Thursday, May 7, 2009

A mildly less negative month to month data point DOES NOT REPRESENT GROWTH!

Thank god for laser eye surgery! Now, the people who were blind to the biggest financial crisis in the history of the world can see clearly again. And what do they see? A recovery!

"Bernanke strikes note of hope on economy," says the headline in today's International Herald Tribune.

"The chairman of the Federal Reserve, Ben S. Bernanke, said Tuesday that the US economy appeared to be stabilizing on many fronts and that a recovery was likely to begin this year."

Is this good news? Or what? 'Or what' is our bet.
-Bill Bonner, The Daily Reckoning

LOL, recovery. Perhaps Bumbling Ben has jumped the gun on the Legalization of marijuana... There is no recovery taking place, and there's unlikely to be one anytime soon. A decrease in the rate of decent does not a recovery make. There is no way on God's Earth that the US Economy, let alone the Global Economy are on the precipice of a recovery. Bumbling Ben has been wrong on every every economic prognostication he has uttered since he was foolishly given the job of US Federal Reserve Chairman. Why should anybody think he's going to be right this time.

Ben's precious Bank Stress tests are a complete sham. Absent the recent Congressionally coerced change in FASB accounting standards to eliminate mark-to-market accounting NONE of the banks would have passed this feeble test. All 19 of the tested banks are technically insolvent and should be euthanized immediately. By law these banks should have been closed and dissolved months ago. But alas, the US Government is above the law...

Housing prices continue to fall. "But they're falling at a slower pace," the talking heads cheer. So what, folks they're STILL falling. Foreclosures continue to rise. Home sales are predominately of distressed properties. There is no bottom in the housing market here...

Jobs continue to disappear. "But they're disappearing at a slower pace," the talking heads trumpet. LOOOOOOOOOOL! Whether there were 634k new claims for unemployment this week, or "just 601k" is an absolutely ridiculous data point to pin your economic recovery hopes on. I seriously doubt the 601k people who did lose their jobs last week feel happy for the 34k that kept theirs. Jobs are disappearing at a rapid clip, and a little mentioned fact is that a lot of these jobs that are disappearing will never be replaced in the future. Put that in your recovery pipe and smoke it...

Retail sales figures are one of my biggest data point peeves. Retail sales are measure in "Dollars spent". Retail sales are not a gauge of "volume" of goods sold, merely how much money was spent on the goods. If you believe the US Government CPI data, then you would most likely buy into the "rebound" in retail sales in April. But if you believe prices are rising, gasoline for instance, then you would be left to wonder, "are sales up, or do things just cost more"? I think they just cost more and retail sales were flat at best.

This theory also calls into question the government's measure of "growth". Is "growth" merely a byproduct of the Fed's ceaseless inflation of the money supply over the past two generations, particularly over the past 38 years following the severing of the Gold to Dollar link by Richard Nixon in 1971? Has there really been any legitimate growth in the US economy, or just a colossal growth in the nation's debt load?

The equity markets are struggling mightily with the view that the "economy is on the verge of recovery". What I see is a short squeeze being misinterpreted by the wizardry of the financial new media as the embryo of the next "bull market". LOL, we are years away from the next bull market. Each little leg up in this present Bear Market Rally has been fueled by falling trade volume, punctuated by little volume spikes as pockets of resistance are overcome. These volume spikes can be attributed mostly to short covering as there stop loss orders are hit on the way up. There are no real buyers in this market...because there are no real believers in an imminent recovery.

Yes, yes, yes, the pace of the economic decline has slowed...for now. Nothing goes straight down, or straight up. But the fact is, it is highly premature to be throwing around the recovery word, and even more irresponsible to be touting these deceiving "green shoots of growth". A mildly less negative month to month data point DOES NOT REPRESENT GROWTH! Growth is represented by a number with a + sign in front of it. I have not seen many + signs lately...except in the commodity sector, and long term Treasury yields.

The deflation death spiral "may" be leveling off, but there is NOT going to be a recovery launched anytime this year. I don't give a damn what Bumbling "I've Yet To Be Right About Anything" Ben Bernanke claims or touts.

Monday I posted charts with the breakout points for Gold, Silver, and Oil. All have been breached, Gold at 907, Silver at 13, and Oil at 55. Gold and Silver are moving higher more on renewed uncertainty regarding the banks, than on the acceleration in the fall of the Dollar. Oil continues to confound the analysts who continue to point to the glut of Oil in the marketplace. Oil, and all other commodities, are rising on the falling Dollar. The seeds of inflation are beginning to sprout. Recall the seeds were officially sown when the Fed announced their plan to buy $1 BILLION of Treasuries and FannieMae/FreedieMac paper back in March. Expect strong signs of growth in Inflation by July. Of course, this rise in Inflation will be sold to you as the "growth" in the economy promised this month by Bumbling Ben...take that to the bank.

Sorry Ben, You Don’t Control Long Term Rates
By Michael Pento
It is disappointing to discover that the Harvard- and M.I.T.-educated Ben Bernanke did not learn while attending school that long-term interest rates must be set by the free market. Belatedly, the Chairman of the Federal Reserve is about to learn this valuable and costly lesson because these rates cannot be manipulated lower by any central bank for a great length of time.

On March 18th, the Federal Reserve committed to buying up to $300 billion in long-term Treasuries over the ensuing six months. After that announcement, the market initially celebrated and interest rates immediately fell on the 10-year note from 3.02% to 2.51%. But less than two months later, rates have spiked up to 3.17%, 66 bps higher than the reaction low on the day of the announcement.

That jump in rates places into jeopardy the nascent recovery in the market and economy because so much of Washington’s planned “healing” is predicated on halting the fall in real estate prices, which have implications for consumers’ and banks’ balance sheets. Thirty-year fixed mortgages, which had fallen to a recent low of 4.625%, now face the pressure of a rising 10 year note, which has a direct impact on newly-minted mortgages (as opposed to LIBOR rates which affect ARMs).

The recent rise in Treasuries has created an incredibly important standoff between Mr. Bernanke and the bond vigilantes whose clients demand a real return on their investments.
You see, rates on the long end of the curve are primarily concerned with inflation; if inflation is expected to increase, rates must eventually reflect this by moving higher. I realize that today many are mistaking the deleveraging processes seen in stocks and real estate prices as deflation but as long as the Fed continues to monetize Treasury debt, the money supply will continue to increase dramatically and deflation in the long run will be off the table.

Treasuries Tumble as Bond Sale Draws Higher-Than-Forecast Yield
May 7 (Bloomberg) -- Treasury 30-year bonds fell the most in four months as investors demanded higher-than-forecast yields at today’s auction of $14 billion of the securities with the U.S. slated to sell a record amount of debt this year.

“This is a problem,” said Chris Ahrens, head interest- rate strategist at UBS AG in Stamford, Connecticut, one of 16 primary dealers required to bid in Treasury auctions. “The market required a fairly significant discount to buy the bonds.”

Thirty-year bonds have lost investors 20.9 percent this year, Merrill Lynch & Co. indexes show, as the Treasury increases securities sales to help fund a swelling budget deficit. Yields climbed to a six-month high today as the auction drew a yield of 4.288 percent, higher than the 4.192 percent average forecast in a Bloomberg News survey of seven primary dealers. Demand was below average, judging by total bids.

The benchmark 30-year bond yield climbed 23 basis points, or 0.23 percentage point, the most since Jan. 5, to 4.316 percent, at 5:25 p.m. in New York, according to BGCantor Market data. It was the highest yield since Nov. 14. The 3.5 percent security due in February 2039 dropped 3 15/32, or $34.69 per $1,000 face amount, to 86 3/8.

The 10-year note yield increased 16 basis points to 3.345 percent, the highest since Nov. 24.

Misleading Jobless Claims Data and Recessions
By: Tim Iacono
One of the many "green shoots" that has popped up recently for the U.S. economy is the possible peaking of weekly jobless claims, what has been increasingly referred to as a "reliable" indicator for the end of recessions since 1967 when this data was first collected.

With the four week moving average having dropped from almost 660,000 per week in early-April to just under 640,000 per week in last week's report, many now think that everything is falling into place for a speedy conclusion to this recession.

The stock market certainly thinks the recession is over...

But, that may not be the case ...

The data is not adjusted for the size of the workforce.

Now, granted, the composition of the workforce has changed quite a bit over the last 30 years and we may never reach the population-adjusted peaks that were seen back then, but surely we have to come a bit closer to those peaks now that the great credit and debt orgy of the late-20th century has come to its painful conclusion.

For example, to reach the 674,000 October 1982 peak for new unemployment insurance claims, we'd have to see a figure of over a million today. To equal the February 1975 peak of 561,000 would require over 1.1 million.

That's almost double the recent peak!

Having blown past comparisons to the 1991 and 2001 recessions for virtually every other economic statistic months ago, it could be that whether jobless claims reached a peak last month isn't the most important question out there today.

Perhaps the most important questions to ask are how close we'll get to the population-adjusted highs of the 1970s and 1980s and how long it might take to get there.

By Adrian Douglas
It just recently came to my attention from two different confidential sources that JPMorgan and Goldman Sachs have been buying large amounts of Calls in gold and silver. This made me put on my gumshoes and take a serious poke around the COMEX option open interest once again.

The ratio of Calls to Puts is 1.81 so Bulls outnumber Bears dramatically. What is also remarkable is the amount of open interest. For example, 100,000 contracts would be in-the-money if the gold price runs to $1250/oz in the next 30 days. This is an astounding amount of option OI considering the open interest in all the futures contracts stands at only 345,000 contracts!

The bets by bulls outnumber those by the bears by a 2.3 to 1 ratio which is even more bullish than for JUN 2009. The Total Call option interest is 113,663 contracts which is very similar to JUN 09. Furthermore if gold is trading at around $1600 by DEC then 100,000 contracts will be in the money!

I consider option players highly sophisticated speculators. Such large bets are likely being made by some large money interests who are buying out of the money options BEFORE going into the futures market. Buying long futures in large volumes will rapidly drive up the gold price but the massive open interest in the Call Options then allow access to much more futures contracts at the same price by exercising the options and then perhaps taking delivery of the gold. This is bolstered by sources revealing that JPM and GS are buying in quantity. So on the part of JPM this is likely a ploy to try to cover a chunk of their massive short position.

Let’s now look at silver. Figure 3 shows the cumulative Open Interest across all strike prices for the COMEX Silver Call positions and the Put positions for the JUL 09 options. The ratio of Calls to Puts is 1.80 so Bulls outnumber Bears by 80%. What is also remarkable is the amount of open interest. For example, 18,800 contracts would be in-the-money if the silver price runs to $25/oz in the next 60 days. This is an extraordinary amount of option OI considering the open interest in all the futures contracts stands at only 94,000 contracts!

I conclude that smart money is being placed for a massive rise in the gold price in the next 30 days and silver in the next 60 days (which probably means within 30 days for both metals) and again by December. I wouldn’t be surprised to see a pullback in between the two events. This money could not go in to the futures market without blowing the lid off the price as it would represent such a large increase in open interest. Going into the out-of-the-money option market allows flying below the radar.

The flat contango in gold and silver suggests there is a shortage developing of precious metals for delivery. We know that two large banks hold almost 100% of the commercial net short position. They need desperately to cover their exposure if the market is about to make a big move. It looks as if that is precisely what is happening.

International Forecaster
By: Bob Chapman
Fraud is everywhere and it continues unabated and un-prosecuted. A crime syndicate runs America. JP Morgan Chase, Goldman Sachs and Citigroup run our government. Every time these three firms participate the system is exploited one way or the other. The latest example is the rules change by the FASB allowing mark-to-model, which means our balance sheet is what we say it is. You ask, how does this happen? It happens because they control the system and our government.

The greatest fraud is the Federal Reserve and our government. They are both throwing money at the problems. The Treasury borrows the funds and the Fed creates them out of thin air. America, under the privately owned Federal Reserve for almost 100 years has done the same thing over and over again, and it looks like this time they are headed over the edge. Between the looting by the Fed and our welfare state our country is on its knees financially and economically. While this transpires, Americans and people in other nations clamor for government intervention. They want government to get even bigger and they want an even larger welfare state. That said, is it any wonder people all over the world have started buying gold over the past year?

As every nation has learned no nation prospers under monetary inflation because it robs the people of the fruits of their labor. Due to the wanton creation of money and credit we have had two stock market collapses in the last 10 years and a monumental collapse in residential and commercial real estate. How can the Fed be still in charge after the past 20 years of financial and economic disaster? If we include commodities, the losses could be as high as $100 trillion. The people who caused this are the Fed, banking, Wall Street and rating agencies, which are still in charge, and they are not even being investigated. There obviously are no rules. They are what the participants want them to be. As a result of these policies we are in worldwide depression. Due to monetization and reckless creation of money and credit little has been accomplished, except keeping banking and Wall Street afloat for the time being. This spending can only be viewed as further taxation for future generations. After the current injections of money and credit and stimulus end in the summer of 2010, the governmental and monetary powers either create $15 trillion more to jack up the US economy and others do the same, or the delayed deflation takes over. They still are treating the disease and not the cause at a terrible future price. Complicating matters China is creating $1.2 trillion in debt, the Japanese $250 billion and Europe $500 billion. You have to ask, where does it all end? London, Washington and New York have no further answers. They know that massive more money, credit and monetization has to be produced or deflation will take over. They are running on a treadmill that never stops. The bond market breakdown through the 200-day moving average is already telling us there are higher interest rates ahead, which means much higher interest costs are in the future in the long end of the market, which will cut into corporate profits as well.

Silver Leads Gold as Dollar Teeters
By: Jim Willie CB
The bank sector Stress Tests clearly are a sham designed to restore confidence after accounting rules were eliminated. USFed Chairman Bernanke continues to make clownish comments about the problems centering upon bank liquidity, when solvency remains their plague issue, and will continue to be the main flaw. What a lousy economist and a lapdog banker! He has not been correct on a single issue or forecast or analysis since taking the helm at the US Federal Reserve, yet he is given high praise. The Johann Gutenberg Award might be appropriate for printing press accomplishments, but no more than that! He claims the Stress Tests were extraordinarily detailed, yet they relied on ridiculously soft economic stress factors from months ago. My stance is clear, that the Stress Tests will eventually be used as weapons to force stronger regional banks to merge with dead ones lodged on Wall Street, with the FDIC holding the legal hammer. The cancer of Lower Manhattan most assuredly will force its metastasis across the nation and into its banks.

Financial market anchors and analysts debate whether the 30% stock rally qualifies as the new bull market, as nutty green shoots are identified. The supposed green shoots are nothing more than elaborate moss on exposed decaying roots of dead standing trees. These are sprawling sequoias with hollow trunks and decayed roots. Those sell-side optimists ignore that a 30% stock market rise after a 50% decline since October 2007 is a typical bear market correction. The green shoots cannot possibly be new attempts at legitimate growth when jobs are being destroyed on a massive scale, home foreclosures continue to rage, home values continue to decline closer to 20% than 10%, corporations are guiding lower on profits and investments, and the states are cratering financially. Besides, the S&P500 Price Earnings Ratios are at historic highs, not lows. Worse, the earnings are mostly fictions. Votes are being registered in the gold & silver markets, and in the USDollar and USTreasury Bond markets.

Silver has made an initial move over the 14 level, to challenge the March highs. The gold price has rebounded, but not enough to cause as much enthusiasm. The reliable respected Adrian Douglas has spread the word that both Goldman Sachs and JPMorgan Chase have been building option call positions on both gold & silver futures contracts. Normally, options are the contrary indicator of naïve money piling on, after a segment of the game has concluded. Not so with option futures, which is the province of insider trading. Both GSax and JPMorgan are kings of insider trading, with full impunity, all for the greater good (of private profits). The other inside story comes from overseas. The Germans have demanded the return of all their gold bullion held by US bankers in custodial accounts. The Arabs are accumulating gold, platinum, and silver. The Chinese admitted their gold accumulation. The Russians have not permitted any gold mining output to enter the markets in three years. Precious metals are being looked upon very favorably as the US$-based financial structures continue to dissolve.

The silver price is moving up the most rapidly, in lead fashion. The reasons are many, but they include the fact that the shortage in silver is far more acute. Both industrial demand results in depletion, and investment demand is growing quickly. The six billion ounce stockpile in silver once established by the USGovt has been long gone for at least five years. The next stop for silver is 15, which should occur easily, and then 18 in another easy leg up. The cyclicals are both nicely aligned in a positive direction. Enrico Orlandini demonstrates that the Point & Figure chart method indicates a 26 price target for silver, although the method has a timeless element in its elegance. Those investors who averaged their unleveraged silver positions since last autumn will be greatly rewarded. Silver has always sauntered in the shadow of gold, but it will sachet soon with a smirk and a wag.

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