What Is That Whistling Sound?

Volatility Breakthrough

2012-02-10T16:30:00.002-07:00

The long awaited breakthrough in volatility has come.

Let's consult the old school point and figure charts to see how far the increase may go.

As we can see, VIX has broken to the upside, through resistance at around the 20 level.

The next level of resistance is about 25. How long this volatility will last is an open question, but the overall target is 30 at this point.

Setting the parameters of the chart differently give us a target of 26, so depending on how the market react to headline news, we could see this take weeks to play out or we could see a sudden move upward and volatility could remain "sticky" at a higher level.

I am playing a volatility ETF currently, but it is somewhat thinly traded so we shall see how well it behaves.

I will be taking a break from blogging for a couple of weeks to recuperate from a stressful period, but will be back near the end of the month.

All the best to my readers in the meantime.

Here We Go - Down That Is

2012-02-10T07:34:00.003-07:00

From the opening bell:

S & P down 12
Gold down 25
Oil down 1.97
Dow down 108

US dollar up 0.52

Keep your eye on copper, it has a long way to go - down that is.

Watch The Doctor (Copper)

2012-02-08T18:27:00.002-07:00

As long time readers know, we have been keeping a close eye on Doctor copper for some time.

With today's action, I now wonder if we will finally see the long expected down wave we have been watching.

Note that MACD has crossed.

RSI is strong but turning slightly.

Slow Stochastics has just crossed.

Let's watch how this develops as present prices appear to be a good candidate for the peak.

Imminent Clash With Iran Unlikely

2012-02-07T19:06:00.000-07:00

Based on some recent information from Stratfor, it is my view that a strike against Iran is unlikely in the short term.

When one considers the position of the US fleet, it becomes apparent that there is simply not enough firepower in the Indian Ocean to hit Iran hard.

It seems that the bulk of the US fleet is preparing for operation "Bold Alligator 2012" instead.

Short of some unforeseen geopolitical event, my forecast remains biased to the downside for crude prices.

Orderly or Disorderly Default?

2012-02-06T17:52:00.004-07:00

My view:

This is generally a good interview with Mr. Stein.

What we need to keep in the forefront of our minds is the consequences of a disorderly default by Greece.

This nation has a great deal of history, being the birthplace of democracy for one, and will not take the totalitarian attitude of Germany lightly.

They may unexpectedly say "piss off" at a most inconvenient time for the markets, so be prepared with cash and precious metals.

The Collapse Clock Moves One Minute Closer To Midnight

2012-02-04T19:26:00.004-07:00

Clock ticks on Greece's bailout deadline

ATHENS (Reuters) - Greek Prime Minister Lucas Papademos faces a critical task of convincing international lenders and political party leaders on Sunday to agree to the stringent terms of a 130 billion euro ($171 billion) rescue plan to stave off looming default.
Greece on Saturday warned it had just one day left to clinch the bailout plan with political leaders and impatient lenders who accuse it of dragging its feet on promised reforms.
"There is great impatience and great pressure not only from the three institutions that make up the troika but also from euro zone member states," said Finance Minister Evangelos Venizelos on Saturday after what he called a "very difficult" conference call with euro zone counterparts.
"The moment is very crucial. Everything should be concluded by tomorrow night."
Papademos, who failed to resolve all issues in talks with lenders on Saturday, is due to call in the socialist, conservative and far-right party leaders in his coalition on Sunday to seek their blessing for reforms in the bailout.
Athens has wrangled without success for weeks with lenders and private bondholders on the bailout package and a debt restructuring plan, putting itself dangerously close to bankruptcy as 14.5 billion euros of debt falls due in mid-March.
In an apparent warning to Greek political leaders opposing key reforms, Venizelos said the patience of European partners and the International Monetary Fund (IMF) footing the bill for Greece's bailout was wearing thin.
Euro zone finance ministers told Greece on Saturday it could not go ahead with an agreed deal to restructure privately held debt until it guaranteed it would implement reforms needed to secure a second financing package from the euro zone and the IMF.

My view:

While Athens burns, the emperors are fiddling.

Greek politicians are still trying to kick the can down the road as the Troika attempts to impose austerity measures that are so unpalatable that no party can stomach them.

With Greek debt to GDP exceeding 170%, this plan to drop it to 120% is a restructuring plan with no hope of working.

My own calculations, taking into account the terrible trade deficit Greece has, indicate that from a repayment standpoint after default, debt to GDP probably should not exceed 30%.

The severity of the Greek problem can mean only one thing.

As some point soon, out of a sense of self preservation, the Greeks will default on virtually all of their debt and return to the drachma.

Such an uncontrolled default is likely to cause much disruption in the banking industry in Europe and spill over into the United States and other nations.

While I doubt the next 24 hours will bring on such a calamity. It should become apparent to the markets even is a temporary deal is reached within the next few months, that the Troika, central banks, and sovereign governments have greatly exaggerated their ability to resolve this crisis.

I note that over the past couple of weeks, even Libor and Ted have been dropping, showing the high level of complacency that exists.

The stock markets are probably very headline sensitive at this point with their low volumes and high degree of institutional manipulation.

In a few weeks, I anticipate some type of flash crash once a large enough headline grabbing story shocks investors into reality. Until then stocks may whipsaw about as they grind a little higher.

More Denial In Europe

2012-02-03T07:27:00.004-07:00

Portugal Bond Rout Overstates Greek Likeness

Portugal’s bond-market rout suggests investors aren’t rewarding the nation’s austerity efforts and are concerned about a Greek-style reduction in debt repayments.

Portuguese bonds handed investors a loss of 6.9 percent so far this year, the worst performance among 26 sovereign-debt markets tracked by Bloomberg and the European Federation of Financial Analysts Societies. The slump that drove its yields to euro-era records this week overstates the risk of investor losses, known as haircuts, according to analysts at Deutsche Bank AG, BNP Paribas SA and ING Groep NV. Portugal has a lower funding gap than Greece and its progress in cutting its deficit will allow it to better weather debt-market turmoil, they said.

“Just because Portugal trades where it trades doesn’t mean it needs a haircut,” said Padhraic Garvey, head of developed market debt at ING in Amsterdam. “Our baseline view is that Portugal probably needs another two or three years of help from the European Union and International Monetary Fund, but that haircuts will be avoided.”

The nation’s two-year note yields reached a euro-era high of 21.82 percent on Jan. 31, surging almost 10 percentage points, or 1,000 basis points, in less than three weeks. Ten- year yields also rose to a euro-era record that day, climbing to 18.29 percent. The rates were 17.63 percent and 14.32 percent, respectively, at 11:29 a.m. London time.

My view:

With bond yields in excess of 20% and debt to GDP above 110% it is clear the Portugal is in big trouble.

But denying trouble seems to be the theme of 2012 so far.

The EU is racing to put a band-aid on the Greek debt problem before a large bond payment comes due on March 20, and analysts at ING are making irrational comments about Portugal not needing a debt haircut.

Let's get real.

There is no way that Portugal can service this level of debt at anything close to these yields.

Even if the yields were at 3% the debt would be difficult to service IF they were not running deficits.

So default is inevitable.

The open question is when.

The stock market has been remarkably resilient in the face of all this trouble. This causes me to change my view that we may see more upward movement over the next few weeks than initially expected.

One level I am watching closely is the 78.6% retracement level on the S&P that happens to be 1373. This is a candidate for the top before the March/April/May selloff begins, if I am correct.

Gunboat Diplomacy For Greece

2012-02-01T19:07:00.003-07:00

Brace For Impact

2012-01-31T20:59:00.001-07:00

Readers will recall a comment made a few days ago about the Facebook IPO demonstrating "peak complacency" in the market.

Now we have two other indicators that show a strong bear market has already begun.

First let's look at Doctor Copper and see what he has to say:

Doc Copper is looking pretty under the weather after the evening doji star candlestick appeared on Jan 27th.

I like to watch for evening star patterns as they are highly reliable indicators of a downturn.

Further, Slow Stochastics has turned down, MACD is declining, and RSI is headed down.

Secondly, look at the S&P pattern that just emerged:

In this chart we see a candle stick pattern known as dark cloud cover on January 25 & 26 with confirmation of the pattern the next day.

Note that like Dr Copper, RSI, MACD, Slow Stochastics are all in a decline phase.

So it appears that the Facebook IPO will mark the start of a long downtrend, based on these indicators.

Venezuela Repatriates Its Gold

2012-01-30T20:29:00.002-07:00

Venezuela receives shipment of gold

CARACAS, Venezuela - Venezuela repatriated a final shipment of gold from foreign banks Monday, saying the country has withdrawn a total of $9 billion in its gold reserves and moved it to the country's Central Bank.

The shipment of 14 metric tons (15 tons) brought the total amount of gold shipped to Venezuela since November to 160 metric tons (176 tons), Central Bank President Nelson Merentes said.

President Hugo Chavez in August initially announced a plan to retrieve about 211 metric tons (233 tons) held in U.S. and European banks.

Merentes didn't explain the change, but said about 85 per cent of Venezuela's gold reserves are now held in the country.

My view:

As much as I despise Hugo Chavez and his mad socialist/communist policies, he is doing something wise for a change.

By repatriating the nation's gold from the Anglo-American bank cartel he is freeing his country from its iron grip and that of an increasingly vulnerable US dollar.

On a global scale, only the central banks of India and China have been purchasing gold in large volumes over the past few years. So the complacency level of most G20 nations is troubling. They are counting on an easy solution to the European banking and sovereign debt crisis. The contagion has not yet reached the shores of Canada and the United States, but the linkage of the banking system is so systemic, that we will see another large crisis at some point in the near to medium term.

The problem with a sovereign debt crisis if it goes global, is that it can morph into a currency crisis that transcends all boarders. Those that have the protection of gold and silver as reserve currencies will be in a much stronger position to restart their economies after the inevitable financial contagion crushes the value of fiat currencies.

So our little mad dictator might not be as crazy as we thought, because there is no easy button to press for a simple way out of the global debt problem.

The American Debt Crisis Explained Simply

2012-01-30T07:24:00.001-07:00

Total US Tax Revenues:         $2,170,000,000,000

Federal Budget Expenditures: $3,820,000,000,000

New Debt to fund deficit:       $1,630,000,000,000

Present National Debt:          $15,000,000,000,000

Current Budget "cut":                  $38,500,000,000

If we look at these numbers based on a fairly typical American family, we get some perspective.

Annual Family Income:                              $43,400

Money the family spent: $76,400

New debt on the credit card:                      $33,000

Outstanding credit card debt:                   $300,000

Total budget current "cuts":                            $770

Think there is any chane that this family can repay $300,000 in credit card debt even a low interest rates?

Me neither.

Wake up America, we need to stop this massive spending machine and the congressmen that support it!

Black Swans Gather For Greek Default Feast

2012-01-28T17:43:00.005-07:00

Greek default playing with fire

The economic and political consequences of Greece defaulting instead of reaching a voluntary debt-restructuring deal are being underestimated, Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said.

“Default risk is much higher than what people normally take into account,” Ackermann said today in an interview at the World Economic Forum in Davos, Switzerland. “You see already that some markets are nervous about certain countries,” he said. “That is playing with fire if you think that a default will have no impact.”

As Greece’s creditors continue negotiations with the country’s government as well as the International Monetary Fund, European Union, and European Central Bank over the terms of a restructuring, some investors and financiers are downplaying the consequences of a default. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said this week that it would not be a “disaster,” Dow Jones reported, citing an interview with CNBC.

“They are underestimating the collateral damages and they are underestimating the risk of contagion,” Ackermann, 63, said today. “If we have a default in the euro zone going forward, this will reduce somewhat the trust and confidence in the euro system and so, in that sense, we should do everything also from a historic and political perspective to prevent a default.”

Market participants remain sceptical that Greece will be able to make a 14.5 billion-euro ($19.2 billion) bond payment in March. In a Bloomberg Global Poll of 1,209 investors released this week, 93 percent of respondents said they expect Greece to default.

My view:

Peak complacency is demonstrated by this bit of news.

Facebook Inc., the world’s largest social-networking service, is aiming to file for its initial public offering as early as next week, two people with knowledge of the matter said.

The company is discussing a valuation of $75 billion to $100 billion, said two people, who asked not to be identified because the plans haven’t been made public. Timing for the filing is still being discussed and may change, they said.

The market is becoming very complacent.

The decline of the volatility index VIX is one indicator.

Another is the expectation that Facebook will launch an IPO within the next couple of weeks.

The market has probably priced in either a very orderly Greek default, or a new extend and pretend package for Greece.

The Troika certainly does not want European banks to take a huge hit to their capital if they can avoid it as it would slow down business lending.

Other forces are gathering to counter the Troika, and their plans to trump Greek sovereignty and indeed the sovereignty of every nation within the Euro.

Germany Calls for EU Control of Greek Budget

Watch for the results of the upcoming French presidential elections, and the reaction of right leaning parties in Germany and the Netherlands.

These black swans are gathering eagerly waiting to feast on the corpse of the European Union and its failing Euro currency.

The Plan To Kill The Dollar

2012-01-27T19:58:00.002-07:00

My view:

The Obama administration is planning to kill the value of the dollar to boost exports.

While this may seem like a workable plan to the mad central planners and their central banking, Federal Reserve co-conspirators, it may be more difficult to kill the dollar then they anticipate.

The Federal Reserve can create money to its hearts content.

But it depends on the banking system to deliver the goods by lending the money to credit worthy borrowers.

The bond market sets interest rates in the medium to long term range, and as the Fed tries to inflate, bond vigilantes may react by demanding increasing rates, and thereby raising interest rates as they have in Greece and Italy.

Since demand for borrowing has declined, and the bond market is becoming skeptical, that may prove a task more challenging than expected.

My medium term outlook remains deflationary.

Zombie Stock Rally

2012-01-25T19:59:00.004-07:00

There is something very funny about this stock rally.

Bernanke, king of zombies, announces that extended low interest rate policy will be in place until 2014.

The zombie king's re-animation project has not worked well so far despite 3 years of trying.

There are two indicators that show this rally does not have much left in its legs.

Notice the 9 day EMA is supporting this run up.

The RSI has breached the 70 level showing signs of market becoming overbought.Slow Stochastics has just started to fall from its lofty heights as %K has just crossed %D.

So certainly this rally could continue a wee bit longer, but is starting to look long in the tooth.

This next chart of HUV, an ETF based on VIX, show that Slow Stochastics are in the basement with a reading below 1!

The 4 day EMA is chasing the day's candlestick outside the Keltner channel!

RSI has fallen well below the oversold 30 reading, and MACD has flatlined.

These indicators tell me more that the SPX ones do that we are overdue for a surge in volatility and a major correction in the S&P 500.

Once the correction shows up, in perhaps two to four weeks, what will the zombie king do for an encore?

CDS Insurance Costs Hit Record High

2012-01-25T07:40:00.002-07:00

From MarketWatch:

Portugal Debt Insurance Cost Hits Record

The spread on five-year Portuguese CDS widened to 1,310 basis points from 1,279 basis points on Tuesday, according to data provider Markit. That means it would now cost $1.31 million annually to insure $10 million of Portuguese debt against default for five years. "Right now it looks as if Portugal could be the country with the biggest multiple-equilibria risk -- meaning the biggest risk of being dragged towards default,

My view:

The endgame is rapidly approaching in Europe.

In my opinion, the market has not come close to pricing in the fallout.

Be ready.

Who Could Have Expected This?

2012-01-24T20:25:00.002-07:00

From The New York Times:

IMF Reduces Estimates for Global Growth on Sharply Escalating Risks in Europe

Releasing quarterly updates of three reports on the outlooks for the economy, debt and global financial stability, the fund cut its estimates of global growth this year to 3.25 percent, from the 4 percent it forecast in September, on “sharply escalated” risks emanating from Europe.

It is also calling on the European Union to expand its bailout fund to at least $1 trillion from its current capacity of 440 billion euros, or about $570 billion, according to a person with knowledge of the negotiations.

The I.M.F. did not change its growth forecast for the United States, however. Speaking with reporters, Olivier Blanchard, the fund’s chief economist, said that the “good and bad news” about the American economy were “more or less canceling each other” out:

But the fund made a stark warning about the safety of the American financial system. The fund said that “potential spillovers” from the euro area crisis might “include direct exposures of U.S. banks to euro-area banks, or the sale of U.S. assets by European banks.”

My view:

The day of reckoning draws ever nearer for our European friends.

Despite calls to raise the fund limits to $1 trillion Euros, the insolvency problem just does not want to go away.

A quick calculation so the reader can grasp the magnitude of the impact of one missed bond payment by Greece or any of the other nations in Southern Europe that are struggling.

On March 20, Greece needs to cough up 14.5 billion Euros.

European banks hold most of Greek debt.

European banks are leveraged at least 30 to 1.

Therefore the impact of this one payment on bank equity is potentially almost 450 billion Euros.
As the reader can see, if other payments are missed by the Greeks, or the Portuguese, or Spanish, or Irish, or Italians, the European banking system's capital is wiped out in very short order.

The American banking system is also linked to the European system through credit default swaps, hence the warning of "potential spillovers".

For those who have not yet bought precious metals, that form of money with no credit claims against it, your time is short and window of opportunity is narrowing.

In Hoc Veritas Non Est

2012-01-22T14:54:00.002-07:00

Greece, creditors move to breach gap as clock ticks

Greece and its private bondholders inched closer on Thursday to a vital debt swap deal needed to avoid a messy default by Athens, with both sides saying progress has been made and negotiations would continue on Friday.

Nearly a week after talks hit an impasse over the coupon, or interest payment, that Greece must offer on its new bonds under the swap, there were signs the two sides were moving to overcome their differences as time to strike a deal runs out quickly.

"The atmosphere was good, progress was made and we will continue tomorrow afternoon," Finance Minister Evangelos Venizelos said after talks with Charles Dallara, head of the Institute of International Finance representing bondholders.

The IIF issued a statement echoing the minister.

Bankers and sources close to the talks say a deal could be wrapped up in the next few days, though previous predictions of a quick resolution have proven premature.

The stakes could not be higher this time. Greece must thrash out a deal within days to pave the way for a new infusion of aid that allows it to avoid bankruptcy when 14.5 billion euros ($18.5 billion) of bond redemptions fall due in March.

Even if a deal is struck rapidly, the paperwork will take weeks and Greece's official lenders, the European Union and the International Monetary Fund, say the work must be cleared before funds are doled out from a 130 billion euro rescue plan they drew up in October.

My view:

A desperate Trioka (European Commission with the European Central Bank and the International Monetary Fund) is attempting to prevent hard default on Greek bonds.

Negotiations are dragging on and on to the point of ridiculousness.

The latest proposal is for Greek bonds to have the yield written down on them to the 3.5 to 4.5% range.

This laughable exercise is an attempt to trick the bondholders into thinking Greek debt is safe and that the Troika has divine-like powers to stop contagion reaching weak banks.

Now we understand why the authorities wish to slap a band-aid on Greek debt, because the consequences of default are so immense.

The authorities, at some level, understand that all banks are tied together by Credit Default Swaps. And they understand that a bond default will cause the CDS insurers to pay out capital from the bank's tangible equity. This is exactly the opposite of the outcome they want - the objective is to build up bank capital, not shrink it - so the ponzi game of bank lending (and coincidentally, government nanny state spending) can go on..

Consider this problem from both the German & Greek perspective:

The Greeks wanted in on the Euro & the Germans let them in despite their shoddy repayment record over the past two hundred years. This was dealt with in detail in a recent post here on Game Theory.

The German export machine wanted to grow their exports and therefore the German trade surplus (which is second only to the Chinese globally). The Greeks wanted to spend and have lower borrowing costs.

It worked!

For a while.

Now the Greeks run a massive trade deficit of >10% of GDP importing 3 times the value of the goods they export.

The Troika wants them to implement huge austerity and wage cuts and have bond holders take "voluntary" haircuts to avoid triggering CDS insurance payouts.

Do you think the Greeks will go for it?

I doubt it.

The pathological state is showing its true colors now.

The Euro was a lie. And the truth is not found in the Troika.

Greece is likely to default and return to the drachma.

Given the present conditions, I place odds at better than 50% this occurs by the Easter weekend this April.

The Euro Emperor Has No Clothes

2012-01-18T18:50:00.002-07:00

This chart, courtesy of Moody's, shows the degree to which bank equity is exposed to the peripheral markets of the EU.

Anyone familiar with accounting, will recognize that banks are reluctant to mark their assets to market value as such actions would severely impact their balance sheets.

In the event of a Greek default, which may happen as soon as the middle of March, we can expect to see bank lending slow or even freeze as banks attempt to preserve capital.

Due to the potentially catastrophic impact of such an event, we can expect to see desperate Eurocrats racing around the clock to find some way to stop or slow the contagion.

Several ideas have been floating around including a massive liquidity (bailout) fund on the order of One Trillion up to Ten Trillion Euros.

Again these bumbling bureaucrats fail to understand (or perhaps acknowledge) that the issue is one of insolvency, not liquidity.

Three and a half year after the 2008 financial crisis, we still have the same unsuitable responses to the solvency problem. The Central Bankers and Central Planners refuse to let spendthrift banks and nations go broke.

But as the problem is delayed by adding more debt funded liquidity, the magnitude of the problem grows much larger.

If we see a massive liquidity injection, we could have not only a bond crisis, but a full fledged currency crisis as investors seek safe havens.

The key to understanding the problem is to grasp the concept of Credit Default Swaps (CDS).

The are, for all intents and purposes, insurance policies between financial institutions that promise to make the claimant whole if a default occurs. The twist of CDS is that the insuring institution also provides collateral to the institution being insured.

When a claim is made, then we see whether the collateral has any value.

This is why the Eurocrats (and indeed American officials) want to continue to prop up the system with borrowed money from taxpayers.

Credit Default Swaps (CDS) are the glue that link one bank to another.

And this is why, when a significant default does occur, we will find that the Euro Emperor has no clothes.

This fiat currency is totally exposed.

So then, what is a Euro really worth?

Europe's Descent Accelerates

2012-01-15T19:56:00.001-07:00

Sarkozy vows reform after France downgrade

Sarkozy -- who hosted crisis talks with his top economics ministers at the Elysee on Friday -- reportedly told allies last month: "If we lose the triple-A, I'm dead."

He had staked his re-election bid on convincing voters that he was the only candidate with the stature and experience to save France from economic meltdown.Sarkozy justified pushing through two austerity packages as necessary to defend France's triple-A rating.

An IFOP poll on Thursday showed that in the first round of the election in April, Hollande would take 27 percent of the vote, followed by Sarkozy at 23.5 percent and far-right National Front leader Marine Le Pen at 21.5 percent.

Friday's downgrade left a sizeable hole in Sarkozy's reelection campaign."It is the end of the myth of the protecting president," said Le Pen.

The downgrade added to already bleak economic figures for France.

INSEE, the national statistics office, says it expects France to fall into a brief recession, with the economy contracting 0.2 percent in the three months to December and another 0.1 percent in the first quarter of 2012.

S&P said the downgrade of France "reflects our opinion of the impact of deepening political, financial, and monetary problems within the eurozone".

Euro Falls After S&P Strips France of AAA, Reduces Eight Others’ Ratings

The euro dropped Jan. 13 before S&P lowered the top ratings of France and Austria one level to AA+, with “negative”outlooks, while affirming the ratings of countries that included Germany, Belgium and the Netherlands. The company also downgraded Italy, Portugal, Spain and Cyprus by two steps and cut Malta, Slovakia and Slovenia by one level. S&P had put the ratings of 15 euro nations on review on Dec. 5 for possible downgrades.

The loss by France and Austria of their AAA credit ratings may erode the firepower of the euro-region’s bailout fund that’s needed to tap markets to finance aid for Greece, Ireland and Portugal. The European Financial Stability Facility owes its AAA rating to guarantees from the euro region’s top-rated nations.

“There could be panic around the world on contagion as sovereigns have difficulty acquiring credit,” Axel Merk, president and chief investment officer of Merk Investments LLC in New York, said Jan. 13 in an interview on Bloomberg Television. “We need clarity on the reform process, and that causes uncertainty and then you just get downgraded step by step, and that’s not a rosy outlook.”

My view:

Sovereign debt, accumulated from rich, underfunded social programs, and military adventurism is some cases, combined with bailing out a chronically insolvent banking system, is knocking the stuffing out of credit ratings of half the nations in the EU.

While loss of the Triple A rating is no cause for panic by itself, the trend is very clear. Chronic deficit spending has produced structural spending problems that are politically difficult to address.

We are now three years past the 2008 financial crisis and must ask what have the powers that be done to address its root causes?

Banks are taking great risks with high leverage once more, and governments have provided an explicit guarantees to permit business as usual. Risks have been transferred from banks to each national government. As debts mount, credit ratings decline, and interest payments balloon. The destination is clear on this European debt train - bankruptcy and collapse of the Euro.

The first casualty will like be Greece by April 2012.

Expect Ireland, Portugal and even Italy to follow soon after.

2012 Slideshow

2012-01-14T14:53:00.002-07:00

http://www.bloomberg.com/money-gallery/2012-01-14/apocalypse-how-dire-2012-forecasts.html#slide1

Like the recently capsized Italian cruiseship, the experts generally do not see deflation coming.

A few in this slideshow are at least aware that there is something seriously wrong with both the economy and financial system.

It is my view that mainstream economists will once again be surprised by the severity of the downturn.

On the bright side, those of us with precious metals who have lowered our standard of living expectations may be surprised with an upswing in investment purchasing power.

For those who have not taken precious metal seriously to date, a narrow window remains to convert risky assets like stocks and bonds and even cash to the monetary metals gold and silver.

For those who are still reluctant I have one question:

How much more evidence do you need?

Recovery or not?

2012-01-12T21:04:00.000-07:00

Six Reasons This Is A Depression

“The markets are telling us something valuable when (after a period of unprecedented government bailouts, incursions and stimulus programs) the yield on the 5-year note is south of 1% and the 10-year, is down to 2%,” says Rosenberg.

But here’s six more reasons why it looks like America is in a depression:

1) “Interest rates go to zero and there is no revival in credit-sensitive spending.”

2) “Banks are sitting on nearly $2-trillion of cash and yet there is no lending going onto the private sector.”

3) Almost half the ranks of the unemployed have been looking for a job fruitlessly for at least six months. You might not see soup lines, but according to Rosenberg, they’re in the mail — “99 weeks of unemployment cheques for over 10 million jobless Americans.”

4) In a recession, growth would be back to new highs three years after the initial contraction. This time around, everything from personal income to GDP to home prices to corporate earnings is still down from levels seen at the end of 2007.

5) “Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which fits the bill today.”

6) “In a recession, the economy is revived by government stimulus. In depressions, the economy is sustained by government stimulus. There is a very big difference between these two states.”

My view:

David Rosenberg has nailed this one on the head.

The key to recognize what is wrong with the economy is to look at interest rates.

Interest rates measure the demand for money. The demand is very low.

Canada and Australia have yet to experience the full effects America has felt. It appears both countries are 5 years behind the American and European experience.

Once China slows considerably over the next year, both these resource based countries will finally see their real estate bubbles burst.

One of the early indications that the slow down is imminent is the recent large drop in the Baltic Dry Index. The BDI seems intent on testing the 2008 lows!

Political Math Proves: Romney = Obama

2012-01-11T19:49:00.003-07:00

A longtime reader has brought some important information to my attention.

You can infer where a candidate's loyalty is by considering their top donors.

I count 10 banks making large contributions to the Romney campaign.

I count 0 banks manking contributions to the Ron Paul campaign.

Let's compare with Obama's campaign (2008 contributions):

University of California	$1,648,685
Goldman Sachs	$1,013,091
Harvard University	$878,164
Microsoft Corp	$852,167
Google Inc	$814,540
JPMorgan Chase & Co	$808,799
Citigroup Inc	$736,771
Time Warner	$624,618
Sidley Austin LLP	$600,298
Stanford University	$595,716
National Amusements Inc	$563,798
WilmerHale LLP	$550,668
Columbia University	$547,852
Skadden, Arps et al	$543,539
UBS AG	$532,674
IBM Corp	$532,372
General Electric	$529,855
US Government	$513,308
Morgan Stanley	$512,232
	I count 5 huge donations from large banks and substantial additional donations from large US corporations. So the math holds up. Romney = Obama

Another Bankruptcy For Hostess

2012-01-11T12:56:00.002-07:00

Hostess returns to bankruptcy over pensions

(Reuters) - Twinkies and Wonder Bread maker Hostess Brands Inc filed for bankruptcy protection for the second time in less than three years, after failing to reach an agreement with workers on pension and health benefits.
Hostess' declining financial performance, crippling legacy costs associated with its pension plans and massive debt levels led the company to Chapter 11 bankruptcy, court papers showed on Wednesday.
The company, which has about $860 million in debt, said it does not expect disruptions in the manufacturing and delivery of its products during the bankruptcy process.
To reorganize itself, the company must withdraw from multiemployer pension plans, address legacy health and welfare costs and secure new capital to modernize its production and distribution operations, Irving, Texas-based Hostess said.
The company had total assets of $981.6 million and liabilities of $1.43 billion as of December 10, 2011.

Hostess, formerly known as Interstate Bakeries Corp, had first filed for bankruptcy protection in 2004 in Missouri and emerged from it in February 2009 with private equity firm Ripplewood Holdings and other lenders taking control.

My view:

A trend is developing in corporate America.

Declare bankruptcy to shed pension benefits and heath costs.

This is likely to reinforce a deflationary trend as workers must work longer and save more before retirement.

Forget "freedom 55", now it's "freedom 75".

Mafia is No. 1 lender in Italy

2012-01-10T19:04:00.000-07:00

Mafia now "Italy's No.1 bank" as crisis bites

ROME (Reuters) - Organized crime has tightened its grip on the Italian economy during the economic crisis, making the Mafia the country's biggest "bank" and squeezing the life out of thousands of small firms, according to a report on Tuesday.Extortionate lending by criminal groups had become a "national emergency," said the report by anti-crime group SOS Impresa.
Organized crime now generated annual turnover of about 140 billion euros ($178.89 billion) and profits of more than 100 billion euros, it added.

"With 65 billion euros in liquidity, the Mafia is Italy's number one bank," said a statement from the group, which was set up in Palermo a decade ago to oppose extortion rackets against small business.
Organized crime groups like the Sicilian Cosa Nostra, the Naples Camorra or the Calabrian 'Ndrangheta have long had a stranglehold on the Italian economy, generating profits equivalent to about 7 percent of national output.

Extortionate lending had become an increasingly sophisticated and lucrative source of income, alongside drug trafficking, arms smuggling, prostitution, gambling and racketeering, the report said.
"The classic neighborhood or street loan shark is on the way out, giving way to organized loan-sharking that is well connected with professional circles and operates with the connivance of high-level professionals," the report said.

It estimated about 200,000 businesses were tied to extortionate lenders and tens of thousands of jobs had been lost as a result.

Typical victims of extortionate lending were middle-aged shopkeepers and small businessmen who would struggle to find a new job and who were ready to try anything to avoid bankruptcy, it added.
"They are usually people in traditional retail sectors like food, greengrocers, clothes or shoe shops, florists or furniture shops. These are the categories which, more than any other, are paying the price of the (economic) crisis," it said.

According to a separate report this week from small business association CNA, 56 percent of companies had seen banks tighten their lending requirements in the past three months.

My view:

Perhaps this is one of the reasons that when you talk to very elderly people who remember life in the 1930s they were so fearful about borrowing money.

Now we are not just dependant, but addicted to credit, and the mafia in Italy is the "dealer".

How long before a great credit crunch strikes the rest of Europe and North America?

Are We On The Cusp Of A Gold & Silver Breakout

2012-01-10T07:28:00.000-07:00

In reviewing the charts over the last few days, a pattern seems to be emerging.

The silver gold ratio followed the markets lower during the 2008 crash, while moving parabolically higher during the silver rally in 2010.

From anecdotal reports as well as the MF Global bankruptcy, it appears that both silver and gold for delivery are in extremely short supply.

The point and figure charts appear to show a double bottom for both silver and gold. On this basis and on the supply demand side of the equation, it appears that another major breakout will begin shortly for the precious metals.

Wealth Of The Nations

2012-01-08T12:40:00.000-07:00

Rise up in splendor, Jerusalem! Your light has come,
the glory of the Lord shines upon you.
See, darkness covers the earth,
and thick clouds cover the peoples;but upon you the LORD shines,
and over you appears his glory.
Nations shall walk by your light,
and kings by your shining radiance.Raise your eyes and look about;
they all gather and come to you:
your sons come from afar,
and your daughters in the arms of their nurses.

Then you shall be radiant at what you see,
your heart shall throb and overflow,
for the riches of the sea shall be emptied out before you,
the wealth of nations shall be brought to you.
Caravans of camels shall fill you,
dromedaries from Midian and Ephah;
all from Sheba shall come
bearing gold and frankincense,
and proclaiming the praises of the LORD.
Isaiah 60: 1-6

They were overjoyed at seeing the star,
and on entering the house
they saw the child with Mary his mother.
They prostrated themselves and did him homage.
Then they opened their treasures
and offered him gifts of gold, frankincense, and myrrh.
And having been warned in a dream not to return to Herod,
they departed for their country by another way.
Matt 2: 10-12

My view:

On this feast of Epiphany, let us consider the epiphany that is ongoing in the financial markets and monetary system.

A light has gone on above the heads of many.

The enlightenment is this - we can not continue to spend what we have not earned - be it on wars or welfare - no matter what politicians and the media may tell us.

This is a reality moment.

A moment of truth.

It involves the masses, that are snapped back into reality from fantasy by a hard truth.

The pathological state promises things it can't possibly deliver.

It imposes capital controls and begins bank holidays to save the status quo banking system.

But the truth of the matter is elegantly simple.

You can't spend what you have not earned.

You can't borrower when you are a deadbeat, spendthrift - be it individual or nation.

You can debauch your currency in an attempt to keep the parasitic bankers at the helm, steering the ship called the economy toward the rocks of despair.

Or you can embrace the truth of gold and its creator.

Because wise men still seek Him.

UK Plans For Euro Funeral

2012-01-07T22:30:00.001-07:00

Some of the ideas presented here seem unlikely, such as the British Pound rising in event of a Euro collapse.

I suspect the largest beneficiary of such an event would be a surge in the US dollar initially, and then competitive devaluations amongst currencies globally.

Awesome Ron Paul Predictions from 2002

2012-01-06T18:38:00.002-07:00

It is amazing how truly prophectic this man's predictions were 10 years ago.

Are America and the world now ready to listen?

Big Downturn In 2012

2012-01-06T07:38:00.001-07:00

Spain's Austerity Dilemma

2012-01-04T19:15:00.001-07:00

Spain says deficit bigger than expected, hikes taxes

Spain's new government said on Friday that this year's budget deficit would be much larger than expected and announced a slew of surprise tax hikes and wage freezes that could drag the country back to the centre of the euro zone debt crisis.

In its first decrees since sweeping to victory in November, the centre-right government said the public deficit for 2011 would come in at 8 percent of gross domestic product, well above an official target of 6 percent.

It announced initial public spending cuts of 8.9 billion euros ($11.5 billion) and tax hikes aimed at bringing in an additional 6 billion euros a year to tackle the shortfall. "This is just the beginning ... We're facing an extraordinary and unexpected situation, forcing us to take extraordinary and unexpected measures," Deputy Prime Minister Soraya Saenz de Santamaria said.

Spain has been under market scrutiny over its ability to control its public finances, and Madrid has seen risk premiums soar to record highs on contagion fears as the euro zone debt crisis spread.

Ten days ago the Treasury said the central government budget deficit was on course to meet a full-year target of 4.8 percent of GDP, which analysts said would push Spain's overall public deficit above its 6 percent target for the year.

But the scale of the overshoot took some economists by surprise and led them to forecast a deeper recession, ending the year on a downbeat note for the euro zone as a whole.

My view:

Spain, like much of southern Europe, is struggling with high unemployment and budget deficits.

It continues to outspend its tax revenues of approximately $500 billion by $120 to 150 billion per year. So though spending cuts and tax hikes are proposed, they do little to address a severe structural deficit.

The Spanish government spends $1260 for every $1000 of tax revenue - that is 26% more than revenues.

This harsh reality is made worse by an unemployment rate over 21%.

So one in five Spaniards of working age is unemployed, and the government has overspent its budget by 26% in 2011, despite the austerity measures implemented so far.

The bond market will catch on to this unworkable situation sooner or later, but for now the debt will continue to grow by unsustainable rates which will ultimately end in default.

We can expect to see Spanish bond yields rise, harsher austerity measures imposed in an attempt to reduce expenditures by $100 billion to match tax revenues, and likely an exit from the Euro within the next couple of years as expenditures are not cut enough to satisfy the bond market while interest rates on government debts rise to excessive levels.

Note that Spanish debt to GDP is "only" 68% in 2011 - a low number if you believe the likes of Paul Krugman.

Greece Threatens To Leave The Euro

2012-01-03T19:23:00.004-07:00

Lack of bailout deal will force Greece to exit the euro

Pressure is mounting on Greece with the start of the new year as the country's government is aware that time for reaching a bailout deal with its international lenders is running out.

A government spokesman warned in an interview for Sky TV on Tuesday that unless an agreement with the EU, IMF and the ECB is struck quickly, Athens will have to leave the Eurozone and then “the situation will be much worse.”

Until now neither Greece nor the EU took the country's exit from the euro under consideration, as it would lead to further crisis escalation in the area. However, in the face of lack of support for the harsh austerity measures, Greek officials have begun issuing warnings about the possibility of Greece leaving the Eurozone which would have disastrous consequences for the country.

Troika inspectors will visit Athens in mid-January in order to establish conditions for the next 130 billion euro bailout tranche. Before that Greece still needs to implement various public spending cuts and carry on with the privatization program.

Greeks & Italians moving money out of banks

Greeks and Italians are taking their money and running, moving it abroad for fear the euro zone crisis will topple banks and wipe out what remains of their savings. Bankers in Greece say worries about the resilience of local banks, coupled with a rise in burglaries, has helped trigger a surge in demand for safe deposit boxes for those who have yet to set up accounts outside the country.

“They’re worried about a default and a run on the banks Argentina-style,”

My view:

As predicted by myself and some other bloggers, Greece appears to be the first country that will exit the Euro. While my exit target date remains aimed at the April Easter holiday, a later date is possible with additional band-aids from the EU.

Bank runs are also becoming apparent in both Greece and Italy. We can expect to see people continue to pull out cash in an attempt to protect their savings.

At some point, perhaps after the Greek exit, we can expect to see Gold move up substantially as investors look for an alternative currency that is not manipulated by central banks and the Anglo-American banking system.

Silver could also see significant upward movement at that time.

Greece is the first domino that will fall.

The question is, which domino will fall next, and how quickly?

The Iowa Caucus In Pictures

2012-01-02T19:47:00.001-07:00

The results of the Iowa caucus could be the determining factor in the Republican nomination, vote wisely.

2012 Year Of The Dragon

2012-01-01T16:51:00.004-07:00

Happy New Year to all my readers.

As the new year dawns, we can reflect on several interesting coincidental themes between the economy, public mood, and astrological cycles.

In Chinese astrology, which is based on both calendars and astronomy, each year has an animal assigned to it in a twelve year cycle. In 2012 (beginning January 23rd) the animal is the mythical dragon, the only mythical creature of the cycle.

Part of Chinese astrology is the Wu Xing which is often translated as the Five Phases or Elements.
The word Xing literally translates as 'changing states of being', 'permutations' or 'metamorphoses of being'. Rather than the western view of elements being made of matter, the Chinese view is that of changing forces which have interactions between different phenomena.

What is of interest to us, is the coincidental nature of phenomena ascribed to this year's Dragon which is the Water Dragon.

Consider the following intuitive connections with Chinese cosmology & medicine for this year:

Color: Black
Planet: Mercury
Direction: Descending
Season: Winter
Development: Dormant
Country: Japan

Mental quality: Spontaneity
Emotion: Fear
Smell: Putrid
Life state: Death

All the above descriptions of the year of the Water Dragon fit the Kondratieff Winter cycle well.

The connection between astronomical events and market events is an interesting one we have examined before.

Consider this from an earlier blog post regarding a conjunction between Mercury & Uranus.

A conjunction between Mercury & Uranus is anticipated for March 9, 2011. In Greek mythology Uranus is the chief god of the underworld and in Roman mythology Mercury is the god of commerce.
References:
Mercury - God of Trade, Profit, Merchants and Travellers. His main festival, the Mercuralia, was celebrated on May 15 and on this day the merchants sprinkled their heads and their merchandise with water from his well near the Porta Capena. The symbols of Mercury are the caduceus (a staff with two intertwined snakes) and a purse (a symbol of his connection with commerce).
Uranus - He was the personification of heaven and the sky. When Uranus was born with his other siblings, he decided to banish the Cyclopes and the Hecatoncheiris into the depths of Tartarus. In Greek mythology Tartarus is a deep, gloomy place, a pit, or an abyss used as a dungeon of torment and suffering that resides beneath the underworld.

What is significant in this, is the apparent coincidence of the March 9th conjunction, and the March 11th earthquake and tsunami that struck Japan. The economic damage was significant, and the human loss devastating.

A 2 year chart showing the impact of the tsunami on the Nikkei index follows:

The chart shows Japanese stocks never recovered from the disaster, and are now again probing the lows of March 2011.

As a proponent of the Kondratieff cycle theory, it is my view that we need to closely watch developments in Japan as well as the evolving European crisis to continue to make changes to protect our portfolios and influence our friends and family.

As I explained in my 2012 Forecast, the first wave of difficulties should appear in the Japanese bond market this year.

I expect US treasuries to do well for at least the first half of this year, cash looks attractive, shorting copper and Japanese bonds could be profitable. Gold will probably do very well later this year once it finishes consolidating to its Elliot Wave low, perhaps around $1480, although the Dec 29 inter-day low of $1524 may complete gold's correction - we will just have to wait and see.

Is The Bird Flu Back?

2011-12-30T13:34:00.001-07:00

From AFP:

Chinese Man Critical With Bird Flu

BEIJING — A 39-year-old man is in critical condition after testing positive for the deadly H5N1 bird flu virus in the Chinese city of Shenzhen, state media reported Saturday quoting local health authorities.
The city borders Hong Kong, which has culled thousands of chickens and ordered a suspension of live poultry imports from China after three birds tested positive with the strain in mid-December.
The man, a bus driver surnamed Chen, was hospitalised with a fever on December 21 and tested positive for the H5N1 avian influenza virus in Shenzhen's Bao'an district, the provincial health department said, according to Xinhua news agency.
He remains in a critical condition and is receiving emergency treatment, the report said, adding that the man had apparently had no direct contact with poultry in the month before he was taken ill nor had he left the city.
Chinese and Hong Kong authorities have been working closely together since December 21 after live poultry supplies were suspended to the glitzy financial hub following the discovery of infected birds.
Chinese health authorities vowed to stay in "close contact and work together" with Hong Kong and "jointly step up measures in controlling the epidemic", the report said.
Authorities in Hong Kong raised the bird flu alert level to "serious" as they tried to trace the origin of an infected chicken, resulting in major disruptions to poultry supplies over the busy Christmas period.

I think we have an airborne H5N1 virus:

My view:

What are the chances of a bird flu case popping up on the radar only days after we find out that the US government has financed research to create an airborne H5N1 virus?

Particularly when this virus has a 50 to 60% death rate?

What monster is this that has come shambling forth?

And this happens just after we see bill 1867 (aka "the indefinite detention" bill) pass in the senate in December. Fortunately, this bill still needs to go through the house so stopping it may yet be possible.

Nationalism Rising In France

2011-12-30T08:37:00.003-07:00

France is struggling with high unemployment closing in on the 10% mark, and a socialist welfare state contributing to high budget deficits.

France almost lost its AAA credit rating this year.

A presidential election is looming in 2012, and with the populace becoming disenchanted with the socialists, one could expect the right wing National Front party to do well.

Here is a link to an interview with Marine Le Pen on BBC Hardtalk.

Note that she is the daughter of Jean-Marie Le Pen, former leader of the NFP and her platform includes leaving the Euro.

Democracy Under Siege

2011-12-29T13:34:00.001-07:00

The Collapse of Communism

Frontpage Interview’s guest today is Robert Buchar, an associate professor and author of the Cinematography Program at Columbia College in Chicago. A political refugee from former Czechoslovakia, he is the producer of the documentary, Velvet Hangover, which is about Czech New Wave filmmakers, how they survived the period of “normalization” and their reflections on the so-called Velvet Revolution of 1989. He is the author of the new book, And Reality be Damned… Undoing America: What The Media Didn’t Tell You About the End of the Cold War and Fall of Communism in Europe. The book is based on a documentary feature he is currently working on, The Collapse of Communism: The Untold Story.

FP: Robert Buchar, welcome to Frontpage Interview.

You have some quite startling things to say about the fall, or lack thereof, of the Soviet Empire in the period 1989-1991. What is it that we don’t know about the “collapse of communism” as it has been described to us in the media?

Nina Karsov recently informed us, here at Frontpage Interview, of many troubling facts connected to The Triumph of Soviet Deception. Please also comment on her interview and give us your own angle.

Buchar: Thank you for the opportunity to be here.

The great political upheaval of the late 20th century—the fall of communism in Eastern Europe and the collapse of the Soviet Union—is generally regarded as the spontaneous product of long-accumulating social and economic pressures. That is the official story, which was hammered into our heads by the western media. If you try suggesting that this is not the case, the media will not take you seriously and even refuse to discuss what you are trying to say. It is a taboo topic. But the ample of evidence suggests otherwise.

During the final phase of the Cold War, the Soviet Union, under its dogmatic and visibly senile party bosses, was sinking into near-bankruptcy. Yuri Andropov, Chairman of the KGB—the only organization with both a full knowledge of the state of the economy and a mastery of strategic decisions—came to the conclusion that there was no cure for the grave illness of the communist system. To preserve the wealth that threatened to slip out of the leaders’ hands, he masterminded a nearly unthinkable program—throwing into the fire Moscow’s rule over the Eastern European bloc—and, as it turned out, the ruling party of the USSR itself. Though Andropov died in 1984, the signs of his hand in the events that followed remain visible, as well as the role of his handpicked successor, Mikhail Gorbachev. Witnesses in my book testify that what appeared to be a spontaneous freedom movement in 1989 was in fact a coup d’état orchestrated from Moscow—in the offices of the Russian KGB. Americans and Europeans no longer remember the past and don’t realize that history is now repeating itself.

Nina Karsov, in the interview with you, rightly quoted Jozef Mackiewicz referring to Western democracies as “deaf and blind men.” Western democracies never understood the Soviet system as such. The idea of deception as the foundation of foreign policy doesn’t fit into our way of thinking. Westerners can hardly comprehend a pursuit without material benefit, with strictly ideological goals based on a policy of conspiracy against other states. And that is what this is all about. We had quite a few predecessors of Perestoika in the past. We had the economic deception in the 1920s, deception of peaceful coexistence, and the ‘détente’ under the Brezhnev regime.

Deception is an essential part of communist ideology. It is a central part of communism and it will continue to be like this. As Nina rightly pointed out, “it would be hard to believe that the wolf has become a vegetarian.” Communism is indeed totalitarian and was never interested in any compromise. So, the “end of communism” proclaimed by the West is a myth. And now we can see the resurgence of communism with the help of the Western right. Instead of punishing the communists for their crimes, the Western right has extended them a hand, like a sign of apology for defeating them. As Olavo de Carvalho nicely pointed out in the interview with Alex Newman for The New American magazine, “This absurd surrender of the winners was also stimulated by powerful globalist circles, whose interest in establishing worldwide bureaucratic controls converges with the objectives of communism.”

Nina Karsov made a very important point at the end of your interview, pointing out the incremental, but rapid erosion of our own liberties here in the West, the increase of state powers over the individual, and she raised the question of whether we are approaching the victory of authoritarian and totalitarian power, under which collective thinking, uniformity and conformity will dominate. I lived in that system for thirty years before defecting to the United States. It never crossed my mind that it will catch up with me eventually. So I may say, no thank you, I have been there. I am not interested. Nina is absolutely right, people don’t see the essence of communism as a world mission. The majority of people in the West can’t even define communism. Unfortunately, they just have no idea.

FP: How come our government still doesn’t get it? Is it sort of a strategy of intentional blindness or just plain blindness? Or is there something else in play we don’t know?

Buchar: Obviously there is a lot of we don’t know and probably we will never know. We can only look at facts available and come up with our own conclusions. It is obvious that international finance is pushing hard for the New World Order, a sort of global management, perhaps as Zbigniew Brzezinski talks about. In his book The Grand Chessboard he suggests that the United States, in the near future, must cease to be the superpower and that this will lead to the creation of a new global system of government where politics will be replaced by new global management. Let me quote, for lack of better words, Olavo de Carvalho here again: “What we have is a gigantic symbiosis of all globalist and statist forces around the world. Meta-capitalists are natural allies of the communists.” The communist movement evolved, perfected to deal with dissidences, using them as instruments to adapt to local situations. It can’t get any more scary, I guess. As far as our politicians go, yes, I think we can call it the political blindness from which no meaningful strategy can arise. Unless, of course, their strategy really is global management. I am glad I am so old.

FP: What would be the consequences of admitting that the “collapse of communism” in Europe was part of a KGB plan to expand its global influence? Or is the public by now “massaged” enough not to care after all?

Buchar: The Western public is well massaged by media and “proper” education to the point they can’t comprehend what is going on and in a large part they don’t care anyway. The young generation of Americans today has no knowledge of history and can’t put in the perspective what is going on today because they have no idea what happened in the past. The people living in the former Soviet Block countries have a different experience, but experiencing the situation from “inside” makes them unable to see the big picture. A few individuals who are aware of what is going on and are concerned about it can’t avert the trend. And after all, their governments don’t even care what they think and say anymore. The new system was set up the way that nobody can change anything. Elections can be easily manipulated and the outcomes will be always the same no matter what party wins. It’s hard to imagine what will be the consequences of revealing what really happen back in 1980’s. I believe it can never be officially accepted. Not in my lifetime.

FP: With Obama in power, do you think we are inevitably heading toward socialism in the USA? What are the chances, in your view, in terms of how things are going, that socialism may finally rule the world? If yes, who can legitimately claim credit for it?

Buchar: You know, as serious as it is, from my perspective, it’s almost funny. I feel like experiencing an amazing déjàvu. It started with the Clinton administration and now it’s picking up the speed. Many things I see happening I remember from my previous life in communist Czechoslovakia. In politics, academia, media… it looks to me like the current government is following the old textbook written in Moscow in the last century when the Soviets were taking over the Eastern Europe. But, of course, people here don’t know anything about it. Politicians and the media perfected the process of indoctrination. Deception got very sophisticated. Masses without any knowledge of history in today “now-culture” can be manipulated on a daily basis. A recent Rasmussen poll asked a simple question, “Which is a better system—capitalism or socialism?” Only 53% of American adults said capitalism. Even the same question was asked young adults under 30, 37% prefer capitalism, 33% socialism, and 30% are undecided.

Obviously, the scale is tipping off. Decades of intensive Soviet deception are finally paying off. We have a young generation now without any idealism and values. In this conformist society, people just follow the orders. It’s all about manipulation. The direct control is not efficient anymore; influence instead is a much better tool.

From The Economist Intelligence Unit (Democracy Index 2011):

Erosion of democracy in Europe

Global backsliding in democracy has been evident for some time and strengthened in the wake of the 2008-09 global economic crisis. Between 2006 and 2008 there was stagnation; between 2008 and 2010 there was regression across the world. In 2011 the decline was concentrated in Europe.

Seven countries in western Europe had a decline in their democracy score in 2011; none had

an increase. The main reason has been the erosion of sovereignty and democratic accountability

associated with the effects of and responses to the euro zone crisis (five of the countries that

experienced a decline in their scores are members of the euro zone--Greece, Italy, Portugal, Spain and Ireland).

Most dramatically, in two countries (Greece and Italy) democratically elected leaders have

been replaced by technocrats. The near-term political outlook for Europe is disturbing. The European project is under serious threat and disputes within the EU are ever sharper. Harsh austerity, a new recession in 2012, high unemployment and little sign of renewed growth will test the resilience of Europe’s political institutions.

Attitudes to democracy

The 2008-09 global economic crisis has had a

disproportionately negative impact on eastern

Europe compared with other emerging markets,

such as developing Asia and Latin America. But it is

not only in terms of national output that the crisis

has left its mark on the region. It also seems to have

reinforced a pre-existing mood of disappointment

with the experience and results of the 20-year

transition (Hoey 2011). A number of post-crisis

surveys and reports point to a further decline in life

satisfaction, support for markets and democracy and

trust in institutions.

The Eurobarometer reports published between

May 2008 and August 2011 reveal changes in public

opinion in all 27 member states and in the five

candidate countries (Croatia, Iceland, Macedonia,

Montenegro and Turkey) since the start of the crisis.

Similar trends were revealed by Gallup polls taken

before and after the crisis (2006 and 2009), and also

by the Life in Transition Surveys (LiTS) carried out

jointly by the European Bank for Reconstruction and

Development (EBRD) and the World Bank in 2006 and

2010.

The most striking findings of the LiTS 2010 was

the decline in support for democracy in central

Europe and the Balkans. In 11 transition countries,

50% of respondents or fewer express a preference

for democracy, with support being lowest in Serbia,

Latvia, Russia, Lithuania, Ukraine and Bosnia &

Hercegovina (BiH). The widespread disenchantment

with democracy in the region, especially in the richer

economies, does not necessarily reflect a hankering

for authoritarianism or a return to the communist

past. Rather, it seems to reflect the exhaustion

of contemporary political systems and a general

unfocused disillusion, apathy and disengagement.

My view:

It is with much concern that we look at the survey results of the Economist Intelligence Unit and the interview from Frontpage.

We need to ask how Democracy has arrived at this point, and even consider the direction it is headed.

It appears that through several approaches, Democracy has been hijacked by authoritarian philosophies and the degrees of freedom we have enjoyed in much of the Western World are gradually being repressed.

Two of the approaches appear to be:

A) the entitlement propaganda that is taught in schools, on television and in the home. This view is reflected in the taxation system that focused on revenue generation from taxes on income and consequently a redistribution to those governments deem worthy.

This is a far different from revenue generation from days gone by when tariffs were the primary form of government income.

B) the creation of a central bank, fractional reserve banking system and fiat currency. The goal of a fiat system was alleged to create "a flexible" currency to permit monetary authorities to respond with stimulus when the economy was weak.

This has worked far too well.

The creation of fiat dollars and a government bond market fuels growth in the size of government to unprecedented levels.

Consider first the purchasing power of the Dollar or Yen or Euro or Rand.

Do any of these currencies have the same purchasing power as they did 5 or 10 years ago?

Why?

Due to inflation created by central banks and governments, each of these fiat currencies lost a substantial amount of purchasing power.

Another question that follows - what is the goal of inflation?

If we view history, we can see that it has become a tax on the lower, middle and upper middle classes.

Inflation has transferred wealth from these classes to the very wealthy and has transferred power and influence to governments, particularly on the national level.

Consider that in the 1960s and early 1970s it only took one wager earner in a family to "make a living". Today, in the western nations I am familiar with, it takes two wage earners per family to eke out a living.

Consider the following two charts showing the growth in size of government from 1947 to 2010 in the United States:

So in 1947 a citizen had to work from January 1st to March 19th to pay his share of taxes.

In 2010, the same citizen had to work from January 1st to July 5th .

How has all this "progress" improved our civil liberties?

Charles de Gaulle - Monetary Prophet

2011-12-28T12:13:00.000-07:00

These words from French President Charles de Gaulle are proving themselves prophetic nearly 47 years after he spoke them.

He is not suggesting that the US dollar be replaced by Special Drawing Rights (SDR's) as the IMF, George Soros, and other elitists would have us believe, but gold, that ultimate extinguisher of debt.

Perhaps, in hindsight, it would have been wise to listen to him.

It is also worth noting that De Gaulle was toppled as President of France less than three years later. Could it be that suggesting a return to a gold standard was the "wrong answer" according to the Anglo-American bank cartel? More on this topic here.

De Gaulle vs. The Dollar

Note: This article is from February 1965!

Perhaps never before had a chief of state launched such an open assault on the monetary power of a friendly nation. Nor had anyone of such stature made so sweeping a criticism of the international monetary system since its founding in 1944. There was Charles de Gaulle last week proclaiming that the primacy of the dollar in international dealings was finished, calling for an eventual return to the gold standard —which the world's nations scrapped 50 years ago — and practically inviting other countries to follow France's lead

Read more: http://www.time.com/time/magazine/article/0,9171,840572,00.html#ixzz1hrEuttJf

You may be sure that the Americans will commit all the stupidities they can think of, plus some that are beyond imagination.

Charles de Gaulle

Read more:http://www.brainyquote.com/quotes/authors/c/charles_de_gaulle_3.html#ixzz1hrDspibk

You Won't Believe This

2011-12-27T16:34:00.004-07:00

From the New York Times:

“You are not going to believe this one,” he told Ron Fouchier, a virologist at the Erasmus Medical Center in Rotterdam. “I think we have an airborne H5N1 virus.”
The news, delivered one afternoon last July, was chilling. It meant that Dr. Fouchier’s research group had taken one of the most dangerous flu viruses ever known and made it even more dangerous — by tweaking it genetically to make it more contagious.
What shocked the researchers was how easy it had been, Dr. Fouchier said. Just a few mutations was all it took to make the virus go airborne.
The discovery has led advisers to the United States government, which paid for the research, to urge that the details be kept secret and not published in scientific journals to prevent the work from being replicated by terrorists, hostile governments or rogue scientists.
Journal editors are taking the recommendation seriously, even though they normally resist any form of censorship. Scientists, too, usually insist on their freedom to share information, but fears of terrorism have led some to say this information is too dangerous to share.
Some biosecurity experts have even said that no scientist should have been allowed to create such a deadly germ in the first place, and they warn that not just the blueprints but the virus itself could somehow leak or be stolen from the laboratory.
Dr. Fouchier is cooperating with the request to withhold some data, but reluctantly. He thinks other scientists need the information.
The naturally occurring A(H5N1) virus is quite lethal without genetic tinkering. It already causes an exceptionally high death rate in humans, more than 50 percent. But the virus, a type of bird flu, does not often infect people, and when it does, they almost never transmit it to one another.

“This research should not have been done,” said Richard H. Ebright, a chemistry professor and bioweapons expert at Rutgers University who has long opposed such research. He warned that germs that could be used as bioweapons had already been unintentionally released hundreds of times from labs in the United States and predicted that the same thing would happen with the new virus.

“It will inevitably escape, and within a decade,” he said, though he added that security measures like restricting possession of the virus to fewer scientists and fewer laboratories would lower the chances of that happening so soon.

From AFP (several days earlier):

Top US scientists defended their bid to stop details of a mutant bird flu virus from being published and called for global cooperation to ward off an uncontrollable pandemic.
Meanwhile, scientists involved in the experiments said they are cooperating with government officials and the editors of the journals Science and Nature to pare down their research for publication in the coming weeks.
The controversy arose when two separate research teams -- one in the Netherlands and the other in the United States -- separately found ways to alter the H5N1 avian influenza so it could pass easily between mammals.
Until now, bird flu has been rare in humans, but particularly fatal in those who do get sick. H5N1 first infected humans in 1997 and has killed more than one in every two people that it infected, for a total of 350 deaths.
The concern is the virus could mutate and mimic past pandemic flu outbreaks such as the "Spanish flu" of 1918-1919 which killed 50 million people, and outbreaks in 1957 and 1968 that killed three million.
The recommendations from a non-governmental advisory panel that key details of the newly altered virus be withheld drew fire from some scientists who saw it as censorship of material that is essential for surveillance and the hunt for vaccines.

My View:

What kind of madman would actively pursue the modification of such a deadly virus to facilitate airborne transmission between mammals (and people)?

When one digs into this story we see that two separate teams were pursuing the same goal.

The question is - why?

Why would the government of the United States be interested in an airborne virus with a 50% death rate?

Is there any use for such information other than bioweapons?

How in the world is this type of research going to make the world a safer place in the land of the free and home of the brave?

2012 Forecast

2011-12-26T12:27:00.002-07:00

1) Continuation of global stock market collapse. As readers may recall from my http://whatisthatwhistlingsound.blogspot.com/2010/12/2011-forecast.html, global markets had a valuation of about $51 trillion. Currently the valuation is under $46 trillion. It is my assertion that we will see the markets drop below $40 trillion by the end of 2012.

2) A spike in gold bullion prices is possible, but only after the air has been taken out of the derivatives markets. Due to the problems of central bank and bullion bank shenanigans we may even see sideways to lower bullion prices in much of 2012 as the authorities strive to maintain the status quo fractional reserve fiat currency system. My year end gold target is $1950.

3) Bond market yields among peripheral countries in Europe continue to rise. Spain, Italy and Portugal look particularly vulnerable. Greece is a lost cause. French yield will rise substantially.

4) At least one country leaves the Euro in 2012. Greece is the prime candidate. Several other countries are also candidates including Belgium, Ireland, Spain, Slovenia, Portugal and Italy. A full Eurozone breakup is likely by 2013.

5) Cash flows to US bonds becomes significant, driving low yields down even further as the risk off trade moves into full swing due to Europe’s sovereign debt crisis.

6) US 10 year Treasury Note yields fall to 1.75% from the current 2% level as the risk off move deepens.

7) The S&P 500 falls as low as 1050 by year end despite a QE3 type attempt by Ben Bernanke to restart a stagnant American economy.

8) As the European bond market stumbles, money flows out of commodities with crude oil (Brent) dropping below $80 and copper also falling to $2.75. Forecasting crude prices in notoriously difficult as political tensions in the Middle East can quickly increase prices to nosebleed levels. This forecast assumes Iran and the United States avoid a shooting match.

9) The US dollar index rises significantly reaching our target of 88.

10) The Canadian dollar drops against its US counterpart and heads toward 91 cents.

11) The bull-run in the Canadian housing market ends and the real estate bubble finally pops, thanks in part due to a slower economy and higher down-payment requirements.

12) More American municipalities file for bankruptcy. While a state bankruptcy is possible in 2012, we will likely see the first state bankruptcies in 2013.

13) American banks take serious capital hits from the European crisis and the continuing problems in the domestic residential and commercial loan markets.

14) The high US dollar negatively impacts exports as they become too expensive for Europe and emerging markets.

15) Deflation grips the US as GDP grows slows to a crawl, prompting consumers to save even more.

16) Inflation in China slows causing a pause in further interest rate increases and then a decrease in interest rates in a vain attempt to prevent a hard landing in China. China’s real estate bubble also deflates substantially.

17) Globalization begins to unravel as trade drops off significantly.

18) Hot money flows out of the stock markets and bond markets to US bonds as a “safe haven” move. The giant move into gold as Exter's inverse liquidity pyramid suggests probably does not happen until 2013 or even later.

19) Democracy comes under siege on a large scale for the first time since the collapse of communism. Civil liberties in many countries are reduced. Russia and southern European states appear particularly vulnerable.

20) The Japanese bond market experiences its first wave of difficulty in selling bonds. Yields slowly rise for the first time in many years.

Joy To The World

2011-12-23T16:01:00.002-07:00

Merry Christmas to all my readers.

MF Global's Enormous Implications

2011-12-22T21:50:00.000-07:00

I have been taking note of the events and actions associated with MF Global since it filed Chapter 11 in October.

Before we draw conclusions we must examine the facts.

First consider some facts about CEO Jon Corzine:

Hired by Goldman Sachs as a bond trader in 1975.

CEO of Goldman Sachs from 1994 to 1999.

He left Goldman in 1999.

He attended meetings of the Bilderberg group 1995 -97, 1999, 2003 and 2004.

US Senator for New Jersey from 2001 to 2005.

Governor of New Jersey from 2006 to 2010.

CEO of MF Global from 2010 to Oct 31, 2011 when it filed Chapter 11 bankruptcy.

Second, let us consider some of the impact of this particular bankruptcy from a story in the IB Times:

According to Trace Schmeltz, a partner at the law firm of Barnes & Thornburg, a deal was being worked out Friday with "a major FCM (futures commodity merchant)," wherein the merchant would post collateral on physical gold positions, allowing customers with physical gold accounts to trade on or liquidate their assets. Schmeltz asked the merchant's name be withheld, citing the fact "their legal might not be done reviewing" specifics of the deal.

People liquidating their assets will have to accept a 28 percent reduction in the amount of assets. The haircut, as it is called, results from the fact that more than $1.2 billion dollars that should have been segregated in MF Global's customer accounts is missing, a shortfall that will likely be shared by account holders regardless of what assets their accounts held.

Previously, customer's gold assets had been frozen as a result of the proceedings undertaken by James Giddens, the court-appointed trustee for the liquidation of MF Global.
The unfreezing of physical assets is little solace to some market participants, who will lose money both from the haircut and as a result of having their assets frozen during a time of high volatility in the physical metals market.
Gerald Celente, a well-respected market forecaster who publishes The Trends Journal -- and who says he held a six-figure position in physical gold prior to the broker's collapse -- described the saga befalling physical gold traders like himself as "bulls--t."
"That this should have even been a question is an outrage," Celente told the International Business Times.
"That people had to hire a lawyer to get their gold back because some criminal group decided it wasn't theirs anymore -- you can only get away from this when you get to make the rules," he continued, adding that, as a trader "you're only as safe as the last loophole. You have no protection out there."
Celente was particularly aggrieved because, as he explained in a YouTube video shortly after the MF Global collapse, he had specifically requested delivery on his gold, rejecting the warehouse receipt most traders will usually accept.
"Now I know why you heard all those stories about people putting the money under the mattress for safety," Celente said "If you don't have it in your pocket, you don't own it."

Finally consider this report from Jim Willie:

If Jim Willie is correct, the Comex is insolvent.

They simply can't deliver anywhere close to the amount of gold and silver contracts that are traded.

His theory that MF Global went down, at least in part, due to the inability to deliver precious metals may have an unpleasant truth hidden beneath it.

The missing money, part of which appeared recently at a JP Morgan account, (a bullion bank) is intriguing.

It may take months to get to the bottom of these allegations.

Now, some members of congress are demanding the Department of Justice step in as this letter shows.

If no one goes to jail for the obvious fraud that has occurred, it is my view that the American people will lose faith in public officials and even fuel further protests and civil disobedience.

More Ugly Indicators

2011-12-22T17:44:00.002-07:00

Ted indicates financial stress rising

Libor indicates financial stress rising too.

SSEC shows Chinese economy running out of gas

BDI after a bounce it goes sideways at a low level

Brent crude trending slightly down

Copper shows another downtrend

Wheat shows a downtrend for nearly a year. It was at $1200 back in 2008, now down to the upper-mid $500 range

Dispatch: Kim Jong Il's Death and North Korea's Transition

2011-12-20T07:04:00.000-07:00

Dispatch: Kim Jong Il's Death and North Korea's Transition

7 Days Until Christmas

2011-12-18T14:15:00.001-07:00

Luke 1: 26 - 38
26	In the sixth month the angel Gabriel was sent from God to a city of Galilee named Nazareth,
27	to a virgin betrothed to a man whose name was Joseph, of the house of David; and the virgin's name was Mary.
28	And he came to her and said, "Hail, full of grace, the Lord is with you!"
29	But she was greatly troubled at the saying, and considered in her mind what sort of greeting this might be.
30	And the angel said to her, "Do not be afraid, Mary, for you have found favor with God.
31	And behold, you will conceive in your womb and bear a son, and you shall call his name Jesus.
32	He will be great, and will be called the Son of the Most High; and the Lord God will give to him the throne of his father David,
33	and he will reign over the house of Jacob for ever; and of his kingdom there will be no end."
34	And Mary said to the angel, "How shall this be, since I have no husband?"
35	And the angel said to her, "The Holy Spirit will come upon you, and the power of the Most High will overshadow you; therefore the child to be born will be called holy, the Son of God.
36	And behold, your kinswoman Elizabeth in her old age has also conceived a son; and this is the sixth month with her who was called barren.
37	For with God nothing will be impossible."
38	And Mary said, "Behold, I am the handmaid of the Lord; let it be to me according to your word." And the angel departed from her. We always find that those who walked closest to Christ were those who had to bear the greatest trials. -- St. Teresa of Avila Read more: http://www.ewtn.com/devotionals/inspiration.htm#18#ixzz1gvICuG9B

Tipping Over Into A Deflationary Blackhole

2011-12-16T12:44:00.002-07:00

In my six year search for an explanation of the troubles facing the economic system I have just come across what may be the most important essay in understanding our deflationary destiny.

Some of the most relevant excerpts are included below.

Keep in mind that this was written over 10 years ago; before 9-11, before the housing bubble, and before the "war on terror". It is proving to be prophetic.

The Economic Consequences Of Mr. Greenspan

by Antal E. Fekete - Professor Fekete.com

Originally published December 07th, 2001

Economists and the financial press have failed to sound the alarm as a - so far unprecedented - curse hit the world: the rate of interest in Japan started plunging to zero. While the public is kept in the dark, authorities are trying desperate measures, including the encouragement of and subsidy to the yen-carry trade, in the hope to relieve the downward pressure on the rate of interest in Japan through the sale of Japanese bonds - to no avail. The yen carry-trade is the very mechanism whereby the deflationary tumor metastasises across the Pacific. What it does is merely to shift the downward pressure on the rate of interest from Japan to the United States. From this vantage point, the gold-carry trade is also highly deflationary as it also contributes to the downward pressure. The world has been hit by the greatest deflationary iceberg in economic history, and the captains of the international monetary system are busy rearranging the deck-chairs, telling passengers that the boat is unsinkable.

A reliable indicator of deflation is the rate of interest falling towards zero. It can be compared to a blackhole the attraction of which is hard to escape and from where (just as from Hades) no one has ever returned. Why is a zero-bound rate of interest such an unmitigated disaster? Because, as we shall see, it makes the (present value of) debt go to infinity - just like gravitation becomes infinitely large inside of a blackhole of the physical universe.

There are, in fact, two blackholes in the economic universe: blackhole #1 is the infinite-interest blackhole (runaway inflation), and blackhole #2 is the zero-interest blackhole (runaway deflation). When gold was put beyond the pale just 25 years ago in 1976, little did the world realize that it was firing the policeman in charge of cordoning off blackholes. By 1980 the world had a close brush with runaway inflation as the dollar was tottering at the brink of one of the blackholes. Many ad hoc explanations were concocted, from the machinations of the gnomes of Zürich to the malice of Arab sheiks. Nobody raised the question whether the firing of the policeman may have had something to do with the disaster. The scare passed when the Soviet Union showed signs of disintegration and the successor states of the Evil Empire, like a dry sponge, started absorbing dollars with abandon. The people of these countries were lapping up dollars at the trough as if they were imbibing the elixir of life which had for so many years been denied to them. This meant a stay of execution for the dollar which appeared doomed only a few short years before. But neither the economists' profession, nor the top brass at the Fed was interested in taking advantage of the remission to initiate an inquiry into the wisdom of having put into abeyance the monetary clauses of the United States Constitution half a century earlier. Instead, they joined the enthusiastic crowd at the Currency Circus watching with fascination Clown #1, the dollar doing fancy footwork dancing away from blackhole #1, while neglecting to pay attention to Clown #2, the yen waltzing around blackhole #2.

Of course, the rate of interest can never be exactly zero. Likewise, it can never be infinity either. We are in the habit of rounding figures. But just as we never round to infinity, we should never round to zero either. For example, if the rate of interest is 0.01%, one must not round it to zero. It could get halved a dozen times or even a hundred times, and will still not be exactly zero. Yet each halving would mean that the debt burden got doubled, causing ever more bankruptcies and punching ever greater holes in the balance sheets of banks.

The see-saw of interest rates and bond prices

The fact that the yield and the price of a bond are in inverse relation is well-known to security analysts, although it is often puzzling to laymen. Even professionals may occasionally think that it is merely a statistical law. Well, it is not: it is a mathematical law that does not bear exceptions. A related common mistake is to think that the see-saw of the rate of interest and the bond price is limited by the face value of the bond, which cannot be exceeded by market value no matter how far the rate of interest falls. The fact is that the face value of a bond does by no means or manner limit its market value. Any given value, however high, is theoretically possible, provided that the rate of interest is low and maturity is far enough. The mathematical apparatus to prove this is given in the Excursus. The mathematics becomes quite simple for perpetual bonds (consols in British parlance). A perpetual bond with face value A has no maturity, but it pays interest in perpetuity at a fixed rate a. If the market rate of interest isb, and the market value of the perpetual bond is B, then the mathematical relationship between the variables b and B is given by the attractive formula:

Aa = Bb = constant

For example, if the rate of interest b gets halved, then the market value of the bond B must double (and conversely). Moreover, if b plunges to zero, then Btends to infinity. While there are no perpetual bonds around any more, the formula is still relevant, because it provides a reasonable approximation for the relation between the market value of long-term bonds and the rate of interest. Furthermore, the longer the term the better the approximation (for a 30-year bond the error in percentage terms would still be single-digit).

Wrong way to report debt

Another reason why the formula Aa = Bb is relevant is the fact that it can be used to calculate the present value B of the total debt A in a country as a function of the rate of interest b (a > 0 is immaterial.) In this case it has the force of an exact formula rather than an approximation, because the existing debt of virtually every country today may be assumed to be perpetual debt. By no rational calculus can it be expected that it will be retired through the normal process of repayment (that is to say, without wiping it out either through default of through currency depreciation). We may verbalize our formula as follows:Every time the rate of interest in a country is cut into half, the (present value of the) total debt in that country doubles. In particular, as the rate of interest is plunging to zero, the (present value of the) total debt is galloping to infinity.

What makes people walk away from their dream-home?

Most of us have never had the opportunity to serve as the CEO of an enterprise and have little appreciation of business problems connected with falling interest rates. For those who had to face the problems connected with the financing of the family home the following example may be more meaningful in showing how deflation can make innocent people suffer.

You bought the house of your dreams, putting down 50% of the purchase price, your entire life-savings, which is now your equity, financing the other 50% with a conventional mortgage at 6% interest. Now deflation comes and the same mortgage is offered at 3%, half of what you have to pay. The bank refuses to renegotiate the mortgage as it is flooded with similar requests. You shrug and say: "So what? I like my home and stay put. I don't care that my equity has been wiped out. Those are just numbers."

Brave talk! But now you see "house for sale" signs cropping up around you and hear talk that houses don't move even at half of the appraised value. The situation is now this: you carry twice the debt on a house the market says is worth only half of what you have paid for it. For a moment you think that you want to walk away from your dream home, because it makes no economic sense to pay that much per month for shelter when you could rent a nice apartment for a fraction of debt servicing. But throwing away your life-savings is just too painful to contemplate.

However, you are a confirmed optimist and say: "Let's just tough it out and wait for the turnaround that the President says is just around the corner". Your house is now your coffin, and you are lying in it. They threaten to drive in the nails when your salary is unexpectedly reduced by half. Then you climb out of your coffin and, broken-hearted, walk away from your dream-home, because you prefer life to death.

Avalanche alert!

Deflation is a term loosely applied to the phenomenon of general money scarcity in the economy. Hardly ever is the question asked just what it is that makes money scarce. Here is the answer to that crucial question. Money is made scarce by bond speculation. The bond market acts like a gigantic vacuum cleaner running amok. It siphons money away from every nook and cranny of the economy. The money is channeled into bonds serving as chips in the hands of the speculator with which they make their bets.

A vicious circle is hereby set into motion. The scarcity of money calls for central bank intervention. The open market purchases of bonds by the central bank drive up bond prices making the profits of bond speculators soar. Thereupon bond speculators get bolder and start pyramiding, using easy money made available by the banking system, thanks to the intervention of the central bank. Money becomes scarce again, and the central bank is called upon to act once more. And so on it goes.

We use the term "bond market" and "bond speculation" in the broadest sense, as a generic term embracing not just bond trading and speculating in the narrow sense of the word, but also trading and speculating in derivatives based on bond and interest rate futures, options and swaps. Even gold leasing comes under this heading, as the short position in the gold market is offset with a long position in the bond market. It is an extremely dangerous development that the bond market in the broadest sense is snowballing exponentially, as new players jump on the bandwagon and the old ones pyramid. Even the blind can see the explosion of derivatives. It is an avalanche that will ultimately kill the innocent and unsuspecting people who live down there in the valley

My view:

Professor Fekete was visionary when he saw the dangers of ZIRP (zero interest rate policy) in Japan 10 years ago.

He saw the monetary infection of this Japanese policy spread to the United States years before Bernanke dropped rates to near zero.

He foresaw the collapse of the housing market with prices 50% off peak values.

He foresaw the rapid build up of government debt.

Now we see the desperation of the Japanese to keep their parasitic banking system afloat lead to global consequences we are still discovering.

Nearly every western democracies have ZIRP today as deflation tightens its grip around the throats of arrogant central bankers, politicians, and the ignorant public.

By choosing to borrow money (though the bond market) from future generations for present consumption in social programs, military excursions to far away lands, and

unproductive building projects, we have created the most massive asset bubble in global history.

Once again it is helpful to reflect on Exter's Inverse Liquidity Pyramid:

At the bottom is the only substance known to man capable ofextinguishing the raging fire of debt:

Gold

Major US Dollar Breakout Underway

2011-12-14T21:43:00.000-07:00

Back in late 2009 we wrote about the beginning of a US dollar breakout.

Subsequently we saw the US dollar index shoot from 79 to 89 and the price of commodities and crude oil tank.

The situation today looks similar.

The following chart shows some possible US dollar moves in the near futures by our wave count.

Hidden US Government Agenda

2011-12-13T18:43:00.003-07:00

With today's major raid on gold combined with the performance of the precious metal during the past two months the question is - why?

Has the debt crisis in Europe been solved?

Are central banks raising interest rates to a point where interest rates are no longer negative but positive?

Have the debt problems of Japan or the United States been resolved?

No.

Consider this.

If government authorities, financial institutions and central bankers can convince the public that gold is not a "safe haven" and that government bonds are superior, then this Ponzi game of western democracies can continue a while longer.

Bashing gold in the media to convince the public to cash out, frees up gold for central banks to purchase.

Central banks understand the golden rule.

"He who holds the gold makes the rules."

The last thing they want the public to have is a substantial amount of gold as it diminishes their authority, influence and power.

What the present authorities would prefer is to borrow from the unsuspecting public and foreign lands at outrageously low interest rates.

Consider the yields on 30 year treasuries that have dropped from 4.5% to 3% or less over the past 9 months.

Would you trust the United States government with your savings for the next thirty years given their track record?

Adventus Incredibili

2011-12-11T13:20:00.001-07:00

Isaiah 61: 1-2, 10-11

Exaltation of the Afflicted
¹ The Spirit of the Lord ^[a]GOD is upon me,
Because the LORD has anointed me
To bring good news to the ^[b]afflicted;
He has sent me to bind up the brokenhearted,
To proclaim liberty to captives
And ^[c]freedom to prisoners;
² To proclaim the favorable year of the LORD
And the day of vengeance of our God;
To comfort all who mourn,

¹⁰ I will rejoice greatly in the LORD,
My soul will exult in my God;
For He has clothed me with garments of salvation,
He has wrapped me with a robe of righteousness,
As a bridegroom decks himself with a garland,
And as a bride adorns herself with her jewels.
¹¹ For as the earth brings forth its sprouts,
And as a garden causes the things sown in it to spring up,
So the Lord ^[h]GOD will cause righteousness and praise
To spring up before all the nations.

Luke 1: 46-55

The Magnificat

⁴⁶ And Mary said:

“ My soul magnifies the Lord,
       ⁴⁷ And my spirit has rejoiced in God my Savior.
       ⁴⁸ For He has regarded the lowly state of His maidservant;
      For behold, henceforth all generations will call me blessed.
       ⁴⁹ For He who is mighty has done great things for me,
      And holy is His name.
       ⁵⁰ And His mercy is on those who fear Him
      From generation to generation.
       ⁵¹ He has shown strength with His arm;
      He has scattered the proud in the imagination of their hearts.
       ⁵² He has put down the mighty from their thrones,
      And exalted the lowly.
       ⁵³ He has filled the hungry with good things,
      And the rich He has sent away empty.
       ⁵⁴ He has helped His servant Israel,
      In remembrance of His mercy,
       ⁵⁵ As He spoke to our fathers,
      To Abraham and to his seed forever.”

NKJV

John 1:6-8

John’s Witness: The True Light

⁶ There was a man sent from God, whose name was John. ⁷ This man came for a witness, to bear witness of the Light, that all through him might believe. ⁸ He was not that Light, but was sent to bear witness of that Light.

NKJV

1 Thessalonians 5:16-24

¹⁶ Rejoice always, ¹⁷ pray without ceasing, ¹⁸ in everything give thanks; for this is the will of God in Christ Jesus for you.
¹⁹ Do not quench the Spirit. ²⁰ Do not despise prophecies. ²¹ Test all things; hold fast what is good. ²²Abstain from every form of evil.

²³ Now may the God of peace Himself sanctify you completely; and may your whole spirit, soul, and body be preserved blameless at the coming of our Lord Jesus Christ. ²⁴ He who calls you is faithful, who also will do it.

NKJV

When Will Countries Drop The Euro?

2011-12-11T10:01:00.001-07:00

Greek reversion to drachma easier than euro conversion, say analysts

If Greece were to leave the eurozone it would have to establish a new currency in record time; analysts explain how the process would be simpler today due to technological advances

The possibility of Greece exiting the euro is met with abject terror from economists worldwide. But if the struggling nation were to pull the plug on the single currency and decide to return to the drachma, economics aside, the process would be startlingly simple.

"Converting national payment systems is of course not easy, but it is probably easier than one might think," says an analyst from a central bank in Europe. "It can be less complex than the introduction of the euro to go back to the drachma, if the Greeks make smart decisions."

Michael Lewis, a senior consultant at Electronic Payments & Commerce, agrees. "The actual process of re-conversion back to a "new drachma" would be disruptive but not too difficult technically," he says.

The first thing the Greeks should ideally do would be to decide on a 1:1 exchange rate between the euro and the re-introduced drachma or other new currency. Clearly this would face extreme opposition, but in terms of the easiest route to changing the currency, this would be the best policy.

"It will be easier if the Greeks would change for example at January 1, 2012, 0:00 hours at parity, meaning one new drachma was worth €1. Then nothing has to change in the electronics except the word euro into the new drachma," an analyst says.

Making the choice to impose a level exchange rate initially would solve one of the biggest problems the eurozone faced when the euro was introduced, when all the national currencies had different rates, causing all manner of payments issues.

"For things like salaries and shop prices, it is best to make the exchange 1:1, so you don't have to re-price all your products and cash registers can function as they are," explains an analyst. "The prices will of course rise very quickly with inflation, but you wouldn't have to alter all the payments systems, you wouldn't have the complex dual pricing period we had with the introduction of the euro."

Naturally, soaring inflation would appear very soon in this scenario, likely within minutes of the change, which brings its own difficulties when it comes to exchanging the cash in the country

Central Bank says it is not printing punts

The Central Bank of Ireland has said it is not printing Irish punts and is only printing euro.

It is understood that the Central Bank is not in talks with any private printing companies regarding evaluating the need for additional capacity to produce new currency.

In recent weeks, British Chancellor George Osborne said his government had contingency planning in place in the event of the break-up of the euro.

It is understood that authorities in Ireland have given thought to plans in the event there is any significant change to the single European currency.

However, the official position is that remaining within the euro is the only option being actively considered by policy makers and the Department of Finance has not confirmed nor denied that there are any contingency plans in place.

My View:

Well clearly the Central Bank of Ireland is not printing punts just in case.

How do we know?

Because they said so!

You can always trust your friendly neighborhood central banker.

But more seriously, we should make some preparations in the event of a surprise Euro departure.

One strategy is to have access to physical currency outside the banking system, in a safe or some secure place. A safety deposit box may be OK, but in an extreme event who knows what emergency legislation may pass to restrict access.

Another strategy is to have a supply of precious metal coins in a secure place. Again, in an extreme event, authorities may try to restrict their use also.

A third strategy is to have a supply of commonly needed non-perishable goods on hand to trade for other goods and services. This is a more desperate strategy, but could be effective for a short term disruption.

Finally, having a one month supply of dried and canned food and some fresh water stored in sanitary containers would be wise.

Central bankers will not tell us if they have a contingency plan because, with fractional reserve banking, there are not enough physical currency notes available to meet withdrawals in the event of a run on demand deposits.

It is my view that Greece is most likely to leave the Euro first as its political atmosphere is quite electric. For practical reasons, the best time for a currency transition is during a major holiday. Some dates that meet this criteria are listed below.

Potential currency transition dates:

December 24, 2011 to Jan 1, 2012

April 5 - 9, 2012 Easter

May 17 - 20, 2012 Ascension day

November 1- 4, 2012 All saints day

December 24, 2012 to Jan 1, 2013

Given the extreme nature of austerity that is developing in southern Europe, I would be surprised if Greece manages to stay in the Euro past Easter or perhaps May.

Several other nations are likely to follow in rather short order once Greece leaves.

Ireland, Spain, Portugal, and even Italy are the primary candidates.

Deficit Measures to Ban Cash Transactions Over 5,000 Euros

As this headline from May 2010 shows, Italy has been worried about the amount of physical cash in transactions for over a year.

If you are living in Europe, have you personally prepared for a disorderly exit from the Euro in your country?

Gold Stock Double Bottom Reversal?

2011-12-10T09:13:00.001-07:00

While the crisis in Europe continues unabated, we turn our attention to developments that may be overlooked in recent months.

Junior gold stocks have been beaten up quite badly and there are some indications they may be poised for a rebound.

My favorite is Golden Goliath Resources (GNG) on Canada's Venture Exchange.

This stock saw substantial action back in January when prices almost quadrupled, only to slowly be ground down back to where they started.

From a technical analysis standpoint, a clear double bottom has formed and appears to be reversing on higher volumes as the chart shows.

This stock shows some potential for some quick returns, in my view.

What is also interesting is an even smaller junior gold stock, Lincoln Mining (LMG) is showing the same double bottom pattern.

I am not particularly interested in this stock as volumes traded are too light for me.

Note: The blogger presently has stock positions in both GNG and LMG.

Canadians Sinking In Debt Quicksand

2011-12-09T22:18:00.001-07:00

Debt-ridden Canadians imperiled by Euro mess

OTTAWA—Heavily indebted Canadian households could find themselves in trouble if the European financial crisis spreads globally and damages employment, the availability of loans and economic growth in Canada, the Bank of Canada says.

“Conditions in the international financial system have deteriorated significantly” since publication of its last Financial System Review in June, the central bank said Thursday.

As European leaders met once again to try to ease the growing market chaos on the continent, the bank concluded that “a further significant deterioration in global financial conditions could be expected to have a considerable impact domestically through financial, confidence and trade channels.”

Because of global economic woes, “risks to the stability of Canada’s financial system are high and have increased markedly over the past six months,” the report said.While Canadian banks do not have a large exposure to risky European debt, a collapse of financial systems in Europe would be felt around the world in the form of slowing economies and rising jobless numbers.

In turn, “a sharp and persistent increase in the unemployment rate would reduce aggregate income growth and make it more difficult for some households to make their debt payments,” the bank said. “It would also have adverse knock-on effects on consumer confidence, the housing market and Canadian household net worth.”

While the growth of household credit has slowed since early 2011, it has continued to increase more rapidly than income, the bank said.

As a result, the debt-to-income ratio of the Canadian household sector increased to a historical high of 149 per cent in the April-through-June period “and has been higher than the ratio in the United States since the start of 2011.”“If recent trends persist, the ratio of household debt to income will continue to rise,” the review concluded.

But, to avoid a calamity if global conditions deteriorate further, the government should “continuously assess the risks arising from the financial situation of the household sector,” Carney said.The bank also warned that turmoil on financial markets and persistently low interest rates are imperiling the viability of pension plans.

Canadian net worth drops $4,600 per household

But the Statistics Canada numbers released Tuesday put the debt level even higher, at 150.8 per cent of income.

The rise reflected higher borrowing as well as flat personal disposable income, Statistics Canada said.The 2.1 per cent drop in household net worth, to $180,100 in the third quarter from $184,700 in the second quarter, followed the 12-per-cent slide in the benchmark Toronto Stock Exchange indicator.

"This marked the sharpest quarterly reduction in stock prices and per capita household net worth since the fourth quarter of 2008," Statistics Canada said.It was the second quarter in a row in which household net worth fell.

My view:

A deflationary outcome looks inevitable for Canadians at this point.

Sadly, most Canadians I speak with seem to think they are somehow exempt from the discipline of the bond market, debt deflation, and the reality of a ponzi fiat currency system.

In fact, I sometimes wonder why I even bother to write these posts given the indifference and outright opposition encountered.

Nevertheless, reality will set in for both Canadians and Australians over the next months and years.

It is my hope that a few will at least be motivated to do something to cushion themselves from the worst fallout of the last 50 years of economic excess.

Britain The Real Winner In Euro Crisis

2011-12-09T12:51:00.001-07:00

From Reuters:

Sarkozy, Draghi winners in EU rift, Cameron loses

The French president emerged as one of the big winners of a European Union summit on Friday which ended with up to 26 member states agreeing to move forward in economic integration around the euro zone, and Britain alone in staying out.
"Of course this is not just a long-standing desire, but a long-standing goal of French politics ... because in the French tradition Britain never really belonged to the European Union, dating back to De Gaulle," said a senior EU official who attended the summit, referring to the French president's veto of British entry in 1963 and again in 1967.
By obstructing the wish of the other EU members to amend the bloc's governing Lisbon treaty to allow closer fiscal union among the 17-nation single currency area, British Prime Minister David Cameron managed to unite Europe against him.
He may be feted by Eurosceptics at home, but he emerged as the biggest diplomatic loser of the summit, leading his country into an isolation that all his predecessors sought to avoid.
For centuries, a basic principle of British diplomacy was to maintain a balance of power on the European mainland forming shifting alliances with the main continental powers.
Another winner from the Brussels summit was European Central Bank President Mario Draghi. Barely a month in office, the Italian has already exercised decisive influence, shaping the emerging euro zone "fiscal compact" behind the scenes, while warding off efforts to hijack the bank to bail out governments.Diplomats said the ECB was closely involved in telling euro zone leaders what economic reforms and budget discipline steps they should take.
Hours before Draghi came to the summit, the central bank had taken two decisive steps to shore up the euro area, cutting its interest rates to a record low 1.0 percent to soften a looming recession, and crucially extending long-term liquidity help to Europe's cash-starved banks.
But the ECB chief managed to avoid pressure from euro zone leaders to intervene massively to buy troubled states' bonds, which he fears would immediately weaken their resolve to carry out painful economic reforms.
After watching former Italian Prime Minister Silvio Berlusconi back away from austerity plans and economic reforms he had promised to implement as soon as the ECB started buying Italian bonds in August, Draghi is determined to avoid a repeat.So while Sarkozy may have gone some way towards realizing Napoleon's dream, it is Draghi, for now, who looks more like the new emperor of Europe.

My view:

Despite the opinion of this article, the true winners in this development are the British people.

The trouble prone European Union, as their non-elected officials dictate fiscal policy to sovereign states, lurches from one crisis to the next.

It appears that the unelected ECB technocrat Draghi and Germany's Merkel are the two most influential people in Europe.

How long will it be until Mr. Sarkozy gets thrown under the Merkel/Draghi bus as Germany steamrolls across the rest of continental Europe?

If Germany succeeds in keeping most of the EU intact, expect extreme austerity to be enforced upon the fiscally weaker members of Southern Europe and even France to save Europe's zombie banks..

Britain at least has its own currency.

As the EU demonstrates; control the currency, control the destiny of many.

Stocks Ready To Rocket?

2011-12-07T06:47:00.001-07:00

Our friend SteveO over at Hawaii Trading is of the view that the S&P is ready to breakout and move to 1300, 1350 or even higher.

I am struggling to see how this is possible given the situation in Europe and the growing debt problems in Western Democracies.

There is no developed country that I am aware of, that has managed to produce a balanced budget since the Lehman event.

So the sovereign debt crises continues to worsen.

Eventually, the debt will implode, taking banks, governments, and social programs down with it.

It is difficult to imaging growing corporate profits in that kind of environment, and therefore a rising market seems unlikely in the long term.

In the short term, the markets seem headline driven. Perhaps if Merkozy pulls a rabbit out of a hat or uses illusion to make the elephant of debt disappear briefly, we could see the big rally.

But based on the secret indicator, it appears a short term rally is likely.

The Fourth Reich Developing?

2011-12-05T18:58:00.001-07:00

Present Day Germany

Germany 1943

Germany 2013 ??

While this last map in the series is satirical, the consolidation of power behind the currency construct known as the Euro is not.

As Germany grows in influence, its European Union associates see their sovereignty wane.

Will we see a complete domination of Europe over the next few years by German interests through financial means that Hitler was unable to attain through military force?

Or will Germany abandon the Euro as some recent reports suggest, throwing the rest of Europe into chaos?

Links of interest:

Germany Won’t Force Nations to Join Fiscal Union

Trichet Loses His Cool at Prospect of Deutsche Mark’s Revival in Germany

Just In Case You Thought China Would Bail Out Europe

2011-12-04T13:20:00.001-07:00

China Can’t Use Reserves to ‘Rescue’ European Countries

China can’t use its $3.2 trillion in foreign exchange reserves to “rescue” European nations and the country “has done its part” to help the region deal with its financial crisis, Vice Foreign Minister Fu Ying said.

“Foreign reserves are not revenues,” Fu, whose portfolio is European affairs, said in a question and answer session following a speech in Beijing yesterday. “It’s not money that can be used by the premier or the finance minister.”

Fu said China can’t use its reserves to fund poverty alleviation at home or to bail out foreign countries. The country learned from the 1997 Asian Financial Crisis that it needs to keep large reserves to maintain liquidity in order to honor obligations, she said.

Europe is struggling to contain a sovereign debt crisis that has forced Portugal, Ireland and Greece to seek bailouts. After leaders in October agreed to increase the region’s rescue fund, French President Nicolas Sarkozy said he planned to call Chinese President Hu Jintao to discuss how the Asian country can contribute.

China’s foreign exchange reserves, the world’s largest, stood at $3.2 trillion at the end of September. The country invests in U.S. Treasuries, sovereign debt sold by European Union countries and other international bonds. A portion is also invested in equities and other financial instruments by China Investment Corp., the country’s sovereign wealth fund.

My view:

Eurozone leaders will not be able to count on China to bail them out of all their bad loans as a way to alleviate the growing sovereign debt crisis.

We will likely see continued austerity as nation states and the ECB coordinate an attempt to bailout their banking system and the Euro currency itself. Bank nationalizations are likely to accelerate in this stressful environment of inverting bond yields.

One thing is clear.

Germany is dominating the balance of the Euro members. We examined this in an earlier post, but the rate of German influence seems to be increasing.

It appears that calls for increasing fiscal coordination with Germany, that the German goal is to turn the Euro into a form of super Deutsche Mark.

A Creeping New Nazism

2011-12-03T10:52:00.001-07:00

Military Police State

On Tuesday 60 members of the United States Senate voted to preserve a provision in the National Defense Authorization Act—that would be the bill that funds the Pentagon—allowing the U.S. military to pick up and detain, without charges or trial, anyone suspected of terrorism, including American citizens, and to restrict transfers of prisoners out of Guantanamo Bay. Specifically, 60 senators voted against an amendment that would have invalidated the part of the bill which empowers the president and the military to detain anyone they suspect was involved in the 9/11 attacks or supports al-Qaida, the Taliban, or “associated forces that are engaged in hostilities against the United States or its coalition partners.”
There are two disputed sections of the bill, as Charlie Savage explains. One “would require the government to place into military custody any suspected member of Al Qaeda or one of its allies connected to a plot against the United States or its allies. The provision would exempt American citizens, but would otherwise extend to arrests on United States soil. The executive branch could issue a waiver and keep such a prisoner in the civilian system.” The second provision “would create a federal statute saying the government has the legal authority to keep people suspected of terrorism in military custody, indefinitely and without trial. It contains no exception for American citizens.”
So forget the presumption of innocence. Forget the protections of the Constitution. If you are suspected of terrorism, you may be held indefinitely, maybe even shipped off to Guantanamo. And in this war that will last forever and play out on every square inch of the planet, the chances that these new powers will ever be rolled back are negligible. Even long after the war on terror has waned.

There may be no good outcome here. It could be an unholy victory for both the prospect of unbridled executive power and for the collapse of any meaningful separation between domestic law enforcement and military authority. The law manages to expand the role of the military in domestic terror prosecutions and also limit the authority of the civilian justice system to thwart terrorism. These were legal principles to which even the Bush administration said they adhered.

As Adam Serwer explains: This new legislation will “overturn a precedent that was followed almost without exception by the Bush administration: Domestic terrorism arrests are the province of law enforcement, not the military.” Raha Wala of Human Rights First notes that “authorizing the military to detain terror suspects apprehended within the United States clearly goes against the spirit of the Posse Comitatus Act, a law that has prevented the military from taking on domestic law enforcement functions since the Civil War.” If you think the blurring of domestic policing and military authority is an Orwellian fantasy, you may want to consider the treatment of Occupy Wall Street protestors in recent weeks, or Mayor Michael Bloomberg’s claim that “I have my own army in the NYPD, which is the seventh biggest army in the world.”

My view:

It is very troubling to see this latest development in the Senate.

The constitution is being violated again by this law which expands the reach of the military and office of the president, trumping the rights of American citizens.

It appears that each time a crisis comes along, both members of government, and the wealthy elite, change laws that consolidate power in their favor.

Each time this happens, we move farther away from the original rights and freedoms the constitution intended each of us to have.

If this continues much longer, it will have far reaching effects. Ordinary citizens could be labeled as "terror suspects" or "unpatriotic" or participating in "suspicious" activities. The corporate controlled media could be used to encourage the public to report anyone doing anything that does not conform to the officially approved doctrine.

This should cause us to pause a moment and contemplate the words of Alekandr Solzhenitsyn:

“And how we burned in the camps later, thinking: What would things have been like if every Security operative, when he went out at night to make an arrest, had been uncertain whether he would return alive and had to say good-bye to his family? Or if, during periods of mass arrests, as for example in Leningrad, when they arrested a quarter of the entire city, people had not simply sat there in their lairs, paling with terror at every bang of the downstairs door and at every step on the staircase, but had understood they had nothing left to lose and had boldly set up in the downstairs hall an ambush of half a dozen people with axes, hammers, pokers, or whatever else was at hand?... The Organs would very quickly have suffered a shortage of officers and transport and, notwithstanding all of Stalin's thirst, the cursed machine would have ground to a halt! If...if...We didn't love freedom enough. And even more – we had no awareness of the real situation.... We purely and simply deserved everything that happened afterward.” ― Aleksandr I. Solzhenitsyn

Keep Your Eye On Japanese Bonds

2011-11-30T18:59:00.001-07:00

Could Japan be the next victim of the crisis of faith in government bonds?

Despite carrying public debt more than twice the size of its economy and suffering from poor growth and an aging population, Japan's government can still borrow money for 10 years at just over 1 percent.

The big story in global markets, perhaps even in global economics, in 2011 has been the transformation of government debt markets, which are now being driven by the realization that sovereigns can and sometimes do default.

So far that has actually been good for borrowing rates for big economies blessed with their own central banks, such as the U.S., Britain and Japan. There is a growing chance that in 2012 the wolves, having picked off Italyand others in the euro zone, move on to target the hindmost of the rest of the pack, which, given its poor medium-term fundamentals, may well be Japan.

"Recent events in other advanced economies have underscored how quickly market sentiment toward sovereigns with unsustainable fiscal imbalances can shift," the International Monetary Fund said in a paper released last week on Japan. here

In the understated bureaucratese of the IMF, that is the equivalent of shouting a warning from the rooftops.

"Higher yields could result in a withdrawal of liquidity from global capital markets, disrupt external positions and, through contagion, put upward pressure on sovereign bond yields elsewhere."

The math gets ugly for Japan pretty quickly if its rates start to rise. Interest payments are modest now, only 2 percent of GDP, but an increase of just a percentage point in JGB yields would double the annual interest bill.

The circle could easily become vicious. As banks hold large amounts of JGBs, a spike in rates will deal them large capital losses, potentially making others unwilling to lend to them and forcing a sell-off of assets to raise funds. If they sell their good assets, i.e. those abroad, this will drive the yen up as they bring the money home, further suppressing economic growth and adding to overall pressure.

My view:

Just as John Exter predicted with his inverse liquidity pyramid, when the markets get tough, the tough go into Yen & Dollar currencies and gold.

Japan has been living on its citizen's savings, spending more than it collects in taxes for nigh 20 years now.

So we must ask this question.

Has the Japanese economy been boosted to a new level of productivity and era of prosperity?

Or has it stagnated, feeding zombie banks and corporations the savings of its citizens?

The next 12 to 18 months should be telling as I expect we will see a significant increase in bond yields in Japan and an eventual realization that the debt to its citizens will end in default.

Here We Go Again

2011-11-30T06:53:00.001-07:00

From Reuters:Federal Reserve statement on financial liquidity measures

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system.

The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.

These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points.

This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.

As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant.

My view:

In true Keynesian fashion, the masters of the universe are once again offering liquidity to the global financial system.

The fact that we have a solvency problem seems to continually evade them.

Another day, another band-aid brought to you at tax payers expense by your friendly neighborhood central bank..

Have you purchased gold yet?

Dead Cat Bounce

2011-11-27T20:26:00.001-07:00

Based on the charts of the S&P we are now seeing the formation of pattern that could lead to a dead cat bounce.

We are anticipating that the correction will reverse in the next few days and begin a recovery to the 1260 to 1270 area which happens to be the 200 day MA.

As the markets seem headline sensitive, the announcement of some kind to super Eurobond to bailout (delay & kick the can down the road) the worst of the EU debtors could be a trigger to a rally.

It is also our view that gold will substantially outperform the S&P in this next rally based on the following chart:

Note on the chart that the 20 day MA has just crossed the 50 day MA, a bullish development for gold.
While we have become bullish in the short term, the long term still looks bleak.

The Euro remains an unsustainable currency, and bank holidays and civil unrest are sure to follow during 2012.

Consumer Metrics Insights

2011-11-24T21:23:00.001-07:00

From Consumer Metrics:

November 22, 2011 - Third Quarter GDP Revised Downward:In their second estimate of the third quarter 2011 GDP, the Bureau of Economic Analysis (BEA) revised the headline growth number downward by over a half percent to an annualized growth rate of 2.01%. The real story within the data, however, was that compared to last month's "Advance" estimate the new report showed substantially weaker commercial fixed investments while the draw-down of inventory levels was more intense -- putting the new numbers for third quarter aggregate commercial GDP into net contraction. In general consumer contributions were slightly weaker, while a substantial downward revision in imports somewhat softened the bad news in the headline number. Meanwhile, the public's per-capita disposable income continued to shrink -- but at a newly revised and sharply greater rate.As usual, this revision to the prior month's report does not reflect actual changes in the economy, but rather a month's improvement in the BEA's understanding of what was happening in the prior quarter. As such it tells us as much about the BEA's "guesstimating" processes as it does about the economy.Among the notable items in the report:-- Aggregate consumer expenditures for goods was revised downward slightly to a +0.30% annualized growth (previously reported to be +0.35%).-- The annualized growth rate for consumer expenditures was also revised downward by 0.05%, and is now estimated to be at 1.33%.-- The growth rate of private fixed investments was lowered by 0.15%, with the new number coming in at 1.45%.-- The draw-down of inventories is now nearly a half percent worse than previously reported, pulling -1.55% from the headline annualized growth rate. Conventional wisdom is that this bodes well for the economy in the future, since production will presumably have to eventually ramp-up to replace that lost inventory.But in fact there are a number of wildly conflicting ways to spin this inventory number:-- Production has lagged demand, with factories struggling to keep up with increasing demand (unfortunately implausible given the anemic consumer growth numbers mentioned above);-- Factories are reducing inventories in anticipation of weakening demand (plausible);-- Inventory levels were ridiculously high to begin with (implying that much of the "recovery" was wishful thinking; again plausible);-- Factories have simply cut production costs by cutting production levels (thereby inflating bottom lines without the benefit of increasing commerce; highly plausible);-- Or our favorite: the BEA's deflaters have shot them in the foot again (with deflating commodity prices "shrinking" inventories even as physical inventories remain largely unchanged; also highly plausible).Of the five spin scenarios outlined above, the only positive one is also the least plausible.-- Total expenditures by governments at all levels is now reported to be very slightly contracting, continuing a string of four quarters of contraction. This number masks a duality in state and local spending levels, where "consumptive expenditures" (i.e., operating budgets) continue to shrink but are partially offset by increasing investments on infrastructure.-- Exports are now reported to be slightly higher relative to the previous estimate, raising the contribution that they made to the overall GDP growth rate to +0.58%.-- Imports dropped substantially compared to the previous "Advance" report, and are now removing only -0.09% from the growth rate of the overall economy (previously this number was -0.34%, a full quarter of a percent worse for the headline number).-- The annualized growth rate of "real final sales of domestic product" was revised up slightly to +3.56%. This was the result of the higher draw-down of inventories offsetting the generally weaker numbers shown elsewhere.-- Working backwards from the data tables, the effective "deflater" used by the BEA to offset the impact of inflation was 2.49%, essentially unchanged from the previous report. Again, unlike past quarters this number is generally in the same ball-park as similar data from the BEA's sister agencies -- which have more tightly tracked the impact of gasoline and grocery costs over the past year and a half. Substituting the line-item appropriate (CPI or PPI) current inflation rate published by the Bureau of Labor Statistics (BLS) causes the "real" GDP growing at a 2.46% annualized growth rate, somewhat higher than the official headline rate.-- Perhaps the most negative item among the revisions is in per-capita disposable income, which was revised sharply downward and is now reportedly shrinking at an annualized -2.1% rate during the third quarter (revised from a -1.7% in the previous "Advance" estimate). If you are looking for one line item that largely explains the mood of the general public, this is the one to monitor.

My view:

The recovery is best described as implausible given all the headwinds consumers are facing.

One critical observations that should give stock market investors pause is the line highlighted that factories may have cut production costs by cutting production levels and thereby inflating bottom lines.
It is my hypothesis that the strong earnings showing on the S&P 500 and other stock markets is a temporary measure that will soon fade quickly and give us a more realistic view of valuations.

4th quarter reported earnings and 1st quarter earnings in 2012 should be quite insightful.

Dividend dependent investors will probably not like the results.

What Is That Whistling Sound?

Volatility Breakthrough

Here We Go - Down That Is

Watch The Doctor (Copper)

Imminent Clash With Iran Unlikely

Orderly or Disorderly Default?

The Collapse Clock Moves One Minute Closer To Midnight

More Denial In Europe

Portugal Bond Rout Overstates Greek Likeness

Gunboat Diplomacy For Greece

Brace For Impact

Venezuela Repatriates Its Gold

The American Debt Crisis Explained Simply

Black Swans Gather For Greek Default Feast

The Plan To Kill The Dollar

Zombie Stock Rally

CDS Insurance Costs Hit Record High

Who Could Have Expected This?

In Hoc Veritas Non Est

The Euro Emperor Has No Clothes

Europe's Descent Accelerates

2012 Slideshow

Recovery or not?

Political Math Proves: Romney = Obama

Another Bankruptcy For Hostess

Mafia is No. 1 lender in Italy

Are We On The Cusp Of A Gold & Silver Breakout

Wealth Of The Nations

UK Plans For Euro Funeral

Awesome Ron Paul Predictions from 2002

Big Downturn In 2012

Spain's Austerity Dilemma

Spain says deficit bigger than expected, hikes taxes

Greece Threatens To Leave The Euro

The Iowa Caucus In Pictures

2012 Year Of The Dragon

Is The Bird Flu Back?

Nationalism Rising In France

Democracy Under Siege

Charles de Gaulle - Monetary Prophet

You Won't Believe This

2012 Forecast

Joy To The World

MF Global's Enormous Implications

More Ugly Indicators

Dispatch: Kim Jong Il's Death and North Korea's Transition

7 Days Until Christmas

Tipping Over Into A Deflationary Blackhole

Major US Dollar Breakout Underway

Hidden US Government Agenda

Adventus Incredibili

23 Now may the God of peace Himself sanctify you completely; and may your whole spirit, soul, and body be preserved blameless at the coming of our Lord Jesus Christ. 24 He who calls you is faithful, who also will do it.

When Will Countries Drop The Euro?

Central Bank says it is not printing punts

Deficit Measures to Ban Cash Transactions Over 5,000 Euros

Gold Stock Double Bottom Reversal?

Canadians Sinking In Debt Quicksand

Britain The Real Winner In Euro Crisis

Sarkozy, Draghi winners in EU rift, Cameron loses

Stocks Ready To Rocket?

The Fourth Reich Developing?

Just In Case You Thought China Would Bail Out Europe

A Creeping New Nazism

Military Police State

Keep Your Eye On Japanese Bonds

Here We Go Again

Dead Cat Bounce

Consumer Metrics Insights

²³ Now may the God of peace Himself sanctify you completely; and may your whole spirit, soul, and body be preserved blameless at the coming of our Lord Jesus Christ. ²⁴ He who calls you is faithful, who also will do it.