History Vs Kool Aid
, On Friday May 7, 2010, 3:12 pm EDT
It now appears the 14-month old bull market that so many analysts, mutual fund managers, investors and Wall Street types said would perpetually continue, has changed its mind. In fact it appears, all along it was never really a new bull market, but a bear market rally cloaked in sheep’s clothing.
A 1,000 point fall within a half-and-hour’s time has a direct and nasty way of communicating its ultimate message. And now a host of new old problems are on the table. Let’s analyze just a few reasons why the odds of an extended bear market significantly jumped.
European Blues
It wasn’t that long ago the euro dollar (NYSEArca: FXE - News) was touted as the world’s very next reserve currency and the heir apparent to the US dollar. Now it appears, Europe’s (NYSEArca: VGK - News) conquest will have to wait.
Greece is expected to receive a $145 billion lifeline from other European countries (NYSEArca: EZU - News) and the International Monetary Fund (IMF). Has anybody wondered who funds the IMF? With about 20%, the U.S. is the largest contributor to the IMF. Greece is another U.S. bailout in disguise.
What about France, Switzerland and Germany who own nearly $300 billion worth of
At the beginning of the year, the ETF Profit Strategy Newsletter predicted sovereign defaults, such as Greece, to be one of the mega themes for 2010 and recommended to stay away from European equities and the euro. In January, $1.30 was given as target for the euro. Already, the euro has fallen below that level.
The concerns about the global ripple effect of sovereign debt defaults, is seen by the decline in the broad international MSCI EAFE Index (NYSEArca: EFA - News). If you think China (NYSEArca: FXI - News) can fix it, consider this: The
Spending Our Way to Prosperity
Has any nation anywhere ever printed or spent its way to economic prosperity? No doubt, low interest rates and easy money has been a significant contributor to the 70% rally in the Dow (DJI: ^DJI), S&P (SNP: ^GSPC),
An honest evaluation of the U.S. economy reveals not a true economic recovery, built upon sustainable earnings growth and a healthy job market, but rather, a false economy manipulated by massive infusions of government stimulus money.
Never before has the Fed or the government spent such enormous amounts of money so recklessly. There is no telling what such spending will do. To some degree, the government’s spending spree is a Black Swan event. By extension, the effects of government spending - such as rallying equities - are a Black Swan event. Do you want to bet on a Black Swan event?
More certain than betting on a Black Swan turning into profits, are historic patterns.
Historic patterns show that the government has a spotty track record when it comes to intervention.
Consider the Glass-Steagall Act - a law designed to control speculation - which was established in 1933, one year after the Great Depression in stocks ended and repealed in 1999, just before the 2000 bear market started.
Can the U.S. spend its way out of a recession? Easy money has certainly delayed the inevitable, but can it eliminate the inevitable?
History vs. Kool-Aid
The past few months have been an epic fight between sentiment readings and momentum. Thus far, momentum has carried prices higher and defied the validity of sentiment readings. For the market to move higher, it would have to invalidate many decades worth of generally accurate sell signals.
Here are a few of the extremes recorded over the past few months that unequivocally add weight to the sell side of the ledger:
- April 12, 2010: VIX (Chicago Options: ^VIX) drops to 15.58, the lowest level since July 2007.
- April 14, 2010: The CBOE Equity Put/Call Ratio drops to 0.32, the lowest reading in nearly ten years.
- April 21, 2010: Investors Intelligence (II) bullish advisors clock in at 53.3%; the highest reading since 1-12-2010 (53.4%) and December 2007.
- December 30, 2009: Investors Intelligence bearish advisors drop to 15.6%, the lowest level since 1987.
- February 2010: Mutual fund cash levels drop to 3.5%. This matches the July 2007 all-time low. Fund cash levels are a valuable contrarian indicator as they reflected the herding behavior of fund managers.
- March 2010: Investors’ cash allocation (polled by the American Association for Individual Investors - AAII) drops to 18%, the lowest level since March 2000.
- April 19, 2010: Buying climaxes spike to 467, one of the ten highest readings in 20+ years. Buying climaxes take place when a stock makes a 12-month high, but closes the week with a loss. They are a sign of distribution and indicate that stocks are moving from strong hands to weak ones.
- April 22, 2010: Insiders are selling nearly eight stocks for every one they buy. The eight-week insider sell/buy ratio is well above 4:1. Sell/buy ratios above 2.5 are considered negative.
- April 27, 2010:
- April 2, 2009: The Financial Accounting Standards Board (FASB) is forced to change rule #157. This change allows banks (NYSEArca: KBE - News) and financial institutions (NYSEArca: XLF - News) to overstate toxic assets and sweep ‘unrealized losses’ under the carpet. Earnings from the financial sector are thus exaggerated.
- April 2010: Earnings increases are based on cost cutting and lagging revenue growth. David Rosenberg reports that the surprise factor (the gap between expected numbers and actual numbers) for earnings is 21%. Excluding financials, the surprise factor would be around 10%. The surprise factor for revenue, however, is a disappointing 3% (including financials) and zip if you exclude financials. In other words, companies in general beat their earnings forecast but revenue is flat.
This lack of revenue growth suggests that consumers aren’t spending and that profits are still driven by cost cutting. Lack of consumer spending is easily explained by a look at consumer confidence and employment numbers.
After a fierce 13-month, 75% rally in stocks (NYSEArca: VTI - News), led by financials (NYSEArca: IYF - News) and technology (
Seeing the Warning Signs
Contrarian investors know and appreciate the value of sentiment indicators. Sentiment indicators flashed a sell sign in 2000 and 2007 and a buy sign early in 2009. A few weeks ago, the ETF Profit Strategy Newsletter identified the most pronounced, composite sell signal in recent history.
- April 12, 2010: VIX (Chicago Options: ^VIX) drops to 15.58, the lowest level since July 2007.
- April 14, 2010: The CBOE Equity Put/Call Ratio drops to 0.32, the lowest reading in nearly ten years.
- May 5, 2010: Investors Intelligence bullish advisors spike to 56%, the highest reading since late 2007.
- May, 2010: Mutual fund cash levels for March drop to 3.4%, the lowest level in history.
- May 3, 2010: Buying climaxes spiked to 1,079. An all-time record
Getting Ready for the Next Big Move
The list goes on, but its core is this simple fact: When so many indicators are so unanimously aligned, something big is about to happen!
If you step back and look at the bigger picture, this makes sense. The 2007-09 decline was the biggest decline since the Great Depression. The 2009-10 rally was the biggest since the Great Depression.
The next leg of the decline will likely have Great Depression like features and is likely to be proportionate to the 2007-09 and 2009-10 moves. In other words, it will be massive.
The ETF Profit Strategy Newsletter consistently keeps track of the above-mentioned indicators and many more purely technical gauges (like a master dashboard) to formulate a short, mid and long-term forecast.
A balanced, common-sense, out-of-the-box analysis is the only way to survive the financial carnage just ahead. Are you ready?
Gold is back.. Lack of faith in currencies
Dear Diary,
It seems like dejavu all over again. We are about to see currencies swing so wildly that no one will have any faith in stock markets soon. Very soon. After witnessing live the 995 point drop in the stock market on 5/6/2010, it is quite easy to see the looming crisis before us.
In a matter of hours, I saw on CNN people in Greece fighting for their bankrupt country. When a few protesters began to throw bottles the police came out in force. Shortly thereafter the stock market plummeted 995 points. The Euro may be collapsing which will devalue all of Europe and the dollar will sky rocket as well as the Yen, which moved 5% in 1 week.
Every day that goes by as the dolalr rises, we lose another foreign buyer of our goods, materials, equipment, and home buyers of the multi-mllion dollar estates along the coasts of our country.
The only stable currency going forward is gold and watch out for black Tuesday next week.
My wife and I often discuss the “honey theory”, which states that when the night comes, husbands and wives turn to each other and say, “Honey, do ou think we should sell?”.
The timing of this conversation during the week is crucial to the impending result. During the depression, on Thursday, there was a computer glitch which was spoken about during the weekend. By the following week havoc had taken the market down 50%. When the faith of the actual market collapses, people will run the the hills. Watch down 2000 points next week.
To be continued……
Rick Santelli Slide started on Feb 19, 2009
The Santelli Slide will continue until tax season is over.. reminder !
From the Chicago Tribune
According to CNBC’s Rick Santelli, he didn’t launch into his self-described rant on the floor of the Chicago Board of Trade against President Barack Obama’s mortgage bailout plan the other day with any other agenda than to vent his belief “the government is promoting bad behavior” through the program.
Santelli said over the weekend it was only just occurring to him how his newly raised profile from his call for a Chicago Tea Party — which seems to have resonated with many Americans, made him a viral video star and drew a White House rebuke — might be parlayed into other opportunities, as discussed in my Feb. 22 Chicago Tribune column.
“I don’t think in those terms, but maybe I should now,” Santelli, 52, a full-timer on CNBC since 1999 whose current contract is set to run out around the end of this summer, said from his west suburban home. “I have three daughters. I have the whole college thing and what not. You’re absolutely right.”
Santelli, who doesn’t have an agent, said he already has heard from several publishers, a prospect that interests him. (“I’m kind of a closet writer and a closet oil painter,” he said.) And he previously has enjoyed doing talk radio. That said, he noted, “I’m pretty happy with what I do.”
If nothing else, his value to CNBC has increased demonstrably with the exposure it has brought to the cable network owned by General Electric’s NBC Universal. His video has set a record at CNBC.com, scoring many times as many page views as the site’s previous leader, a 2007 rant by Jim Cramer.
“I’ve been associated with them 14 years, 10 years on the payroll, and you never see me much in commercials and what not,” Santelli said. “Boy, has that changed in the last 36 hours.”
A former trader and financial executive, Santelli said he appears on CNBC about 12 to 16 times a day and typically goes off a couple times a week.
“I’m just a fired-up kind of guy and it’s all spontaneous,” he said. “The ranting part, I’m just prone to do that. This one was just different. And no, I certainly didn’t expect it to turn out any different. It’s just that with this one, we really, really tapped into a nerve.
“I think most Americans would rather come up with a way to give a major tax break or subsidy to a first-time buyer that qualifies, help them with their down-payment. … I think the incentive is wrong here. … Really, at the end of the day the bait-and-switch on all these packages is they were originally about jobs, then all of a sudden the stimulus plan turned into a spending package. If you want to help people … make it so it is [about] job creation because that’s what’s going to stop the slide and that’s all that’s going to stop the slide.”
Santelli said the issue, in his view, isn’t political. It’s philosophical.
“I wasn’t for the first stimulus package under the Bush administration,” he said. “I’ve been very consistent on this. I understand what derivatives and toxic assets are. I was in that business. These things are complicated and I don’t know that the taxpayers should own them.”
The point, he said, was to encourage debate.
“I want the new administration to win this one,” Santelli said. “We are all Americans. We want to win this one. It’s a question whether spending our children’s money is going to make us win or not, or is it going to take its own time to heal, like a cold going away. And all this money we’re spending isn’t going to get a very good return and when it’s over, we’re going to be in the hole deep.”
First Inflation then Deflation?
First Inflation then Deflation? - Financial Markets Crash
Economics / Analysis & Strategy Mar 01, 2007 - 11:38 AM
By: Christopher_Laird
With gold up at $680, it looks like $700 is around the corner. So then, if a big gold surge is around the corner, one may ask, what is a longer term prognosis for not only gold but financial markets? Answer: first inflation and then deflation.
Right now, the world is inflating like mad. Money growth in most of the major world economies is near or exceeding 10% a year, and China is the biggie at 18% plus. That, combined with historically low interest rates is causing huge finance and asset bubbles. Central banks are way behind the inflation/interest rate curve right now, and are basically stuck in that rut because if any of them combat inflation by raising interest rates, they find their currencies strengthen, and lose market share.
Inflation resides in financial markets now
One could ask, aside from commodities and oil, where is the inflation going? Well, much of the answer lies in stock and financial bubbles right now. Now, people are concerned about inflation rearing, and the economies world wide are ‘talking’ about inflation – thereby warning of higher interest rates, and talking interest rate expectations up.
But, in fact, what is happening is that:
- Central banks are merely talking of inflation worries, but are not really acting, only using baby step and relatively meaningless interest rate hikes of .25% a shot. Japan is the worst in this regard.
- Central banks everywhere are way behind the inflation curve. So, asset/finance bubbles keep rising. But, the majority of the inflation is finding its way into financial bubbles like stocks.
- Gold is reflecting this inflation by rising in all currencies
Currencies co debasing
In effect, currencies are debasing competitively – with Japan and China leading the way. Now people are saying that the Chinese Yuan/RMB is rising, but that is only relative to other currencies. What is happening in fact is there is a great deal of already existing Chinese currency undervaluation. China’s interest rates are similar to the US, but are way to low to stop their emerging stock bubbles. Japan of course is case number one of a way out of balance interest rate, having a now ‘higher’ rate of .5%. Low interest rates keep currencies low. Those paltry interest rate hikes by Japan do little to quell the Yen carry, since the other nations are having to raise in tandem anyway, or raise more. With Japan so intent on a weak Yen, Yen carry has little reason to fear more significant interest rate hikes by Japan.
The US currency is being kept higher than it should relative to our trade partners by them. The trouble is, if the US were to allow it to drop much, we would have a bond collapse.
What is happening is that, while central banks talk tough on inflation, there is little meaningful action to quell things – and in particular, those things are stock and finance bubbles. They are locked in a competition to keep their currencies low, and all have excessively low interest rates.
This means that a great deal of all that loose central bank money of roughly 10% or more money growth world wide a year is finding its way into stock bubbles.
Of course, gold is up significantly in the past years, and commodities as well. But actual inflation in the EU, Japan, and the US – at least on paper is roughly in the 2% range. So where did all that excess CB money go? Into stocks and financial markets, and since borrowing is so cheap now, you can add a great deal of leverage back of all that new money every year.
With such an easy money machine, how can stocks not go up? For example, consider that there is a stock boom in China, where the Shanghai exchange for Chinese people rose 140% in the last year. Valuations of Chinese stocks are at a PE of roughly 40.
Of course the, US stocks continue to rise without end. Again, there is so much easy money floating around that investors can borrow cheap Yen in the ridiculously low Yen carry trade, and invest in all the ‘Hot’ markets with their borrowed hot money.
The question then arises, what is the evolution of all this?
First, inflation is finding its way into markets of all kinds, made worse with leverage. That situation will not be stopped until Japan raises interest rates to calm the Yen carry trade. Japan acts as a de facto central banker to the world with a virtual zero .5% rate. But it is not only Japan, the worst easy money offender of all, but other central banks of any significance are all way behind the curve with interest rates in the range of 3 to 5.5% (overnight rates). This is highly simulative and keeps their currencies low and stock bubbles rising, two things economies like.
Finance bubbles will continue to inflate until a crash
However, at these interest rates, there is no hope of slowing the stock bubbles of the last several years. This whole mess, of ever increasing stock bubbles fed by easy money started with Japan after its stock and real estate crashes of the early 90’s. They dropped their interest rates drastically to literally zero, and have not been able to get their economy off that easy money drug.
Then, the US created its own version of an easy money drug habit after the Tech crash and 911, dropping our interest rates to virtually 1%, and caused our real estate bubble. That caused a consumption boom here, and China then found its way into big trade growth/surplusses, stock and real estate bubbles. Basically, all this easy money from Japan and the US is sloshing around the globe causing asset and finance bubbles.
Easy money regime we are stuck in
The EU and other nations also dropped their interest rates in that period drastically. In effect, what has happened world wide is an ultra easy money regime everywhere that is behind inflation, and these rates are now so carefully choreographed that the currency exchange rates are locked in a synchronism of simultaneous devaluation, or what could be called competitive devaluations in effect – and driven by Japan’s and China’s lead. Gold reflects this by rising in all currencies for the last several years.
Japan is hooked on virtually zero rates just to stay out of deflation. And China is hooked to a way undervalued Yuan/RMB. They are so dependent on export growth to employ millions of new Chinese every year in its manufacturing boom. China cannot afford to just stay even in employment, its jobs must grow by huge numbers every year or they risk a catastrophe of angry unemployed 800 million rural peasants who are increasingly restive due to an income gap compared to the cities. China has 50,000 violent demonstrations a year by these people. Why do you think China is so resistant to letting their currency rise?
So, China and Japan are both locked into ultra easy/cheap money regimes.
Excess trade generated reserves make it worse
Now, Asia is finding that their excess foreign reserves must be also employed somewhere, and they have to sterilize those reserves into local currency. Most of that money finds its way into their local financial markets, and is used to speculate. This machine then causes endless asset and finance bubbles.
So, using China and Japan as an example, we see that by having undervalued currencies they increase exports, which increases excessive trade surpluses, which forces them to sterilize money into local currencies, or to just accumulate US bonds, for example.
The bottom line here is that every major economy is inflating madly, and afraid not to, lest their currencies increase in value compared to the other inflators. That money finds its way into asset and finance bubbles through either monetary inflation and or borrowing easy local money which just amplifies the whole thing.
In short, the world economies are locked into easy money and finance bubbles. Inflation then finds its way mostly into stock and finance bubbles (right now).
Gold in this situation
Gold is being affected bullishly in two ways by all this. First, as nations inflate their money supply at 10% globally, gold will find a related increase in all of these currencies. That is happening for the last several years.
Second, the ultra easy money is finding its way into every financial market, and that includes commodities. There is a whole lot of speculative money back of the commodity market, and yes, even gold.
The evolution
The evolution of synchronized easy money world wide will be first increasing finance/stock bubbles and then, when these let go, a great destruction of paper wealth in a gigantic finance/stock crashes. These will likely be synchronized world wide.
That destruction of paper wealth will be highly deflationary. First, as stock prices drop, for example, the valuations will drop like a stone, and trillions of dollars of paper money will literally disappear like smoke.
Since interest rates are already so low, central bankers will have a very hard time trying to drop interest rates low enough and fast enough to stay ahead of the emerging financial crash. They will not be able to stay ahead of collapsing demand this time, as the US did after 911 with its interest rate drops that just barely staved off a deflation here. We will explain why.
Easy money fails this time
Using mass printing of their currencies will fail to stave off a massive drop in demand economically, Japan found this out in the 90’s. Even if ultra cheap money is pushed out, there will be massive layoffs world wide, in China in particular, but of course in the US as well. Every major economy will face huge simultaneous job losses. Once consumer confidence is hurt enough, even offers of free money (borrowed) will fail to attract buyers back into the economy because prices will start falling, and even at zero rates, people don’t want to buy something now, if they see prices dropping. This is what Japan found out.
The end result is a huge world depression.
Gold in this
Initially, commodity stocks will collapse. Gold will be dragged down with them. But, since gold is also money, it will not suffer the fate of commodities, because its value will rise relative to real things as prices drop. Initially, gold will drop in price, but real goods and things like housing will drop far faster because these are not as fungible (tradable for like kind – or better put are not transportable and useful as money) hence gold will retain or increase its value in real goods even if the nominal price in currencies falls.
Gold will fare well relatively in real terms, but could drop nominally in price. (precious metals)
Commodities will collapse to historically low levels- on the order of 80% in price if there is a depression of the like I am discussing.
Between now and the depression/stock collapse
Of course, we are somewhere between this collapse and a now rising gold price. What will happen is gold will continue to rise drastically in the future until this stock/financial collapse happens. World central banks will continue to do competitive devaluations (they are basically doing that now through inflation) and that inflation is finding its way into finance and stock bubbles.
At some point, the collapse will happen, and at that point you will want to have actual physical gold/precious metals. Paper gold will take a big hit. While paper gold can evaporate, a gold coin will not. All that could happen is its currency price might drop. But the thing won’t disappear like smoke, as most financial assets and many paper gold vehicles will – leveraged paper or ETFs that are not actual physically vaulted but are more like price trackers. Money will flee these price tracking ETFs. And, ETFs have made a huge stamp on the gold / metals markets now.
One Key to surviving
In this crash scenario, you will have to do several things.
In a deflationary situation you must not have debt. The typical argument that the government will inflate like mad will likely not work, and prices will drop for the reasons I put up above, namely people won’t borrow/spend if prices are dropping, even at zero interest rates.
You will need enough cash type assets (that includes gold bullion in your possession) to survive a loss of income. No matter how you slice it, in a depression you will either lose your job or your income from investments or your savings if they are all in stocks and such. You need to be positioned already in cash type assets in the stronger currencies.
Bonds can be good in this situation since interest rates will drop drastically, that is if you buy these bonds beforehand. However, right now there is a slightly rising interest rate environment. That does not have to stop you from buying bonds now, just be aware of that. Buy quality sovereign bonds (as if there are any, but find the better ones).
Eventually, bonds have risk due to default risk by governments as their tax base collapses and public benefits skyrocket. Bonds are a short/mid term solution to get some income.
Have a paid off residence, or real estate. If you have a paid off residence in a cheap area, and at least a little income and are thrifty you may survive fine. That and some savings will help cushion you for years. All you would have to pay is some property taxes and utilities. It is far better to have a paid off residence than money in the markets – at least that box is checked off – you have no mortgage payments or rent.
Cut all expenses. You can cut most of your monthly expenses right now. There are many sources of waste in family budgets of all levels. Learn to be super frugal now, not when you are on the verge of starving or losing your home!
Drive old vehicles, not new expensive ones.
Etc.
If you do all these things, your peace of mind will rise immeasurably, even before such a crash. And, if it commences, you will not be afraid of it.
The Prudent Squirrel Newsletter is Chris Laird’s macro economic gold newsletter. While many of my subscribers have told me they subscribe specifically for the macro gold picture, the newsletter also focuses often on financial survival. We also send email alerts of pending changes in the gold market, and subscribers got about a half day’s advance notice of gold’s $20 price rise yesterday in such an alert.
Stop by and have a look.
By Christopher Laird
PrudentSquirrel.com
The New Cascading Crash between 2/20/09-4/30/09
It has been a while since I have blogged, so here we go….
There is a very big chance that the stock market will see a crash through the end of tax season, aka.. the end of April. There will be a rally until the end of August and then stocks will be sold off again. Christmas 2009 will be rough as well.
Top Ten Reasons why the crash is coming soon…
1) Property Taxes are due on or before April 10th, 2009. Those who cannot pay will bankrupt their individual States.
2) Taxes are due in the USA on April 14th, 2009 - How will people raise capital to pay Uncle Sam?
3) The earnings from the last 2 quarters have been horrific and we will see more companies reporting.
4) Many people sold their stock in 2008 with some owing quite a bit of money.
5) Triple witching is occurring on Feb 20, 2009 - Typically a very volatile day in any market.
6) Banks are essentially insolvent and have cut off the income stream for many people by shutting down credit cards and home equity loans.
7) There are many more fearful sellers out there than buyers of stock.
People will sell their stock to preserve what that have left in a shrinking economy with few job prospects.
9) People are fearful of the future and will not think about investing more into their 401K causing more stocks being bid down.
10) Food prices have NOT gone down at the market though oil prices have drastically reduced their transportation costs.
11) The Future:
a) Stocks will be cheap - Who needs a huge wage?
b) Wages will be reduced due to the recession and the emerging Echo Boomer generation.
c) Homes will be cheap - Who needs a huge wage?
d) 20% down will be the norm to purchase a home. - Will the baby boomers loan the echo boomers money for their first home ?
e) As the economy grows again investing in stocks will be the only way to generate the 20% required to purchase a home.
1) The flood of cash into stocks will entice people to come back to the market as huge gains will return for very cheap stocks.
a) 9 out of 10 largest point gains in history have occurred over the last year.
f) Buy Option Calls going long !!!!
How deflation and Inflation works..
A great month for gloom-and-doomers
Commentary: Some of 2008’s Bottom Ten have strong showing in January
NEW YORK (MarketWatch) — Are unhappy days here again? Doom-and-gloom letters have a great January.
Well, yes, 2008 was a pretty unhappy year generally. But the odd thing was that it was unhappy for many of the hard-asset letters, too — what in the 1960s were dismissed as “gloom and doomers” (until things got gloomy and doomy that time around as well).
Several of these letters were among the 10 worst performers in 2008 according to the Hulbert Financial Digest. See Dec. 23 column
But now they’re back.
Top performer for January: The Dines Letter, up 32.7% vs. negative 8.14% for the dividend-reinvested Dow Jones Wilshire 5000. Number two: the International Harry Schultz Letter, up 32.1%. Number five: The Ruff Times, up 9.5%.
Of course, this isn’t going to dig these letters out of the holes they got into in 2008. But if you’re a new subscriber, who cares?
I’m particularly interested in International Harry Schultz Letter. Despite its appalling and paradoxical portfolio performance, I named it 2008 Letter of the Year because of its extraordinary prescience in predicting, more than a year early, an imminent “financial tsunami.” See Dec. 28 column
Schultz’ latest issue just arrived. It’s full of cheerful items such as how to guard against an anticipated rise in home invasion robberies and technologically-enhanced government surveillance (”make sure kids don’t become victims of Facebook/ My Space craze by splashing their personal info on Internet.”)
But in the short run, Schultz writes: “gold is a bit overbought, stocks are a bit oversold. Overlay Dow Jones Industrial Average ($INDU:
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$INDU 8,280.59, +217.52, +2.7%) of 1929-1940 vs. 2000-2008 and you see a rally due.”
He continues to hold to a 20-year “V-formation” forecast, with not just stocks but investor “buying power” declining and the rebounding, interspersed with 1-2 year counter-trends. He advises: “Hold approx half of your assets in Swiss/French/German/Dutch (or other First world non-U.S. dollar) government bonds, and approximately half in a mix of blue-chip gold shares and physical gold bullion (best bought and stored in Switzerland, Canada, Australia, Hong Kong or Singapore).”
Schultz has been particularly alert to the possibility of deflation. He now says: “I seem to see deflation getting a stronger grip in early 2009, partly due to the consumer buyer’s strike, despite a possible upside breakout in commodities, rising gold and slipping bonds. It will in any case probably gradually morph toward high or hyperinflation later in ‘09. 2010 looms as a mega inflate-year. Only if deflation gets out of control in early ‘09 due to government failure to increase money supply enough, and/or business/ bank sectors collapse in a sea of bankruptcies and lawsuits, will inflation be delayed.”
On gold, he writes: “Mathematically it will need a U.S. $2,300 gold price to equal the $800 gold peak of 1980. So, gold is cheap today, is well under half its 1980 worth in inflation-adjusted dollars.”
He cites one technical indicator: “Basis on French Curve chart projection, gold will reach $3,500 by 2012, then fall to $2,500 (29%), then rise to $10,000. There are a lot of projections around by some able technicians. If we go into Weimar inflation, the sky is the limit. But, we will play it a stage at a time, by the charts, because being overconfident about any future prices has been the undoing of many souls.”
Two recommended stocks: Harmony Gold Mining Ltd. (HMY:
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TARP Applications
Maximum though is 25 Billion.http://www.ustreas.gov/press/releases/reports/applicationguidelines.pdf
Who owns the Federal Reserve?
– Posted Wednesday, 15 September 2004 | Digg This Article
By: Wayne N. Krautkramer
Few perceive the truth about the Federal Reserve. Rare are those who know its origins. It is right in front of us, but our relative ignorance of economics and history is their protection. A quick history lesson is in order.
On October 14, 1066, AD., King William I (the Conqueror) founded the English monarchy. The Corporation was created by William in 1067 AD. to facilitate trade, and assure the continuation of the wealth of the monarchy. The City of London’s legal name is The Corporation of the City of London. The City of London has unique political and economic privileges that do not apply to Greater London, or anywhere else in the British realm. The “City” even has its own police force that is sovereign.
The Bank of England was granted a royal charter on July 27, 1694, by William III to regularize the monarchy’s finances. This scheme was invented by a Scot promoter named William Paterson. The scheme was to create a bank with a “fund for perpetual interest”. Fractional reserve banking was created, along with the radical monetary concept of a “monopoly” bank which would create money for loans that would never be repaid. A perpetual money machine for the monarchy was born. The permanent National Debt was born. The Bank of England would finance the emerging empire from its headquarters in the City of London. Never again would the lack of money, or liquidity, hamper the British empire under normal economic conditions. Conveniently, the monarchy also controls the City of London. This assures that the heart of the economic machine will always be protected.
The United States fought a hard and expensive war against England in 1776 to achieve sovereignty. That included the right to have her own currency, control her own tax policies, and the avoidance of involvement in the affairs of other nations.
HistoryCentral.com > > War of 1812> United States Declares War on Great Britain
The United States declared War on Great Britain on June 12, 1812. The war was declared as a result of long simmering disputes with Great Britian. The central dispute surrounded the impressment of American soldiers by the British. The British had previously attacked the USS Chesapeake and nearly caused a war two year earlier. In addition, disputes continued with Great Britain over the Northwest Territories and the border with Canada. Finally, the attempts of Great Britain to impose a blockade on France during the Napoleonic Wars was a constant source of conflict with the United States.
The US did everything in their power to remove British influence and control from this continent. Again and again we defeated all attempts to allow our money to be controlled by a National (Central) bank. When Central banks were established, we abolished them. Times changed, and Thomas Woodrow Wilson was elected. The intellectual who wanted the League of Nations (the progenitor of the United Nations) was elected. Under his leadership, we received the Federal Reserve, and the Sixteenth Amendment (Income Tax) shackling us into slavery to the British Crown forever. In 1917, Wilson made the world safe for democracy by plunging the US into World War I
On December 23, 1913, the Federal Reserve Act, also known as the Glass-Owen Bill, was passed. The Republican controlled Senate rammed the bill through when many members of the US Congress were home for the holiday. The President, Dr. Thomas Woodrow Wilson, signed it into law one hour after being passed by the Congress! Somebody very powerful really wanted this law passed. The Federal Reserve System is an independent central bank. Although the President of the United States appoints the chairman of the Fed, and this appointment is approved by the United States Senate, the decisions of the Fed do not have to be ratified by the President, or anyone else in the executive branch of the United States government. Buried in the legislation was the granting of total power over the monetary policies of all US banks. A very curious statement is found in the original 1913 law. SEC. 30. The right to amend, alter, or repeal this Act is hereby expressly reserved. Reserved expressly to whom, or what? No definition is provided. This is the entire Section 30 statement! “Curiouser and curiouser, cried Alice”.
Stock not held by member banks shall not be entitled to voting power. This clause guarantees
that no outsider can justify buying shares in the Federal Reserve. “But wait! There’s more!”
Sec. 341 Second. To have succession for a period of twenty years from its organization unless it is sooner dissolved by an Act of Congress, or unless its franchise becomes forfeited by some violation of law. The Federal Reserve was only given a corporate life of 20 years! Their time was up in 1933 Who was President at that time? Franklin. D. Roosevelt, of course. Somehow, the Federal Reserve’s termination did not occur. Reader, do I have your attention yet? My research failed to find any reauthorization of the Federal Reserve Act of 1913, other than the tacit approval given by the Sarbanes-Oxley Act of 2002.
No Senator or Representative in Congress shall be a member of the Federal Reserve Board or an officer or a director of a Federal reserve bank. No member of Congress is have access to the inner sanctum! Hello, what is this? Are they afraid that an American might come upon something untoward? 12 USC 3019 Federal reserve banks, including the capital stock and surplus therein, and the Income derived therefrom shall be exempt from Federal, State, and local taxation, except taxes upon real estate. People, I think we are a roll now.
SEC. 25.Any national banking association possessing a capital and surplus of 1,000,000 dollars or more may file application with the Federal ReserveBoard, upon such conditions and under such regulations as may be prescribed by the said board, for the purpose of securing authority to establish branches in foreign countries or dependencies of theUnited States for the furtherance of the foreign commerce of the United States, and to act, if required to do so, as fiscal agents of the United States. Such application shall specify, in addition tothe name and capital of the banking association filing it, the place or places where the bankingoperations proposed are to be carried on, and the amount of capital set aside for the conduct of its foreign business. The Federal Reserve Board shall have power to approve or to reject such application if, in its judgment, the amount of capital proposed to be set aside for the conduct of foreign business is inadequate, or if for other reasons the granting of such application is deemed inexpedient. Wow, the US government has no formal control over the foreign operations of the Federal reserve banks! The Federal reserve banks are exempt from all taxation. These people are very independent. Independent of audits, independent of congressional supervision, and independent of the American voter.
The Federal Reserve claims that nobody owns it – that it is an “independent entity within the
government.” The Federal Reserve is subject to laws such as the Freedom of Information Act and the Privacy Act which cover Federal agencies but not private corporations; yet Congress gave the Federal Reserve the autonomy to carry out its responsibilities insulated from political pressure. Each of the Fed’s three parts – the Board of Governors, the regional Reserve banks, and the Federal Open Market Committee – operates independently of the federal government to carry out the Fed’s core responsibilities. Once a member of the Board of Governors is appointed, he or she can be as independent as a U.S. Supreme Court judge, though the term is shorter. As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. (The Fed’s financial independence arises because it is hugely profitable due to its ownership of government bonds. (It gives the government billions of dollars each year.) However, the Federal Reserve is subject to oversight by the Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government.
The only statements of ownership made by the Federal Reserve Board is an allusion to the twelve Federal district banks. This circle puts us back at the beginning, for no information is provided regarding the ownership of the twelve Federal district banks. However, a 1976 government study commissioned by the Federal Reserve Directors revealed the following:
OWNERSHIP OF THE FEDERAL RESERVE Most Americans, if they know anything at all about the Federal Reserve, believe it is an agency of the United States Government. This article charts the true nature of the “National Bank.” Chart 1 Source: ** Federal Reserve Directors: A Study of Corporate and Banking Influence ** - - Published 1976 Chart 1 reveals the linear connection between the Rothschilds and the Bank of England, and the London banking houses which ultimately control the Federal Reserve Banks through their stockholdings of bank stock and their subsidiary firms in New York. The two principal Rothschild representatives in New York, J. P. Morgan Co., and Kuhn, Loeb & Co. were the firms which set up the Jekyll Island Conference at which the Federal Reserve Act was drafted, who directed the subsequent successful campaign to have the plan enacted into law by Congress, and who purchased the controlling amounts of stock in the Federal Reserve Bank of New York in 1914. These firms had their principal officers appointed to the Federal Reserve Board of Governors and the Federal Advisory Council in 1914. In 1914 a few families (blood or business related) owning controlling stock in existing banks (such as in New York City) caused those banks to purchase controlling shares in the Federal Reserve regional banks. Examination of the charts and text in the House Banking Committee Staff Report of August, 1976 and the current stockholders list of the 12 regional Federal Reserve Banks show this same family control.
George Bush presided over a minor change in the Federal Reserve Act. The Sarbanes-OxleyAct was passed in 2002. The American Congress failed again to deal with the Federal Reserve. Bush managed to keep all discussion and changes confined to some reporting requirements for financial institutions. Bush knows very well who he serves, and he really serves his master well. It’s amazing how few grasped the significance of Alan Greenspan being knighted by the Queen of England! Greenspan was knighted on September 26, 2002. An obvious reward for preventing any real discussion, or change, of the Federal Reserve during the Sarbanes-Oxley Act debates. Had an American President been knighted, serious questions would have arisen. It was so each easier to reward her manager, Alan! Do you still believe that Alan Greenspan has the power of Dearth Vader? He is only a little man, faithfully serving his queen.
The British Crown, or the British monarchy is the owner of the Federal Reserve. This is their real secret. The strategy of the Federal Reserve is their other secret. Again, it is right of front of us, but no one sees the obvious. The strategy of the Federal Reserve is to accumulate all the wealth through the very slow, but effective, technique of currency debasement. The monarchs of old used to shave or clip the coins as they passed through their treasuries. Now the process is more sanitary (no more clipping and scraping all those dirty coins). John Maynard Keynes clearly stated that at there is no more effective method of destroying a society than through currency debasement.
The primary reason for its success is the inability of most people to understand that more is not necessarily better. A recent conversation highlighted Kenyes’s observation. There is some agitation to raise the minimum wage in my state. I listened to a proponent of a higher minimum wage. I attempted to point out that an increase in a large number of people’s income would only result in prices going up, along with the obvious tax increases. “What was I talking about?” was the response. I explained that some percentage of people might wind up dealing with tax bracket creep (increases), and all will have with the obligatory tax increases that follow from any price increase. If nothing else, the sales tax must go up because the prices have gone up. I was immediately informed that I was the most negative person they had ever talked to.
The Federal Reserve will always debase the currency to take its cut, and guarantee that the government has a tax base available to feed its bureaucratic family. The government is a total slave of the Federal Reserve. For example, analyze the latest real estate boom. There will be a major boost in property taxes based on the new valuations. Many people will be surprised when they receive their new tax bill. This will guarantee more money for the government coffers. They know that people will do almost anything to keep their homes. What’s another job or two per family? Besides, the extra job will provide more tax revenue for the government. This will require more day care, or baby-sitting services for many families, which create more income for the government. This will cause more meals to be eaten out, which creates more revenue for the government Meanwhile, prices will continue to go up, which creates more sales tax revenue for the government. Are you getting the point yet? Deflation is end of the government. The local, state, and federal government will all fail!
This is the strategy of the Federal Reserve. The majority of the people will always believe that more is better. Knowing that, and now having a democracy ensconced in the US, it was time to feed and breed. Prices always go up, and everything is “Wunnerful, Wunnerful” Bring on the Champagne Lady. Alan runs the bubble machine. The illusion of money has destroyed most people since society (goverment) developed socialism. Democracy feeds on the illusion of something for nothing. As each demagogue promises more than his competition, the tax burden becomes oppressive. The monetary illusion serves to conceal the costs through currency debasement. This assures the complete destruction of the society that embraces this perversion. Any attempt to introduce logic into a dialogue will be defeated by claiming you’re an elitist devoid of compassion. Envy, hate, and manipulated passions are the hallmark of democracies. While all this destruction is occurring, money diverted by the mechanism of currency debasement is constantly being transferred to the British Crown in the City of London.
Any questions, gang?
Free Markets For Free Men
New World Order
It has been quite a week. After staying up every evening watching the overnights as well as waking at the break of dawn to see the first reactions, our world is changing quite quickly. With valuations of companies at levels never seen before, the next 5 years will amaze you. Late tonight we here that GM and Chrysler are in talks, from CNBC. As the valuations of real companies with real earnings hit all time lows watch for acquisitions and mergers one would never think would occur. Mcdonalds and Starbucks? Are we moving into mega-car companies, banks, and other entities. What happened to the FCC? Watch for Warren Buffet as well as the Gates Foundation to purchase firms that will create better world equity.
Reading about the Great Depression, it appears that Monday to Wednesday will be the lows of the market or will it? Watch as the market continues lower until we see an additional rate cut of up to 1% on a world wide basis after TARP, the $700 billion dollar bailout, has been financed. The FED needs to back up all banks by taking equity stakes in the larger banks with huge cash infusions and allow the hedge funds to die through margin call. Then the FED defacto will kill off the remaining bad banks as the larger banks will not finance them. Some will survive some will not. We need professionals under regulation loaning money so that we do not create state banks. The US should take equity stakes in each of the remaining banks.
What Next?: RIGHT NOW THERE IS NO MONEY IN THE BANKS. Until there is money, do not rely upon a true rally next week. Companies are being forced to liquidate to raise cash. THERE IS NO MONEY IN THE BANKS. When the money arrives they will buy back shares at higher prices. Have I mentioned that there is no money in the banks.
Why not have governments pick up the difference in the LIBOR rates?
It is the governments with little regulation that we created this mess.
Why not fund the IMF with a superfund that can dole out money for both humanitarian and world economic reasons?
The sub-prime homes that are underwater and handed back to banks should be given with no money down to the soldiers who risked their lives for Bush’s war, especially minorities who were left out of the GI Bill during World War 2 since the banker would not fund the loan.
In the mean time, follow momentum and don’t be a pig. One can make up the losses with momentum trading of options and moving into gold. The only way we will not deflate isto inflate. Thus the increased money in the banks after the LIBOR infusion will create a perceived long term problem with inflation. When that becomes a true problem, then world banks will raise interest rates to cool growth and commodity price increases.
The fact that oil is below $80 a barrel will take away true inflation as the grease that runs our machines is not needed as much in a quickly slowing economy.
Steve Abrams
Activist - Free Thinker
UCLA Economics
What now.. Marxism?
Bailout marks Karl Marx’s comeback Marx’s Proposal Number Five seems to be the leading motivation for those backing the Wall Street bailout By Martin Masse
In his Communist Manifesto, published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes power, with the aim of centralizing all instruments of production in the hands of the state. Proposal Number Five was to bring about the “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.” If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him. Indeed, analysts at the Heritage and Cato Institute, and commentators in The Wall Street Journal and on this very page, have made declarations in favour of the massive “injection of liquidities” engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled US$700-billion bailout package. Some of the same voices were calling for similar interventions following the burst of the dot-com bubble in 2001. “Whatever happened to the modern followers of my free-market opponents?” Marx would likely wonder.
At first glance, anyone who understands economics can see that there is something wrong with this picture. The taxes that will need to be levied to finance this package may keep some firms alive, but they will siphon off capital, kill jobs and make businesses less productive elsewhere. Increasing the money supply is no different. It is an invisible tax that redistributes resources to debtors and those who made unwise investments. So why throw this sound free-market analysis overboard as soon as there is some downturn in the markets? The rationale for intervening always seems to centre on the fear of reliving the Great Depression. If we let too many institutions fail because of insolvency, we are being told, there is a risk of a general collapse of financial markets, with the subsequent drying up of credit and the catastrophic effects this would have on all sectors of production. This opinion, shared by Ben Bernanke, Henry Paulson and most of the right-wing political and financial establishments, is based on Milton Friedman’s thesis that the Fed aggravated the Depression by not pumping enough money into the financial system following the market crash of 1929.It sounds libertarian enough. The misguided policies of the Fed, a government creature, and bad government regulation are held responsible for the crisis. The need to respond to this emergency and keep markets running overrides concerns about taxing and inflating the money supply. This is supposed to contrast with the left-wing Keynesian approach, whose solutions are strangely very similar despite a different view of the causes.
But there is another approach that doesn’t compromise with free-market principles and coherently explains why we constantly get into these bubble situations followed by a crash. It is centered on Marx’s Proposal Number Five: government control of capital. For decades, Austrian School economists have warned against the dire consequences of having a central banking system based on fiat money, money that is not grounded on any commodity like gold and can easily be manipulated. In addition to its obvious disadvantages (price inflation, debasement of the currency, etc.), easy credit and artificially low interest rates send wrong signals to investors and exacerbate business cycles. Not only is the central bank constantly creating money out of thin air, but the fractional reserve system allows financial institutions to increase credit many times over. When money creation is sustained, a financial bubble begins to feed on itself, higher prices allowing the owners of inflated titles to spend and borrow more, leading to more credit creation and to even higher prices. As prices get distorted, malinvestments, or investments that should not have been made under normal market conditions, accumulate. Despite this, financial institutions have an incentive to join this frenzy of irresponsible lending, or else they will lose market shares to competitors. With “liquidities” in overabundance, more and more risky decisions are made to increase yields and leveraging reaches dangerous levels. During that manic phase, everybody seems to believe that the boom will go on. Only the Austrians warn that it cannot last forever, as Friedrich Hayek and Ludwig von Mises did before the 1929 crash, and as their followers have done for the past several years. Now, what should be done when that pyramidal scheme starts crashing to the floor, because of a series of cascading failures or concern from the central bank that inflation is getting out of control? It’s obvious that credit will shrink, because everyone will want to get out of risky businesses, to call back loans and to put their money in safe places. Malinvestments have to be liquidated; prices have to come down to realistic levels; and resources stuck in unproductive uses have to be freed and moved to sectors that have real demand. Only then will capital again become available for productive investments. Friedmanites, who have no conception of malinvestments and never raise any issue with the boom, also cannot understand why it inevitably leads to a crash.They only see the drying up of credit and blame the Fed for not injecting massive enough amounts of liquidities to prevent it.But central banks and governments cannot transform unprofitable investments into profitable ones. They cannot force institutions to increase lending when they are so exposed. This is why calls for throwing more money at the problem are so totally misguided. Injections of liquidities started more than a year ago and have had no effect in preventing the situation from getting worse. Such measures can only delay the market correction and turn what should be a quick recession into a prolonged one.
Friedman — who, contrary to popular perception, was not a foe of monetary inflation, but simply wanted to keep it under better control in normal circumstances — was wrong about the Fed not intervening during the Depression. It tried repeatedly to inflate but credit still went down for various reasons. This is a key difference in interpretation between the Austrian and Chicago schools. As Friedrich Hayek wrote in 1932, “Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion. … To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about …” The confusion of Chicago school economics on monetary issues is so profound as to lead its adherents today to support the largest government grab of private capital in world history. By adding their voices to those on the left, these confused free-marketeers are not helping to “save capitalism”, but contributing to its destruction. Financial Post Martin Masse is publisher of the libertarian webzine Le Québécois Libre and a former advisor to Industry minister Maxime Bernier.