Wednesday, January 5, 2011

Hope Springs Eternal

It MUST be a Festivus Miracle! The financial news media are tripping all over their tongues in an effort to "report" the flood of "supposed" positive economic data that has greeted the new year. Geez, there must be an economic recovery out there somewhere...

Ignoring December's dismal Consumer Confidence number, over the past week we have been treated to a drop in Initial Jobless Claims [even though continuing jobless claims rose], a rise in Pending Home sales [even though prices for homes continue to drop], a rise in Construction Spending and a rise in the ISM Manufacturing Index, a rise in durable goods orders [even though the number was negative], a rise in factory orders, a rise in Total Vehicle Orders, and a rise in the ISM Services Sector Index [even though the employment portion of the survey fell].

This morning euphoria broke out across the land of financial talking heads as the ADP employment measure of growth in private sector jobs was released. Apparently 297,000 private sector jobs were created in the past month...three times what were estimated.

"The economy is clearly accelerating," said Edward Hemmelgarn, president of Shaker Investments in Cleveland.

CLEARLY!? ...and who in the hell is Edward Hemmelgarn, and who has ever heard of Shaker Investments?

December payrolls jump biggest on record
(Reuters) - December's gain in U.S. private payrolls reported by ADP Employer Services was the "most robust number" on record, with data going back to 2000, Macroeconomic Advisers LLC Chairman Joel Prakken said on Wednesday.

Prakken was speaking after the ADP report, jointly developed with Macroeconomic Advisers, showed private employers added 297,000 jobs in December, about three times as much as forecast by economists surveyed by Reuters.

He noted seasonal factors may have boosted the December numbers but said: "It looks to me growth in employment has moved ... comfortably into positive territory and seems to be accelerating."

The ADP is notoriously the most INACCURATE measure of employment available. Recall last months non-farm payrolls report that came in woefully short of expectations. The ADP number released in advance of last months jobs report missed by 80%. In November the ADP reported 93,000 jobs...we got 20,000. But why let a little inaccuracy tar a glowing jobs report...

Sorry ADP, Not Everyone Believes the Economy Created 297,000 Jobs
That big positive surprise this morning from the ADP jobs report was nice while it lasted - which was all of about 30 seconds by market standards.

Unfortunately, a number of traders and economists aren't willing to take seriously the report that ADP and Macroeconomic Advisors put out suggesting the economy created 297,000 jobs over the past month.

A quick straw poll this morning showed a lot of disbelief in the ADP numbers, and the report did virtually nothing to move the stock market, though futures pared some losses immediately after the release.

Equities meandered through morning trading, though other markets did react. In particular, bonds showed a strong reversal of earlier gains, while the dollar gained more than 1 percent and in turn pressured commodities prices.

But don't expect many major revisions for Friday's Labor Department report, expected to show nonfarm job increases of 140,000 jobs and an unchanged unemployment rate of 9.7 percent.

"ADP has had some spectacular misses and I'm a little bit hesitant at this point to fully buy into the data," said Joe LaVorgna, chief US economist at Deutsche Bank in New York. "We think we'll eventually get there, but this is one of those things where seeing is believing."

Another Look at the Surprising ADP Jobs Data

Why That ADP Report May Not Be Nearly As Good As Advertised

3 Ways to Count Unemployment, at a Glance

Of course this "great news" had everybody running from the Precious Metals and Commodities markets again today. Funny that. Despite all the rah-rah, nothing has changed fundamentally for the economy in the last week. Only hopes have been raised. False hopes I might add.

The obvious reason for yesterday's and today's raid on the Precious Metals is further nefarious activities by the goons at the CRIMEX. Tuesday's raid began precisely at 8:20AM est as the CRIMEX opened for business. Bids were pulled and within five minutes Gold was down $5. Silver quickly followed down the shitter as ALL bids were pulled. The Precious Metals fell precipitously throughout trading at the CRIMEX Tuesday and AGAIN today. Amazing isn't it? NOT!

It is not unusual for the Precious Metals and Commodities to be volatile annually in early January, but yesterdays action had too much bullion bank stench associated with it. It would appear from a report released today by the U.N Food and Agriculture Organization that bumbling Ben Bernake's claim that there is no inflation is seriously inaccurate:

FAO food price index hits record high in December
(Reuters) - Global food prices rose in December, with the FAO Food Price Index at a record high, the U.N Food and Agriculture Organization said on Wednesday, past 2008 highs when rising food prices sparked riots in a number of countries.

Up for the sixth month in a row and fueled by surging sugar prices and rises in cereals and oils, the index was the highest since records began in 1990, in nominal terms, and topped the high of 213.5 in June 2008, during the food crisis of 2007/08.

Food Prices Reach Record High
According to the Food and Agriculture Organization (FAO), their index of of 55 food commodities has surged to a new all time high of 214.7 points, surpassing its previous highest record from June of 2008 of 213.5 points.

In other words, food prices (nominally) are at a record high, despite the fact that the BLS claims that current year-over-year food price inflation is only 1.5%. According to the FAO, “It will be foolish to assume this is the peak.”

Bumbling Ben has a six month window that is closing quickly. INFLATION will be the "buzzword" of 2011. Bet your Gold stash on it.

Gold bounced hard today at $1364 support. Judging by the daily chart of Gold, the criminal bullion banks, at the behest of the US Government, are trying to paint a triple top in the Gold market. The bounce at $1364 leaves Gold still range bound between $1425 and $1364 and consolidating it's recent gains last quarter.

Silver retested the break from it's pennant formation last week and bounced just as hard as Gold rising 75 cents off it's CRIMEX induced low this morning.

Both Gold and Silver are still expected to end the month of January 2011 higher than they began it. Despite their criminal activities, the bullion banks efforts to sink the Precious Metals are appearing to be fruitless as open interest in the futures markets climbed despite the huge hit put on them yesterday. A strong cadre of bulls is standing up to these crooks and taking full advantage of the discount pricing their criminal CRIMEX activity presents. Lower prices in a rising market only lead to higher demand. Are these crooks really that stupid? Not likely...

Consider the possibility that the banks are creating a double trap in the Equity AND the Commodity markets right here. By touting the tepidly positive economic data spewing forth from the financial news media and the US Government, could they be dumping equities on suckers and stealing Gold from suckers at the same time? All in advance of a big equity market take down and explosion in the price of Gold and Commodities? Think about it...a bull trap in equities, and a bear trap in the Precious Metals and Commodities. Why not?

Folks, the US Dollar is NOT a buy, and the Precious Metals and Commodities are NOT a sell.

Inflation is on our doorstep, and banging on the door.

by Egon von Greyerz
We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments. Thus most of these assets are also worth-less.

So the world financial system is a house of cards where each instrument’s false value is artificially supported by another instrument’s false value. The fuse of the world financial market time bomb has been lit. There is no longer a question of IF it will happen but only WHEN and HOW. The world lives in blissful ignorance of this. Stockmarkets remain strong and investors worldwide have piled into government bonds in a perceived flight to safety. Due to a century of money creation (and in particular since the 1970s) by governments and by the fractal banking system, investors believe that stocks, bonds and property can only go up. Understanding risk and sound investment principles has not been necessary in these casino markets with guaranteed payouts for anyone who plays the game. Maximum leverage and derivatives have in the last 10-15 years driven markets to unfathomable risk levels, with massive rewards for the participants.

In the meantime central banks are cranking up the printing presses but as Bernanke recently said quantitative easing is an “inappropriate” description of what should be called “securities purchases”! Who is he kidding? What the Fed is buying has nothing to do with “securities”. There is no security whatsoever in the rubbish the Fed is purchasing. They are buying worthless pieces of paper with worthless pieces of paper. This is the Ponzi scheme of all Ponzi schemes.

Let us be very clear, this financial Shangri-La is now coming to an end. The financial system is broke, many western sovereign states are bankrupt and governments will continue to apply the only remedy they know which is issuing debt that will never ever be repaid with normal money.

So why does the world still believe that the financial system is sound?

How Hyperinflation Will Happen
by Gonzalo Lira
Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.

Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency.

Right now, the U.S. government is indebted to about 100% of GDP, with a yearly fiscal deficit of about 10% of GDP, and no end in sight. For its part, the Federal Reserve is purchasing Treasuries, in order to finance the fiscal shortfall, both directly (the recently unveiled QE-lite) and indirectly (through the Too Big To Fail banks). The Fed is satisfying two objectives: One, supporting the government in its efforts to maintain aggregate demand levels, and two, supporting asset prices, and thereby prevent further deflationary erosion. The Fed is calculating that either path—increase in aggregate demand levels or increase in aggregate asset values—leads to the same thing: A recovery in the economy.

This recovery is not going to happen—that’s the news we’ve been getting as of late. Amid all this hopeful talk about “avoiding a double-dip”, it turns out that we didn’t avoid a double-dip—we never really managed to claw our way out of the first dip. No matter all the stimulus, no matter all the alphabet-soup liquidity windows over the past 2 years, the inescapable fact is that the economy has been—and is headed—down.

But both the Federal government and the Federal Reserve are hell-bent on using the same old tired tools to “fix the economy”—stimulus on the one hand, liquidity injections on the other. (See my discussion of The Deficit here.)

It’s those very fixes that are pulling us closer to the edge. Why? Because the economy is in no better shape than it was in September 2008—and both the Federal Reserve and the Federal government have shot their wad. They got nothin’ left, after trillions in stimulus and trillions more in balance sheet expansion—

—but they have accomplished one thing: They have undermined Treasuries. These policies have turned Treasuries into the spit-and-baling wire of the U.S. financial system—they are literally the only things holding the whole economy together.

In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.

So this is how hyperinflation will happen:

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