.

These are stunning expectations, but such is the grandiose, yet frighteningly reliable nature of EW analysis.

If these financial targets aren't captivating enough on their own, consider "the engine" by which EWs may unfold. Bob Prechter of elliottwave.com likes to point out that EWs, in their most primitive form, are none other than predictably programmed, social mood swings. The changes in public emotion are casual to, and thus precede any realization in financial markets. Bob calls his theory socionomics.

It is hard not to notice some "modern day" headline trends that tend to support both our EW market correction guidelines, as well as the "socionomics" that might help drive the market to them:

Clearly we have widespread yearning for the solid American fundamentals of the 1960's...

[CLICK PHOTOS TO ENLARGE]

...as well as fashion trends reaching back to the 1930's and 40's for a more conservative source of inspiration.

[CLICK PHOTOS TO ENLARGE]

Both trends are exactly the Elliott-predicted, natural public mood swings we'd expect as people mentally, then financially, adjust to the long term, fractal "Correction Zones," discussed above.

TRADING ALERT - Short PMs

It won't surprise many that I think Precious Metals represent a fabulous short position with gold selling around $1,000/oz, on generally anemic volume, during the opening act of the greatest depression the world has ever known.

Reasoning:

- Currency is evaporating at a dangerous clip, as banks pull back lending and/or go bust. Remember that banks were lending with 40:1 leverage at the height of the subprime/phony credit boom, a pull back to 20:1 leverage, still twice the historical maximum, has the same effect as half the world's banks going bust. Without that explosion of spending cash, asset prices have one way to go.

- Gold is experiencing some of the lowest overall trading volume in several years, meaning only a few people are willing to pay current prices (similar to loads of real estate rotting on the market sporting yesterday's price tags).

- Gold is all over the news as a great buy. This confirms the large money, those able to influence the news, want to sell their gold to you.

- The dollar is tracing out the completion of a large C wave with approx a .618 retrace (Wave 2/Wave 1).























USDEUR:
















But to reiterate - no risk is required to get rich during the coming mega deflation, all that is required is a 100% cash position. Hoard inflated cash; it will buy more every passing day for the next 20 years, or so.

Unemployment Update

Now at 21.5% (including those who have fallen off UE compensation), unemployment continues to ravage the US and world economy, and seal our collective fate in relentless deflationary depression. Approximately by year end, we will officially pass the peak unemployment rate of the Great Depression (24%), when measured using the same assumptions. The difference, unfortunately, is that our UE rate is only beginning to fall.

Experts I trust predict 33% peak UE, but I think there is a distinct possiblility of a spike that is dramatically higher if our economic foundation crumbles, perhaps as high as 75%. Back in mid-2007, I stated my belief that there was about a 50/50 chance of U.S. economic failure in the coming years, depending on how our government reacts to the crises. Now in only 2009, we have $2-3T annual deficits piling on top of $12T in standing debt, so I am going to up my odds of the USA failing as an economically viable nation to 70% before 2020.

As I said and will continue to reiterate, there is no guaranty we walk out of this alive.