Leveraged Losses

It strikes me that a lot of media scarecrows (terrified because, if they only had a brain, they wouldn't be stuck long) think that bailouts will eventually end. That's wrong. They will never end.

The media misunderstanding stems from a basic misunderstanding of leveraged losses. Take Goldman Sachs, one of the most highly leveraged of any surviving gambling saloon. During the reign of an obscure CEO named Henry Paulson, they created the majority of toxic subprime CDOs and insured them through an obscure company named AIG. So far, they've "survived" because they ordered up a $320B government cash infusion. I can't remember the name of the Treasury dude who shoved the money in their pocket in the face of 100:1 citizen opposition, wasn't Hank it somebody?

Pundits think that since they only have around a trillion in debt underpinning, that means their losses are somehow contained to a number in that range. No. Their losses are uncontained, because their leverage is uncontained. And why not? They thought they could purchase a bailout for only tens of millions of dollars in campaign contributions. But there is this little inconvenient truth, one they never understood or fully considered: asset deflation.

The problem is that when you are leveraged 20:1 or even 40:1, which was typical for these gambling shams at peak stupidity, your loss potential levers right along with profit potential:





And so, we see why Goldman ordered congress to cancel Mark-to-Market rules. As long as they don't have to mark any assets down (Goldman has booked almost no write-downs on the largest subprime real estate and toxic CDO portfolio in existence) they can assign phantom value to their asset base. This hides the reality of the loss, until... the great margin call of 2010 forces liquidation. Coming soon, to an "investment" bank near you.

Got a few trillion more, taxpayers?

As a small down payment?

Goldman/AIG need Another Government Cash Infusion

And so it goes...

Welcome to the Land of Oz

Following up on the comments to the last post regarding the classic work of Frank Baum, The Wonderful Wizard of Oz.... ...or, more accurately, the Land of Oscar Zoroaster Phadrig Isaac Norman Henkel Emmannuel Ambroise Diggs...

I was reminded of the book when Rhonda Smith, a scarecrow, sniped in congressional testimony, "Shame on you Toyota for being so greedy!" (which absolutely convinced me that she made the whole thing up and Toyota is being railroaded ACORN-style).

You see, Toyota is a Tinman with a smokestack hat. Stupidly dependent on oil, he has to get bailed out by the common folks. Ah, if he only had a heart...

And if the panic-stricken scarecrows like Rhonda, who freak at the mere thought of fire only had brains, they wouldn't be so easily manipulated...

And if our Cowardly Lions only had the courage to stand up to the establishment, (fill in your interpretation here, but I think it's about duping us into costly wars, happily pledging others peoples' money and lives)...

Then Dorthy could click her free silver (in the original book the ruby slippers are silver) heals and take us home, and we wouldn't arm-in-arm, singing down the yellow brick road to a fabled Emerald City in the wonderful Land of Oz.

Same fears and irritations, 1896.

Bounce Together

kcb comment: "Oil is down 50% from peak, huh? Then why is gasoline here down only 25% from peak?

Food prices are essentially unchanged. If the costs to food suppliers have dropped so much as has been claimed above, why have food prices remained stable?

Why have power prices remained unchanged?

Why are automobile prices essentially unchanged (the Ford Mustang GT price is a good example of this)?

Deflation seems like a fairy tale from here. How do you explain that, FDR?"

---

One of the main reasons I like this blog is that I can gauge sentiment directly. You can do the same at home just talking to a few people. It's quite amazing, you don' t need a large sample size.

Nature has programmed people to think alike. We "think" we have original thoughts, but frankly, we don't. We all think, feel, and more importantly, react, the same way to the same things at the same times.

Nature has programmed our emotional reactions precisely the same way. We all have same thresholds for taking action. "Ok, I've had enough" goes through millions of minds at precisely the same moment.



How could it be otherwise?

If you want to know how similar your thought processes are to others, just look at another human being. Find one. You can pick them out. They all have 1 core body, 2 big legs, 3 other primary appendages for a total of 5, each functional appendage splits to 3, then to 5, and key divisions within those also occur at Fibonacci's 0.62, 0.38 or 0.5, etc.



My point is, were are products of a very simple (better word: elegant) design. The same ratios also manifest mentally in everyone, probably because they exist physically. Our mental ratios are every bit as standardized. Maybe more so.

We shouldn't feel bad, we are all human and have no way to really understand how similar we think unless the study of EWs and markets reveal it to us. Schools can't teach it. They have been financially-evolved over thousands of years to teach the opposite of this simple truth as gospel, to encourage profitable behavior for powerful, not the students. So like all things financial, we must first un-learn our collective education to discover truth.

Just like lots of gold comments occurred on the blog at the gold top, we have lots of comments expecting inflation now, and that means we've hit a mental threshold. This is excellent confirmation that a new leg has begun.

To answer your qs:

I would say you've proven the opposite, that inflation is a fairy tale. You've shown that prices are lower and falling, given 0% for years now. Showing any amount of price decline puts one in the deflation camp.

Some prices might be unchanged, that's entirely possible in a deflation given a transaction volume decrease, it only takes one person to set a price. Your example of auto sales is a good one, transaction volume is down 50%. Car companies have two choices, let half their people go and build half the number of the same cars at the same price, or drop the price. Both will happen eventually.

In Aug 2007, everyone who is someone knew lower Fed rates were coming (it was incredibly obvious since the 3-M Treasury had dropped from 6% to 3%, and Bernanke was still asleep at 6%--the guy really has no clue). At that time, I pointed out that lower Fed rates ALWAYS foretell lower stock prices, and that there had never been an exception to that rule since the Fed was created. Needless to say, 99% of people reading that freaked, regurgitating what the Fed taught them in public and private schools, that low rates are severely inflationary and that the Fed controls markets.

Boy, were they wrong.

The truth is always simple.

Jim Rogers was correct when he said, "the Fed is irrelevant." They are. Just like any thief, they don't make the money nor do they know how. Or, they wouldn't be thieves.

Fed rates simply follow the market, and they are utterly helpless to control it. Just like everyone else.

Deflationary Policies

Anon wrote: "When do you think deflation actually starts to effect things around us. Housing is down but that is like saying the nasdaq is down, it is deflationary to some but not the entirety."

---

We still have markets teetering lower with various rates and amounts of deflation, but all are solidly deflated:

• Housing is down 30% from peak
• Oil down 50% from peak
• Gold down 10% from peak
• Silver down 75% from peak
• Corn down 60% from peak
• Dow down 35% from peak with 10 new components
• Nasdaq down 65% from peak
• S&P down 30% from peak
• Treasury yields are pinned near 0%

And that's at the high point of the first big bounce.

If you adjust for buying power using gold dollars, the same way they did in 1932, we're down about 85% on average.

Now, one could make an interesting argument that, hey, large asset prices are only down 40%-ish and adjusting for gold dollars indicates a much steeper decline in standard of living. So there is some muting of deflation due to inflationary policies.

To that I respond, deflation is still the dominant force in play, and we've yet to witness the end game. My belief is that this tremendously wasteful, debt laden, irrational fight to alter a very clear realty, only exhausts desperately needed resources . So while the downward spiral is delayed, deflation is ultimately exacerbated by this giant misallocation of resources. So the end result will be more, not less deflation, when we live through the final capitulation at lows most people have yet to imagine. That should take decades given the scale of the market top that is now in place, but there is no formal time requirement. The floor could drop out.

So these "inflationary policies" aren't inflationary at all if they have (1) have failed to stem deflation, and (2) ultimately make the deflation worse.

They are deflationary policies.

Shorting Their Own Stamps

Things are bad when the Post Office is smarter than Wall Street.

3s of 3s Everywhere

Wave 3's are typically the strongest waves of a 5 wave sequence. At varying degrees, we currently see 3s within 3s converging in lots of markets:

• The dollar is embarking on a colossal Wave 3 of 3, up.
• Stocks are embarking on a W3 of 3, down.
• Gold is converging on a 3 of 3, down
• Silver is hitting a 3 of 3, down.

All are large degree waves, so give em a little time to swell, crest and break. As it happens, we'll know.

---

9:20am Update
Market Watch: "An unexpectedly sharp blow..."

Speak for yourselves.

Unrest

WLWT News 5, Ohio:

Hoskins said he's been in a struggle with RiverHills Bank over his Clermont County home for nearly a decade, a struggle that was coming to an end as the bank began foreclosure proceedings on his $350,000 home.

Hoskins said he'd gotten a $170,000 offer from someone to pay off the house, but the bank refused, saying they could get more from selling it in foreclosure. When I see I owe $160,000 on a home valued at $350,000, and someone decides they want to take it – no, I wasn't going to stand for that, so I took it down," Hoskins said.

Liberty vs. Equality

Today, there's a struggle for control between factions that embrace these ideals. In terms of social constructs, 100% Liberty would be unbridled capitalism; 100% Equality would be fully redistributive socialism. For some time, I've wanted to do a piece on the consequences of the debate, in opposition to what is taught in our Equality-oriented schools and universities. So here it is:

• Liberty is unfair to most people, the gap between rich and poor is enormous
• Equality is unfair to everyone
  

FDR's Law: The closer you get to full Equality, the lower the average standard of living (less incentive to produce), the only way to achieve complete Equality is to have nothing.

I will illustrate my case graphically, then shut up.

CLICK TO ENLARGE

FICO

Anyone who has watched Suze knows that your FICO score is the most important number in you life. You should do everything you can to nurture it. It would be really scary not to be able to borrow as much as you "need." Right?

Right?

Right?

You didn't answer right way.

Surely, you agree with Suze that your ability to borrow money and pay interest to bankers is the very definition of success in your life, right? Everyone should borrow as much as they possibly can, that's just the way it is. The more you make, the more you should borrow from banks. Just be certain you can pay them back with all the interest due.

You should tip your banker 5% at Christmas, too, in case you didn't know that. That's what the Queen of England does.

Here's a clue for living easy in a banker-run world:

If your FICO score is 700+, then you're an idiot if you borrow money. If your FICO score is below 700, then you're an idiot if you borrow money.

If you "need" to think about your FICO score, you should never, EVER, borrow money from a bank. Not for a car. Not for a house. And certainly not for school. Never.

Pay yourself the same principal, interest, taxes, and insurance for 10 years, pay cash for a much nicer house, and you're set for life. If you can't wait, save the same payment for 7 years, put 80% down, and no one will care about FICO.

All debt is bad debt. Reject the stupidity.

More on Federal Reserve Interest Rates

Steven wrote: "A question I would LOVE to have answered is how the fed profits from the spread between the Fed funds rate and 3m treasuries? (Given that the Fed essentially follows the 3m treasury yield)"

---

Great question, Steven.

Like any for-profit institution, the Federal Reserve bows to the customer when setting prices. So you are right that the market sets the Fed interest rate, and that rate is always close to the auction rate of the 3-Month Treasury Bill. The Fed lends for a shorter term, 30 days, but also at higher risk. If you chart the two rates, the Fed rate always follows the 3-M T's lead.

And like many corporations, especially given their iron-fist monopoly on U.S. cash, the Federal Reserve tries to maximize profits by creating over-supplies of cash with sale prices, or panic shortages at premiums.

But unlike all other forms of private corporations, a central bank, by government decree, has no significant cost basis associated with their product: un-backed paper. Every penny of interest the Fed pulls in is pure profit, minus the expense of printing, which is why they outsource production and anti-counterfeiting costs to the U.S. Treasury and the U.S. Secret Service. Most people don't realize that the Secret Service primary mission is to protect the Federal Reserve system, not the President. In fact, anti-Fed Presidents, like JFK who attempted to replace FRNs with United State-issue Silver Certificates, place themselves in grave danger.

The Fed's large expenses are covered by The People. The U.S. Treasury actually pays the Fed Corporation a surcharge for the privilege of printing their private-issue cash. The tax code exempts Federal Reserve banks from contributing taxes to Americans. In fact, the IRS pays EVERY PENNY of tax income directly to the Federal Reserve as down-payment on the national debt.

"100 percent of what is collected is absorbed solely by interest on the Federal debt and by Federal Government contributions to transfer payments. In other words, all individual income tax revenues are gone before one nickel is spent on the services which taxpayers expect from their Government." -J. Peter Grace, Grace Commission Report

Any check you send to the IRS is endorsed as follows:

"Pay Any F.R.B. Branch or Gen. Depository for Credit U.S. Treas. This is in Payment of U.S. Oblig." (F.R.B. is thinly veiled code for Federal Reserve Bank)

Federal Reserve profits represent a pure export of American wealth to their private holders, who are mostly foreigners. G. Edward Griffin's excellent book, The Creature From Jekyll Island (no affiliation), details who they are.

So to answer your question, like any petty counterfeiting operation, the Federal Reserve makes pure profit at any rate. But they still have to sell at or near the market rate, or they won't move cash.

However, as a socialist institution (by that I mean The People absorb their entire cost basis, but are not permitted to participate in gains) sometimes the Fed's most profitable play is to withhold cash and roll up bank assets from induced failures. In that case, like today, they will price paper cash hundreds, or even thousands of percent above the market rate. When the market rate goes negative from resulting panic, the Fed premium is technically infinite. This has the effect of isolating non-cartel banks from obtaining reserves during bank runs--instead of helping, the Fed runs on them too.

As an institution designed to loot America, whatever the Fed strategy de jour, it is ALWAYS designed to do maximum harm to Americans.

On Currency

fdralloveragain: Could you pleaes break down this post like Im a five year old? I really want to understand this stuff but I am just a public school graduate. I remember that the govt sells Tbills (bonds?) when they want to shrink the money supply. and buys them when they want to expand the money supply. otherwise im lost. Thanks.

---

Ok, it has been a while. Public schoolers, please take a seat. I will warn you upfront: my class recognizes right and wrong, and there are consequences for failure. So please pay attention, or the system will have no choice but to enslave you.

First, let's get something straight: no one can print MONEY. No one.

No one.

The notion of printing MONEY is silly. No, it's just plain stupid. Anyone who states such an absurdity is headed for a month of detention. MONEY = wealth = stuff you can't print. A house is MONEY or wealth (assuming it's yours and not the bank's), a car that you own is wealth, diamonds and emeralds and sparkling things are MONEY and wealth, as long as other people want them.

All MONEY has one thing in common: it cannot be printed. Think about it. If something can be created as easily as churning it out of a printing press, then it can never carry any real value. So what is this paper stuff we carry around? It is CURRENCY. CURRENCY is not MONEY. CURRENCY is an accounting system for MONEY.

If I write, "I have 2 cows." Then I write, "+1 cow = 3 cows." I have not created a cow.

In the same way, creating more CURRENCY, via accounting entry, does not create MONEY. CURRENCY, or paper, represents wealth so I can account for it and trade it more easily. Unlike MONEY, CURRENCY is easily manipulated, but that has no affect whatsoever on the amount of MONEY in existence.

So, if a counterfeiter comes along and prints his own CURRENCY (since creating MONEY is way too hard), he might deposit his new paper in a bank account. If so, he has successfully manipulated an accounting entry to his favor. This accounting entry entitles him to buy real MONEY. Since he is getting MONEY but did not make MONEY, it follows that someone else must lose MONEY.

Who loses?

His additional CURRENCY circulates. It competes with existing CURRENCY to bid up prices, in this case, very slightly. All things become a little less affordable. Everyone loses a little bit, because he has "expanded the money supply."

Enter stage hard-left:

The Federal Reserve Banking System. Counterfeiters, extraordinaire.

Next thing to keep straight. The Fed is not part of our government. They insist they are an "Independent Fed" meaning, immune from the influence and legal inconveniences of government. Officially, the Fed is a special tax-exempt corporation. They conduct unregulated hiring, firing, profit taking, insurance buying, private book keeping, you know, all the things governments are either not allowed to do, or have no need to do. As a unique cartel of private banking corporations, the Federal Reserve system also has private owners who draw profits.

So what does the Fed do? What is a central bank, anyway.

"Plank 5 of 10:

[We must have] centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly."

--Karl Marx, The Communist Manifesto, 1848

Simply put, central banks buy a certain government's debt. They are the "creditor" to that government, and the government is the debtor. That's another reason they should never be misconstrued as part of the government.

Indeed, the central bank's interest must be aligned exactly counter to the citizens' self interest, or they could not make MONEY from The People. You probably don't consider yourself buddy-buddy with your bank. You probably don't get invited to their board meetings, or even their private Christmas parties funded by your interest payments. The creditor is not the borrower. The Fed is not the United States.

How do they buy all this debt? Doesn't it cost A LOT of MONEY? Yes, it does. That is why central banks don't use MONEY. They only print CURRENCY to buy government debt. Simply put: they counterfeit what they need.

They really do.

Granted, it's not illegal. Why not? Because congress passed a special law on a voice vote on December 23, 1913, while all but five congressmen where at home on Christmas recess. It is called the Federal Reserve Act, and that Act says it's legal to print currency with no monetary backing. So it is. For them. Not for you.

The Fed prints CURRENCY and with it they buy our Treasuries. The People pay for the counterfeit via a little known phenomenon called price inflation. This is how our government funds deficit spending and avoids direct taxation.

Why does the Federal government do this to itself?

Simple. They get a kickback from the bank. They get virtually unlimited (or so most think) "MONEY" to spend without that politically troublesome "tax hike" thingy. Tax hikes are so, well, inconvenient, and Constitutional. If you have to do that old fashioned taxing thing, people start to revolt, and you can hardly afford any Federal government, and then what? Then the States have rights, and we can't have that messiness, not in a Constitutional Republic like America.

Truth is, it's not spending MONEY it is spending CURRENCY. It creates no wealth when it is printed into existence. It is simply an accounting trick, a transfer of wealth from The People to the private owners of the central bank. It is the same act performed by any petty counterfeiter, legalized, so politicians get a cut. It's an illusion of new MONEY, designed to steal other peoples' real MONEY.

People are often happy about it. After all, their house is magically "worth more" year after year, meaning: the aging structure becomes less affordable. Their income goes up too, but never as much as the sum total of the counterfeit, because everyone must pay the bank.

The really interesting thing is what the central bank does after they print CURRENCY and exchange it for MONEY. I've posted a lot about how private central bankers leverage their MONEY to, "hopefully," make tons more MONEY. The consequences of the word "hopefully" are the key to understanding why we have deflation, instead of inflation, today.

In summary:

The Federal Reserve is not part of the government, but they are closely tied to government: they give politicians kickbacks, or spending CURRENCY without the need to tax directly. The Fed, technically, "buys" the Treasuries required to fund any budget deficit politicians direct, which then becomes part of our kids' national debt. In reality, the Fed isn't "buying" anything, they are selling freshly printed cash, at interest, to politicians who pledge your future work to private bankers.

Most politicians love the Fed. The Fed is the cash store where they go to buy more cash without the need for a tax increase. Since everyone pays for it, no one pays for it as far as our cynical and corrupt politicians are concerned. Inflation is the most inversely burdensome tax in existence, it rapes the poor, but our corrupt government doesn't care because it is a hidden super-tax and so few citizens understand it. And how could they? They are busy working.

And so, the sad irony is that the biggest deficit spenders are the most pro-rich and anti-poor politicians. They fully understand that. But you'd never know it from their rhetoric.

Sorry to get all political, but hardened republican and democrat politicians are thinly veiled arms of ONE party: the Bank Party. There is right and wrong, and that is wrong. Class dismissed.

Federal Reserve Short Positions are Set

Reference:
http://fdralloveragain.blogspot.com/2009/10/federal-reserve-is-mass-shorting-us.html

The Fed's short positions are set, it's time to crush the market.

She's on the loose...

Listen to her disturbing wail.

Height:
50 Meters (1954-1975)
80 Meters (1984-1989)
100 Meters (1991-1995)

Weight:
- 20 000 Tons (1954-1975)
- 50 000 Tons (1984-1989)
- 60 000 Tons (1991-1995)

Special Weapons:
- Radioactive Breath
- Internal Surge Of Energy
- Capable Of Casting Off Anything In Contact With Body

Probable Sightings:Cashzilla Vs. The World (2020)
Cashzilla Vs. The United States (2012)
Cashzilla Vs. Barack Obama and U.S. Congress (2010)
Cashzilla Vs. Benjamin S. Bernanke (2008)
Cashzilla Vs. Henry Paulson (2007)
Cashzilla, King Of The Monsters (1954)
Cashzilla Raids Again (1955)
King Kong Vs. Cashzilla(1962)
Cashzilla Vs. Mothra (1964)
Ghidora, The Three-Headed Monster (1964)
Cashzilla Vs. Monster Zero (1965)
Cashzilla Vs. The Sea Monster (1966)
Son Of Cashzilla (1967)
Destroy All Monsters (1968)
Cashzilla's Revenge (1969)
Cashzilla Vs. The Smog Monster (1971)
Cashzilla Vs. Gigan (1972)
Cashzilla Vs. Megalon (1973)
Cashzilla Vs. Mechagodzilla (1974)
Terror Of Mechacashzilla (1975)



My Thanksgiving Market Update:



Here she comes:



Today's mini-rally has all the characteristics of a finishing C wave (the first W1-2 of the big 3 is roughly in place):

• Vertical spike
• No volume
• Counter fundamental to the dollar
• Gold/Silver sitting it out
• Finishing fractal self similarity to the wave of higher degree
• 62% retrace

It's perfect. 3 of 3 down (look out) is not far away.

Listen to her again. She's in your State. She found your town. She is on your street!

Tearing Down Toyota is Easier than Improving Government Motors

The coming congressional hearings should go something like this:

Congress: Mr. Toyoda, please hand over the names of all the people you notified of acceration and brake problems, what those problems were, and how you intend to fix them.

Akio Toyoda: I refuse to release confidential corporate information to my largest commercial competitor.

Stand up. Walk out.

Congress owns GM, and they're tearing apart Japanese Toyota on a world stage? The commercial conflict of interest generated by our brain-dead governement is staggering. They've opened the door to huge legal payouts to Toyota on behalf of the People of the United States for international corporate sabotage and espionage.

TRADING ALERT - Stock Market Crash Imminent

I'm not talking about a -22% one day wonder, like 1987.

The coming crash will manifest in a several-year procession of -XYZ down days on the Dow, where X = 1 through 9. There is an excellent chance we'll see at least one -W,XYZ day, and even more likely a +W,XYZ day. Throughout the decline, optimism will remain high to extremely high. "Buying opportunity" after "buying opportunity" will be the news; margin call after margin call will be the reality.

Survival tip: DON"T BUY.

If you think a NY Times headline of despair might provide the usual clue to the bottom, think again. The Times headline, "WE ARE OUT OF BUSINESS" isn't the bottom, either.

On the loose...

California--Under Attack

The privately held, mostly foreign-owned, strictly for-profit Federal Reserve Corporation recently pinched off California's last gasp for air by instructing banks to reject CA scrip, now and in the future. There is absolutely no reason to do such a thing, except to attack The People. Unable to supply replacement currency to conduct normal economic activity, CA will ultimately have no debt recourse but default, and to surrender their asset base to the Federal Reserve Corporation.

The wisdom of our Constitution prohibiting central bank currency--Article I, Section 8, "Congress shall coin money and regulate the value thereof"--has once again proven timeless. Federal Reserve Notes are unquestionably and irrefutably illegal.

Problem: all U.S. Judges are on the take, every one of them accepts pay in private-issue Federal Reserve Notes, making a fair hearing on the Constitutionality of the Fed an utter impossibility. Post-1913, U.S. Judiciary corruption has slowly become universal. Our Founding Fathers would weep.

The Federal Reserve's war on America continues...

BofA--Dragged Into Kangaroo Court

Now, it is in the "News."

Bank of America is under all-out attack by the owners of the United States--the Federal Reserve Corporation--and the politicians who serve only them.

Don't get me wrong, BAC is a leader in the failed-bank business model of gambling away patron's deposits, selling known-bad loans to our central banker-owned government, and collecting predatory penalty fees for cash flow.

BAC management is almost as bad as Goldman Sachs. Together, they form the two worst managed companies in America today, which is quite an honor given the competition.

That does not mean Bank of America should be "tried" and pre-convicted in the king's Kangaroo Court, like it's 1776 alloveragain. The idea that any private institution can be summarily destroyed by the foreign owners of our congress and president, simply because they are homegrown, is an affront to the U.S. Constitution.

"Pilot" Foreclosure Program

WSJ: Mortgage lenders are trying to arrange smoother departures for distressed homeowners who can’t be saved by loan modifications [my translation: "can't be sold 20% more debt so the taxpayers insure the banks gambling losses"] — and discourage them from trashing the homes on their way out.

The CitiMortgage pilot program provides incentives for more borrowers to use a procedure known as a “deed in lieu of foreclosure,” in which the borrower voluntarily transfers ownership of the home to the lender, which then cancels the mortgage debt.

I think it was May 2007 when I suggested on Market Watch that mortgage lenders take a page out of the Great Depression Playbook and let foreclosees stay in the house for modest rent payments, after a peaceful transfer of ownership to the bank. It took ten thousand bank closures to figure out something so simple.

There is nothing new under the Sun.

The fact that today's "highly educated" bankers don't know or understand anything about the history and lessons of their own profession, is also old news.

Overall, we are the most educated, and as a result, likely the dumbest generation of humans ever to roam the planet.

The Worst is Over Without a Doubt

"The Worst is Over Without a Doubt"
- James J. Davis, U.S. Secretary of Labor, June 1930

The timing of the quote is nearing analogous to where we sit today:




We should hear the same remark from a prominent individual or two in the coming months. There is nothing new under the Sun.

The Shape of BIG Things to Come

In USD: Shape of things to Come I posted the following:



At the time, I pointed out that the US Dollar has been in a raging bull market for almost two years, a belief shared by, well, no one!

Today, with the ECB rapidly bankrupting Europe and itself (remember, the private ECB is an inbred cousin of the already-inbred Federal Reserve), it is a little easier to envision what is about to happen.

Here we sit, today:



Putting 2 + 2 together... it is clear that disaster is no longer "around the next corner." It has arrived:

Great Depression 2.0

Make no mistake about it, Great Depression 2.0 is under full steam.

In case anyone is wondering... no, there is nothing we can do about it. Though we can certainly make it worse. Since late-2007, our government has done everything they can to maximize and extend the pain.

This is my best-case prognosis:

2012: First major low (Dow 3,800-ish)

2012-2020: First major bounce (Dow might double to 6,000-8,000)

2020-2030: Final bottom (Dow stabilized below 2000, with a quick dip below 800)

Great Depression 1.0 was a 25 year grind before reclaiming the 1929 Dow high in 1954. GD 1.0 was of generally of lower severity than at least four deeper depressions (1775-6, 1836-42, 1862-5, 1874-94).

Our depression should be the worst. It is our first large degree ABC. It started in 2000, so my forecast to last 20-30 years, essentially the same as GD 1.0, is probably way too rosy. Time is difficult to gauge, and not as important as touching the price targets. If you apply the simple EW guideline of 3/5ths the boom-time, we could, and perhaps should, languish for 90 years.

"Banks Aren't Lending!"

In 2007, at the height of the boom, I forecast that the mantra for the next several years was going to be "the banks aren't lending!" The phrase is slowly creeping back into the socialist lexicon.

How did I know? Because central banks have used the BoE playbook to engineer for-profit depressions for the past 316 years.

When the central bank intentionally drains the cash supply, it isn't that banks don't lend, it is that people don't borrow. Banks are literally dying to lend, but they can't because no one with a brain wants to leverage themselves into a depression.

Bernanke made his name in the isolated dream world of academia, proposing that banks caused the Great Depression because they didn't lend enough, that dropping cash for sale from helicopters was the answer.

Could Ben be any more naive about the building block basics of free market capitalism? Does he understand that Princeton's socialist utopia doesn't really exist? Does he understand that the CUSTOMER is king in a free market, and the central bank is but a pawn?

Hey Ben, banks don't lend; customers borrow. This is the USA. We're still free.

Go ahead, fire-sale your snake oil paper at 0%. People don't want anything to do with leverage when prices are contracting at 10-20% per year, or more. Why? Because they aren't as dumb Princeton's pride and joy. No one wants to lose with leverage. Did it ever occur to Ben that a helicopter stuffed with cash for sale at a premium, buzzing through the middle of a depression, is a ridiculous sight that makes people chuckle?

That's exactly why the private Federal Reserve bank cartel is forcing borrowed "Stimulus" with a multi-trillion dollar price tag. Because there is only one entity dumb enough to borrow cash at a premium in 2010: the government.

"Snow-pocalypse" Buries D.C. Under 3 Feet

Friday night, ABC News, one of the biggest pushers of the government's Global Warming money grab, characterized this year as the "Snow-pocalyse."

2007 - Largest 1 year temperature drop ever measured.
2008 - Coldest year on record.
2009 - Colder than the year 1900.
2010 - Shattering 2008's freezing records and battering the Great Depression 2.0 homeless.

It makes one wonder if economic activity is linked to Sun cycles.

Bank of America Under Attack by the U.S. Government--by Order of the Federal Reserve

Latest:
http://www.marketwatch.com/story/b-of-a-to-pay-150-million-to-settle-sec-charges-2010-02-04

Reference:
Bank of America - Target for Destruction
Surprise, Surprise, Surprise

Surprise , Surprise , Surprise

As forecast, the private NY Fed is preparing to unleash on their big Carolina-based competitor, Bank of America. They will stop and nothing to crush them and loot their assets, and they've already paid Congress and the President to do it.

Good luck to the People of North Carolina. Man, you are going to need it. That will teach you to spit in the face of the NY Federal Reserve bank cartel.

It is just beginning.

SCREEEEEEEEEEEEEEECH!!!

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Added:





Either way, WHOOSH!

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Original Post:

I have received several requests to uncage Cashzilla.

Problem: those requests happened while the market gained momentum during it's initial dive. Yes, this is a big down wave. Huge. Definitely worthy of listening to Cashzilla's disturbing, infuriated wail. But the scale of this decent is quite enormous. Even though it will appear to be a harrowing decline looking backward from the future, living it, it will feel a little more controlled, at least most of the time.

My point is that we were due for a big-picture-insignificant, but little-picture-significant, mini-Wave 2 rally. I didn't want to unleash Cashzilla into a rally, however minor, for fear that it might piss him off.

Tonight, it looks like our first mini-A is complete. Since this is part of a BIG Wave 3 down, large retracements will be less common. So it's entirely possible that this A, since it took a 3-segment form, will suffice as the full ABC retracement and we'll resume the down draft in earnest.

Big picture, it's scary to let up the shorting; any day could be huge day to the downside. Huge moves almost always take shape in the after market, to prevent public participation. Upside moves could be equally violent, maybe more so, but short lived when viewed in perspective.

This is where everyone but those with a good understanding of market action, both long and short, will get creamed. Expect to feel your own, instinctive, deeply emotional reactions to do the wrong thing, as Mother Nature tries to wipe out everyone except her most loyal natural-selectees.

The most likely move is not the most dangerous for shorts, so personally, I'm not letting up. That is: soon, we will see a 3-segment B wave down (since this is a small part of a big macro move down, chances are good it will exceed the previous Wave 5 bottom), then a very sharp 5-segment C wave up, that finishes a bit higher than the A top (probably today's high). Then we'll resume the most devastating, though not necessarily the most spectacular, down trend of our lives.

So, on this sharp B wave "head fake" down, or a big time Wave 3 down, I'll let him out to play with the buildings.