What is Inflation and Deflation, and what wins?

After doing this blog for over a year, it has been interesting to me to see how my own viewpoint changes on what is the "big issue" the US faces. By correctly identifying the US's most major risk, the idea is, you can minimize risk by recognizing and reacting to the US financial landscape changing.

What everything boils down to is US Government credibility. And US government credibility is reflected in the valuation of US dollars and interest rates foreign entities are willing to lend money to the USA.

Let me explain how I can make such a bold statement. The US has many "priorities" it is trying to address, but the bottom line is the US needs financing to operate, just like any government, corporation, or person. If the US citizen profile resembled Japan, the US could finance any issues using their own people's savings as collateral.

But the US is a debtor nation, with about 12 trillion in outstanding debt, trillions more in "implicit" debt from the US backing other companies, and yet over 60 trillion more with promises to pay Social Security or Medicaide benefits. With GDP at 13-15 trillion, the US debt has serious consequences.

The most serious is, at some point of debt, the US creditors will demand more interest to lend to finance all the spending.

With large borrowing, and spending, combined with the Federal Reserve and US Treasury creating "large amounts of money out of thin air", people are concerned how will this change the value of money.

There are two camps, people for an INFLATION result and those with a DEFLATION result. Some people go as far as to see the USD total collapse, and replaced with a new currency.

A reader, Ryan Swan, gave me yet another useful link from a podcast that is running a great series on inflation & Deflation arguments. I am in the middle of listening to this series, and plan to post a series of blog entries to explain my thoughts.

In the mean time, you can listen to this series on the blog site called "Financial Sense Newshour"m and start from September 5th, and listen to current. For those who use itunes, you can subscribe at Financial Sense Newshour itunes podcast.

I'll elaborate more on inflation, deflation in future posts

Markets treading water

The US market treaded water on Tuesday, with markets ending slightly lower.
I updated my favorite long term view graph below, and added a "6 day" view of USD currency fluctuation. As of Tuesday night, about 9pm, USD broke down below the week long trend line up. Wednesday portends to be interesting.

From WebSurfinMurf's Financial Blog

USD Dollar

From WebSurfinMurf's Financial Blog

Housing Bust to Resume

BloomBerg
The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said.

The “huge shadow inventory,” reflecting mortgages already being foreclosed upon or now delinquent and likely to be, compares with 1.27 million in 2005, the analysts led by Laurie Goodman wrote today in a report. Assuming no other homes are on the market, it would take 1.35 years to sell the properties based on the current pace of existing-home sales, they said.

Chart of the Day
Chart of the day has an interesting graph, which you can see by clicking here.
Clearly, from a charting perspective , house prices will easily fall an additional 25%.

The Real Estate market is FAR from ending it's decline, expect homes across the board to decrease 20 to 50% from HERE over the next 3 years. (depending on location).

One Year of Blogging

This post is a bit late, but I started to reflect on one year of my labor on this blog.

Initial purpose of the blog was to help warn pending doom I believed was to occur in August 2008. Over time, this blog then morphed into for me, a way to digest and articulate to myself the ebbs and flow of thought, events, and a way to keep thoughts clear to reflect upon. Also, my writing skills are horrible, but I do hope they have gotten significantly better since my initial post back on August 14, 2008, titled "Welcome to my new Blog".

Recently I have questioned why continue this blog. I think I have articulated enough doom and gloom to last a lifetime, and really there is no point to trying to reinforce this view. I hope a day will come where corrective action is taken so I can start to become optimistic. To date however, typical human nature to take the "easy way today" at expense of a harder tomorrow continues.

My current thought is to continue this blog to ensure I keep focused on what is happening, to better prepare myself to protect my immediate family. I believe it's better to be aware of events as they unfold than to be surprised by them. Plus I am a new father, and hopefully my son, Joey Murphy, now age 5 months and 3 weeks, will someday read some of my crazy rants to gain some insight into me, and how to not become crazy like me. ;)

A shout out to John Chinnock, one of the smarter [and a little more eccentric :) ] people I have ever known. He is the single greatest influence on my perspective. Also shout out to Eric, Ryan (ugh!), Greg, Bob Groyt., Mike Cap, and Mike Mc for hours of pontification on ideas.

My greatest thanks is to the internet, through which a few very talented people can share their works. (Mish, Karl, Gary, and dozen others)

Some blog stats:
Since August 14, 2008 to August 31, 2009, I posted 455 blog posts
Using Google analytic s, which I implemented about 9/1/2008, I can gleam the following statistics between 9/1/8 - 9/1/9
4,587 unique visitors from 85 countries/territories visiting 17,537 times, viewing 29,486 pages.

I must say, I had no idea I was popular in South Korea, my #2 country after USA visiting this blog. I always loved South Korea. Their priorities are inline with my ideal country, obsessed with GOOD computer gaming, like Starcraft, MMO, etc, and have best internet access in the world. :)

Below is an image from Google Analytic s summary page, (click for better view). You can also view more images by clicking on these links, world view, top 20 world visitors.

From WebSurfinMurf's Financial Blog

Karl Denninger on Corruption

One of my main themes is the economic situation CANNOT get better until law and order is restored, honest accounting, the government working for the people's financial interest, etc.

Karl is always enjoyable to watch, a very patriotic American willing to call it as it is. What America doesn't get is the historical value was America was a safe-haven for doing honest business. America is now leading the charge to the bottom of the barrel.

Want to see more? Click here for youtube channel.

Paul Volcker Testified

Thursday, September 24th, former Fed Chairman Paul Volcker testified before the House Committee on Financial Services, discussing topics on Systemic Risk and Resolution Issues. (click for video, 19 minute mark) I have extreme regard for Mr. Volcker as one of the very few highly responsible financial advisers to the USA. Below is a pre-release of some of the topics Mr. Volcker covered. My only major disagreement with him is the that the Federal Reserve Bank should exist. A good dissection of Mr. Volckers statements can be found at Zero Hedge.

If America was to follow his advice immediately, this long, protracted recession/depression America is facing would be cut significantly shorter, but probably a little bit deeper. I am betting America is not yet ready to do the right thing. I hope I am wrong.

Mr. Volcker's opinions are always worth the read, unlike our current Federal Chairman. And it is a sad state of affairs that one of the few, regarded individuals is someone who is 75+ years old, where is the next generation?

A particular quote I liked:

The Federal Reserve Board should not become an academic seminar debating in its marble palace various approaches toward monetary policy without the leavening experience of direct contact with, and responsibility for, the world of finance and the institutions through which monetary policy is effected


volcker

MEGA RALLY! Is it over?

Looking back, at SPX 666, changed into a bull, betting the market would rally. Started getting bearish at SPX 930, current SPX high is now 1080. Lets just say, it hasn't been fun stepping infront of that train. Assuming SPX 1080 is the high for the next few years, off by about 16%. Considering I expect the SPX to hit below 500, a full 50+% lower, not too bad of an error.

Not to say the market won't go higher in short order, anything is possible. But lets take a look at this mega rally we have experienced, and put some context around it. Which is more likely 15% up from here, or 20% down+?

Three charts for your amusement, first two on the S & P 500 index, the third on US Dollar valuation. Commentary continues after charts.

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

NOTHING moves in a straight line, but for 6 1/2 months, the market moved for the most part straight up. The "fuel" was devaluing the US dollar through "Quantitative Easing". The fed has somewhat signaled it will not continue Quantitative Easing. Let's hope they stick to that otherwise we could face an all out US dollar collapse. This was one heck of a rally, but unfortunately its more likely the precursor to one hell of a swan dive. Good news is, if this hold true, the US dollar won't fail, and will appreciate.

Therefore the safest is US Treasuries, at this point I would go long NOTHING. If the USD breaks the lower trend line, 70 on the DX, then go gold, oil etc. But if the dollar doesn't break down and strengthens, EVERYTHING goes down.
I MAY dump all longs tomorrow, all gold miners, everything. 100% cash or short.

Good luck and keep your money safe. This depression will last 5 years, keep your savings.

When did the depression start?

A little warning, this is a bit of a rant, it's been a while since I did one of these. :)

Conventional wisdom says the US recession started in 2007, with the market peaking in the fall of 2007. But is that when the recession started?
In 2001 onward, we now know, much of the economic upswing was fueled by loose monetary standards by the US government, and after 2005 basically outright fraud by the US financial system in two main areas. Real estate loans and Credit Default Swaps.
In addition, the US dollar has been devaluing since 2000.

I have posted this chart before, I'll re-post now, a chart from Slope of Hope that shows the Dow Jones Industrial valuation priced not in US Dollars, but priced in gold. Why gold? Some use gold as "real money" valuation vs arbitrary paper printing. One supporting concept in gold is through the history of mankind gold holds value. Can't say that for ANY fiat currency!

See chart:

From WebSurfinMurf's Financial Blog

So, between real estate and financial fraudulent schemes, and devaluation of the US dollar, the US economy peaked not in 2007, but in 2000! (From a more absolute value perspective. The amount of paper dollars for goods based on resources, or better put, USA dollars before leaving the gold standard.)

Not convinced? In another financial service I pay for, "Elliot Wave International" (good service I recommend it), their September 15th edition of The Elliot Wave Theorist had an very interesting chart, posted below. (reprint permission given on 9/21/09)
This chart basically shows that the US has been in a recession/depression since 2000, based upon employment. The GDP and economic numbers looked good in the mid-late 2000's through currency devaluation and false financial inflation.

From WebSurfinMurf's Financial Blog

Still not convinced? Lets look at the recent "recovery" in 2009, lets cross reference the US stock market to US dollar valuation since Sept 2008. Clearly there is a correlation of devaluing USD to inflate internationally valued assets. (Oil, US stocks, etc) (Click here for longer view)

From WebSurfinMurf's Financial Blog

What value did the US provide to the world in the 2000-2009 era? In the 90's it was the tech revolution culminating with Internet explosion. 2000+ was building houses? The US expanding internally does not provide true economic value in a world sense. If Zimbabwe builds fancy houses through fraud, it doesn't build a more valued nation.

Another metric, the average income for a US citizen is currently the same as it was in 1998, showing that US wages have stagnated. Take note, this chart is from the US Government which tries to skew information for each political party as best as possible. I fear its actually worse than this shows.

From WebSurfinMurf's Financial Blog

Finally, while I am going "chart crazy", here is a chart comparing total projected cost of the 2008 bailout. (US backed many bank assets that need to be repaid, also Freddie/Fannie costs, bank failures, ets) So even if 2008 bailout doesn't pan-out to 4.6 trillion, the total cost in 2008-20017 easily will. The cost exceeds all of the other projects COMBINED. And the costs of the projects / efforts are adjusted into 2008 dollars! I wonder who got all that cash?.....oh yea, the bankers.
Let's recap, the US government has been devaluing its currency since 2000 (can only do this trick until USD is at ZERO), the US is now maxing out it's credit, and private citizens/companies already near max credit. (US Debt Clock) So don't be surprised when the US can't help it's citizens for Social Security, failed pensions, and the like. By the time the citizens realize what has happened, there will not be enough credit left by the US government to help them with their needs. The top will have already taken it.

From WebSurfinMurf's Financial Blog

Bottom line: Fiat currencies provide the political ability to provide a false sense of growth. When measured using more neutral valuations, such as "US stock market valuation per gold ounce", "employment level", or just plain correlating currency devaluation to asset inflation, it is clear that all is not what it seems.

America better stop pointing fingers at each other, and start pointing at themselves, get down to working hard, providing value, saving, enforcing the rule of law, in a nut shell back to basics. Otherwise America could end up as yet another failed republic.

**Special thanks to my Aunt and Cousin, who through an email chain got me fired up to write this rant **

I'll end with a little humor....

100 Billion in bonds found on two MORE men

I previously blogged how two Japanese men while trying to cross from Italy to Switzerland, where found to possess 134 Billion in US Bonds!

This was odd at best, and odder, they where released, and "disappeared". If I tried to pass a fake 10K worth of USD, I doubt I would be released. So makes it very very odd, and there has been no resolution to this except the general comment by US Government they are "fake bonds".

This past weekend TWO DIFFERENT men where found with 100 Billion in US bonds trying once again to cross into Switzerland! OK, now it is time to put on the tinfoil hats, lets go through the possibilities:

1) There is a ring of fake US bonds, inferring there is a MARKET for counterfeit 100M bonds. No matter how you slice this, 100's billions in US bonds floating around fake isn't good. If this is the case, I find it hard to believe the only two attempts ever made to sell fake 100M bonds where both caught. Therefore who knows how much more is out there.

2) If fake, how can they have ANY cash value? (except as collectibles) I would hope that the US Government has unique serial numbers for bonds of face value of 100 million dollars! Only use for Fake bonds I can think of is to fool someone that the bearer has big cash on hand, when they don't. One use is for banks to possess them to show inspectors they have sufficient funds to be solvent. And obviously if banks have fake bonds to fool government inspectors this is bad! I'd love to hear other uses for fake bonds of such ridiculous denominations, post in the comments.

3) If REAL, who the heck is trying to dump US dollars through back doors? Bonds of this value typically trade on exchanges. The answer: whoever selling doesn't want the world to know they are dumping US bonds. The first two men where Japanese, leading to suspicions that the Japanese government is trying to secretly diversify from US money. If ANY government is trying to dump US bonds on the sly, why have two idiots running around with the bonds? Why not have "government diplomats" which CANNOT BE SEARCHED because of their status to hand-transport?

4) Also if REAL, why isn't the US government quick to say so? To date they have rejected them being real. So why does the US Government want the public spin to be fake, when real?

5) Italy released two Japanese men with "fake" 134 BILLION in bonds, and they disappeared. If these next two men are allowed to do the same, either Italy is one of the most ridiculously run governments on earth OR Italy has pressure to release from some big forces to release and bury the subject.

If you have the patience, read this Italian version translated to English using Google.

Bottom line: Nothing good can be behind these large bond caches. And I doubt I'll know the truth in my lifetime. At this level of money, no one wants the truth to come out.

Currency Games

I blogged before how the USD collapse since March to current levels. The Federal reserve bank, a QUASI private institution announced it will stop QE activities. What is quantitative easing? Its a fancy word for photo-copying money! OK, not quite that bad.....

US Treasury prints money by selling US Bonds at an interest rate. The bonds may be purchased by private investors, corporations, other governments. What cannot be purchased for example, is a different department in US Treasury, and start a cycle where infinite money can be printed.

The Federal Reserve Bank acting as a "private bank" has embarked on buying US Treasuries under Quantitative easing. But wait, is the FED truly private? Well the Fed has the backing of US taxpayer.....a debate of being private is thin at best.

So in my opinion QE is basically circumventing normal capitalism, and "cheating". The Fed announced they would allow this program die, announcing it was a success.

So what does this have to do with stock market?
AS previously mentioned, the US market entire bull run was at the expense of devaluing USD through QE. But wait... I just wrote that the FED is stopping QE...what effect will that have?

In all likelihood APPRECIATION of the USD, which means US stock market falling.
Also, as mentioned, US Treasury is selling bonds to others, so how much was the Fed buying of US treasuries in Q2? try almost 50% (click, source shaky)

So, if US government is selling tons of bonds to fund congress spending at breakneck speeds, with not enough buyers, what happens?

Lets just say, what could happen, we should all hope doesn't, market dislocation.
Likely case? Interest rates rise, which helps no one. And as earlier in this blog the best counter to rising rate? Falling equities "scaring" people into bonds.

But nothing is simple, the USG could get into arrangements where it buys country XYZ debt, they buy country ABC debt, and country ABC debt buys US debt. Nothing is ever what it seems.

Final spin: watch the USD, it is the whole story.

See below historical value of USD since 1971, from The Chart Store, below that, DJIA

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Outsourcing unemployment

Yet another video by Ryan Swan (thanks)
I have shown other Vanguard videos.
This one is US economy and China, both getting hit with economic turmoil.

Chinese Economy more fraudulent than USA

This video submitted by Ryan, a reader, thanks!

I blogged before, China in the near term is NOT going to save the world their economy is more fraudulent than the USA. Enough vacant office/housing space enough for the next 10 years WITH decent growth!

This video is a hedge fund manager visiting some of China's vacant office spaces.

Stocks to watch

These are some stocks to watch,

NOTE: I removed some of John's companies to watch/short list, due to possible conflicts to my fulltime job.

John Chinnock list
BEN
CAKE
COF
COH
DRI
HLF
JPM
MSFT
PNC
QQQQ
SPG
STI
VNO
WFC
ZION
Other stocks I am looking at
AAPL
DIN
DTG
LEN
WYNN

NEW addition (9/23)
RDN

USD and Market Rally

I posted previously how the US stock market rally has been closely tied to the devaluation of the US dollar. This trick that is being used to try to give Americans and the world false hope of a quick recovery has a dark side. How far can the USD fall before it becomes critical?
And how can USD falling be a negative thing?


Well, any currency, like USD, can be thought of as the "stock" of a country. If the currency devalues to the point people are afraid to store wealth in USD, the whole system crumbles. This this is far fetched? It just happened to Icelend, and many other countries it has happened to in the past.

But it doesn't matter if you think this is possible, what does matter is what level does the US Government consider critical mass, and action must be taken to change course? From the chart below I see two critical mass points, USD at 76, and 72. Below 72 is USD free fall territory.

Me trying to play short where a country is willing to sacrifice it's money's valuation to artificially inflate their economy was not a good plan.

Because of where we are, GOLD/Gold Miners could be a buy of a lifetime, or a horrible time to buy. It depends on where USD is headed in the next 6 months. For now, I am being OPTMISTIC the USG defends the valuation of the USD, and prevents a currency crisis. Think market collapse of 2008 was bad? Thats NOTHING compared to a currency crisis.

So my advice is still cash, maybe a little gold miners, a little short, but your guess is as good as mine on where this train turns around...or derails.

From WebSurfinMurf's Financial Blog

Mortgage applications fell 8.6% last week: MBA

Just a news story today from Marketwatch titled:
"Mortgage applications fell 8.6% last week: MBA"

The volume of mortgage applications filed last week fell a seasonally adjusted 8.6% compared with the week before, the result of a drop in both applications to refinance an existing loan as well as those to purchase a home, the Mortgage Bankers Association reported Wednesday.

I'm shocked that with 250K people losing jobs a week, that housing mortgages are going down...shocked.

US credit shrinks at Great Depression rate

I feel like the market is about to enter into a real parabolic blow off, but who knows, it could just sputter out. I get a feeling that when this turns, it will be very very nasty.

In my blog entry yesterday, I noticed I went a little nuts with "quotes", I need to keep that in check, annoying to read.

This blog entry will be short today, I saw an article titled US credit shrinks at Great Depression rate. Quote from article:
Referring to the debt-purge policy of US Treasury Secretary Andrew Mellon in the early 1930s, he added: "The pressure on banks to de-risk and to de-leverage is the modern version of liquidationism: it is potentially just as dangerous."

US banks are cutting lending by around 1pc a month. A similar process is occurring in the eurozone, where private sector credit has been contracting and M3 has been flat for almost a year.

In a nutshell, the article is saying banks are contracting credit. In the modern world, credit IS money. (in a fractional reserve system) Therefore the destruction of money is occurring at 1% per month in total US bank lending. This does NOT lead to a new bull market, this is a bear market rally that will end badly.

In the comment section someone posted some opinion, that I found rang true, food for thought.

Deflation cannot be stopped, it is a natural consequence of the credit bing. Any attempt to reverse it will prolong it and may add unintended consequences. Why deflation if so bad? You have to ask: who profits from inflation (bankers? people or government in debt?). I like deflation, don't mind falling prices, everything is cheaper. But then I am a saver and have no debts.

Bernanke is responsible for the Fed, but the buck really stops on the desk of our President and Chief (and, FYI, that's supposed to be Obama) ... and considering we have a President with Zero experience running any sort of capitalistic enterprise, is any of this surprising?

The real lesson of the 1920s was that, if you allow the conditions for a monumental depression to develop, you will get a monumental depression and there is nothing you can do to stop it.

I blame primarily the government (dems and republicans) under President Bush for the lionshare of these issues. Under Clinton critical legislation was passed to enable these toxic assets. Now Obama is focusing on healthcare when there is a war to be waged to improve the financial system. The result will be plenty of blame to go around, but everyone paying the price.

What is driving the US market higher?

Fundamentals are definitely not driving the market, there are other factors.

Emotion: First there is human emotion. Obama brought new hope, and new reason for the "average person" to hold their stock positions to give him a chance.

Snap Back: When SPX was at 666, it was over-extended down, this is a snap back rally.

Hot China Money: China is hell bent to prove to the world it's economy is hot, and America is not. So China has been pushing loose credit, government spending, and high speculation. Some of this hot-money in asia ran into resources, Asian stocks, and there is bound to be some spill-over to US.

US & Western countries Economic Parlor Tricks: The US government changes accounting rules to allow for better profits, helping drive perception. (but not reality). Giving away 4.5K to consumers to "bribe" them to take on MORE debt and buy a car creates a momentary surge in spending.....but it can't last. The US cannot (well without consequences) bribe people to spend more money. It just can't last. Same with stimulus money.

Companies beating or OK earnings: Many companies revised their targets down significantly in Q4 of 2008, so much so that the challenge to meet or beat earnings was in the cards by the revisions taken. The "short bus" investors don't look at the companies expanding (or more likely decreasing) sales. They look at revised down target, and say "beat". Many beats where by selling inventory or laying off people. These are NOT long term gains, just quarter tricks.


But the one to really focus on is:

USD Devaluation: As the US devalues, the US market looks "Cheaper" and when US international companies bring back profits from abroad, the money "comes back into the US" larger than what it was 6 months ago. This allows large corporations from "gaining" more than they would have if the USD remained flat or gained.

The USD is about to enter "Freefall territory". The US has to eithe defend the USD or throw it under the bus. If the USD goes too low, (74-70?) panic will set in and instead of the market rising, it will fall. If the USD is defended and rises, the previous good looking international earnings will evaporate.

I'll tie back this USD move in a week or two to show the correlation for the next few weeks.
USD breaking higher will not likely be good for gold/resources.

From WebSurfinMurf's Financial Blog

Short take

Market could rally more, fall, who the heck knows in the next 1 week to 6 months. I can't hold any big shorts anymore, so it must be time for the market to fall. I really don't have a good gameplan right now on how to increase my positions. I may dump miners on a dime, but I find it hard to add shorts, because the market is so strong.

Slope of Hope blog has a VERY interesting chart of the S &P 500 since 1932, on a logarithmic scale. His target by using this scale is S&P500 at 600.

From WebSurfinMurf's Financial Blog

US Median Income Stagnates

The US Department of Commerce released "Income, Poverty, and Health Insurance Coverage in the United States: 2008" There is a wealth of information on US trends, but I'll focus on just a few charts.

First, every administration does it's best to define/redefine measurements to ensure the outcome of any report is "as best as it can be". So when I review charts like these, I understand this is, for all intensive purposes the most optimistic measurement possible. The reality is likely not as good as presented. So when you learn from this information, it is likely rooted in reality.

The first graph is rebalanced in "2008" dollars. So people in 1970 didn't make as much as the graphs say in "1970" dollars. They made X amount based in 2008 dollars. Since it is my view that inflation is UNDER REPORTED, the methodology used to create these number are optimistic. The result? The average us citizen is not making more money than they did in 1998. (Read Mish for more spin).

From WebSurfinMurf's Financial Blog

Plus the number of people at or below the poverty line is rising, and once again, the numbers presented here are likely to be optimistic.

From WebSurfinMurf's Financial Blog

With consumer debt at near record highs, real unemployment at closer to 16%, and average incomes stagnated for 10 years, and poverty reaching new highs, I don't see how we are about to enter 10 more years of prosperity.

US Stock Market makes new highs

What can I say? The market has broken through all resistance levels. There really isn't "chart" resistance levels anymore. The US stock market can now rally with little reason to retreat......except if reality is recognized. With The USA real unemployment is at 15%, China's exports slump 23.4% in August , US Dollar pressing down to new lows, Oil up 50% in 6 months, the market has rallied 56% in 6 months, the market is rallying hard. You can invest for a market to go back to new highs in six months, but I can't join you.

I took a BEATING on this one. I am in defensive positions, trying to wait to see how high this market goes. Unfortunately, I am of the belief the market will fall harder the higher it goes. The ONLY thing that can stop that from happening is permanent devaluation of the USD. But that will lead to outrageous prices for natural resources.

It seems the recent part of the rally is forming a triangle, marked in hot pink. We'll see if breaking up or down causes the market to jolt significantly. I can't advise going long, but if you must, I suggest gold miners.

From WebSurfinMurf's Financial Blog

Blogger Pictures Speak Volumes

Today something a little different, some pictures from blog posts. They say pictures speak a thousand words.

First, consumer year over year credit change, brought to you by The Market Ticker in blog entry titled "The Government's Effort Has Failed". And a second picture of Total Consumer Credit outstanding.

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Next is a GREAT image from ZeroHedge showing 3 price indicators from last great depression, and 3 from NOW. Notice we are on-track for another Great Depression.

From WebSurfinMurf's Financial Blog

From Mish's Global Economic indicator, an article titled "Depression Debate - Is this a Depression?"

From WebSurfinMurf's Financial Blog

From the Smart Money Tracker, Gary's spin that Gold has already broken out over previous highs, in his post titled "Watching the wrong number"

From WebSurfinMurf's Financial Blog

From Slope of Hope, in post "Gold and Dollars" if we reprice the stock market in terms of price of gold (instead of USD), the market rally since March didn't happen, we are flat. Basically all the gains is from devaluation of the USD!.

From WebSurfinMurf's Financial Blog

US Main street upset with wallstreet bonuses

Today I saw an article called "Wall St bonuses spark outrage on Main Street USA". First off, I hate "main street" as a saying. It con-notates the regular citizens vs the elite citizens. There is ONE America, and we all live in it. I work in the same office as millionaires and people making 45K a year. There is no us and them, there is US!

Second, there IS an us and them created when a segment of people take their interests over the majority, to the detriment to the group. And in this case, I can say companies packaging the toxic assets, high stakes unregulated derivatives market, and US government have created an us and them.

The US middle-class is soon to be crushed, by the people issuing and accepting billions (trillions including liabilities) from the public sector for private profit. This group has helped create (they are not alone) the world wide financial unraveling we see before us.

And this isn't phenomenon isn't limited to the USA, it is all Western countries, click for article on how European bankers are defending their bonus pay in this environment.

So I would rather the title read "Wall Street bonuses outrage the world".

Second, screw the world! Has there been outrage in the form of paralyzing our government representatives with pressure to do the right thing? Enforce the law, stop corporate handouts to bankrupt companies, add regulation to unregulated markets?

No there hasn't, yea some talk here and there, a small 50 person protest here and there. blogger with 75 readers..... With that kind of response, "Wall Street" should double their bonuses every year, the markets should go down 20% every year, until the world stops it. The "World" won't get truly outraged until the US government is obviously bankrupt and the outrage is too late. So until then, I say go Wall Street bonuses!

China vs USA

I have written many times before about my thoughts on China's ambitions to become world leader. China has called for end for USD being the world's default reserve currency, been highly (rightfully so) about America's out-of-control deficit spending, and China (through rose glasses) has been trying to present itself as an economic powerhouse ready to lead the world.

The reality? China can't be trusted to have it's currency as the reserve currency, don't forget, it's a COMMUNIST Nation. And China complaining about US debt? If the US currency devalued hard, the USA is one of China's biggest clients, over-night, it's goods become much more expensive. If China wanted to play a bigger role in world economics, it would 100% decouple it's currency from the USD and allow the Yuan to be traded in a capitalist trading pit. But it doesn't since it would cripple China's industry. China would rather try to talk down the USD and get people to buy the Yuan through back-door currency swap deals to gain support.

But China can compromise to take down the USD from it's throne. A UN panel on Tuesday recommended the USD be replaced as world reserve by, what amounts to, a world dollar. Quote from Article:

"An economy whose currency is used as a reserve currency is not under the same obligation as others to make the necessary macroeconomic or exchange-rate adjustments for avoiding continuing current account deficits. Thus, the dominance of the dollar as the main means of international payments also played an important role in the build-up of the global imbalances in the run-up to the financial crisis," the U.N. said.

But the report also took aim at countries like China and Germany with current account surpluses.

While debtor nations like the U.S. are compelled to reduce imports when their ability to obtain external financing reaches its limits, "surplus countries are under no systemic obligation to raise their imports in order to balance their payments."

So the U.N. wants a system where countries would manage exchange rates within a band.

Now China is threatening trade wars! You got to be kidding me, one of the world's largest exporters of stuff wants to start a trade war? It is possible, but this only re-enforces how China can't be trusted as a world currency. I really doubt China will carry through, but if it does it would have a significant impact on the hi-tech industry as it cuts back exports on terbium, dysprosium, yttrium, thulium, lutetium. neodymium, europium, cerium, and lanthanum.

Don't get me wrong, the US has brought this attack upon themselves, at it's foundation China's criticism has merit. But China isn't acting in selfless interest for the world, it wants to take over as leader. But so far, China has been all bark and no bite, lets hope that continues for the next 100 years.

Market Rallies into horrible news

The US market is 70% "consumer" driven. And as well publicized the US consumer is powered by Credit. Today we find out consumer credit shrunk by over 21 billion, more than 5 times estimates. This puts consumer credit at an annual 10% rate.

Keep in mind in July/August we had cash for clunkers, and even the buying of cars with "free government money" couldn't keep consumer credit afloat. This coupled with jobless rate the highest in 26 years, and what does the market do? Rally.

There is no news short of US currency implosion that seems to be able to stop the market from advancing.

Lets see what next month brings without free money to give people incentive to buy a car.

What next?

The stock market is about to have an influx of volume starting Tuesday. The expectation is the market will fall, which means, more likely to rally.

Gold is about to break into new highs, Oil seems a little weaker. US Dollar is treading on thin ice to fall.

The bloggers I read are all expecting in the next 2 to 4 months a "cataclyismic" down 50% or more of the stock market. All of them. (well, that I read :) ).

What is in dispute is picking "the top" to roll over. In 1929, the stock market crashed marking the start of the great depression. One of the biggest market rallies of all time happened the following year, and after it topped, marked a 7+ year downturn.

All the bloggers are using this as a guidepost, but there is one crucial difference, entering into the great Depression the US was fixed to gold. During the Great Depression, the USD was altered to a different price for gold, but it was still attached. Today the USA runs on a FIAT currency, there is litterly NOTHING backing the USD except "full faith and credit".

Now, I am not suggesting the USD will implode (not yet anyway), but I am suggesting past experience cannot mandate future results. With that said, just about every boom/bust in the history of mankind follows the same pattern. Boom-Bust, counter boom, final big bust.

So for now, that is where I am watching, when the final big bust begins, and position appropriately.

I am getting a little nervous again, and may change/lighten my positions. I have been strengthening my gold positions as of Friday, and will continue to do so Tuesday. I am no where near my previous levels, but gold is showing strength, and some are calling for Gold to hit $1300 in short order.

For now, cash is king, a little hedge short in restaurants (click link on right) and a little gold miners. Thats all I got. Hope you had a great weekend.

The Federal Reserve System - A Cartel

I coworker (I forget who!) told me to look at a book named The Creature from Jekyll Island: A Second Look at the Federal Reserve System, This book covered in detail the creation of Federal Reserve System. For those who don't have the patience to read this book (me included), below is an audio summary version from the author, a must listen.

Mish on Max Kaiser

Mish of the Global Economic Trend Analysis is my favorite financial blogger. He was on Max Kaiser, a video blogger, enjoy.

Go Karl!

Karl of the Market ticker I consider a great American, one who is not afraid to critique the information presented and challenge to find the truth. I can't say that for CNBC......

In any event, enjoy as Karl gets a tad bit pissed (rightfully so) at CNBC Dennis Kneale basically stating (Paraphrasing the message) either your with us, or your against us (like president bush did, inferring unpatriotic).

The founding fathers where critiques of politics, bankers, etc, and they where as patriotic as they come.

Gold and Gold Miners

Gold broke out of a trading range with conviction today. It is OK to buy gold miners PROVIDING quick to sell positions if/when gold retreats below the past trend line. I am still bearish on gold miners for next 6+ months, but we could see a significant rally starting in gold miners in the near term. As USD currency strengthens, gold could follow, atleast initially. Some bloggers think gold is headed towards 1300. For insightful gold analysis, see Gary of The Smart Money Tracker blog. (click)

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

It is official: Cash is King

(Wrote 9/1, should have published then, would have looked like a genius :) )
Blogger Mish has an excellent blog entry on US currency, stock market, and commodity moves for the next year or two. In this market rally since March, you can correlate the market rise with dollar devaluation. It has been mentioned that the USD was coming dangerously close to a collapse area, but it didn't reach those levels. If the USD doesn't go down, that leave up.

A strengthening dollar typically (nothing is certain in life) means US equities will decline, and so will natural resources. I highly recommend reading Mish's blog entry about USD and gold. John Chinnock and myself (I mention John a lot, since he is the brains of this blog), are bearish on gold right now. John to his credit picked the EXCACT top of gold miners, GDX 44 to sell. Unfortunately for him, I talked him out of it, but he got out a good price later, I think 40-41. I joined him by dumping gold miners and taking it off my recommendation list. Gold can, and likely will move higher before it's decent, GDX may rise above 44 in near term. But I expect it to go much lower subsequently, and don't want to gamble all these "if's".

So read mish's blog entry and watch this video, form your own opinions. But your opinion is wrong unless it matches ours. ;)



The key to success is to have vision based upon current information, and to be flexible enough to change your view with new information. To read more on Elliot Wave analysis from Robert Prechter Jr., click here:

Market Pontifications

I was short the market big-time for months up until 8-21-09, and of course, now the market looks weak. Real traders shrug it off and move on, time for me to do the same.

The SPX retreated back to the bear trend line, I would expect Wednesday to rally somewhat. If we end with conviction down through the bear trend line, the market is looking bearish and the bull is finally dying. See chart below.

The BIG news that was of course, not mentioned almost anywhere, is China is considering reneging on commodity derivative contracts! Large US corporations like Goldman Sachs sold derivative contracts to China, and I am sure was counting on the payoff......which now may not come. This is yet another reason why all derivative markets must be formalized into an internationally agreed construct. This may rock the commodities markets as this unfolds, and yet another reason why I am not advising purchasing commodities currently.

More News
Worst of slump yet to come, says economist
Fed Will Now Monetize The Most Recently Issued Agency paper (debt)
Auto sales drop sharply with end of Clunkers program - My Spin - Is ANYONE surprised that car sales fall significantly after the government stops giving FREE $4,500.00 to buy a new car?
CIT defers interest payment, shares fall - My Spin - this company recently almost went belly up, then some "miracle money" came...and I guess went...
Citigroup sells $1.3 billion in portfolios - My Spin - Would be nice to know price paid, and if the purchaser has a relationship with US Treasury to backstop the purchase......
Credit Suisse Group AG, which downgraded U.S. stocks, prefers Japan
9 of 10 cities are forced to cut spending - My Spin - with 15% real unemployment, and state/local governments cutting back on spending, only increase spender is US Government, hardly a recipe for a new bull market.

From WebSurfinMurf's Financial Blog

Caution on leveraged short funds, FAS, FAZ, SRS, TZA, etc

It was announced today that the fund DXO was closed today, with specifics as to why not explained. DXO is a leveraged ETF, based on Oil futures. For every % Oil moves, DXO moves 2x%. There are many leveraged ETF's, most are new to the stock market.

I have mentioned leveraged ETF's such as SRS, FAS, FAZ, etc. What this means to the individual investor? Well if you in a fund, and it went "against you", hoping (praying) for the fund to return to the purchase price, you may be in for a surprise.

The fund could have the same fate as DXO and be liquidated. The losses you have at that time are sealed, with no mechanism to get the same % return, unless you start trading the futures markets.

The same goes for far dated options, on the ETF's.......which I am an owner of some.

Why this will be a depression

There are dozens of reasons I can pontificate why this will be a long recession/depression for America. But the single reason I keep focusing on is we have completely abandoned capitalism.

Capitalism, like evolution, helps weed out the weak and reward the strong. In this financial crisis, the weak are some very large institutions. If capitalism was allowed to work, those companies would be dissolved, hopefully in an orderly fashion by US backing, and the good parts of the businesses sold off to companies who remained strong.

Those strong companies, I presume where lead by better management, can put to work the resources acquired to grow their reliable business models.

INSTEAD what the US has done is had the large, poorly run financial institutions buy/merge with each other with US government backing. These companies to stay solvent are given billions either directly, or indirectly through discount borrowing. The management that ran their businesses poorly are given more assets to "manage".

Result? (Taken from Mish, click for his full spin)

J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.

The concentration of power to only FOUR corporations controlling 1/2 of mortgages. The future isn't hard to extrapolate. Assuming behavior continues, the 4 companies could turn into 3 or 2, and in reality 1, the US government.

When lending is centrally controlled through a government, that is called COMMUNISM, or BANANA REPUBLICS, definitely not capitalism. The common person is talking about how public health care is socializing America. Health care for next 10 years may be 2 trillion extra costs to the taxpayer. Doesn't everyone see the elephant in the room? YTD the US government has spend about 1.6trillion on programs, largely because of the financial industry.

This corruption and centralization of power will stifle innovation, business growth, and create an untrustworthy environment for private investment. All I can hope is the US changes direction and cleans up this mess by enforcement of law and order, but I will plan otherwise.