Sunday, May 10, 2009

Deja Vu All Over Again

"The problems we face today cannot be solved by the minds that created them."
-Albert Einstein

I ended the week just passed excited at the "unfolding" collapse in the US Dollar and the Treasury Market. The collapse of both would be HUGELY bullish for the Precious Metals and all commodities as the Inflation Genie would have flown the coop. But then I began to think about how important the Dollar, and especially the Bond Market, are to our corrupt government.

My thoughts quickly turned to the now obvious manipulation of the "free markets", and the possibility that the government, with the aid of its corrupt banking cartel, might possibly go about rescuing the Bond Market, the Dollar, and in turn whacking Gold again just as it attempts to break the shackles of suppression.

Think about it... Another collapse in the equity markets ignites another round of deleveraging. And where did the World run to in our last deleveraging episode? To that bastion of "safety", the US Treasury Market. And in order to book passage to the Treasury Market safe-haven, you have to buy US Dollars. Demand for the Dollar rises, and woosh...there goes the Precious Metals, Oil, and all the rest. Or that's the theory...

But what if this time the equity markets collapse via government market intervention [aka: sacrifice the stock market to save the Dollar and the Ultra-Precious Bond Market] and nobody rushes to the Bond Market. What if the equity market collapses, and there is a buyers strike in the Bond Pits. Can you say catastrophe?

Then I stop and wonder... The government is obsessed with building CONfidence. How could they crash the equity markets to save the Dollar and Bonds and hope to keep the peoples confidence? Let's face it, as ridiculous as it is, Americans are convinced the "health" of the stock market is the ultimate gauge of economic health, [though nothing could be further from the truth].

The current Bear Market Rally in the equity markets is getting a bit long in the tooth as far as bear Market Rallies go. There is a great deal of "bearish sentiment" in the financial media expressing the fear of the other shoe dropping. And though the other shoe may drop eventually, consider that this present "wall of worry" the equity markets are climbing may keep this "doomed" bear Market Rally going a bit longer.

I have a small suspicion that the Fed may cede a bit of yield in the Bond Market here, but to no more than a 4% yield on the 10-year Treasury, and possibly 6% on the 30-year. And they may let the Dollar drift towards 78-80 before they swing their hammer on the equity markets again. A lot of the Fed's corrupt banking constituents are making some serious profits on this Bear Market Rally...and the public's CONfidence is soaring if you believe the headlines.

And you can bet these banking cronies will be in the drivers seat on the way down to profit yet again at the expense of Joe The Plummer's 401k. This is a dangerous game the Government is playing, and never forget the tables are rigged in the houses favor.

Rising interest rates may be tolerated in the near term as the government hopes it will "force" buyers into the housing market out of "fear" of rising financing costs vs. the reward of low housing prices. And on the flip side, rising interest rates and a falling Dollar will crush corporate profits. This of course could be used as an excuse to "pull the rug out" from under the equity markets again...just in time to "save" the Bond Market and the Dollar.

Bottom line. It may be wise to temper our enthusiasm for the breakout in the Precious Metals here, and respect the governments absolute need to prop up the Treasury Market and the US Dollar. Stops below the metals markets to protect profits would now be wise. Any new long positions added at this time should be done so with "very tight" stops. Going short the metals here may seem the obvious trade. Beware the "obvious" trade...being short a market that isn't ready to come in yet can be very painful. The time to short will come with the break in the equity markets, and then ONLY if money fleeing equities flows into the Bond Market. Should there be a buyers strike in the Bond Market the Fed will be f***ed, and the Gold and Silver Markets will welcome the newbies to the ultimate safe-haven.

There was a lot to read this weekend. I will share some links today, and save some for tomorrow. I suggest reading all of these essays in their entirety...

“Far be it for me to call the stress tests a charade, a dupe, a con game or an exercise in manipulation - I’ll leave that to others, like the Wall Street Journal, which noted this morning that the banks managed to browbeat the Fed into accepting much lower capital needs than the tests should have required. [For example, a decrease in required capital of 48.3% was negotiated by Bank of America, Wells Fargo, Fifth Third Bancorp and Citigroup when added together.] The entire exercise is turning out to be one giant joke - and the laugh is on the taxpayers.”
- Barry Ritholtz (The Big Picture)

Casey’s Charts: Are the green shoots for real? Watch part-time workers
“Since the fall of 2007, the number of employees forced to work part-time due to the economic slowdown has doubled to over nine million people - that’s two million more than at any time in 54 years of collecting the data. You can see the spike in the chart above.

“You can also see a close correlation between the start of a recession and a sharp shift to using part-time workers. And, conversely, that when an economy recovers, the use of part-time workers falls off quickly.

“Lesson of the day? This is one of the few reliable indicators of an economic turnaround … watch it closely. Until you see a distinct reversal in the indicator, ignore the government’s happy talk of green shoots and continue to rig for stormy economic weather.”

Source: Casey’s Charts, May 6, 2009.

The Clock is Ticking on the U.S. Dollar and Bond Markets!
Just last week, the $3.5 Trillion 2010 budget was passed by the US Congress, setting in stone the coming nationalization of the HEALTHCARE industry and CAP and trade energy legislation. Together they represent TRILLIONS of dollars of new levies on the private sector. The new administration, in conjunction with the public servants in Congress, have now FINISHED expanding the government by more than 95% in less than 10 months after being sworn in January 2009. The US now needs to raise $3.25 Trillion this fiscal year to cover its budget deficit and to ROLL past obligations coming due. This amounts to a staggering $21.95 BILLION PER DAY until the end of the fiscal year in October. Can you say ABSURD, INSANITY?

And to think, this DOES NOT include any private, state or municipal sector debt requirements. This level of borrowing virtually sucks the wind out of the private sector, misallocating precious capital needed by the private sector and entrepreneurs to rebuild the INCOME production in the United States and to create jobs. It now takes an astounding $6 of new DEBT to generate $1 of GDP (Gross Domestic Product). The new $3.5 Trillion deficit for 2010 is funded half from TAXES and 49% from NEW BORROWING.

The Treasury International Capital Report was released for February, and for the second month in a row, was negative to the tune of $97 Billion, marking the continued retreat of capital from US shores. As outlined above, this RETREAT from capital inflows signals the eventual WATERLOO for the US government; funding requirements will need to be shouldered increasingly by domestic savers and what else: “the printing press”, aka Quantitative Easing. US savers are offered virtually NO return and immense capital risk buying the long end. Limitless money printing looms as you can expect the Fed to announce additional treasury purchases above the $300 Billion already announced. When the fed meeting ended without additional purchases being announced, the long end took it on the nose.

Helicopter Ben was on Capitol Hill today and pointed to the long end of the treasury markets as a signal that inflation was low and investor’s appetites for US debt high, as illustrated by the lofty prices. NO, it’s the feds and primary dealer purchases (primary dealers are choking on long-term inventory) that are holding it up and the longer they do, the farther away lenders will stay, waiting to be paid for the risks they entail.

The US deficit is set to RISE by $8.5 TRILLION over the next three years. That includes new revenues from CAP and TRADE TAX on the domestic oil industry, and projected growth rates which are fantasies in the extremis from the chief executive who is bent on destruction of the private sector to pay for his new INVESTMENTS. These are known as PERMANENT government expansion and runaway new entitlements. The FISCAL and MORALLY bankrupt Administration and Congress will only be stopped by one thing: A BUYER’S STRIKE. And one is emerging like a freight train coming straight at them; you can look for it to arrive someday soon.

In Conclusion: The dominoes continue to fall; do not expect them to stop anytime soon. The final destination is completely in view: the complete destruction of the G7 monetary and financial systems. The public servants and central banks may slow it down or postpone it with GOVERNMENT actions, but escape from this predicament is IMPOSSIBLE. As Von Mises stated: There is no escape from a credit induced bubble and the public servants REFUSE to embrace any solution that does not result in going back to where we came from.

Bill King (The King Report): Bonds breaking down
“… to say bonds are retreating due to economic growth is wrong, with the 80s as an example.

“The financial crisis to date is due to credit and solvency concerns. When people fear that an entity cannot meet interest payments or repay all or part of the principal, that piece of paper tanks. But debt without credit concerns remains buoyant; some debt increases in price on safe haven buying.

“But if bonds prices tumble, all debt gets marked down; and then there could be more derivative problems. If all debt instruments decline financial firms’ balance sheets will deteriorate severely.

“One reason for the severity of the credit crisis is that too many Street denizens, including model makers, had not experienced a credit cycle turn. The last occurred in 1990.

“This bond bull market commenced in 1982. Few money managers have experienced the savagery that a bond bear market brings.

“Estimates have CDS at $40 to $50 trillion notion value. Estimates put interest rate related derivates over 50% of the $1.4 quadrillion derivative market. We don’t have to elaborate about what might be triggered.

“If stocks tumbled on Thursday on concern about inflation and the bond market breakdown, the Fed is in deep stuff. Its intent has been to reflate financial asset prices. But declining bonds could trump the Fed.

“Ben is now chagrined because his effort to prop up bonds, possibly to appease China (after Hillary’s trek there) by announcing a $300 billion monetization, has produced the opposite of the desired effect. Ben’s scheme has inflamed inflation concern, as it should have and will continue to do so.”
Source: Bill King, The King Report, May 8, 2009.

When The Rose Tinted Glasses Fall Off...
By: Clive Maund
...a premise, which is that the bond market and the dollar are much more important to the powers that be in the US than the stockmarket. Two months ago the stockmarket was plumbing new lows and the end of the world was nigh. Now, instead, you walk down Wall St and everything is smelling of roses. Unfortunately, however, there is a massive storm threatening to break that will necessitate the immediate sacrifice of the stockmarket, and especially those mugs who have been taken in by the recovery hype being doled out by the media and have been buying the market in the recent past.

The storm that is threatening to break is the combined collapse of the bond market and the dollar, which are joined at the hip. Late in April the bond market crashed important support and it dropped significantly again late last week. The dollar finally succumbed this past Friday, crashing important support. They both look set to plunge together - a scenario that will require immediate and drastic action to avert. What is the best way to rescue them? - why, to create another vicious cycle of deleveraging of course. The idea is to get the rabbits to flee out of commodities and the stockmarket and into the perceived safety of the Treasury market, just like last year, which will require them to buy dollars with which to buy Treasuries. Elite and well connected traders, who have the advantage of knowing which levers are going to be pulled and when, have made massive profits from the stockmarket ramp of recent weeks, and it is reasonable to assume that they have been reversing position in the recent past, so that they can make another killing shortly when everything goes in the other direction. How will the powers that be pull the rug from under the stockmarket? - by means of an avalanche of short selling and you had better believe that they have plenty of ammo to do it, and as we will shortly see, after the big runup of recent weeks, they have the force of gravity on their side. Once they have run the market into the ditch again they will cover their shorts and reverse position yet again, under cover of doomsday headlines in the press.

Actually, the elites may not have to work too hard to create another downblast of deleveraging, or even do any work at all. For the deleveraging, which will have its origins in the unwinding of the derivatives mountain, is quite likely to take on a life of its own, possibly becoming unstoppable.

Bob Chapman, The International Forecaster
On Friday the dollar completely broke down, with the USDX collapsing to about 82.5, as monetizations by the Fed became a stark reality. A world stock market collapse could be imminent as a source of dollar support. We wonder how low they will let the dollar go before they collapse the stock markets to chase people back into US treasuries, which have also broken down, with treasury interest rates on the rise despite various Fed purchases of treasuries in the hundreds of billions. So much for the bogus stress tests as things turn much uglier than anticipated by the boneheads in Goldman Sachs South who are attempting to resurrect the Goldilocks Matrix. The suckers rally is simply the loading and winding of a catapult meant to throw the dollar upward as the stock market spring unwinds at the moment chosen by the PPT, which moment has already been telegraphed to Illuminist insiders for their continued looting of the sheople and for the filthy aggrandizement of their growing mountain of ill-gotten gains. The stock market shorts are being set up in the dark pools of liquidity beyond the purview of regulators as this article is being written, so if you plug yourself back into the pod electrodes of the Goldilocks Matrix again, you are in for a major shock.

Stock market rallies aimed at sucking in sheople-dupes based on bogus hedonic financial statistics, fairytale financial statements, fascistic injections of monopoly money into the economy and false Goldilocks news spin will continue on as a source of insider trading profits and as a ready source of capital to boost the dying dollar. As the world's stock markets collapse in sympathy with the US stock markets as the PPT withdraws its support globally, stocks around the world will be sold off, and the proceeds will be channeled into the perceived safe-haven of US treasuries. This boosts the dollar because sales proceeds from the liquidation of foreign stocks that are denominated in foreign currencies are exchanged for dollars in order to purchase US treasuries, thereby creating a dramatic demand for dollars. Sell into this current stock market strength and get out of the stock markets, or prepare to get vaporized by an Illuminist laser beam that is being focused on the sheople for a nice roasting so the elitists can enjoy some more mutton chops while they watch the dollar anti-gravity machine perform its magic for their entertainment and profit. Also, a dollar boost provides some assistance for carrying out JOB ONE at the Fed, which is gold suppression, so you can take a stock decline to the bank based on that principle alone.

Actual U.S. Unemployment: 15.8%
This morning's news that U.S. unemployment has hit 13.7 million, pushing the rate to 8.9 percent, tells only half the story of this recession.

The total number of Americans who are not working full-time but ought to be is actually about 22 million, or 15.8 percent, according to the Bureau of Labor Statistics.

Who are those other 8.3 million Americans? Call them the unofficially unemployed.

As The Ticker points out each time the Bureau releases the monthly unemployment figure, it does not include many out-of-work Americans.

There are many reasons for this.

The problem with this methodology is that it does not include millions of Americans who are not working full-time who ought to be. Those, in the bureau's words, who are "marginally attached to the labor force."

But even though these workers don't count toward the official monthly unemployment number, they are nevertheless a true weight on the economy.

They don't pay payroll tax, or as much of it as they would; they don't contribute to Social Security or other government entitlement entitlements and they don't spend as much.

The 15.8 percent figure is the highest since the bureau began keeping these figures in 1994. Excluding the current recession, the highest previous rate came in January 1994, when it hit 11.8 percent.

By the way, in February, the White House predicted unemployment would top out at 8.1 percent this year, a figure that was blown through the following month.

It has made no call on how high the unofficial unemployment rate will go.

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