Friday, December 17, 2010


There is no better example of the complete corruption and failure of U.S. leadership, than events of the past few weeks.

Like the stock market, the cycles of decision making stupidity are attenuating.  The time it takes from the inception of a bad decision until realization of the bad outcome is now becoming inescapably immediate.  Obama commissioned the Bipartisan Deficit Reduction Commission and yet before the ink was dry he had already completely ignored the recommendation.  Meanwhile, Republicans who still pretend to be fiscal conservatives after decades of Supply Side profligacy, by no surprise, completely ignored the same findings and fully endorsed extension of the Bush tax cuts and the additional payroll tax cut.  The Commission recommended a combination of reducing spending and raising taxes.  So, what did the Government do, just days later?  They passed a new bill to increase spending and lower taxes !!!

Welcome to the era of the Dumbest Generation.  You can't make this shit up.

All the while, European countries such as Germany, often derided in the U.S. as "socialist", have exhibited far greater fiscal discipline for the past decade and to a stark degree since the financial debacle.  So much for all of the "capitalist" propaganda and hollow sloganeering by Faux News.  
While other countries are taking the bitter pill and undertaking BOTH fiscal and monetary belt tightening to remove the excesses leading up to the financial crisis, the U.S. is doing the exact opposite - raising spending, lowering taxes AND increasing monetary leverage (QE2) to ensure even more hot money is in the hands of short-term speculators.  What a great fucking strategy; the U.S. economic Dreamliner is losing power and crashing towards earth, so the Morons of the Day just nosed down to increase the angle of attack.  Why crash small time, when you can drill a fucking crater ?

Cynics would say that the U.S. Dealers (aka. Leaders) already have figured out what I explained recently, that the U.S. is already beyond the point of no return debt-wise, so why not just party-on a while longer.  So either they are morons with bad math skills, or liars who understand the gravity of the situation and are just propagating the illusion of solvency - either way, the situation is not good.

What Else is Not New?
Since Bernanke's Fed enacted QE2 in November, the program of further "easing" borrowing costs has had the exact opposite effect.  Over the past 5 weeks, the 30 year mortgage rate has risen from 4.17% to 4.83%.  In addition, oil prices have increased, as have food prices.  Meanwhile, core CPI has been stagnant and or falling.  Core CPI tracks very closely to wages.  Therefore, what has happened since QE2 was launched is that wages have stagnated, whereas the real cost of living has increased across every major dimension - food, energy and housing.  This is by far the worst of all possible worlds for the U.S. economy (outside of Wall Street).  This is Deja Vu, because we had the exact same scenario back in early 2008, as I wrote here.   The Fed back then was a on a rate cutting bonanza to bailout banks and fund speculators all at the expense of average Americans.   We all remember how that worked out.

Market Update
1)Prechter & Co got back on board the all-out bearish bus this week with the latest EWT.  (After a brief flirt with bullish lunacy...)
2) The Arms Index (Trin), reached its most overbought reading in its 50 year history, despite the market still being 20% below its all time peak and unemployment at 10% !!!
3) Silver and Gold look to have put in a solid reversal on extremely high volume.
4) The Euro is impulsing lower.
5) Long-term treasury bonds look to have put in a decent bottom on a five wave impulse and massive volume.
6) Various other sentiment indicators ISEE/II/AAII at multi-year extremes; mutual fund cash balances at decade lows etc...

So...the risk trade is slowly but surely "coming off".  Let's see if the Big Money boyz make it to 12/31, bonus time this year before the wheels come off for good, it's going to be very close...

Thursday, December 9, 2010

In a Nutshell

Here is a guy telling it like it is:

This gent raises some good points around who did and did not benefit from this ongoing fiasco.  Apologists for the status quo (ardent crony capitalists, CNBS infotainers etc.) tell us that homeowners are equally responsible for having leveraged their homes to the maximum and otherwise taken too much risk.

All along these same jackass disinformers have been extolling the virtues of the (supply side) capitalist model based on incentives.  So I find it a tad hypocritical to blame homeowners for taking advantage of cheap and abundantly available credit which at the height of things was shoved down their throats 24x7.  No sooner did they respond to these "incentives" than the entire scheme started unravelling.  In any other market, we are told that it is normal behaviour for consumers to respond to low prices by increasing their consumption i.e. the demand curve.   Yet, in the case of capital demand, when the price (interest rate) was lowered substantially, we are told that households were foolish for having consumed more debt !  Is the average household now supposed to be a macroeconomic forecaster, able to predict the overall trend in housing prices and interest rates?  Meanwhile, I have no doubt that the average economist has lost money via stocks or real estate during this fiasco.

Gut check.  Let's review the distribution of impacts so far:

1) Government/Regulators:
Role in fiasco:
-Failure to regulate
-Easing of regulations to accomodate banksters (Glass Steagall repeal)
-Overlooking ongoing deficits and trade imbalances
Retribution: None - business as usual

2) Banksters:
Role in fiasco: 
-Extension of credit to those who could not afford it;
-Outright fraud while securitizing  garbage loans;
-Over-leveraging of banks
-Insider Trading on a pervasive scale
-Collapsed investment funds, leaving investors holding the bag
-Leading entire economy to brink of disaster
- Massive $10 trillion+ Industry bail out courtesy of Turbo Flat Tax
- Massive bonuses before, during ("retention" bonuses), and after crisis
i.e. business as usual

3) Federal Reserve:

Role in fiasco:  
-Lowered interest rates to engineer bogus "recovery" and create incentives for households to borrow way beyond their means; 
-Provide leverage to speculators, under-regulate banks 
-Turn blind eye to securitization frauds; 
-Allow banks to become "too big to fail", requiring massive taxpayer bailouts
Retribution: None.  No oversight whatsoever; now via Quantitative Easing finding new ways to increase systemic leverage

4) "Irresponsible" households:
Role in fiasco:  Overconsumption, overleverage on housing and other forms of debt
- Foreclosure/loss of personal residence
- Bankruptcy (divorce)
- Fund taxpayer bailout of banksters
- Top Ramen for Christmas dinner

Is this a great fucking system or what?

Friday, December 3, 2010

Dr. Bernanke or: How I Learned to Stop Worrying and Love the Bust

This week I observed a very rare Double Top fractal at three degrees of trend.  A fractal is a repeating pattern - in this case a double-top.  Each of these double tops attends extreme bullish sentiment towards the stock market and an inverted head and shoulders (triple) bottom between the tops:

The graph below shows the numbered red lines indicating each double-top.  Red up arrows show the head and shoulder bottoms (I only show the largest two fractal bottoms).

Extreme sentiment refers to the AAII and II sentiment surveys which are at similar extremes reached in October 2007 and April of this year.  As well, the ISEE call/put ratio printed 183 yesterday, the highest level since April 15th (just prior to the top).  

The below close up view of this year's action shows the (2) and (3) fractals:

To summarize, the first double-top rally (from 2003-2007) took ~5 years to reach extreme sentiment and a peak.  The rally from March 2009 to April 2010 lasted just over one year and reached a similar extreme in sentiment and a market peak.  The rally from the low this past August to this November's high, lasted 2.5 months, peaked, triple-bottomed earlier this week and is now straight vertical, having already again reached an extreme in sentiment. 

Each rally is of shorter and shorter duration than the last yet attends the same level of investor enthusiasm.  Why are investors equally bullish as October 2007 when the market is 20% lower?  Why are they equally bullish as last April when the market has gone nowhere?  

This effect is called attenuation, the same concept used in electrical engineering to describe a loss of signal.  Or the term used in cardiology to denote the heart's pattern immediately prior to a heart attack...

By the way, for those who do not subscribe to EWI (literally or figuratively), their most recent "December Financial Forecast" sees as the most likely scenario higher prices going into year end, leading to a final top above current levels.  For the most bearish of all published forecasters to have now switched from being full on bearish since April expecting the market to top out imminently, to now being bullish (at least intermediate) term, I regard that as capitulation.  Maybe they will be right this time, but since they have been wrongly bearish for the better part of a year, I am not betting that they will now get it right.  More likely they will be the last fools sucked in at the top, too focused on their ever-changing wave counts and ignoring all other flashing indicators including their own capitulation.  Given that they alter their wave counts continuously after-the-fact, we can be confident they will be "right" eventually, that's guaranteed.

Dr. Bernanke in the house: When all you have is a hammer, everything starts to look like a nail
Meanwhile, in other news, today's jobs report was far worse than "expected".  With 39,000 net new jobs created v.s. 150,000 expected and 250,000 minimum needed to offset new entrants to the labour force.

Copious disinformers still abound to support Bernanke's QE2 (Money printing) scheme, which has done nothing for the real economy to date (hence the v.2 nomenclature, soon to be 3,4,5...)  Those supporting this scheme tend to be of the Wall Street ilk and thereby the primary beneficiaries of being able to borrow at 0% and lend at 4%, risk free - via the various carry trades enabled by this "policy" of basically giving out free money to select wealthy investors at the public expense.  As we have seen before, all of this extra financial leverage makes for extremely spectacular busts when these carry trades are unwound.  
Speaking of which, we learned this week that the Fed extended a total of $9 trillion in loans to the banks during the banking crisis - $9 fucking trillion !  Do you remember all of the hand wringing, Tea Partying, letters to Congressmen that abounded when the Treasury initiated the TARP program in Sept. 2008?  Yet, for all that, the $700 billion TARP was less than 10% of what the Fed doled out - it was chump change.  The Fed on the other hand, faced absolutely zero oversight or intervention while extending the U.S. balance sheet several times beyond historic levels.

2008 was a tremor, next comes the earthquake
What has the Fed done in the meantime to correct the imbalances and mal-incentives that led to the 2008 financial crisis?  All they have done is to further leverage the system by inventing new ways (Quantitative Easing) to put money in the hands of leveraged speculators and thereby kicked the can a few yards down the road towards the next much larger catastrophe.  The odds that the Fed can kickstart the economy and engineer a successful exit strategy by applying even more of the same easy money that caused the first crisis, is exactly fucking zero.
The Fed is run by a bunch of overeducated moronic stooges toiling feverishly at the behest of their moneyed puppetmasters on Wall Street.  Harvard and the University of Chicago do not teach any courses on judgement and commonsense, which is why there are so many fucking morons in high places pissing all over themselves while the fire burns out of control.

The stock market chart below illustrates the only true beneficiaries of Monetary Policy.  On the far left, Greenspan's 1% interest rate policy [June 25th, '03] (at the time, the lowest in U.S. history), that propelled the 2003 "Mission Accomplished" rally and led to the parabolic housing boom that is still negatively impacting a large number of households.  On the right side, Bernanke's Moon Shot showing Stage 1 [QE1], Stage 2 [QE2] and our current juxtaposition, once again in Outer Space.  Oddly, charts like this don't make me optimistic:

The other beneficiaries of Bernanke's doomed munificence are silver and gold investors, who will ride that bullet train until it crashes and burns:

So, do you feel lucky, punk?

These silver investors are seeking shelter from "inflation" even as the core CPI prints its lowest reading ever (since data collecting started in 1957).  Check out this chart.   Wow, that's inflation all right !  Silver investors tell us that core CPI is inaccurate and does not reflect true costs of commodities and precious metals.

Let's see, inflation is "going up", so buy silver.  Silver is going up, therefore inflation is going up !  Buy more silver!

Hi Ho Silver, Away !!!!