fdralloveragain

Required Listening

2010-06-30T18:48:00.007-04:00

Delivered in 1994, I think this concise, one hour speech by Ed Griffin remains the single best primer to understand the macro business environment in modern America:

http://video.google.com/videoplay?docid=638447372044116845#docid=-8484911570371055528

Green Exit Strategy

2010-06-28T13:41:00.002-04:00

http://www.marketwatch.com/story/tesla-motors-revs-up-244-million-ipo-2010-06-28

Remember, selling to the public happens after the private owners feel they've taken an idea as far as it can go.

US Government Scrambles to Limit its Oil Liability

2010-06-10T05:52:00.004-04:00

http://www.property-casualty.com/News/2010/6/Pages/NFIP-Will-Cover-HurricaneDriven-Oil-Damage-FEMA-Confirms.aspx

WASHINGTON—The National Flood Insurance Program will pay claims for damage to homes and contents from oil driven ashore during hurricanes, its officials have announced.

In a statement, Rachel Racusen, press secretary to the Federal Emergency Management Agency (FEMA), which runs the flood program, said, "The mixing of oil and other pollutants in flood water is not unusual during a storm."

She added, "Damage caused by these pollutants in flood waters is covered under the NFIP, subject to the provisions in the Standard Flood Insurance Policy."

Effectively, Racusen confirmed what Mississippi Insurance Commissioner Mike Chaney told state residents in a statement released Tuesday by his office.

In the statement, Chaney said that to recover damages stemming from the additional risks oil poses should a hurricane strike, claimants seeking payment under the NFIP must prove there is a flood as defined in the standard flood insurance policy.

If that can be proven, Chaney said, damage caused by pollutants to commercial policies is limited to $10,000.

Home and condo payments will be limited to policy limits, and oil or water with oil in the yard is not covered.

Chaney further said that the cost of complying with any local or state ordinance, including one that requires special removal methods for oil, is specifically excluded, with the exception of certain floodplain management mitigation requirements.

Moreover, Chaney said, there will be no coverage for testing for, or the monitoring of, pollutants unless there is a law or ordinance requiring it.　

Translation: "We won't cover significant damage from oil."

How Low Can We Go?

2010-06-09T20:42:00.017-04:00

It's easy for human beings to conceptualize the infinite potential for gains. "If I buy this stock for $36/share", we dream, "it could go to $100, then a million, then a billion," and so on..."

Why is it so hard to comprehend the same unbounded realm with regard to loss?

Not comprehending the infinite distance to zero is a critical failure of our human imagination. "If I have a million dollars, that is all I can lose," we rationalize, "my losses are always limited to what I can understand."

That is so wrong.

Your potential losses are just as infinite as your potential gains. If I have an airplane and a boat, and I lose the plane, I am limited to sailing. If I lose the boat but still own my car, I am limited to driving. If I lose my car and have a bike, I am limited to riding. If I lose my bike and own a pair of shoes, I can walk. If I lose a shoe, I will hop. If I lose my other shoe, I will fashion a pair of shoes from scraps. If I can't find canvas, I will use cardboard. If I wear the soles of my feet raw, I will crawl. If...

Astute readers may sense infinite opportunity here, as it pertains to shorting. But the real purpose of this post is to get you thinking about the infinite potential of your life to change, especially if you fail to imagine the possible.

One exercise we should accomplish is to imagine that the money in our wallet represents our last few dollars on Earth. How do we act? How close can we get to that mindset? The closer we can get now, the father away zero will be.

PM Update

2010-06-08T23:49:00.015-04:00

Anon wrote: Just a question on gold. Perhaps you can point to the right post if already answered this.Why are you expecting a big correction in gold in...

I've addressed PMs quite a lot throughout the blog. My basic position hasn't changed since I went long gold in the early 00's, then jumped off the bandwagon too early in late 2007, still bagging a 300% gain. Yes, I've given back 20% on that position, still on paper, but I'm not worried at all about it morphing into another huge gain. The reason I phased in long in '03 is the same reason I'm short now:

PM prices are driven purely by liquidity.

That's why PM prices act like paper stocks, usually with less volatility. Any genuine change in supply and demand has been dwarfed by an 80+ year sea change of inflating cash liquidity. Since prices deflated to major lows in 1932, the Dow (which in no way reflects individual stock prices) has increased from 40 to 10,000. Gold only inflated from $20 to $1235. Paper stock indexes are a much better inflation hedge than gold.

The quantity of counterfeit cash printed by commercial banks (contrary to popular belief, the US government cannot and does not print money), then laundered into borrowers' names has been plunging since it peaked in late 2007. There are NO signs of that letting up. To the contrary, prices ushered in by The Great Recession still dwell near all time highs. Our Depression hasn't even started rolling, it is in its infancy.

As liquidity dries up, precious metals, nothing but dead metal to reflect the amount of paper in circulation, get priced lower. The outcome is as certain as prices rising during inflation of the cash supply. The timing of the macro price decline is more difficult, as this event big is far bigger than our lifetimes, thus, day-to-day price movements are anyone's guess. But with W3 down maturing, my goodness, you have to LOVE the opportunity to short any asset still clinging to all-time price highs.

So I think gold presents a unique opportunity to capture 100% of the coming depression price declines, the single place you can still jump into an empty bandwagon. Although silver is almost 70% lower than its all-time highs, I think its emerging duality as a precious/industrial metal makes it an even more attractive short, as industry tanks hard.

Twice in a Lifetime

2010-06-03T23:18:00.005-04:00

At Dow 14,000, I described the situation as once in a lifetime opportunity to get short. That was the beginning of W1 down. Here we sit at W3 down, the most devastating wave, and it's Deju Vu alloveragain. Some will ask: How can you be so sure this is W3 down? Didn't it take longer than expected to develop?

The answer to question 1 is, you can never be sure, but it doesn't get much better than this. We had a crippling mega 5-wave down to kickoff our colossal bear, followed by a perfect 62% retrace.

The answer to question 2 is, the most common W2 retracement, especially in a major degree movement, is 62%. It's hard to argue with nature on that basis. The W3 down that follows should be unmistakable and devastating. Again, it's hard to argue that an "inexplicable" 1,000 point cliff dive isn't a suitable W1 of W3.

Accenture lost their entire $30B market cap in a matter of minutes, as the stock dove from $44 to $0.01 and stayed there for several minutes. Most of the shares changed hands from heavily vested owners to traders, some with little to no cost basis. Mind you, this is a "recession proof" stock with 60% of its 170K employees located overseas, with years of extreme growth under its belt--a little like the sewing machine stocks of the late 1920s (see first quote below).

That market malaise took days to sort out. Still, no one knows how to properly handle many of the transactions. Parallels to the death throws and two year collapse of the "Big Bull Market" (so it was called in 1929) are unmistakable, but no one wants to say so out load. Before "the glitch," which was simply an absolutely accurate manifestation of market value met with late, dozing government intervention, every scholar on the face of the Earth would have testified under oath it was utterly impossible to overwhelm our modern trading system.

In fact, as many Black Swan'ers have pointed out the past several years, modern complexity = ever-increasing market fragility. Speed of light trades that travel through the dark of night are, of course, infinitely less robust than a paper system with some form of physical tracebility.

I'll close with the wisdom of dead people:

"To give one single example: during the bull market the common stock of the White Sewing Machine Company had gone as high as 48; on Monday, October 28th, it had closed at 11 1/8. On that black Tuesday, somebody--a clever messenger boy for the Exchange, it was rumored--had the bright idea of putting in an order to buy at 1--and in the temporarily complete absence of other bids he actually got his stock for a dollar a share! The scene on the floor was chaotic. Despite the jamming of the Communication system, orders to buy and sell-mostly to sell--came in faster than human beings could possibly handle them; it was on that day that an exhausted broker, at the close of the session, found a large waste-basket which he had stuffed with orders to be executed and had carefully set aside for safekeeping-and then had completely forgotten."

...

"Coolidge-Hoover Prosperity was not yet dead, but it was dying. Under the impact of the shock of panic, a multitude of ills which hitherto had passed unnoticed or had been offset by stock-market optimism began to beset the body economic, as poisons seep through the human system when a vital organ has ceased to function normally. Although the liquidation of nearly three billion dollars of brokers' loans contracted credit, and the Reserve Banks lowered the rediscount rate, and the way in which the larger banks and corporations of the country had survived the emergency without a single failure of large proportions offered real encouragement, nevertheless the poisons were there; overproduction of capital; overambitious (expansion of business concerns; overproduction of commodities under the stimulus of installment buying and buying with stock-market profits; the maintenance of an artificial price level for many commodities, the depressed condition of European trade. No matter how many soothsayers of high finance proclaimed that all was well, no matter how earnestly the President set to work to repair the damage with soft words and White House conferences, a major depression was inevitably under way.

Nor was that all. Prosperity is more than an economic condition; it is a state of mind. The Big Bull Market had been more than the climax of a business cycle; it had been the climax of a cycle in American mass thinking and mass emotion. There was hardly a man or woman in the country whose attitude toward life had not been affected by it in some degree and was not now affected by the sudden and brutal shattering of hope. .With the Big Bull Market zone and prosperity going, Americans were soon to find themselves living in an altered world which called for new adjustments. new ideas, new habits of thought, and a new order of values. The psychological climate was changing; the ever-shifting currents of American life were turning into new channels.

The Post-war Decade had corne to its close. An era had ended."
http://xroads.virginia.edu/~hyper/allen/ch13.html

Oilcanes

2010-06-03T00:27:00.006-04:00

How long are we going to wait to evacuate people residing in coastal regions from Texas to Florida? Do we even have an estimate of the deaths and damage that will result from the first oilcane?

PW Update

2010-06-02T09:21:00.003-04:00

With the recent market tumble and the mini spike in PMs, my VSE portfolio was zero % return as of PM opening prices this morning (worth 102K/100K, or +2%, but close enough). So, given Marketwatch.com VSE's inability to fix a reverse split of 1 for 10 on a short position, I took this opportunity to eat a percent or two; it is time to adjust my portfolio anyway. PW should work from here forward.

Terror in the Gulf

2010-05-30T19:58:00.009-04:00

As soon as news of the gulf oil spill became public, the Russians suggested the only way to stop it was by nuclear detonation on the ocean floor. A suggestion met with skepticism, at best.

First, it seemed odd, to me anyway, that the Russians had any opinion at all, let alone such a quick and controversial response to a problem few understood, perhaps no one. Or, perhaps someone. As the more ominous nature of this spill takes shape, let us wonder openly about a few things:

How many accidents happen where there can be no reasonable establishment of causality? 1 in 100? 1,000? Is there even a way to estimate the un-likelyhood? Even an asteroid strike can be assigned certain cause, a well understood risk lurking in the heavens.

How many oil rigs spontaneously combust?

How many of those gush at the ocean floor, a mile down?

How many of those create a pool of oil in the middle of the most famous hurricane landing point in the world, which also happens to be upwind of the most envied country in the world?

How many of those can amass a giant pool of oil from leak to beach, without leaving enough time to clean it up, just before the beginning of hurricane season?

Not many.

Let's assume the only way to relieve such a deep gusher is by re-drilling next to the site, an act that cannot be physically completed in less than several months. Let's assume such timing is well understood. Let's ponder the potential wreckage of several times the current spill, being repeatedly blanketed atop the southern and eastern United States.

Freak accident? I think the odds against it. Let's pause before taking that all to timely Russian advice.

Economic Breakdown

2010-05-29T01:31:00.017-04:00

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!

So equating that EW fractal forecast to today, here we sit, on the naked edge of the most ominous economic disaster in human history:

Those who understand this blog know that our dollar's unprecedented, years-long bull market, against all other major currencies, has nothing to do with US economic strength. Rather it has everything to do with US economic weakness. There is no "flight to safety." There never is. What there IS is a collapse in lending from US consumer credit exhaustion, and that has drying up the US dollar supply since late 2007. The collapse of US cash supply is what spikes the value of surviving dollars.

Less bank-printed cash sloshing around to compete for assets, means prices will continue to fall, and the fractal indicates a massive spike in $ value looms in our immediate future. That means falling prices denominated in dollars and an acute spike in bank failures. Less US cash in circulation also means each surviving dollar will buy more foreign currency, sending the Euro and EU into a graveyard spin from which it will never recover (not in our lifetimes, nor our children).

The purple arrows, above, show a rough fractal equivalency. Will the EU collapse very soon? Yes. Is it the fault of the EU? Absolutely. They are fully linked to US economic activity due to a stagnant, predominantly socialist economy. But as the world tumbles into the abyss, it is important to understand that the economic driver of the EU's demise is a lack of US bank-printing/lending, eradicating US and thus world-wide liquidity.

Hold on. Sell assets for dollars while you still can (especially unload precious metals). Avoid large banks, especially Bank of America. Hoard US cash and treasuries.

If EVER there was an appropriate time to unleash the fury of Cashzilla, that time is now:

Quick Update

2010-05-21T08:23:00.004-04:00

Each time I take a trip it seems to be a market top. No change to the outlook. Will return in June and will try to get out an update before then.

My active Dow forecast remains unchanged (see Open Market Forecasts, below), Dow 3,800 by 2012.

On a side note, Portfolio Watchers will need to some manual calcs. Marketwatch VSE is unable to fix a 1 to 10 reverse split for one of the portfolio ETF symbols. I'll probably move it to a new site, but there is no change to the core stock positions. I updated the overall portfolio percentage on the blog by xls calculation.

Cooking the Jobs Report

2010-04-02T07:44:00.015-04:00

If ever there was evidence that government agencies are sensitive to political pressure (no!), todays jobs number is it.

After hiring 1.25M workers for the census (a waste of $22/hour on a political battle unrelated to the original purpose of the census), will the BLS use this opportunity to bury millions of lost jobs that they've been saving up? I wonder....

Any useful job-counting method would show +1.25M this cycle, at least as a starting point. Let's see how reliable and accurate the BLS really numbers really are. The implication of a number that isn't reasonably close to +1.25M is twofold:

1) It shows the true state of the economy, X - 1.25M = R (where X is the BLS' "saved-up" number and R is reality)

2) It will reveal with certainty that our unemployment stats are cooked

Of the two, #2 is the bigger problem.

Images of Universal Heath Care

2010-03-27T14:15:00.010-04:00

Insurance beneficiary:

Doing what must be done to stay covered:

A medical screening:

Many were able to choose their own doctor:

Children that benefited from automatic coverage;

ZOOM..... ... . ... . . .. .

2010-03-24T20:29:00.010-04:00

From my Nov and Dec 2009 article USD: Shape of things to Come:

And off we go...

In the big scheme of things, time is short. As usual, I recommend a one year (minimum) cash reserve under your own roof, enough to pay all bills and essentials. Keep the rest in a US Treasury account--no longer term than the end of your hard cash and ladder the rest. Simple enough.

There is No Party of No

2010-03-24T12:51:00.009-04:00

Marketwatch.com posted another pro-movement piece today, titled "Party of No Fails" cocerning universal health care. My response follows:

There is no "Party of No." Both parties desperately want this and are both part of the ongoing Socialist/Marxist coup.

The Repubs are on the story board to make people feel like they have a voice. You don't.

The predetermined vote margins are an important clue. By barely passing this bill, the Supreme Court (also on the Fed dole--look no farther than Justices now taking their paycheck in private-issue Federal Reserve bank notes--a woefully unconstitutional act) can easily pin the tail on each and every State suing the Federal government as solely responsible for passage in the first place. Nebraska suing up front is a perfect example.

The purpose of flooding the Supreme Court with law suites filed by the same States who were responsible for shoving the bill down peoples throats, is to quickly establish a pro-coup precedent that prevents citizens from taking court action.

The Dow Jones Marketing Index

2010-03-23T01:26:00.025-04:00

I think some people believe the Dow Jones Industrial Average has something to do with stock performance. That's not exactly the case. The Dow is a sales gimmick, a trick that is played on people to steal their money. Take the following quiz to see if you understand the DJIA:

Directions: Please assume nothing changes exept the Dow components in question, then pick the BEST answer. Don't scroll down until you are finished, the answers are listed below.

1.) If Citigroup stock went to $0 tomorrow, the Dow would:

a. Not change
b. Drop 360 points
c. Drop 180 points
d. Drop 712 points

2.) Citi stock goes to $0, at the same time IBM announces a new CEO and rises 4%, the Dow:

a. Goes up
b. Goes down
c. Stays the same

3.) GM was replaced by Cisco on June 1, 2009. On June 2, 2009, Cisco needed to climb ___% to equal the effect of GM's stock plunging -50% just a few days prior.

a. 3
b. 115
c. 50
d. 200

4.) If Microsoft stock goes from $30 to $60 tomorrow, the Dow will climb:

a. 135 points
b. 410 points
c. 40 points
d. 1,200 points

5.) If every Dow component rises $1 tomorrow, the Dow will rise:

a. 240 points
b. 30 points
c. 300 points
d. 90 points

6.) Which relationship is true with respect to making the Dow move:

a. Alcoa + BofA + Citi+ GE + Intel + Kraft + Pfizer = IBM
b. J&J = Kraft
c. Citi + BofA = JP Morgan Chase
d. Caterpillar + Chevon + Disney = Exxon

7.) If a given Dow component falls today:

a. Tomorrow it is weighted less
b. Tomorrow it is weighted more
c. Tomorrow it is weighted the same

8.) How many of the original Dow components are still part of the Dow?

a. 0
b. 1
c. 7
d. 12

9.) 3M is 5 times more important than Pfizer.

a. True
b. False

10.) If 3M goes from $82 to $83 at the same time Pfizer goes from $17 to $16:

a. The Dow will not change
b. The Dow goes up 50 points
c. The Dow goes Down 50 points

I added one more question to clarify a comment...

11.) If 15 of 30 Dow components go down 1% per day, and the other 15 components go up 1% per day, after 30 days the Dow would (hypothetically assuming all Dow components started out equally weighted, and the index started at 10,800):

a. Go up to 11,240
b. Go down to 10,400
c. Not change

Answer (a) is always correct.

Waves of Human Civilization

2010-03-21T21:12:00.017-04:00

Anon wrote: "FDRAOA, any chance could you post some longer-term charts showing your wave counts - maybe one showing the count from the market top in 2000 and one that includes the 1930s and maybe even a multi-century one?"

Great question, thanks for asking. I'm not sure a chart would be of much use, since accurate price data is iffy beyond a century or so. But general trends are pretty clear. There are lots of potential very long wavelength EW possibilities and interpretations, so which ones you buy into are obviously up to you.

Wave personalities are important and should align with the time period. As we talk through each set of waves, remember that all (W1-W2)s should be fractally self-similar to the larger degree W12345ABC, of which they form the first two waves.

With that in mind, these are my thoughts. I've never seen EWs dissected quite this way before, but I'm sure it has been thought-through by many.

Biggest picture (the Waves of human civilization):

W1 - Roman Empire
W2 - (Deep Zig Zag) Dark Ages and Crusades
W3 - Renaissance
W4 - (Sideways) Exploration and consolidation of the New World
W5 - Era of Modern Central Bank Looting (BoE counterfeiting model)
WA - Now forming
WB - TBD
WC - TBD

Lesser degree discussion:

In W1, we see a frenzied, extended top that culminates in the severe overconfidence of a single Global Super-Power, the Romans, followed by a total currency collapse as money evolves from hard precious coin to banker-fiat, finally ending in barbaric warfare against an "invincible" professional army; the barbarians eventually win outright.

In W2 we have centuries of lost culture, suffering and famine, seemingly endless wars and unthinkable brutality. W2 is a fractal match to the era we are slowly slipping into today.

In W3 mankind rediscovers culture and civility in an explosion of creativity and scientific competence.

In W4 we explored new worlds and consolidated them into existing economic relationships.

In W5 the Bank of England invents and asserts itself for the purpose of royalties paid by the globally less sophisticated to the lazy, inbred global king pins of a massively corrupt criminal underworld. W5 culminates with the rise and (coming) fall of the modern Federal Reserve system.

Lesser degree discussion:

Let's only talk the internal structure of W5, above, the Era of Modern Central Bank Looting.

W1 of W5 - BoE creates the South Sea Bubble (1694-1725)
W2 of W5 - (Deep Zig Zag) Crash of 1730
W3 of W5 - Economic Rise of New World (America and Far East) (1730-1776)
W4 of W5 - (Sideways) BoE causes American Revolution and plunder of Far East (late 17th century)
W5 of W5 - American Capitalism (1785-ish to 2000)

Let's only talk the internal structure of W5 of W5, above, the fifth wave of the Era of Modern Central Bank Looting.

W1 of W5 of W5 - Hamilton resurrects BoE ties in the form of FBUS/SBUS
W2 of W5 of W5 - (Deep Zig Zag) Andrew Jackson sends BoE packing, all currency is extinguished
W3 of W5 of W5 - Jacksoinan era sparks Industrial Revolution
W4 of W5 of W5 - (Sideways) WWI thru Great Depression (nothing compared to 1836-42)
W5 of W5 of W5 - 1932 to Present

W1 of W5 of W5 of W5 - New Deal socialism sputters (1932-1939)
W2 of W5 of W5 of W5 - WWII (1939-1942)
W3 of W5 of W5 of W5 - Rise of modern American might (1942-late-60s)
W4 of W5 of W5 of W5 - Late 1960s dopers (now in charge of America) thru Vietnam
W5 of W5 of W5 of W5 - 1974-2000 Rise of mega-government-enabled Central Bank Looting

W1 of W5 of W5 of W5 of W5 - Gerald Ford
W2 of W5 of W5 of W5 of W5 - Jimmy Carter
W3 of W5 of W5 of W5 of W5 - Ronald Reagan
W4 of W5 of W5 of W5 of W5 - George Bush I (closet aristocratic socialist)
W5 of W5 of W5 of W5 of W5 - Bill Clinton

After 5 completed movements of fractal degree, all waves reverse and begin their ABC. Note, Wave A may also subdivide into 3 waves, which is my prefereed count.

WA of WA of W5 of W5 of W5 - George Bush II (closet aristocratic socialist)
WB of WA of W5 of W5 of W5 - "
WC of WA of W5 of W5 of W5 - Barack Obama (still unfolding)
...completion of WA bottom, around 2012

There are various ways to interpret the opening stages of the long, grinding collapse of Planet Earth, but it's mostly academic. Centuries-long Dark Ages to follow....

Health Care Bill to Collapse the World Economy

2010-03-21T12:18:00.012-04:00

It never stops amazing me how EWs forecast human events so reliably.

Over the past several years, I've been saying that although I don't know what the news event will be, some news event or group of them will collapse the global economy as a tidal Wave 3 down takes hold.

As we sit at the completion of the lower degree W2 of that mammoth Wave 3 down, confirmed in virtually all markets, and yesterday we completed (or nearly completed) an even smaller degree W2 of momma W3 herself, it seems clarification has arrived.

CLICK TO ENLARGE

First Day of Spring Buries West Texas Under a Foot of Snow

2010-03-20T06:49:00.014-04:00

Record snowfall is continuing into Spring as the normally sweltering deserts of western Texas get blasted by another record blizzard.

The Fort Worth Star-Telegram held it's first-ever snowman contest, receiving more than 400 entries. Six received praise:

'Marshmallow Man' look-alike

Erick Thomas and family, Arlington

This snowman had staying power: seven days, to be exact. It's no wonder, at 13 feet tall and 10 feet wide (including the arms made out of 2-by-4's). Thomas, his daughters -- ages 8 and 5 -- and a neighbor worked on this mammoth man in Thomas' front yard for two days.

"We were just making a snowman and decided ... we might as well do it as big as we can," he said. The eyes are made of beer bottles and the mouth is made of charcoal.

It became a neighborhood tourist attraction. "A lot of people stopped by, got out and took photos," he said.

Think tank

Rosalie Kobetich, Lipan

"While passing the commode in our pasture -- which usually is filled with flowers -- the idea occurred to me to build The Thinker," says Kobetich, who is a painter and a member of the Weatherford Art Association. The 5-foot-3 snow sculpture took about 90 minutes to complete by herself and is adorned with a branch of pine needles.

"Unfortunately, he lost his head the next morning because it got pretty mushy out there," Kobetich said. "Too bad he didn't stay longer."

Snow warrior

Jim Walter, Burleson

"This is a statue of a Viking warrior standing on the deck of his long boat, but we didn't have enough snow for the boat," Walter says.

During the snowfall, Walter's family had six different snowman projects going on their pasture, and they were scrambling to complete them before the snow melted. The Viking was his idea. This menacing warrior, holding a spear in his left hand, eventually sunk back into history.

Cold sweat

Michael and Tammie Baker, Fort Worth

"My wife and I exercise together," says Michael Baker. "I run, and she follows me on her bike. We thought that our snow people should reflect our hobby, so we built a runner and a rider in front of our home."

This cardio-tastic snow couple are wearing the Bakers' own clothes and shoes (the race number is from last year's Cowtown Marathon) and using their own bike and ear buds. The hardest part was balancing the one on the bike.

So did they work out after they built their snow avatars? Baker laughed. "That was our exercise for the day."

Snow dragon

Sarah Blaido, Hurst

Sarah, 16, spent three days sculpting this dragon. The home-schooled high-school sophomore "really wanted to do a dragon because it's my favorite thing of all time," she said. She filled up big bins with dense, clean snow and built the rear first, then the middle and front sections. It measured 8 to 9 feet long.

Unfortunately, not many people got to see her creation before it melted. "On the last day, I was just putting on finishing touches when the sun came out, and it immediately started melting," she said.

Global warming protest

Curtis and Melissa Reeves, Weatherford "Thirty snowmen held a global warming protest in Weatherford," the Reeveses said in their clever entry. "The protest ran for two days before the crowd dissipated. No injuries were reported. However, the protesters did leave their signs on our sidewalk."

It took the husband-wife team a few hours to create this snowy scene; each snowman was about a foot tall. It looked especially neat when the candles were lit at night, they said. However, all the snowmen eventually fell victim to the warming trend.

TRADING ALERT: Too Much Liquidity is Your Friend

2010-03-12T18:30:00.021-05:00

I've often talked about the evils of Federal Reserve corporation counterfeiting, but sometimes it is your friend. Today's stock market is a good example...

Over the past 97 years, the Federal Reserve has slowly flooded our markets with funny money, creating the greatest global market hyperinflation since the BoE engineered the South Sea Bubble.

Think of modern-day hyperinflation as the water level above an ocean floor. There are features on the floor that the make underlying terrain unique, like a variety of financial different markets should behave, each with its own, independent and characteristic, price behavior. But after you flood the earth with liquid, baseless paper in the metaphor, the water level eventually drowns the interesting features below, and coincident waves of liquid cash create the dominant force driving prices of all markets.

The DJIA is a perfect example of hyperinflation. Since its low of 40 in 1932, the original Dow 30 index has kicked every company out except GE. And yet, this shadow of a ghost, that one-thirtieth of what $40 used to buy, now sells for a little over $10,600. Literally, it takes a wheelbarrow full of worthless paper cash to buy what little remains of the 1932 Dow.

The "evil" part is that the Federal Reserve has sold The People of the United States mountains of this worthless paper in exchange for real assets; those assets are gone (to the Fed's private owners). So what's the "good" part? Why is Fed counterfeiting our friend at the moment?

For the answer, see the chart snippets below. As of today, we sit at the top of a minor W2 of a major W3 in virtually every market. Why do all the counts interlock? $10,600 of pure paper liquidity flooded on top of every $1 or $2 dollars of 1932 value. These counts are dominated by nearly 100 years of mounting hyperinflation.

Proof? Look no farther than P/E ratios, floating almost fifty-fold above the 1932 ratio of 5. That is exactly what you'd expect as the result of hyperinflation.

Am I predicting hyperinflation? No. I am pointing out that it has already occurred. It is the dominant force driving all market prices today.

Stocks, oil, gold, silver, corn, cattle, you name it, and of course, inversely, the dollar--all waves are aligned on this March 2010 morning--and in all cases, a major downward W3 is forming (the USD being reversed: about to explode upward).

Every table is set, or already in breakdown. The charts below are all 3 months long. Minor details are more clear in some than others, but it doesn't matter, if you can count one, you have counted them all.

Idealized Impulsive W1-W2 (downward):

Oil (already in breakdown):

Silver (already in breakdown):

Gold (already in breakdown):

Stocks (about to breakdown):

Fed Accelerates Two Year Cash Drain

2010-03-12T00:30:00.005-05:00

Anon wrote: "People are panicking out of the dollar"

0.14% for a 3-Month auction? The line to hold US cash can't get much longer. The money supply continues to drain faster than ever before:

For the past two years the Fed has been sucking dollars out of the system like there is no tomorrow, and there might not be.

Stock Market Update

2010-03-07T18:49:00.011-05:00

A lot of people have asked for an update, so I've taken my stock updates from Jan 2009

...and Nov 27, 2009 (click to enlarge):

And I've appended my new thinking (click to enlarge):

As I've been saying but would like to reiterate, the major W5 on that chart (Wave A bottom) will likely happen in or around 2012. My target for Wave A is Dow 3,800. Time is difficult to estimate, and basically unimportant compared to the price target being achieved.

In other words, if EW's indicate that nature has programmed poker players to stand up and walk away from a poker table after losing $X, it doesn't really matter how many hands it takes to lose $X. That said, we might instinctively read into the same metaphor that time, or the number hands going nowhere, plays some role in the human decision making process.

The 11th Plank Has Arrived

2010-03-05T07:12:00.020-05:00

Both congressional Democrats and Republicans (while feigning outrage) want to pass Government Health Care. That's why massive capital gains tax hikes (15% to 22.5%) and income tax bracket hikes (to 42.5%) are buried in the new version of the bill.

For those not following U.S. (over-)achievement of the 10 planks of Marxism:

1. Abolition of private property and the application of all rent to public purpose.

Done.

As we've seen all too well lately, banking corporations are our government. But to the extent some are private, by the time a 30 mortgage is paid, property taxes exceed original mortgage payments.

2. A heavy progressive or graduated income tax.

Done.

3. Abolition of all rights of inheritance.

Done.

The death tax forces all family businesses, of any value, to turn over the keys to the corporate-government for pennies on the dollar when the owner dies. If you own nothing, you are exempt.

4. Confiscation of the property of all emigrants and rebels.

Mostly applied to US citizens through Eminent Domain.

Marx was just an angry racist; the original White Supremacist.

5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.

Done.

6. Centralization of the means of communication and transportation in the hands of the State.

Done.

7. Extension of factories and instruments of production owned by the State, the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.

TVA, Government Motors, more broadly... corporations and our government are indistinguishable. "The United States government will bear any burden and pay any price to ensure that Citigroup does not fail" --Chairwoman of congressional oversight panel

Certainly, more to come.

8. Equal liability of all to labor. Establishment of Industrial armies, especially for agriculture.

Done.

9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country by a more equable distribution of the population over the country.

Done.

Government zoning has displaced individual land ownership. But I think Marx was probably high when he phrased this one.

10. Free education for all children in government schools. Abolition of children's factory labor in its present form. Combination of education with industrial production.

Done.

And now, beyond Marx's wildest dreams:

11. Centralized control over citizens' physical being. Common enforcement of the ideal size and make-up of the population. Care granted in proportion to production.

What do Dividends, M&A, and Health Control Have in Common?

2010-03-05T07:01:00.015-05:00

Anon wrote: "Dividends picking up, M&A for cash picking up, and companies buying their stock proves this market is heading higher FDR"

Dividends heading higher is always a sign the market is going lower. At market peaks, dividends are virtually non-existent at around 2.5%, because people are happy with cap gains--companies don't need to pay cash flow to attract stock trader-speculators.

At major market bottoms (talking Great Depression lows), dividends hover as high as 30% to attract investors (I'm interchanging the term "trader-speculator" and "investor" intentionally). Today we're in the 3-4% range.

Remember the M&A flurry at the last major W2? It was at Dow 11.8K and only a few bears were left waiting, and waiting, and waiting on the market to turn lower. The Bear bandwagon emptied out, just like today. Then the stimulus bill passed and the very minute of the vote was the W2 peak. The market was at 6.5K within a few months.

Interesting that the health care bill is set to pass as early as next week, with little hidden gems like an increase in the capital gains tax from 15% to 22.5%, and a similar income tax bracket increase. Just saying... look out man, it's coming.

Any of these major news events could trigger it. It doesn't matter what the news is, EWs tells us that a major change is imminent and it will be interpreted as a major selling event. The same event would be a major buying event if the wave were on the other foot.

Gov: We'll Break America to Save Bankers

2010-03-04T13:57:00.021-05:00

Reported by Market Watch:

"The sheer magnitude of Citigroup's operations, and the company's history of receiving extraordinary government support, has led this panel to an inescapable conclusion: The United States government will bear any burden and pay any price to ensure that Citigroup does not fail" --Elizabeth Warren, chairwoman of the congressional oversight panel

I guess it is old news that the FDIC has failed and is powerless to insure rapidly imploding $3T Citigroup and their 40x leveraged losses.

The "price" is the wholesale disposal of the U.S Constitution. All to protect congressmen's private IRAs/401Ks, probably amounting to thousands of dollars. And that won't even work.

Run.

Prechter's Armageddon

2010-03-03T09:30:00.018-05:00

Blogger's comment engine was apparently snagged for a few days. Comments reappeared this morning and are all posted (hopefully). If any are missing, I haven't seen them, sorry.

As readers of this blog probably know, Bob Prechter is the guy who smuggled EW analysis away from the smart money and delivered it to The People in the 1970s.

In the late-30s/early-40s, R.N.Elliott discovered the EW insight, the fractal, and single-handedly unlocked a major part of how Nature works in his astonishing work titled, Nature's Law, The Secret of the Universe. Perhaps more astonishingly, one cannot find RNE's work on the shelves of any Library, or in any book store. If nothing else, the early discovery of the fractal and how nature uses them to generate complexity from simplicity makes this book invaluable to the scientific community. But magically, RNE's highly profitable masterwork had apparently vanished from the face of the Earth.

Bob learned of EW theory as a professional trader in the back rooms of large trading houses, and immediately realized the value of sharing with the world (he located the original on microfilm in the basement of the Met NY Library, if memory serves). To this day, the only way to read RNE's original book is in a back chapter of one of Bob's first offerings (I have no affiliation).

Bob is a brilliant guy with an amazing track record. His first big public call was in 1982, when he predicted that an enormous Wave 4 was now complete (from the mid-1960s to early 80s), and that a massive inflation was coming. He said you could do no wrong investing in paper stocks, almost anything would do. His 1982 chart (with the Dow bobbling beneath 1,000) projected a surge to Dow 4 to 5,000. Needless to say, professionals laughed at him until they wet themselves, after all, we were in a major recession at the Dow had scarcely topped 1K in all of stock market history. When the market surpassed Bob's call in a few short years, he began warning of a major top, the Wave 5 top formation.

"Pro's" drunk on inflation that they were way too stupid to predict, laughed again. Bob was a few years early, the market went crazy, we experienced a final bout of hyperinflation as the ending phase of the 1932-2000 Wave 5 of an even bigger 5 slowly fell into place. But Bob was exactly right. When viewed in the proper multi-century context, that he always framed but few were smart enough to wrap their minds around, Bob's calls will plot within a few pixels of precision.

As the 1990's big bang boomed, Prechter counted out the final form of the mega-top in 2000, accurate within a week or two. Again, an amazing call that few saw coming, and most people laughed so hard they lost everything.

This is when I learned EW theory as a direct result of Bob's work, and not a second too early. Luckily, I had done well as a lemming during the boom, but now I understand it was pure luck. Since then, I've often disagreed with Bob's calls on the margins, but for the most part, the few good EW'ers that are alive tend to agree in the macro.

Recently, Bob issued a warning in July 2007 when the Dow hit 14,000 that Wave B was complete and the mother of all C waves was forming. Again he pointed out that you could do no wrong, by going short this time. He issued a cover call at 6,500 (after I did :) and another short call at the recent peak. Bob is really good, assuming ones understands the inherent risks involved with attempting to call a multi-century top (maybe longer) to the penny.

Bob recently published some free video interviews/updates/warnings on his website. Essential viewing for anyone who doesn't fully understand what is coming:

http://www.elliottwave.com/freeupdates/archives/2010/02/26/How-to-Prepare-Yourself-for--The-Biggest-Bubble-in-History-.aspx

Get Ready for a Flurry of Real Estate Activity

2010-03-02T15:56:00.015-05:00

The Fed has sold almost the entire Mortgage Backed Security market short. Now it is time to drop it.

Remember, the term "buy" to the Federal Reserve means "sell" to everyone else. They "bought up" the MBS market at prices no one else was willing to entertain (= WAAAAAAAAY too high) along with a scarcely noticed taxpayer guaranty of no losses.

That means when they "sell" the junk, we have to pay their loss. That's right, we have to "buy" it. That means they "sold" to us at WAAAAAAAAY too high a price. Out of the kindness of their hearts, they lent us the cash to buy it too, at interest.

Now, it's time to dump the junk. The lower they price it, the faster they get paid in full. And the faster they start accruing interest on our debt to them, as our cumulative national real estate losses get tacked on to the national debt.

Real estate is about to start flying out of inventory. The inept main stream media will think the Fed has dropped a gift from heaven. "RE Sales UP 200% YOY!!" they'll rejoice, ignoring prices that are deteriorating more than hard-line bears dared to dream.

I've dreamed it. It isn't pretty.

Borrowing to Stay Afloat...

2010-03-01T13:31:00.008-05:00

http://www.marketwatch.com/story/goldman-to-sell-2-billion-in-bonds-informa-says-2010-03-01

..."normally" beats selling off assets at fire sale prices, especially when you're carrying assets on your books absurdly above market price. Problem is, borrowing your way out of trouble is only feasible during inflation, during deflation, debt crushes you.

In other words, "fire sale price" is a inflationary term. The equivalent deflationary term is "overpriced."

Leveraged Losses

2010-02-27T10:20:00.032-05:00

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

2010-02-26T08:11:00.002-05:00

And so it goes...

Welcome to the Land of Oz

2010-02-25T14:14:00.029-05:00

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

2010-02-25T07:09:00.023-05:00

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

2010-02-24T13:26:00.010-05:00

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

2010-02-23T18:25:00.006-05:00

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

3s of 3s Everywhere

2010-02-23T03:53:00.014-05:00

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

2010-02-23T03:37:00.006-05:00

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

2010-02-22T11:48:00.024-05:00

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

2010-02-21T08:44:00.024-05:00

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

2010-02-20T11:22:00.066-05:00

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

2010-02-18T21:30:00.041-05:00

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

2010-02-18T17:38:00.006-05:00

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...

2010-02-18T13:43:00.028-05:00

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

2010-02-17T19:21:00.016-05:00

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

2010-02-14T06:42:00.030-05:00

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

2010-02-12T13:50:00.032-05:00

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

2010-02-12T07:48:00.034-05:00

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

2010-02-11T23:09:00.018-05:00

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

2010-02-10T01:50:00.011-05:00

"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

2010-02-10T01:02:00.013-05:00

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

2010-02-07T20:02:00.021-05:00

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!"

2010-02-06T13:38:00.021-05:00

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

2010-02-06T07:42:00.012-05:00

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

2010-02-04T23:47:00.010-05:00

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

2010-02-03T16:45:00.021-05:00

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!!!

2010-02-02T22:37:00.026-05:00

Added:

Either way, WHOOSH!

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.

It's No Longer Like 1929...

2010-01-31T22:11:00.018-05:00

It's like 1931...

Obama's Subprime Loan

2010-01-31T11:22:00.044-05:00

As if we need another more example of the catastrophic nature of the Fed's depression, let's take a peek at the President's own real estate losses.

Obviously, the President is a special case. He'll be fine because he can cash-in influence that comes with the office, and has already done so. But let's assume for a moment that his very typical real estate losses were not accompanied by his very atypical employment situation.

When the President showed up in DC as a freshman Senator, he and Michelle took out a subprime loan in order to buy their Chicago home. Unlike the real world, they got sweetheart loan terms as a "Friend of Anthony," but that didn't alter their plan to financially hurt themselves; it probably made it worse.

Then-Senator Obama made about $160K. The Obamas took a $1.2M subprime loan to buy a $1.65M home. That was $350K lower than the $2M ask price. The $2M figure was after the doctor selling the home allowed the Senator to split the land into two parcels so he could shave $700K from the original $2.7M asking price. The second parcel was purchased at the same time by Obama's top campaign contributor, Tony Rezko (now in prison for real estate fraud). The Obama's bought the second parcel back from Tony's wife Rita for $105,000, less than a year later. The difference in valuation remains unexplained.

The second part of the deal is really too shady to value, so let's stick with the base home to evaluate the Presidents real estate situation.

I say this was a "subprime" loan, because there is no earthly way a $160K/yr temporary job qualifies to purchase a $3M 30 year prime note, especially when they have to split the property into partially undeveloped land to afford it. Nevertheless, the couple decided the risk was worth the gamble, and so did their banker.

The Obama's compulsive gambling habit (yes, making regular $10K/month installments on leveraged loan losses IS life-altering, compulsive gambling) is probably fairly typical among highly-degree'd, but poorly educated mid-to-upper class Americans. It's not their fault. They're victims. They've been taught that it's "OK" to speculate their future away using 20x leverage.

How did they do? Better or worse than Vegas?

Well, DC prices have "officially" declined by only 33% (with way more to follow, but that's a different post). However, sales volume is anemic, so the masses can't fetch that price without driving it much lower. Just for fun, let's say the Obama's home could rot on the market for about $1.1M, today.

So, about a $500K loss. That's not small for a $160K breadwinner. Additionally, that puts the President's subprime loan $100K underwater even with an optimistic valuation, and after losing the 25% they put down.

If our own President's financial situation would be this dire, but for extraordinarily atypical book deals and influence peddling, imagine how the rest of the subprime community is doing--to include all of the non-Presidents still in congress. And let's not forget, 22% of those people are on the unemployment dole or have fallen off and given up looking for sufficient work (the congressional UE rate could be higher in November).

Maybe that's why the President and Congress seem perfectly comfortable doubling down with a new $4T gambling loan on behalf of their constituents?

Paulson: "The Devil Made Me Do It"

2010-01-30T10:38:00.015-05:00

I'm sure everyone has heard that Hank "The Holy Monk" Paulson is blaming, that's right, "the Russians" for his destruction of the U.S economy.

So Hank, even if one believes that the Russians were financially attacking the United States, well, you lost the battle. And longer term, probably the war.

The only thing worse than destroying the United States economy by accident is allowing someone else to do it on purpose.

Excuse to Halt Production?

2010-01-29T16:35:00.018-05:00

With worldwide auto sales plunging almost 50% from peak, one has to wonder when Toyota powers-down assembly lines for their most popular vehicles.

My hunch:

The only pedal they want off the metal is massive overproduction.

Would you rather halt production for a strangely lengthy recall, or permanently cut auto prices 50%, inline with the rest of the retail market? I think Toyota choose the former; incompetent management gambling that this will blow over with their subprime-era prices intact. Pretty dumb, considering Japan has been in a horrible deflationary Depression for 20 years.

How to Quit Your Job Forever

2010-01-28T19:38:00.017-05:00

Most people probably read this blog for posts like this. So it's time to post another one. If you remember nothing else from this blog, remember this:

Fed interest rates are free-market driven by profit motive, not "set" by benevolent dictators who claim they only want to help you.

I've written a ton about this, but it really is this simple:

When there is a long, long line of super-smart bank customers (not to be confused with bankers) who WANT to borrow (= invest in the economy, with leverage), then banks can charge high interest rates. Venture capital gets expensive for one reason: the market allows it to get expensive. Banks raise their retail interest rates because they have lots of borrowers competing to pay them, then the private Fed bank cartel follows by raising their wholesale rate to juice profits. The Fed is not "tightening to curb inflation, to help the good people of the world." That's just stupid.

When there is no line of super-smart bank customer who WANT to invest in the economy with leverage, interest rates plunge to 0%.

So people ask me all the time, when should I jump back in? The answer is simple: you should jump in when the smart people who make the economy hum jump in. When interest rates start a sustained climb, slowly marching higher, month after month, year after year, then there is customer-driven demand for risk taking.

As long as the Fed can't find anyone dumb enough (except the government) to WANT to buy their paper funny money, they have to market it at fire-sale interest rates. That means stocks are, or shortly will be, in free-fall. And anytime you hear the word "stimulus" that means "no smart customers" and only the government can be coerced into borrowing to pad bank profits.

Quitting your job forever is as simple as understanding this simple relationship:

Interest rates low, or worse, falling? Sell.
Interest rates high, or better, climbing? Buy.

I'm talking about sustained, macro trends, not politically motivated blips. Our current trend is clear, and it is firmly established.

Bernanke Confirmed: Market Crumbles

2010-01-28T15:47:00.006-05:00

The for-profit Federal Reserve Corporation has gone from "Wizard of Oz" to "Man Behind the Curtain" in two short years.

Clearly, people are catching on. It's encouraging. Too bad we're already in an unfolding Fed-engineered mega-Depression.

"I didn't steal it."

2010-01-28T08:38:00.024-05:00

Secretary Geithner (last President of the NY Fed): "I didn't steal it."

Secretary Paulson (last CEO of Goldman Sachs): "I didn't steal it."

As with all multi-trillion dollar government heists, no one knows who did it.

But we do know who took it:

Who got it.

The two primary beneficiaries of this magical, self-appropriating cash:

Goldman Sachs - Received $320B funneled through AIG to delay certain bankruptcy.
The NY Fed - Financed The People's enormous new debt to give to Goldman Sachs.

Hmmm, so who DID steal it? Who in the room might be representing Goldman Sachs and the NY Fed?

I wonder....

Paulson:

2010-01-27T15:58:00.004-05:00

"I was not involved in any of the decisions made with respect to those payments"

Really, Hank? The Secretary of the United States Treasury removed $800B of the Peoples' money without having any idea where it was going? Sounds like jail-able dereliction of duty to me.

Throw away the key.

Pop Quiz

2010-01-26T23:27:00.005-05:00

Q: What do these two images have in common?

A: Bank runs.

The People Revolt!

2010-01-26T07:38:00.021-05:00

Bernanke appears to be in trouble.

Who'da thunk it?

Well, me.

Before everybody who throws light upon the Fed's crimes celebrates, remember, if Ben is in trouble it is because the Fed's mostly foreign, private shareholders want his head. The People have no say. Congress is simply following orders.

So, why would the Money Power wish to do away with Ben?

Simple, he's probably trying to do the right thing. Ben is a hard core inflationist. The economy is sliding into a deep depression. Ben wants to move to 0%, finally lowering the Fed rate below the market rate for cash. He's on the record in countless places, suggesting he would use 0% without hesitation (try to forget his 2.5 years of hesitation). But that would actually make reserves cheap relative to the market rate for short term cash, possibly expanding the cash supply, and allowing macro prices to rise. The board won't let him do that.

A move to 0% would remove the Fed's BANK CRUSHING 1,000% suffocation premium (30 day Fed Rate of 0.25% / 30 day Market rate of 0.025%) on cash reserves for their finally-desperate competition. It is financial murder, playing out on a world stage before our eyes.

Remember, once the American golden goose is pronounced dead (= stops laying new credit eggs to buy Fed shareholders hookers and blow), the Fed desperately wants to deflate The Peoples' collateral prices against their inflated loan balances. The People must go bankrupt. That's how the Fed cartel seizes their stuff. It's an essential step in the Fed-owners' plunder of America. And believe me, that "exclusive club" of world crime king pins DOES NOT include little Professor Ben and his $2M estate.

If Ben is removed now, it's because the Fed plan calls for interest rates to go way up. This play has been called time and again, just as the Fed's non-cartel competition desperately needs cheap reserves.

If Bernanke insists upon 0%?

B-bye.

* Privacy Alert *

2010-01-25T03:26:00.014-05:00

Friends in the industry have informed me that major U.S. banks have been instructed to submit Form 104s for cash withdraws lower than the $10,000 threshold required by the Bank Secrecy Act.

Limit cash withdraws to LESS THAN $2,500 per 24 hour period if you want to avoid being reported to the government.

2000-2010: The Worst Financial Decade Since....

2010-01-24T06:04:00.033-05:00

a) The 1970's.
b) The Great Depression.
c) The 1830's.
d) The dawn of recorded human history.

Correct Answer: D

Even the historic price crash from the Bank of England's South Sea Bubble was complete by 1725 and prices rose slightly from 1720-1730.

The beginning of SBUS retribution against Americans in 1836 (a direct fractal equivalent to today's Federal Reserve fiasco) took markets down, but only to even between 1830 and 1840 because the central bank's inflationary surge into 1836 was irrationally steep. The net change from 1830-40 was approximately 0%. Prices continued to plunge deeply into 1842 as Biddle's BoE-spinoff tried to rape America after Andrew Jackson kicked him back to England. But without central bank looting, the US economy quickly surged on true fundamentals, and was iron horse strong by 1850 as the Industrial Revolution took root.

The 1930-40 Dow dropped a whopping 40%, but the Fed only stole 58% of the dollar's buying power as measured by the rise in the gold price. Net charge to Americans: a WWII-inducing 65% loss.

2000-2010 took a 15% price plunk on top of a momma-better-start-working -77% dollar pancake, also measured by gold priced in dollars. Net charge to Americans: a brutal 81% loss.

And that's after kicking out 10 of 30 Dow components between 2000 and 2010 for poor performance.

Our previous decade's steep spike in gold price indicates that the great majority of America's 2000-10 loss was exported to the private, multi-national Federal Reserve bank. Physical wealth exported. Worthless paper imported. In other words, let me steal 90% of your stuff and I will append a zero to your currency prices so your "net worth" doesn't change.

What will 2010-2020-2030 bring? Too bad we can't ask Andrew Jackson. Bernanke Biddle already has the king's bank in hot water.

How to Protect Yourself From the Federal Reserve

2010-01-22T20:49:00.045-05:00

kcb wrote: [questions about how/why to buy Treasuries]

At Dow 14K, I recommended that everyone, who does not have a risk profile compatible with shorting, move to 100% cash and Treasuries. That was mid-2007 (the first pop of Dow 14K) with T rates around 6%.

Since then, Treasuries have been crushed by demand to around 0% (or even negative) yield, by people and entities with real money ($millions to $billions) who are investment savvy.

So it's true that the smart money has already removed the possibility of getting the 6% yield that I urged everyone to jump-on. But it's still not too late to switch to cash and Ts. To the contrary, with the most expensive Dow ever by roughly five fold, as priced by P/E, broad market prices are only beginning their multi-decade decline. With the dumb money still fully vested in stocks, paper gold, and banks, Treasuries at 0% are the opportunity of a lifetime. Every time prices halve, safe cash bags a cool 100% return.

In order to survive the current and future financial chaos, the most important thing is to convert as many assets into cash as possible. I'm talking about everything, not just your "investment portfolio." Cars, vacation homes, boats, extra furniture, everything you can sell for cash should be sold. Next, figure out a way to protect that cash.

In the coming decades, protection of cash will be extremely difficult, much more difficult than it is today. Banks are not a safe option. Some will survive, but which ones will be unpredictable, it depends which politicians the private Fed has purchased, which banks they wish to destroy, and how long the Federal Reserve banks themselves survive.

As a minimum, avoid any large American bank that is not based in NY. These are the Fed's primary objectives for destruction, they will likely be the early casualties of the Federal Reserve's war on Americans. Hint: a big bank with a name like Washington Mutual is not generally a member of the NY Fed's bank cartel. Big, Carolina-based Bank of America is an easy pick to fall in the opening battles, while the Federal Reserve still has residual political clout.

Especially avoid FDIC insured banks. The private FDIC, desperate to avoid insurance payouts, will kick dead insured banks to stronger insured banks, bringing down most of them.

So, where to stash your cash? First, if you have the means, protect it yourself. This will be the lowest risk option for most people. Hide it; fireproof it; waterproof it. FDR sent thugs door to door to steal Americans' gold at gunpoint. He jailed any American who didn't submit. The same thing could happen tomorrow with cash.

With cash you cannot safely store, buy Treasuries. Treasuries are a near-cash equivalent. Once the big banks start to fall, it will be too late to buy Treasuries without paying a large premium, so do it now. Treasury prices have already exceeded $1 per $1. Once $15T in bank deposits starts competing for a few billion in weekly T auctions, don't be surprised to pay an 80% surcharge to preserve 20% of your cash.

The U.S. Treasury is NOT your friend. It is indirectly controlled by the commercial Fed banks like most of our government and court system. But it is where the smart money hides and they have political power in our country, so you cannot do better.

There may be safer options in other countries, but given the U.S. propensity to commercialize and legalize Federal Reserve counterfeiting, while possibly safer, other currencies will not experience the same surge in buying power as U.S cash as our economy crumbles. I've said this many times but I'll say it again, I recommend U.S. cash and/or Treasuries not as a safe INVESTMENT, but as a high yield TRADE as prices tumble around you. The risk:reward ratio can't be beat.

Because our government is owned by the for-profit Federal Reserve banks, there are some wonderful, recent Treasury innovations aimed directly at destroying their American bank competitors. You should take advantage of these features, unless you want to go down with the ship.

The first is the Treasury's new zero percent C of I account. C of I stands for Coupon of Indebtedness. It functions like a U.S. Treasury "bank account" (but without bankers habitually gambling away your deposits). You can buy electronic coupons of any size, and your balance is recorded at the U.S. Treasury. You can redeem all or part of your C of I balance at any bank you select, by electronic funds transfer which takes one business day. You can change your selected bank if it fails, any redemption to a dead bank bounces back into your Treasury account.

C of I was recently implemented. Why? To encourage and accelerate bank runs; to help cause the Fed's depression. There is no reason in the world today to keep money a risky bank account. The Fed and the Treasury need your help to destroy their commercial competition, they are going to do it with or without you, so place your money with them.

C of I has one very important limitation. It doesn't seem important, but it is. You can only directly buy C of I coupons up to a $1,000 at a time. However, you can redeem Treasury instruments of any size into your C of I account. So if you want to get, say, $10 million into your C of I account quickly, there is only one way to do that, buy a 4 week T-Bill and elect C of I as the destination upon maturity.

Why this limitation?

Simple.

They want the dumb money, the late money, to have to pay a potentially huge negative yield when the roof falls in. The new option to hold C of I, plus the requirement to fight for Treasuries via auction, will be a multi-trillion dollar money making machine during the coming Federal Reserve-engineered panic.

How do you purchase Treasuries?

Visit: https://www.treasurydirect.gov/go_to_login.htm

Register. It takes about a week to receive the "decoder card" they require to login, via snail mail. You have to jump through a couple of pages of login hoops...

Set up a bank to fund your Treasury account. This is similar to using any financial site, acct #, routing #, etc. To buy Treasuries, all you do is select an instrument, it pulls funds from your bank account on the auction date.

Be sure to select...

...to keep money from flowing back into your bank account.

You can buy any any type of Treasury instrument in any odd dollar amount using the site, it is self-explanatory. You bid on instruments, meaning you must pay the going rate. Usually, that means paying a price slightly lower than face value at maturity. The discount is your yield. If you pay 99 cents on the dollar for a 52 week Treasury, that's like getting a 1.01% yield.

When times get bad, you may actually have to pay more than $1 per $1. Throughout the entirety of U.S. history, all of our precipitous ups and downs, World Wars, the Great Depression, through the struggle and strife of our storied nation, that has never happened. Until recently. Now, it is not uncommon. Soon, it could become punishing. Beat the rush.

Smarter than a Fifth Grader?

2010-01-22T07:12:00.013-05:00

The Supreme Court ruled, yesterday, that lumbering multi-national corporations wishing to purchase the votes required to appoint justices to the Supreme Court is constitutionally protected free speech, under our citizen Bill of Rights.

Almost immediately following the ruling, the U.S. Government decided there is no such provision.

Obama Warns Bank of America

2010-01-21T20:52:00.009-05:00

Hmmmm, where else have I read that certain large banks will not be bailed out (and instead are targeted by the private Bank of NY, aka the Federal Reserve, for destruction)?

Let me think... Oh yes, I remember.

Too Much Information

2010-01-21T01:40:00.028-05:00

"FDR, you said there has never been a better time to go short. How confident are you that we'll see another nose dive? Would you recommend 50/50 long short or 25% long, 75% short? Would you recommend going 100%? 200% short? Just curious. What would you recommend to your clients? ... ... FDR, what do you think about EDZ? 3X emerging market short etf? I see a lot of problems with emerging markets being over-leveraged. Half of Europe is overleveraged, and China really hasn't experienced much of a downturn yet and could face trouble ahead. Curious to get your take on it."

When it comes to individual picks, is it more complicated than forecasting xyz will dive by 2012, 2020, or 2030, though almost all stocks will severely deflate in the macro.

xyz might be a great buy or sell, but a better day or week or month-long opportunity might merit a switch out of it, then back to it, etc. Listing all those moves in real time would knock everything else in the blog off the front page. That is why I created PW watch as a separate service, so PW subscribers can watch detailed symbol and weighting changes in near real time. When I anticipate a large, possibly counter-intuitive change on the horizon, I issue PW subscribers an email alert in advance.

For example, I recently issued an email warning to to PW subscribers explaining why I had covered the vast majority of my metal shorts, and listed my price targets to reset that short position:

December 20, 2009 -

Advance Warning:

"The metals market always trades very thinly over the Christmas-New Years holiday week. Combine that with an anticipated low volume countertrend uptick, and then add volume returning in earnest as the the new trading year begins, and I hope to seize a golden opportunity with real money and virtual.

I'd like to catch gold around $1160; silver $18.40, possibly on, or a few days before, the final trading day of 2009. I'd also like to see a lot of enthusiastic "go long" buzz surrounding a metals mini-spike. Regardless, if we get a mild to strong ascent near the end of the trading year, I anticipate laying a rather large (short) bet down, possibly minutes before the casino closes for 2009.

I'll probably cover some other shorts going in, to set the scale of the trade I want."

Just after the new year, I wound up resetting my precious metal shorts, along with a very substantial weighting change. For silver, I reset the short position as it counter-rallied past $18.46. For gold, I reset the short position after it touched $1162 in the aftermarket.

Obviously, I was not recommending being long precious metals at any time, just giving my short position a rest while gold/silver counter-rallied within a larger Bear Market to my short term targets.

I don't provide that type of micro-view in the blog because it would constantly bump off the front page and confuse the people who did not care to tune in, perhaps, a few times a day.

That Giant Sucking Sound Isn't Mexico

2010-01-20T21:44:00.006-05:00

Stocks, Bank Accounts------------------------->Treasuries

Popularity Sinks Lifeboats

2010-01-20T08:47:00.021-05:00

Reader email: "I really like the comments you made about BAC and GS but about the insinuations of the FED wanting to kill BAC or other are a bit light on the facts and argumentations if you can post when time maybe mention why GS would go under
or elements that would direct one's thinking toward that understood that some stuff might not sit well on internet pages"

I do not want to be popular, I'm just posting where the truth is.

It is interesting to see the reaction to my forecast, that most major banks and insurances companies (and every other mega-leveraged financial as well as the industries dependent upon them like airlines and autos), will go bust within a few years.

When I first made that forecast, the Dow was 14K and Bear and Lehman and GS and AIG and Countrywide and NovaStar and Fannie and Freddie were all "infallible," so I understood why most people didn't get it. But after the bailout "saved" the financial system from "certain collapse" according to the banks themselves, who then stole TARP money to finance another high stakes gambling fix as they found themselves unable to continue speculating with people's deposits, it's amazing, but not surprising, that the same people who didn't get it the first time around still don't get it now, and to an intensified degree.

They didn't see any problem, then they were told the entire financial system was in collapse (completely unexpected, from their perspective), but the fact that a huge heist claimed to fix all the underlying problems (problems they never saw nor understood) has actually served to increase the amount of blind faith in the system.

Nothing has changed, Goldman Sachs still went bankrupt.

Goldman Sachs is still bankrupt. Even more so, now that they quintupled-down with money they stole from poor people on the same losing bets. I pick on GS a lot, because I like to point out that the false gods that so many people blindly worship are not immune from the laws of nature. To the contrary, their fundamental incompetence is the very cause of the larger scale manifestations of those laws. Everyone knows, but doesn't want to hear, that Goldman Sachs went bankrupt (along with LEH, BSC, CFC, NFI, the list goes on....). So they need me to state the utterly obvious.

I've posted a lot of specific numbers on GS over the past year, their asset column has only massively deteriorated against their $1.1T debt. So you can simply subtract a few hundred billion more from net. This is a company, mind you, that only had $39B in operating capital above $1T+ debt, in their heyday. What fraction and how much their massive commercial and residential subprime "assets" have deteriorated is impossible to know, since the few who might know (though I doubt anyone knows) aren't saying, but it is safe to say that GS's failure to write any portion of their mega-leveraged real estate "assets" down is laughable at best, and a laughable crime at worse.

It is all an incredibly interesting exercise in the irrational nature of group human behavior. Even after my first forecast came to be, completely to their astonishment, they are still convinced that everything is wonderful--no, they think it is even better.

The greatest shorting opportunity of our lives (I said that at Dow 14K, but that one is behind us) sits right under our nose.

Bank of America - Target for Destruction

2010-01-17T18:06:00.050-05:00

It's no secret that the privately held, unconstitutional Federal Reserve banking cartel was formed to keep American banking power concentrated in New York. When it used to matter (during the reign of the supposedly infallible FBUS and SBUS), NY was geographically closest to the original central bank scam and global oppression king pin, the Fed's mother Bank of England.

Nearly a century after becoming the latest, tired U.S. incarnation of that same, age-old, crooked-banker lineage, the "modern" Federal Reserve Bank of NY is now a walking ghost laden with worthless assets. But this unattractive lot of self-proclaimed foreign royals still maintain their original deadly objective: to destroy the rogue, Carolina-based Bank of America, and any other homegrown American bank dumb enough to challenge its inbred and worm-eaten, monarchical currency printing monopoly.

First, the Federal Reserve impaired BAC with Countrywide's oozing subprime sludge. Soon, we'll find out how the Red Coats intend to finish them off.

...could be interesting.

MAJOR Market Problems

2010-01-16T12:26:00.044-05:00

Most people understand that corporate earnings were pumped by a wild governmental orgy of theft and bribery. But most people can't understand why stock prices plunge on such great earnings.

The reason is simple: if we dissect a stock price with a 20:1 P/E, we pay 5% for actual earnings and a 95% premium for future growth. The greater the P/E, the more earnings don't matter. The price you are paying is almost entirely premium (hope).

So if we learn retroactively, say, from an earnings report, that earnings grew unexpectedly last quarter (ancient history), then the next quarterly report will have a much harder time clearing the same bar, and the forward-looking stock price must fall. Good earnings destroy the future multiple, especially if they are unexplained or from unrelated economic anomalies. Your chance to profit from that blip is over.

And so, there are two major problems with good earnings reports next week:

The last few quarters have been artificially pumped from outrageous crimes by a government-corporatacracy against her people. That's over, while our depression continues to rage making future quarters worse when compared to mass theft, resulting in negative growth rates. The better last quarter's thievery, the more that 95% growth premium must contract.
Major index P/E's are running near 200 if you sum negative earnings. The advertised index P/E simply ignores a huge number of companies running losses (P/E=infinity) or hides the fully calculated P/E from the public. So the earnings level doesn't matter, only the relative height of the bars matters.

Not to mention all the other catastrophic problems:

Plunging cash supply continuing the US Dollar's 22 month long, massive strengthening trend. Stronger buying power prices everything lower, including future earnings with the same 200:1 leverage from spiking P/Es.

Historic run on banks converting uninsured deposits into near-0% Treasuries.

Berserk government flailing. Bureaucrats doing ANYTHING to stay employed. From new taxes on TARP2, to the upcoming TARP3 transfer from poorest to richest, to the recent Fannie and Freddie defaults exacting a $5T government backstop, to a stone-broke FDIC kicking dead banks to the dying to avoid an insurance payout, to cops ignoring violent crime so they can hop up traffic fine revenue, to prosecuting costly wars against faceless enemies, to government-forced vaccinations to spread virulent strains to pump drug and health care corporation profits. The government is attacking her citizens in a confused rage. There is a U.S Government jihad against American citizens.

All-time record foreclosures, eclipsing the Great Depression.

22% unemployment, as calculated using the pre-Clinton method, soon to eclipse the Great Depression peak of 24%.

Most large State governments are about to default--the Federal Reserve prohibits those United States from infringing on their cash-printing monopoly.

Ben's Helcopter Meets an Angry Mob of Lenders

2010-01-15T22:00:00.015-05:00

I guess it shouldn't surprise anyone that Ben, an academic with no experience at all, didn't consider that his helicopter might meet a mob of angry lenders, not willing borrowers, as our economy collapses into a mega-depression.

Ben's childlike idea was that if you load up a helicopter with cash for sale, people will always trample themselves to buy it. How stupid. I guess Ben never considered that people might empty their bank accounts and mob the Treasury window to lend at 0% (a cool 100% return every time prices halve), instead of borrow into his uber-depression. Meanwhile, Ben waves from above, confused and disoriented.

The economy has collapsed. The next wave of fireworks has begun.

Goldman Sachs--About to Go Bankrupt, Again

2010-01-10T09:00:00.005-05:00

Remember how quickly Goldman Sachs went bankrupt the first time? A hung over kid clinging to the toilet bowl, they promised taxpayers who bailed them out that they would never touch investment banking again, and would instead turn into bank holding company with consumer retail locations.

They ignored their own mandate after Treasury Secretary Paulson, the same Goldman Sachs CEO who bankrupt the company, seized the taxpayers' money in the face of 100:1 voter opposition. He reimbursed Goldman's mountain of losses to the tune of $320B (16x Goldman's total operating capital at peak), most of it laundered through AIG at 100 cents on the dollar.

Today, Goldman Sachs losses are much worse. They've got over a $trillion in mega-leveraged liabilities. They've marked-up, instead of written down, a $53B ultra-leveraged, completely worthless subprime portfolio, and have lost hundreds of billions in diving commercial real estate which they continue to book as more valuable than 2005.

Even as litigation from their first bankruptcy settlement pours in, Goldman Sachs employees continue to loot the bonus pool, setting aside a record-doubling $22B in one time pay raises in an all out sprint for the exit door. They know what's coming.

The second Goldman Sachs bankruptcy will be even faster, and this time, there will be no way out.

Global Warming Buries All of Europe Under Snow and Ice

2010-01-10T08:12:00.009-05:00

Sub-freezing temperatures have engulfed both hemispheres. The U.S. is encountering its most dangerous winter in decades, maybe centuries, at some 10 degrees colder than average. 23% have no employment to heat their home, or are on the street. Most of Europe is buried under ice and snow, the temperature is 30 degrees F below normal at the moment.

During the last Ice Age, most of England was covered in snow, today, the entire country is buried:

Goldman Sachs Sued by Illinois for Billions

2010-01-09T08:29:00.006-05:00

NEW YORK (Reuters) - Goldman Sachs Group Inc was sued on Thursday by an Illinois pension fund seeking to recover billions...

Good luck Illinois, you filed in the supreme kangaroo court of NY. Not very smart. The private Federal Reserve (aka The Bank of NY) was created to concentrate economic and political power in NY, and to siphon $trillions of US citizen owned money into the private pockets of rich foreigners who literally own congress and NY government. In fewer words: to screw states like Illinois.

Why the Fed Rate Chases the 3-Month T Bill

2010-01-04T23:11:00.005-05:00

kcb writes: "You assert that the Fed is charging a few thousand percent too much for cash they issue. The question is: relative to what?"

Historically and without significant exception, the Fed sets their rate to equal the 3-Month T Bill.

Contrary to popular belief, there is never any doubt what the Fed will do with their interest rate. They ALWAYS chase the 3-M T.

The reason is simple, the Fed has no control over interest rates, because they have to make money or they cease to exist, same as every private business on the planet.

The 3-M T is their benchmark, because it is market driven at about the same term the Fed lends. Actually, the Fed usually lends for 30 days so their rate should be a little lower than the 3 month, but they typically gouge, and the primary dealers are more risky than the US gov as a whole.

There is no way banks can lend en mass above the market-driven 3-M T rate, because if the world's wealth is willing to protect money at that rate (0%, today), they certainly won't pay more than that rate for leveraged capital.

This relationship always holds true.

One can then glean that when the 3-M T rises above the Fed rate, they'll raise their rate. Why? Because they can. They want the highest profit they can rake in. If they charge too much, they go bankrupt like every other private biz.

That said, they can put the screws to their competition by charging WAY too much for desperately needed reserves to cover over leverage gone bad, like they are today. In that case, if the suffocating bank is weaker than the Federal Reserve system, they'll fail first and the Fed can then seize them for pennies on the dollar.

The flip side of that coin is the Fed pricing their counterfeit cash slightly below the market rate (placing it "on sale") to expand the cash supply, push prices skyward, and encourage the over-leveraging at inflated prices so they may later call the margin and seize the underlying assets (by later charging too much for reserves to cover).

With these swings in interest rates relative to the market, the Fed can by method of inflation and deflation steal our nation's wealth until our children wake up homeless on the land their fathers conquered (ok, that's Charles Lindbergh melded with Thomas Jefferson).

That's the beauty of having a 100% monopoly on cash accounting. I can change your books anytime I want to, for the better, or for the worse.

"Money" from Helicopters?

2010-01-03T13:35:00.033-05:00

Today, I heard a helicopter hovering nearby. I went outside to see what was going on. A enormous white helicopter marked with the words "FEDERAL RESERVE" on the side door was slowly traversing my neighborhood!

As it approached, I caught a glimpse of B.S. Bernanke inside. He was removing his Rolex to add it to a pallet brimming with fine diamonds, gemstones, silver and gold. His time piece barely hit the pile of jewels when the crew shoved it sideways and out the door, to fall upon an eager crowd, gathering below.

Next, they dropped food rations. Then HDTVs, washing machines, and newly boxed computers. They swooped close to road and brand new convertibles, luxury sedans, and SUVs emerged as they flung the back doors open.

Ben finally arrived! True to his promise, the Federal Reserve is dropping "money" from helicopters! To think that I thought Ben would try to drop Federal Reserve Notes of indebtedness demanding 250% interest due upon maturity on top of a front-loaded 2.5% service charge, only to be laughed at by our intelligent townspeople. How wrong I was! I snagged a Mercedes convertible, two HDTVs and a leather recliner, all completely free. Listen, I'm sure he's not far from your neighborhood.

Profits? Nah. Many Businesses Just Reaped Paper Inflation

2010-01-01T12:45:00.009-05:00

Anon wrote: "FDR, isn't it possible that banks that borrow money from the fed are putting it somewhere where they can get a higher rate of return?What is keeping them from taking their $'s overseas, which is what the carry-trade crowd is doing?
The Fed makes a nice profit, the banks still profit. For now..."

There is no easy rate of return above 0%. That's why the world's wealth is piling onto 0% treasuries at the rate of about $0.5T per month. Smart businesses know, or sense, that the natural state of affairs has shifted to dwindling profits, as opposed to the easy inflationary "growth" of yesteryear.

The businesses that will really suffer those that refuse to acknowledge that most of their previous growth, and thus increasing access to capital, was nothing more than the trickle-down result of an unrecognized Fed-government-banker Ponzi scheme. Most business in the US are insolvent, at least partly because their business models simply don't work in a stable or deflationary environment. In fact, they never worked, but for a dwindling domestic dollar covertly chomping away at their liability column.

Deflation is probably running between -10% and -15% today. During the Great Depression the deflation rate peaked at about -12%, we should double that during our peak crunch years. This is a most likely a Grand Supercycle topping process, meaning the wave length from our s 5th wave to Wave 1 reaches back several hundred years to pre-American Revolution, at least, possibly even capturing another degree, back to a Roman W1-2. The magnitude of our top formation is the largest challenge and also the largest opportunity.

The long-term deflation trader of today is much like the one-in-a-million inflation believer in 1932+. Grandchildren will be the most likely beneficiaries, after decades of grands fits and grand starts. It'll be easy to die thinking you were wrong, only to miss the next harrowing tumble.

Bottom line:

Money frozen in the form of assets will lose value for decades. Stuff inflated cash into a time capsule and forget about it (or more risky: short assets in all classes).

How the Fed Banking Cartel Stays a Cartel

2010-01-01T06:42:00.028-05:00

kcb wrote: "It's a free market, right? So if the Fed is charging banks more than the free market does for currency, then clearly the banks would prefer to get their currency from the free market and not from the Fed, right? So what prevents them from doing precisely that?"

Great question (and Happy 2010).

Nothing prevents that, normally. Depositors are a major, and the cheapest source of bank capital. Problem is, we have massive internet-based, speed of light bank runs occurring as we speak, not net deposits. De-leveraging, not leveraging.

In other words, banks have people lining up and the teller window to claim, not deposit, cash. Banks printed leveraged cash for roughly 39 out of of 40 the people lining up, and most of that cash has been lost to wild banker speculation. The bank thought the FDIC would cover their losses, but that only worked for the first $50B or so, which has already been sucked dry. The next $15T in bank losses is the part that hurts.

0% short term Treasury rates prove that people are moving their money out of banks at a pace few dreamed possible (I dream a lot faster pace, within a year or two). Overwhelming demand at the Treasury window (now THEY have net deposits) means the current 3M-T Bill yields less today than the day Hitler rolled over Poland (the previous all-time low).

That is the main reason the private Federal Reserve central bank (supposedly) exists, to counter bank runs with freshly printed cash. But that is a myth for non-cartel banks, the Fed simply turns them away (by charging a few thousand percent too much during times of severe distress) in an attempt to destroy them.

While the Fed is charging outrageously high interest rates for new capital, as they are today, they leave non-cartel banks no recourse but to (1) go farther in the hole, paying through the nose to support the Fed or (2) close, and have their assets seized by one of the NY Fed cartel banks.

That's how the private Bank of NY (aka the Federal Reserve) guarantees US banking power stays concentrated in NY.

Extreme Fed Interest Rates Continue to Crush Non-Cartel Banks

2009-12-30T10:34:00.007-05:00

Has any government official thought to ask Mr. Bernanke why he has been charging banks between 500% and 10,000% (with momentary spikes to infinity) more for 30 day cash than the longer term 3-Month Treasury rate, since August of 2007?

Are the safest banks in our system really that risky? Or is the Fed trying to make them that risky?

Inflation vs. Prices

2009-12-29T08:42:00.029-05:00

KCB wrote: "My question is: since the U.S. dollar is now a fiat currency, how can the supply remain low in the face of strong demand? If there's strong demand for a currency, doesn't that imply willingness on the part of those who demand the currency to borrow it? Wouldn't that set up an inflationary scenario?"

It's amazing how many people are convinced that our currency is issued by U.S. government fiat. It's not.

The US$ is issued ONLY by private individuals who hold private equity shares in the private Federal Reserve Bank, and the private banks that lend with leverage on top of their reserves. Think of the Fed as a hedge fund for the world's wealthiest villains. They need the hedge to protect themselves against the greed of one another--much like the mob doesn't keep guns to hedge against police action (they can buy the law), rather,to protect themselves from one another.

To answer your question, it isn't that dollar "demand" is strong relative to the boom years of 1998/1999 or 2005/6, it's not. It is that there are few dollars to be found, so surviving dollars gain buying power.

The Fed is not our banking system. The Fed is a predator in our banking system. They have purchased a government blessing to flood our banking system with reserves whenever they wish to do so, AND when our private banking system is willing and able to arbitrage a low Fed wholesale price of funny-money into additional retail loans with leverage. When that happens, the Fed has a massive inflationary influence, if and when, our banks can reasonably mark up that cash. Obviously, with a 0.04% retail rate for same-term cash, banks are cut off from wholesale Fed counterfeiting--oops, I mean--from profitable Fed "lending."

Right now, the Fed is draining cash harder than they ever have before, by keeping the Fed short term cash price sky high at 0.25%--today it's about 700% higher than the market rate of 0.04%. This is an unmistakable sign that the Fed is trying to seize banks for profit. Suffocating banks under crushing reserve interest rates is not inflationary.

Another perceptual problem arises because some people think inflation means prices. Current price levels have nothing to do with inflation, but for a macro, market-based, cause-effect relationship. "Price" is the toll a trade exacts on the buyer, not a number on a board. Physically trading things, things displayed on stock exchange (the word "exchange" is used for a reason) tickers scrolling at the speed of light, actually takes a pretty long time. Only after the dust has time to settle, and people reconsider how much of something they are willing to give up for something else, is the price, or the toll in goods and services surrendered, truly adjusted at the market or macro level. That's what price means.

Inflation refers to a rise in the dollar supply, not the price level of goods/services when banks print dollars (notice I did not say "the government prints") to arbitrage the difference between their reserve cost and the short term market price of cash. When I use the term inflation or deflation, I'm not talking about prices, because prices in a vacuum have nothing to do with inflation or deflation. Today is a perfect example. Lets take the Dow:

The Dow is down about 40% from highs, -20% from Y2K, and -80% from Y2K when adjusted for buying power (as priced in commodities). This is the macro result of deflation. The best measure is that of long term buying power. The price of the Dow, or the toll exacted in goods and services surrendered, is down 80%. That is the profit one would have made, had they converted Dow shares into other things in 2000 (then bought them back today--which would be a dumb move at the present time).

But, the Dow was up yesterday, so people tend to think there was inflation yesterday. There wasn't, because prices can be set by any number of individuals operating within a greater market. If two people trade a share of the Dow for 50,000, that is the price for that day, but 50K is not a true market price, because two people do not = the market. Institutional sellers cannot fetch that price for their shares, because the one guy dumb enough to pay too much cannot absorb their volume of transactions. Much like the current 10.5K is not the true market price of the Dow, because of the anemic number of transactions we see trading today at that price--not enough dummies.

With near-zero trades, it is possible that the Dow could go to 100K tomorrow. And with absolute certainty, it will return to market value when high volume trading returns. High volume exited stage-left at 6.5K.

Of course, that was a different Dow 30 than we have today--but I think that having to change the Dow 30 is worse than being able to leave it alone, so the true market price is even lower.

On the Verge of Massive Deflationary Implosion

2009-12-28T17:50:00.010-05:00

The government's stark acknowledgment the Fannie and Freddie have collapsed is a critical point in our national history. These are the two conduits from which a mountain of flimsy credit was once spawned. Without them, the entire pyramid scheme reverses and falls. The truth is, it has already failed, the chicken's head is in the bucket.

The world economy is on the brink. At any time, C, BAC, JPM, WFC, USB, and GS could fail, and ALL of them will fail. It is a matter of when, not if, the entire global banking system crumbles. That "when" is closer than most people want to believe.

(That was a more interesting prediction when I first made it in 2007, before they had all gone bankrupt once already.)

Merry Christmas To All!

2009-12-25T01:14:00.005-05:00

Santa has brought the bears ascending diagonals, punctuating all degrees including the daily:

Merry Christmas everyone, may God smile on our children.

21st Century: First Decade Recap

2009-12-24T13:04:00.020-05:00

As the first decade of the 21st Century winds down, let's reflect on the worst ten financial years of most people's lives.

Despite a sea change at the end of our decade, from centuries of inflation to at least decades of, or perhaps centuries of, deflation, the domestic buying power of the US dollar tubed spectacularly. Over the past 10 years, all central bank-looted major currency pools have become flooded with new and improved, computer generated, extreme high leverage, ultra speculative, taxpayer insured, for-profit private paper issue. The story is much the same in corners of the Earth.

Robbed by the private Federal Reserve banks, our currency has experienced a catastrophic loss of domestic buying power in a single decade:

Gold buying power fell from $275 to $1100 per ounce, down 4 fold
Real estate buying power has fallen several fold nationwide, even after sharply deflating
Oil buying power is down almost four fold, from $20 to $75 per barrel, even after deflating from $150/br

By most if not all measures, the last decade has been devastating to an already over-extended consumer. Standards of living have been thrashed. Even after downsizing, families find Momma working full time to pay their debts. The kids work where they can help out. Advanced education is unaffordable to the bottom 95%, and those who borrowed to attend are headed to the poor house even faster then most. High paying, entry level jobs are a distant memory. 23% are unemployed.

The only bright spot in the opening decade of our Depression has been stocks:

The Dow has only lost 20%
The S&P500 is only down 30%
The NASDAQ is only down 55%

But that doesn't tell the story, for two reasons. The most obvious reason is the domestic buying power of the currency, we are still awash in phone paper, as discussed above. If you sold your Y2K portfolio into 2009 currency, that currency only buys 25% of what it bought in 2000. Adjusting for gold price, as a decent gauge of simple domestic buying power, we begin to see the real story:

The Dow is down 80%
The S&P500 is down 83%
The NASDAQ is down 89%

Unfortunately, that doesn't tell the story either. Indexes rotate, or cherry pick only the best prices at any given time. Bankrupt companies magically disappear. Too bad your portfolio can't ignore losses too. 8 of the 30 Dow components from Y2K were booted for turning into penny stocks. Several have turned over several times. The other indexes have performed even worse. Since the 1929 stock market high, only GE remains in the DJIA.

Historically stocks are a black hole for public money, that trend has only accelerated in the 21st Century. Unfortunately for most, the worst has yet to be completely imagined.

Congress Pinches the Oxygen Hose

2009-12-23T10:27:00.024-05:00

As Congress moves quickly to cope with the real inconvenient truth: way too many old people claiming over-promised Medicare benefits, one can only marvel at the raw evil that infests Washington DC.

This blog isn't about the immoral behavior of the maniacally rich men who run Washington for profit, or the financially destitute congressmen who feel they must comply to slave for money, but rather, understanding what is happening so one can survive the money-making impositions made against them.

An interesting question:

Will congressional action to reduce the cost and number of elderly solve the nation's financial problems? On the surface, the answer is clearly yes. Denying reasonable quality Medicare to old people to attrit the bothersome demographic, definitely improves the dire nature of our nation's overextended financial obligations. Some $65T has been promised in Medicare alone, some of that now being pulled by Congress. So on the surface, one would expect the market to react positively to congress's abrupt default on their Medicare promise.

But things are rarely superficial. The bigger question asks what is the sum of the bill's entire impact. If Congress merely cut Medicare payments by shifting the burden to the States, the financial impact (in DC anyway) might be positive. That isn't what this bill does. The bill cuts Medicare, but it does so by socializing the system as the method of policy implementation. So one flip-side to Congress's financially lucrative idea is the loss of our current semi-private health care industry--a serious hit to the economic well being of those permitted by the government to live.

Another clear downside is that financial savings from elderly-reduction are blown twice-over on new pork to keep congressman employed. The net loss of trillions in could-have-been savings is a second serious hit.

A third hit is massive tax increases, imposed for several years before the bill takes effect. And the pork, of course, is instantaneous.

So, immoral as it may seem, the idea of slashing our elderly population makes top-notch financial sense. It makes room for indebted, able bodied workers to toil on behalf of the money power. Unfortunately, as with so many government schemes, it got screwed up by the process.

The economic impact of the government health control required to enforce a politically impossible decision, coupled with the lure of trillions illuminating the eyes of hardened DC criminals, leaves us with the worst of all worlds: dead seniors, lower economic output, and more debt.

Conclusion--our economy will increasingly suffer, even after Moneyed Vultures intentionally suffocate old people to boost their bottom line.

S&P 500 EMERGENCY

2009-12-22T10:08:00.006-05:00

Source: S&P.com

S&P 500 Price to Earnings ratio:

12/31/1988	277.72	11.69
03/31/1989	294.87	11.81
06/30/1989	317.98	12.61
09/30/1989	349.15	14.74
12/31/1989	353.40	15.45
03/31/1990	339.94	15.69
06/30/1990	358.02	16.84
09/30/1990	306.05	14.08
12/31/1990	330.22	15.47
03/31/1991	375.22	17.92
06/30/1991	371.16	19.12
09/30/1991	387.86	21.77
12/31/1991	417.09	26.12
03/31/1992	403.69	24.93
06/30/1992	408.14	23.94
09/30/1992	417.80	23.16
12/31/1992	435.71	22.82
03/31/1993	451.67	22.77
06/30/1993	450.53	23.31
09/30/1993	458.93	22.49
12/31/1993	466.45	21.31
03/31/1994	445.77	19.63
06/30/1994	444.27	17.63
09/30/1994	462.71	16.93
12/31/1994	459.27	15.01
03/31/1995	500.71	15.38
06/30/1995	544.75	15.82
09/30/1995	584.41	16.61
12/31/1995	615.93	18.14
03/31/1996	645.50	18.96
06/30/1996	670.63	19.21
09/30/1996	687.33	19.09
12/31/1996	740.74	19.13
03/31/1997	757.12	18.82
06/30/1997	885.14	21.83
09/30/1997	947.28	23.31
12/31/1997	970.43	24.43
03/31/1998	1101.75	27.86
06/30/1998	1133.84	29.10
09/30/1998	1017.01	26.70
12/31/1998	1229.23	32.60
03/31/1999	1286.37	33.52
06/30/1999	1372.71	33.46
09/30/1999	1282.71	29.18
12/31/1999	1469.25	30.50
03/31/2000	1498.58	29.41
06/30/2000	1454.60	28.02
09/30/2000	1436.51	26.75
12/31/2000	1320.28	26.41
03/31/2001	1160.33	25.54
06/30/2001	1224.38	33.28
09/30/2001	1040.94	36.77
12/31/2001	1148.08	46.50
03/31/2002	1147.39	46.45
06/30/2002	989.81	37.02
09/30/2002	815.28	27.14
12/31/2002	879.82	31.89
03/31/2003	848.18	27.97
06/30/2003	974.50	28.21
09/30/2003	995.97	25.82
12/31/2003	1111.92	22.81
03/31/2004	1126.21	21.66
06/30/2004	1140.84	20.32
09/30/2004	1114.58	19.29
12/31/2004	1211.92	20.70
03/31/2005	1180.59	19.57
06/30/2005	1191.33	18.80
09/30/2005	1228.81	18.46
12/31/2005	1248.29	17.85
03/31/2006	1294.83	17.82
06/30/2006	1270.20	17.05
09/30/2006	1335.85	17.00
12/31/2006	1418.30	17.40
03/31/2007	1420.86	17.09
06/30/2007	1503.35	17.70
09/30/2007	1526.75	19.42
12/31/2007	1468.36	22.19
03/31/2008	1322.70	21.90
06/30/2008	1280.00	24.92
09/30/2008	1166.36	25.38
12/31/2008	903.25	60.70
03/31/2009	797.87	116.31
06/30/2009	919.32	122.41

4Q 2009 P/E will likely pop 200.

Objective Conclusion:
The S&P 500 must fall 90% to 95% to reach a price equivalent to 1988 (as far back as S&P's web xls goes). But 1988 represented a valuation in a reasonably strong economic environment, which we do not have today. In 1932, which had much higher Treasury interest rates (the best measure of economic growth expectation) than today, P/E bottomed at 6. To reach that valuation, the S&P must drop by 97% or more, assuming earnings do not deflate at all while the index price falls to almost 0.

The Lost Art of Transparancy

2009-12-21T13:27:00.007-05:00

With U.S. corporate-owned-government corruption at all time highs, is anything transparent any more?

Bill O’Neil was born in 1933, the dawn of an inflationary boom from which he'd make a fortune. His investment philosophy was simple: take a stroll down Main Street and see for yourself what is going on.

As we watch deflation ravage Bill's trusty portfolio, devastate corporate earnings and pump major index P/Es towards 200, sometimes it's hard to witness, firsthand, the stress in business offices behind locked doors. But there is one terrific transparent leading indicator that is lit up on signs all over the country: gas prices.

Because gas stations are the last link in a very long supply chain, they need to sell out. So they are forced to charge what ever the masses will pay. Often, you'll see a significant discrepancy between gas prices in the struggling neighborhoods and wealthy sections of the same town.

What are gas prices showing us today?

A nation in deflationary distress:

Prez Returns From Global Warming Conference: Greeted by 10th Worst Blizzard of All Time

2009-12-19T17:39:00.005-05:00

Mother Nature can be a cruel witch.

The CDOs that Disappeared

2009-12-17T23:27:00.023-05:00

Not much talk about CDOs these days. Guess we're all glad that's over, right?

Wrong. Oh, how wrong.

The CDO debacle is quietly devastating our real estate market. How? Well, the story goes something like this...

Mr. Potter (I'm in the Christmas spirit) wanted to turn the quaint, snow-covered town of Bedford Falls into a profitable slum called Pottersville. So, he decided to offer every resident a low interest rate home loan they couldn't refuse. Not just the well employed, everyone.

To make money off the un-and-under-employed, he needed a special lending program (don't call it a scheme). So he invented one. He would pool and "securitize" their mortgages. His reasoning was clever, after all, there are strength in numbers. If he grouped a bunch of high risk borrowers into a pool, he could improve the creditworthiness of the whole lot.

Yes, yes, he knows it's a scam. Don't bother him now, he's thinking!

"Let's see," the old man grumbles, "If I pool Uncle Billy with that Sam Wainwright character and old Mr. Gower, we'll, surely, at least one of them will pay me back. Hmmmm, did I just say... surely? Eureka!! I'm rich! I just created AAA paper from a suicidal, drunk old man. I must be brilliant. I'm going to give myself a raise in the morning."

Potter invented the CDO. In doing so, he spun AAA credit from a bunch of junk-quality borrowers, like this: Potter's securities get diced into tranches, one rated AAA, one BBB, and one CCC. An investor purchasing the AAA Tranche of the Pottersville CDO gets the right to hold the last mortgage to default, it might be Billy, or Sam, or Mr. Gower. The BBB investor paid Mr. Potter less, and owns half of the last two performing mortgages. The CCC buyer paid Potter the least, but gets no mortgage cash flow if only one mortgage goes bust. Alchemy at work.

So, what's the problem? Let's count them:

Problem 1) The CDO "securities" trade on the open market and the collective market is smart, not dumb like the original investor.

2) As soon as Billy defaults (we all knew he would), the CCC buyer gets knocked out. That security becomes worthless, it sells for say, 2 cents on the dollar (a pretty realistic figure right now). The problem with Problem #2 is Problem #1. The market is smart enough to know that the AAA tranche also has turned into BBB. And shucks, that BBB paper now sells like it is CCC. Even though the AAA & BBB buyers haven't lost interest cash flow (yet) the price of their paper has plummeted.

3) Impeccably dressed bond insurers have a bigger problem: they charged a rather low premium to insure AAA paper, paper, that is now BBB with an AAA stamp on top. They look the other way. Maybe their problem will go away? It has to go away. That rock solid "insured AAA" paper is backing their pension fund.

4) The CDO remains obligated to pay all three investors. How are they going to manage that? Simple, raise variable mortgage rates on the performing loans. Ooops, after doubling his monthly payment, looks like we lost Mr. Gower to foreclosure. Darn it. Guess that AAA-stamped security is junk too (always was). Hey wait a minute... I know, let's triple Sam's payment and it's all fixed! HOT dog!

As crazy as those problems sound, they're nothing compared to Mr. Potter's grand scheme, a scheme never shared with the dupes who bought his toxic yellow sludge. Potter still has the money they paid him. And Henry Potter just decided something, it's time to buy.

Mr. Potter buys 2/3rds of the mortgages back for oh, 7 cents on the dollar. He leaves the "AAA" sludge for some other sucker, still priced at 42 cents/$1 it's way too high. Potter knows Sam is struggling. He's gonna put the screws to Sam in a minute.

Potter puts his lot of foreclosures up for sale. How does he price them? To sell, of course. As Potter sells off, home prices in Pottersville plunge. And finally, the stress on Sam is too much, he goes under. Potter buys up every house in the town for pennies, then puts them back up for sale.

At least there is one good thing: the CDO debacle is over. They've all been sold off, the losses are booked. Nightmare over.

Or... is it?

Mr. Potter still has homes to sell. Yes, he's ruined Bedford Falls, but he doesn't care. He only has $7,000 in Billy's modest $100,0000 house, now priced to move at $39,000. He's got $14,000 in Sam's $200,000 four bedroom, slap a $59,000 sign on that one. You see, old Mr. Potter can sell at unbelievably low prices and still make a killing.

That's what happens to CDOs that disappear.

TARP -- It's Mr. Short Term Memory! Who?

2009-12-14T21:03:00.018-05:00

Anon wrote:
"With everyone paying back TARP, the treasury obviously thinks that the loan losses are done"

Please view the Instructional Video.

Just the opposite--they want to sell high.

Remember, the TARP deal was that the "taxpayers" get preferred stock in the companies to reap the capital gains if the prices went up. That's what "a taxpayer stake" in the company means.

That version of TARP got purged from memory like a bad dream. The "new" TARP idea, since the stocks did go up, is that the banks keep all the capital gains and pay back the principle with market rate interest of 0%, keeping the taxpayers' stake for themselves.

They want out of TARP now, because if they don't sell high they'll lose the taxpayer-funded billions they can pocket and run.

It's just another taxpayer fleecing before the Dark Age the banks see coming more clearly than most.

Forget the Savior of Hyperinflation; Bernanke a False Profit

2009-12-13T15:28:00.024-05:00

Anon wrote: "Isn't it possible, even remotely, that the dollar might fail? If the government can't sell bonds to anybody and can't pay the bills--declares bankruptcy-- wouldn't that destroy the dollar?"

I hate to be so black and white, but the answer is no, it isn't remotely possible. Cashzilla is back from the Sun, fully recharged (or was that Ultraman?).

The reason is this: in a debt based monetary system, crises strengthens the currency because less paper can be issued upon less credit.

Catastrophe = stronger currency
Prosperity = weaker currency

That is a far worse outcome, a crushing outcome, for most Americans. And that's really why deflation happens, it is an equal and opposite natural reaction to financially whack people who've left themselves exposed to too much debt.

Does it make sense, on any rational level, that a nation drowning in debt would magically be relieved of all private and public obligations? Hyperinflation? All debtors, dream on. Your debts are about to expand in a way you never dreamed possible, as your creditors intentionally cut off your income lifeline, slash the price of your collateral assets, and force you to sell under duress to meet an unmanageable margin call.

Is our government having trouble "selling" bonds? People are lining up to pay negative yields to hold our paper. Demand has never been stronger. Ever. The only time demand for US Treasuries was remotely close to the crises of today was in 1939, when Hitler rolled over Poland. The 3-M Treasury plunged to .04%, its lowest-ever reading until 2008 and 2009, when it registered negative-0.005% at auction.

Do the American people really understand that we are embarking on a journey that our bond market has, by method of global free market auction, determined to be an order of magnitude worse than WWII?

The ONLY way we'll experience hyperinflation is if the U.S. government re-embraces its constitutional responsibility to issue our own currency AND we reject the very same Constitutional mandate to back that issue with copper, silver, and gold. The reason I think that's impossible is because the U.S. doesn't govern itself, private banks, who DO issue our currency, govern every aspect of the United States of America but for a pathetic congressional circus act side-show. Congress is too dumb to understand what currency is, let alone who issues it and how.

Once again, the Lizard ...on the loose.

Strong Dollar --> Low Prices

2009-12-11T19:13:00.015-05:00

Anonymous said...
Strong dollar is having a positive affect for equities. Everyone was waiting for the DXY to break out to put a chink in the armor of the equity market. The GLD is getting whacked appropriately but it seems that not all paper assets are the same. Would you recommend covering some of my GLD short and leaning harder on the equities short as the two come back together. I presume equities have to come down or GLD has to move up, unless equities are pricing in something I don't see? A stronger economy would support a stronger dollar and thus higher free market bond yields. The government can't handle higher bond yields, so what gives FDR?

Yes, I think equities are pricing in something that you don't see: the dollars used to price them. It makes me chuckle when people say a strong dollar is good for asset prices, it's a little like hoping to be the biggest turkey at Thanksgiving. If the dollar strengthens in buying power by about a penny, stocks priced in dollars fall about 1%. Pretty straightforward.

That said, exchange rates, as opposed to dollar strength or buying power, aren't as straight forward. Exchange rates depict the price of paper in terms of other paper, but that tells you nothing about the buying power of paper itself (see: Deflation and Exchange Rates).

If our current global deflation is a race to the bottom, then the relative positions of the cars represents exchange rates. If the Euro car was in the lead but falls behind, it doesn't matter, deflation still races along; all the cars are speeding in one direction. So the USD's rate of exchange in any given currency, or which car is making a move today, is meaningless to the outcome of a broad currency starvation. A global bonfire is burning bank cash of all domination's.

Most people intuitively understand the benefits of counterfeiting, because they have a debtor's mentality. They never stop to think about burning cash, as an equal or better scam for creditors. Burning cash is easy to do, never suspected, and if you can get enough people to owe you money first, an effective way to collect their assets.

To answer your questions:

No, I wouldn't buy equities. "Sell and hold" until 2012, minimum, still applies. Today, stock prices are about five times higher than record breaking (talking P/E, as the actual price). The macro picture for stocks, and business in general, is dire. Deflation will continue to drain all prices, as has been raging since Dec 2005 (real estate), Oct 2007 (stocks), and March 2008 (precious metals, with a very small-percentage countertrend overshoot in gold being the only exception). Prices are in collapse.

With individual equities, there is a small chance a certain stock price could move against the deflationary trend, but it has to sprint up the down escalator to do so. Rather than focus on finding a stock capable of out-pacing the liquidity squeeze, just diversify short. Diversification is the name of the game when you are trying to play an inflationary boom or the resulting deflationary bust. What poor traders do not understand is that you must diversify long during inflation, and diversify short during deflation.

Concerning PMs, they are mostly dead metal, so even more so than real estate, they reflect the quantity of cash in circulation. So PMs are guaranteed losers during deflation, which is why so many people want to sell them to you. Worse still, Silver and Platinum are strong hybrid metals, with both precious and industrial characteristics. That kills their price even more as industry slows. Pt has collapsed; it has almost fallen to the price of gold.

All that is macro; the macro picture is easy and what most people should play--sell and hold, diversified--just the opposite of the inflationary epoch we recently exited. In the micro, I think we're nearing completion of a small, swift countertrend move in stocks, and might see the same in metals.

Unlike most traders (I'm guessing), I want to go way into the red here, to take advantage of low volume sales. I want to keep short selling, not buying; the more red I get in the short term, the more green I'll be in the long term. It's no different than any dealer taking orders short of supply, we want to sell at exorbitant prices and float the cash to do it, way way way in the red. I can't lose enough money right now.

Buy Low; Sell High

2009-12-11T00:16:00.007-05:00

Anon wrote: "could you write something about the BIG banks paying back TARP. One would think that this is very good , but something tells me something is rotten. Maybe they should have to realise every thing on their balance sheet to do so ?"

It's hard to get any real information about TARP, but I agree with you it is nothing but pure crime. The true beneficiary's exit strategy (since "the taxpayers" certainly aren't going to get a check in the mail) confirms we are at a major top.

Global Warming Fraud Reaches Frenzied Pitch

2009-12-08T04:09:00.011-05:00

As if to race the air out of a ruptured balloon, the Obama administration seems desperate to force spiteful global warming legislation on a disgusted public.

The American people understand:

Green plants crave a warm, carbon-rich environment. They breath pure carbon dioxide. The more carbon in the air, the greener our earth becomes.
The Earth's temperature has plunged for the past 2 years. The temperature has dropped a full degree since Al Gore released An (incredibly) Inconvenient Truth. We're colder today than the year 1900.
"Scientists" have been caught faking inconvenient data.
Named hurricanes are on the endangered species list. Sometimes we don't get to "A."
Certain states have special HOV lanes to encourage car pooling; other states tax HOVs for being inefficient.
Ice is less dense than liquid water, when it melts the water level drops.
Incandescent light bulbs were banned for dumping loads of carbon into the atmosphere; so do electric cars.
A now hysterical climate change movement is emotional and irrational.
It's about money.

Amateur Gold Traders Get it Backwards

2009-12-07T01:04:00.026-05:00

It's dangerous to trade a market you don't understand. Those who do understand it easily confuse you into doing something stupid.

Gold is a current example. I hear the most ardent (brand new) gold bugs saying stuff that is completely wrong. One of the most obvious blunders has to do with Fed rates. Most first-time gold traders think low interest rates are positive for gold prices. Nothing could be more wrong. From 2002 to 2008, the gold price tripled because interest rates increased six-fold.

Why?

Because interest rates are set by the free market, not by the Federal Reserve--let's get real. Climbing interest rates mean one thing: there is increasing demand for capital, and that only happens in an increasingly booming economy. Banks can raise interest rates for one reason and only one reason: people will pay it. ...when demand for bank cash is strong.

What does that have to do with gold prices?

Strong demand for bank cash = lots of bank printing = increasing paper cash supply = high prices for everything, including gold. Inflation. That is why the late 1970's inflationary debacle was accompanied, not by 0% rates, but by 22% interest rates.

I guaranty you that a hike in Fed rates will send amateur gold traders a sell signal. Since gold is currently a pumped band wagon, that's of lot of sellers. In fact, sustained climbing interest rates, a sign of intensifying inflation, are exactly what smart gold traders are attempting to anticipate.

Now, the truth is, any rate hike in the near future (before 2012ish) will be done for political reasons, it'll be counter market direction, and thus will become massively deflationary and laughably unsustainable. Such a foolish act in the face of no borrowing will result in a quick return to 0% interest rates, will intensify our global depression, and will drop prices even farther.

So in reality, this particular rate hike (not to be confused with genuine and sustained rising interest rates) will be bad for gold prices, along with all prices, because it will help bring down the house.

But amateur gold traders will have no idea why or what happened to them. They'll think higher interest rates are what crushed them. So they will miss the real golden opportunity to buy gold after the price has bottomed, when interest rates actually do begin to climb away from 0% in a sustained manner, indicating that there is increasing demand for inflationary bank cash.

Then again, that lesson is probably best passed to our children.

Trillion Dollar Fraud

2009-12-06T11:11:00.022-05:00

President Obama has proposed eliminating $1T in existing government fraud "to pay for" his Single Payer Universal Health Care plan. I've pointed out that this plan has two main objectives:

Save Medicare (the largest financial crises we face as a nation, by far) by involuntarily reducing the number of old people.
Generate enormous new debt and eternal interest payments to the bankers who run DC.

But let's focus on something else: the overt DC fraud our President has revealed. The question is so obvious that the propagandists cannot touch it. Why are we accepting a trillion dollar fraud right now? With just a one time $1T payment, let alone the recurring payments, we could:

Eliminate the Federal income tax (allow a vote on eliminating the Federal Income Tax vs. spending the same amount of money on Single Payer Health Care and see what happens).
Give a $10,000 tax credit to every taxpayer to buy commercial health insurance for their families, enough to cover every American, not just the 10% uninsured.
Give one round of Christmas bonuses to government-connected bankers (the last one cost $800B).
According to feedthechildren.org, feed 2.8B children every year. Or, about 25% more children than actually exist on planet earth.
Give every taxpayer a stack of vacuum-packed dollar bills, laid flat on top of one another, as high as they are tall.

This is not pie in the sky. This money is available right now, according to the President of the United States.