Friday, November 27, 2009

Holiday Market Update

Cashzilla Watch:
On the loose.

Stock Watch:

Today's market move was small but significant. Volume effectiv
ely doubled from yesterday. We will see an increasing slide to the downside as Wave 3 of C, the most powerful down-wave of the bear market, takes shape. I expect good downside returns for the remainder of 2009, but the beginning of 2010 should usher in heavier institutional selling.

Gold Watch:
PM prices are being driven by the same liquidity bust as stocks, dying business, and plunging real estate; also causing our sharply rising dollar. Platinum has crashed. Silver is already 10% off its much lower highs from its all-time high of around $50. My 2020 gold target (illustrated below) is so far away in both time and $s that it is hard to estimate in other than broad terms. Gold should hit the previous 4 or slightly lower, in a time frame of a decade or two.

Note 1: EW triangles always precede the final leg of similar degree.

Note 2: The smaller degree A and B waves have been excellent fractal models for the recent larger scale waves. The small green area should provide a similarly accurate smaller scale fractal model for the larger degree C wave to come, which is also shaded green.

Costco Watch:
Black Friday, 7:30pm - No lines; 50% open parking near the door; great deflated prices.

Unemployment Watch:
23% (counting those who've given up looking for work and have dropped off the dole; the BLS number only counts those receiving UE compensation) - We are currently 1% shy of the Great Depression's peak UE rate. Expect peak UE of approx 35%, assuming systemic stability. The "official" BLS number including all unemployed is 19%. 23% results from using the pre-Clinton methodology which is closest to the Great Depression method of simply counting our UE'd.

State Government Watch:
At least 10 States face imminent bankruptcy. They are, in order of total budget shortfall (= annual revenue - annual budget):
  1. California (-51%)
  2. Illinois (-49%)
  3. Arizona (-44%)
  4. Nevada (-41%)
  5. New Jersey (-32%)
  6. Wisconsin (-26%)
  7. Florida (-25%)
  8. Rhode Island (-23%)
  9. Oregon (-18%)
  10. Michigan (-16%)
  11. though State 47 are underwater
Amazingly, CA's new 10% increase in State tax withholding goes into effect this month. Expect intense strain on CA's economy and social unrest. CA, economically the size of China, drives the US federal picture.

U.S. Government Watch:
The federal government also faces imminent bankruptcy:
$1.6T annual budget shortfall (-46%)

With UE growing at 1/2M+ per month from only 100M existing federal tax returns, the outlook for any state that is underwater and the federal government is dire.

U.S. Dollar Watch:
As forecast, the dollar is embarking on an rather extreme Wave 3 up, extending it's 21 month march higher (fat blue arrow, below).

Commercial lending, the driver of dollar value, continues to dry up and shut down. So few bank-printed dollars in circulation means each surviving $ buys more and more everyday. Sale prices (= the new permanent price) abound. Investors (as opposed to reckeless capital gains trader-speculators) can't get enough dollars.

Short term T-Bill yields? Nothin.

Look to pay negative Treasury yields within months, as a cascade of major bank failures entice tens of trillions currently placed with shaky banks to fight for tens of billions in Treasuries. Money not already through the Treasury window will be lost.

Real Estate Watch:
As the private Federal Reserve buys up 85% of troubled MBSs for a few cents on the dollar, they can sell the backing assets (homes) for 5% of the 2005-2006 peak price and still double their money. Look for decreasing economic activity to slowly bring this option to fruition.

Would they rather sell for more? Sure. But they essentially have no cost basis for the huge quantities of real estate they are vacuuming up.

War Watch:
Our brave men and women continue to be exploited around the world to generate more egregious spending and thus unlimited interest profits for the debt makers.

It is a weekend to be thankful for the tremendous sacrifices made by our well educated troops, who do what they are told even as many recognize the cancer in Washington DC that uses and abuses them.

It is also a weekend to express outrage to our corrupt politicians of both parties who abuse their sacred covenant with our military. Our men and women signed up to support and defend our Constitution, not to support a $1T drug trade in Afghanistan; not to create a debt generation machine in Iraq; not to fight a faceless enemy to generate a wildly expensive, citizen-bothering DHS nanny state at home.

"War Tax" on the way to help crash markets and squeeze already poor people for more interest cash.

Portfolio Watch:
Portfolio Watch is now a few weeks old and accumulation for the medium-term downside is about set. A Special Report will go out to PW subscribers soon.

Thursday, November 26, 2009

Fractional Reserve Banking

"Anonymous said...
FDR - what is the history of fractional banking as it is practiced here in the US? Did it originate with the creation of the Federal Reserve or does it pre-date the Fed."

The quick answer is that fractional reserve banking dates to at least the Roman Empire, probably earlier. On a purely historical note, the most famous confrontation with Money Changers, those who make a living by subversively varying currency value at the expense of the people, was the crucifixion of Jesus. He overturned the tables of the swindlers who monopolized the Jewish Shekel to force the masses to pay marked-up exchange rates. Jesus was killed for doing so, a few days later.

Shekel - 400 B.C.

Shekel - 69 A.D. (Inflation at work?)
[My note: Both coins clearly exhibit anti-coin-shaving designs. The 90 degree convex markings, and lip on the flip side of the older coin are intended to reveal if the diameter was reduced. The newer coin has writing nearly to the edge, plus a bimetal design that makes shaving the outer circumference less valuable than the coin's center. This proves that currency devaluation was well understood at least by the currency issuers. The greatest coin shaver of all time was President Lyndon B. Johnson, who shaved all United States silver coins to plated zinc, then returned them to circulation. As a result, today's circulated U.S. coins are completely worthless, making them as easy for the private Federal Reserve banks to inflate as paper cash.]

It is interesting, worth pondering today, that it was Money Changers, bankers who controlled the Roman government-corporatocracy, who had Jesus put to death.
"And Jesus went into the Temple of God and cast out all them that sold and bought in the Temple. And overthrew the tables of the Money Changers and said unto them, "It is Written, My House shall be called a House of Prayer; but ye have made it a den of thieves."

An early confrontation between
government-connected bankers and the people

But the modern day model of fractional banking, or Money Changing to scientifically engineer credit booms and deflationary busts for the exclusive profit of connected bankers, is a British export. The 1694 establishment of the Bank of England was the first fully functional sham outfit to use fractional reserve banking to pay royalty at the direct expense of her people.

To this day, central banks of the world follow the BoE model. It is why New York holds the concentration of US central bank swindlers and horse thieves--it is geographically closest to the king's bank, which never stopped siphoning US wealth. The BoE and the FBUS, SBUS, and now the Federal Reserve, were and still are one and the same institution, as are most other modern central banks hellbent on exploiting the good people of the world.

I'll point out, right now, that a continuously recycled trick in the BoE's "Create a Depression for Profit Playbook" is to slowly cycle onto and off-of a gold standard, to assure an outraged people that government action is being taken to "reign in" those wild bank speculators. Of course, the bank is the government and the government is the bank, as you will see, below. Cycling on a wavelength greater than a human lifetime helps the central bank foil attempts to uncover "their craftiness and tortuous tricks." (Otto von Bismark)

So the story goes, mid-evil Britain developed the principals of fractional reserve banking when goldsmiths leased-out unused space in their fortified bullion banks to store nobles' valuable possessions. The goldsmiths issued paper receipts for each deposit, "IOU one silver candlestick." Over time, people started trading the paper debt receipts instead of the objects themselves. And so, the gold-men became the first issuers of paper cash (side note--Marco Polo brought back paper currency from China in the 13th Century).

It is probably a timeless truth, spanning all corners of our globe, galaxy, and universe, that once paper IOUs start trading, depositors tend to leave physical wealth at the bank, and then it takes 15 minutes for a banker to stare quizzically at the pile of deposits, wondering, "why not put this idle wealth to work for me?" That Goldman might, say, use the silver candlestick to spice up his dinner table, just for a night or two. Or, he might wear another person's gem-encrusted gold ring for a while--or, perhaps--loan all this great stuff out to other people for a profit! (ding! ding! ding!) The money isn't his, but you know, if it is only "lent out" then he hasn't "technically" stolen it.

And so, fractional reserve banking, risking other peoples' money without their consent or knowledge, was born.

Money in circulation, owed to more than one person, and the bank-printed un-backed paper IOUs floated on top of known phantom deposits (pure, counterfeit cash), became the first inflationary paper. The amount of stuff the bankers didn't steal, to keep on hand to satisfy the small number of customers who occasionally claimed their stuff, was the bank's required reserve ratio. Bankers got rich counterfeiting their own paper IOUs, and honest people continue to pay for it via increasing quantities of un-backed, banker-printed, inflationary cash.

When the most powerful bank kingpins pay a cut of their counterfeiting profits to politicians to legalize and monopolize the scam, an odd creature known as a public-private central bank corporation is spawned (e.g. the privately held Federal Reserve banks).

This fun little story is exactly why I keep reiterating that "the government" has no ability to print cash, they cannot inflate, nor can they arrest deflation. Commercial banks, not the government, issue our entire cash supply, every penny of it, solely to generate private profit for themselves. Commercial banks, our Goldman, and only commercial banks can print paper cash for one, very good reason. It is the same reason people rob banks: that's where the money is.

Tuesday, November 24, 2009

Quick Cash Creation Review

First, please review:
Can the Fed Print Currency?
Bailouts Will Never End

"When the Federal Reserve creates money which the Treasury then issues Treasury notes, bills and bonds AND the Fed buys back these same Treasuries they are essentially creating monies from thin air - "quantitative easing" - is the euphemism isn't it?"

Yes, of course, assuming there is never any tax collection to pay back principal owed plus interest.

The main point is that you have to primarily consider the REAL cash printers which are the commercial banks printing with 40X speculative leverage on top of Fed reserves. That is, reserves wholesaled to them when Fed rates are BELOW the retail 3-M T bill rate. In other words, when Fed reserves are cheaper than the market rate and any loan, even simple arbitrage or carry, will produce a profit.

Today, Fed reserves are 1200% more expensive than the market rate for short term cash, so the REAL money printers are slamming on the brakes. There is nothing the gov or the Fed can do to arrest deflation. They can pull on the string, but they can't push if there are no commercial borrowers. And there are none.

Bernanke was schooled the hard way over the past two years, M3 has plummeted while he has tried everything his childlike academic theories claimed would work. None of his ideas have worked. Like I said the day he was appointed, that is EXACTLY why Ben was selected for the Fed Gov Chair....

Fed shareholders knew Bernanke was an arrogant die hard inflationist with zero market experience. He published prolifically that he would make the identical mistakes to 1929 (even better--his analysis was that they didn't do ENOUGH). They knew he would wind up crashing the cash supply due to bankruptcy, unemployment and (taxpayer guaranteed) loan defaults. Such a deflation = unlimited profits for them.

The last sentence, above, is the most important one.

The essential mistake people make is that they think the privately held Bank of NY (aka The Federal Reserve) is part of our government, and thus on their side, rather than reality of the situation which is that the Fed is doing everything in their power to ruin the American people.

The Fed wants your wealth. Period. And your childrens' wealth. And your little dog, too.

Inflation and Precious Metals

The year 2000 usered in our first deflationary crises in decades; the first really serious one since 1930. Today's crises is technically a continuation of the same crises, as most stocks and indexes continue in down channels established in Y2K. GM, for example, hit its high of $96 in Y2K, and only recently went bankrupt and is liquidating now, close to $0.

Strangely, the fad of today is PMs. All the cab drivers are buzzing about them. I've posted a lot about why this is the worst time to own PMs, especially if one is foolishly chasing capital gains, as over-liquidity is drying up at a record pace.

Interestingly, PMs, as a group, are doing very poorly. One has to look back to the last inflation crises, when the cash supply was ballooning out of control and the interest rate to coax people into holding dollars was on a rocket. That was under Jimmy Carter.

Those who remember the first legal right turn on red (implemented to save fuel), the crises in Iran, a decaying US military that couldn't rescue a hostage without turning back after taking heavy losses, probably also remember 22% interest rates and the effect it had on people. What a contrast to today...

That was inflation.

I remember my parents planning to buy all their non-perishables, en mass and as quickly as possible to avoid next month's price hikes. Anything we were sure to use was bought forward--appliances, canned food, toilet paper. "Creative financing" was the real estate buzz phrase, as heavy demand drove up prices despite 20% mortgage rates. Everyone owned a gold fund, sophisticated investors owned a handful of miners, as a recommended fraction of mainstream investment portfolios for the previous 20 years. If you could find a station with gas, the line was shorter than a half mile and your last license plate digit matched the even/odd day, you hopped in it.

An ounce of gold bought the Dow.

Silver was $50 an ounce. It bought 25 movie theater tickets to see Star Wars.

That was inflation.

Monday, November 23, 2009

Bloomberg Gets it Right

“We cannot spin a positive story from the fact that a third-of-a-trillion dollars a week is trying to lock down Treasury bill yields of less that 0.05 percent,” Bianco said. “There is still tremendous demand for the front end of the curve despite the fact that people are saying things like there is no yield there and that cash is trash.” -Bloomberg, Nov 23

Add a record shattering S&P 500 P/E ratio of 145 and you get the picture. We sit at the cusp of a massive continuation of the greatest market crash in human history. If P/Es land in their historic recovery range of 6 to 8, the S&P will dip below 50 in the coming decades (assuming companies' earnings stay inflated).

NY Times Predicts Much Larger Stimulus Bill

The NY Times is predicticting another stimulus bill and much higher debt levels, as the only solution for the deepening depression--ooops, I mean--the long gone, backdated recession.

The last stimulus bill (which followed the $trillion banker bonus stimulus) was "way too small" to work, they say.

CNBC Predicts $50,000 Gold

...guest says it can't go down.

Need I say more?

Saturday, November 21, 2009

Universal Health Care--Neuter the Revolution

I maintain UHC is about one thing: killing as many seniors and otherwise inconvenient citizens as possible. This is murder, plain and simple. The only way to solve our government's grandiose, $70T Medicare over-reach is to kill those to whom we've promised too much.

I'm sorry to report this isn't a joke, but the explicit, unstated intent of the United States government. If ever there was a reason to keep our corrupt government out of Life, Liberty, and the Pursuit of Happiness, this rotten bill to amputate our elderly is it.

We have none other than Putin to thank for the most successful single-payer Universal Health Care model yet devised. The Russian population is projected to fall from 175M in 2004 to fewer than 80M by 2015, with a particularly brutal assault on males. The average life expectancy of a Russian male is between 51 and 58 years, depending on who you believe.

With luck, and a lethal dose of a drug-toting corporatocracy, the USA can achieve the same or better.

We'll finally be rid of our elderly and miscellaneous unfit dead weight; no more Medicare/Medicaid debate, only the productive will be left turning cranks for global socialite fat-cats. Our already emasculated male population will be similarly targeted for destruction; just try to raise an army to fight for your freedom.

Socialist financiers, hellbent on seizing our wealth and lancing the irritating boil of commoner freedom, seem to have learned from history. Have we, the people?

Inflation vs. Deflation (Again)

Let's ignore the fact that deflation has already dominated all markets (including precious metals, sans gold which has been driven sideways for the past 20 months), and look at the two flations a little different way.

It strikes me that holding one of the two viewpoints boils down to a single fundamental stance: socialist vs free marketeer.

The socialist believes that markets are easily engineered, thus, governments or central banks will simply print cash altruistically, thus all prices will rise. Socialists see no need for, and no effect of, human emotion or self interest, so policy alone drives prices.

The free marketeer believes that people usually act in their own self interest creating inescapable market forces, and in the end market forces dominant policy.

So the flation points of view are adopted by these camps in the following two ways:

  • Socialists believe when the politicians say lend, banks lend and all prices rise.
  • Free Marketeers believe when politicians say lend, no one listens to politicians so prices do what prices will do.

I'm sure a lot of people will say, hey, I'm no socialist, but I know when central banks print money. To that I respond in advance, if one truly believes policy is the ultimate driver of markets, then whether you acknowledge it or not, you are, in fact, a Kool-aid drinking socialist. I know that's inflammatory, I want it to be. I'm genuinely disturbed by a 97% "gold bull" reading when governments "tell people" they are going to inflate prices.

I hope a lot of people reflect, instead of simply react.

The truth has already ravaged all markets: real estate, stocks, bonds, businesses, precious metals, commodities. But the worst has yet to be imagined at the punch bowl. Until the 97% majority chuckles at inept policy makers, who've never produced a dime, claiming to have total power over global capitalism, the USSA will continue to tumble and crumble.

Thursday, November 19, 2009

3-M T-Bill Hits 0.005%--Fed Rate 50x Higher

The Fed rate always matches the 3-M Treasury.

That's because the Federal Reserve Corporation, which is just another name for the private Bank of NY, wants to steal as much money from the American public as possible. They have to. The Fed has a legally binding, fiduciary duty to their mostly-foreign shareholders to swindle US citizens.

Fed Bank of NY map shows 2/3rd's (65.8%) of US mortgages were late in the last 12 months (as of August 2009). Current policy forbids lending to those with a late mortgage payment in the last 12 months.

Since the Fed only "lends" (against no backing deposits) for 30 to 60 days, the Fed rate should be less than the 3-Month Treasury. Let's call their excessive interest rate another tax on you, since your government is in bed with the private Fed, and that is what permits their banking monopoly.

"Huh?" says John Q, "I thought the Federal Reserve Bank of NY determined interest rates?"

No, that's wrong.

That any bank can arbitrarily determine the global rate for venture cash is, without a doubt, the dumbest thing I've ever heard. Not surprisingly, virtually every economics professor, consuming our valuable oxygen, believes this borderline-hilariousness bunk to their very core.

Interest rates are fully determined by global U.S. Treasury auction. Interests rates are set, exclusively, by Free Market action.

How could any sane person not realize that the global market determines the interest rate the people of planet Earth will accept for cash loans? One would almost have to incur a $half-million in legally unforgivable student loan debt, for an ivy league university indoctrination, to think otherwise.

Now, that having been said, the Fed does "set" rates to a minor degree; they either shave a little from the market rate--to encourage borrowing for arbitrage--or, they add a premium--to promote seizure of non-member bank assets via liquidity squeeze, resulting loan default, and ultimately, bankruptcy. Yes, every bank the Fed Bank of NY successfully kills rolls their assets up to the Fed, then piles new FDIC obligations on top of the American poor and middle class. New FDIC debt, in turn, requires more high-rate borrowing from the private Fed, further boosting Fed profits.

Question: How much of a premium is the private Federal Reserve Bank of NY charging, right now?

Answer: A whopping 0.25% above the market rate of 0.005%, and for only 1/3rd the term. You heard it right, the private Fed, who claims they exist solely to pay Americans unlimited heaps of cash, has their rate currently set 50x HIGHER than the market-determined rate for short term cash.


To rob your bank of liquidity, of course. Your local bank is effectively cut off from needed reserves if they must pay 5,000% too much. Thus, local banks have no choice but to stop lending; thus, asset prices plunge from cash starvation; thus, collateral you hold against a loan collapses in price; thus you go broke; thus, your bank goes broke; thus, non-member bank assets in liquidation roll up to the privately held, for-profit, mostly foreign-owned Federal Reserve banks; thus, your corrupt Bank of NY-owned President and Bank of NY-owned Congress insist that the private FDICorporation borrow more from the Fed Corporation Bank of NY.

And so, the Federal Reserve Bank of NY-engineered global depression unfolds...

Global Depression in Full Swing

In July of 2007, when the Dow hit 14,000 for the first time, I forecast that all 6 of the "Big 3" airlines and "Big 3" automakers would be out of business within 5 years.

While it may be technically a little early, and I still have a few years left, I'm going to declare victory on 4 of the 6 right now, based on the insignificance of what little business remains. At this point, none of these corporations are remotely significant to the US economy, nor are they capable of generating significant income, employment, or tax revenue. They are operating in a state of chaos, hemorrhaging red ink, and have gone bust but for a shell and a name. The remaining 2 are close on their heals.

Yes, it is probable the US government will put some of them on perpetual, debt-raising life support, to generate unlimited profits exclusively for the non-US-citizens who own the privately held Federal Reserve Corporation, who in turn own our Congress and the President. I'll count those as double-wins in terms of forecast accuracy, since that's far worse for Americans than if the companies simply disappeared. Under the foreign-owned-Fed's plan, they get transformed into conduits designed to export our wealth to super-rich non-citizens. GM and Chrysler already fit that characterization, generating some $20B in annual interest payments to foreign interests, in the form of US taxpayer guaranteed loans.

Gone, but for a name:
  • United @ $1B Market Capitalization
  • Delta @ $5B Market Capitalization
  • GM @ $0.5B Market Capitalization
  • Chrysler @ est. $0.4B Market Capitalization
Compare to Facebook @ $40B Market Capitalization. Facebook, alone, is 16x larger than the 4 listed above, and 2x larger than all 6, combined.

...and the Global Depression is just getting rolling.

Sunday, November 15, 2009

US Dollar Continues Its 20 Month Surge Higher

As most cab drivers in NY City plop their savings in the counter-fundamental, mostly sideways, mainstream media-driven gold "frenzy" (gold is up 7% over the last 21 months; silver is down 12%; platinum is down 38%) a lot of people ask me if I've changed my mind about the dollar continuing its surge higher, and consequently, asset prices continuing to crash.

The answer is simple: it's not my mind that needs changing. Objectively, the dollar trajectory remains on a 20 month-long rocket higher. Note, the next macro leg higher will last for years and be rather eye-watering; near vertical at times.


The USA's political-economc system is best described as:

On Nov 2, 2010, I plan to vote (FOR or AGAINST) my incumbent congressman

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