Time to awaken to a new dreadful reality. Just like autumn 2008, all over again, the stock market is breaking down in a powerful visible manner, after nothing was fixed with the vast financial structures but much money was spent. If only the USGovt had decided to address the problems instead of funding the myriad liquidity facilities, which by the way serve as a virtual banking system. If only the USGovt had decided to address the problems instead of funding the US Federal Reserve equity reserves, as in excess bank reserve lures. If only the USGovt had decided to address the problems instead of funding the bank preferred stock and bank executive bonuses. If only the USGovt had decided to address the fundamental need for capital formation toward job growth instead of simple extensions of jobless benefits. If only the USGovt had decided to address the dire need to liquidate impaired assets instead of warehousing them, which happens by the way, to produce irreconcilable bank system constipation within the loan processing system. If only the USGovt had decided to address the cancerous large corporations too big to fail that must be permitted to die, instead of letting them seize greater power in USGovt and Wall Street functions. If only the USGovt had decided to address one of the root causes of USEconomic deterioration, namely endless war, so that more funds would be available for that essential capital formation and job growth, not to mention state budget plugs, as the 50 states suffer from massive capital drain through taxation squandered at the federal level, a drain that includes war.
When no solutions are achieved, even no solutions pursued, the sugar high vanishes, the adrenalin rush wears off, and the underlying root causes return as the same symptoms to the sick patient. With no remedy, the symptoms turn much worse!! The symptoms return with a vengeance, like right here, right now. Shocks to the body economic are imminent, assured by lack of required credit for almost two years, compounded by the Gulf of Mexico poison event, sure to result in a killed exterminated appendage.
One of the most pernicious dirty secrets is that the supposedly excess bank reserves parked at the USFed are actually Loan Loss Reserves attracted by the USFed itself, by virtue of interest yield offered. Banks are running naked and insolvent and constipated, hardly a pretty image. The extraordinary measures have worn off, even as the political will to continue them has faded away. Reality has a way of returning to the scene, front & center. A rot has permeated the USEconomy. Personal bankruptcies are up 14% in the first half of 2010, hardly a sign of a recovery. Home sales are down. Foreclosures are unrelenting. Retail sales are down. Factory orders are down. California might look worse than Greece. About one million Americans have dropped out of the jobs market in the last two months. Eight million jobs have been lost in the recession that never actually ended. The rolls of people unemployed but not receiving a jobless insurance check amount to 9.2 million. The USFed has begun to eye the Printing Pre$$ once again. Internal battles within the USFed center upon asset deflation and resumed bond monetization. The august body of hacks who occupy offices at the venerable US Federal Reserve Board is arguing in heated fashion about QE2, a Round #2 of powerful monetary printing, bond purchase, and financial market defecation, with predictably destructive capital formation effects toward which they remain blind.
Urban Bread Line
Beware the new Modern Day Bread Lines. The new bread line is from job fairs, where unemployed workers seek to become the breadwinner again, a desperate struggle for families to survive. People queue for a job fair in New York in this photo. The share of the US population at working age with jobs in June fell from 58.7% to 58.5%, a big drop from 63% just three years ago.
U.S. STOCK MARKET SLIDING OVER THE CLIFF
The S&P500 stock index carries added meaning, since the large swath of US citizens who are not insolvent choose to react strongly to the stock index when drained of wealth. Paper wealth is fast vanishing, while the fiat paper monetary system continues to suffer convulsions better described as a death experience. Denial is rampant. First the US banking system died in autumn 2008, next the global monetary system is dying. Again, denial is rampant. The people react with fear, alarm, and anger when their pension funds suffer significant loss. Those funds suffered significant loss in autumn 2008, and they are on the verge of suffering a similar loss in the next several weeks. My sincere considered opinion is that the stock market breakdown is part of a plan, one to permit or even force a political change toward a powerful grotesque second event of inflation. Fiscal stimulus and monetary accommodation have been withdrawn in the past few weeks, as the mythical recovery is permitted to take root. Its fruit is rotten apples, peaches consumed by insects, grapes dead on the vine, and oranges lying on the ground trampled. A shock to public sentiment will open the flood gates to a new bigger round of monetary inflation. The first one was all for the bankers. The second one will be all for the USEconomy, on the verge of a powerful breakdown, if not collapse, since nothing has even remotely been fixed or even remedy pursued.
The effect on the gold price from Round #1 was a push down followed by a powerful boomerang up to new highs. The effect on the gold price from Round #2 will be similar in direction but more powerful in upward movement. Think $2000 gold !!
The S&P stock index decline will be at least as bad as the autumn 2008 decline. Claims of Price/Earnings ratios being low are pure deception, since earnings come from chambers where accounting fraud is permitted in the finance units of broad types of businesses. Claims of cash on the sidelines are more deception, since the funds are escaping a insolvent system suffering from powerful deterioration. The indicators are dire, ugly, strong, and undeniable. The 50-day moving average (in blue line) is soon to cross below the 200-day MA (in red line). About ten thousand technical analysts do indeed notice this vital signal, a reliable one hardly shrouded in mystery or abstruse theory. The 50-day MA used to serve as a support since autumn 2008, but now it is acting as a ceiling of resistance (in green circles). Notice the transition it endured in February 2010. Other similar MA indicators come with the 20-week MA crossing below the 50-week MA, a matching event in progress, but a little slower in developing. The bearish MA crossover is a loud Death Cross signal. A powerful decline is imminent and unavoidable, one to shake the world financial markets, certain to bring it to its knees. It will permit political policy change to come, like a hot knife through butter. Look for the S&P500 index to retest the March low, which reached 666, the signatory number of the Wall Street cabal and code from their spiritual leader.
A queer statistic has emerged that underscores the perversion that is Wall Street and the stock market. High Frequency Trading has not gone away. A couple months ago, when it was exposed during a single day swoon event, such trading was responsible for 83% of the entire New York Stock Exchange trade volume. Somehow the word 'CircleJerk' comes to mind as the Oligarch Banks compete toward a liquidity climax with fewer players of potency remaining each year. A liquidity analysis by Abel-Noser indicates that the US stock market has morphed into a sickly concentrated pool where the top 99 stocks account for 50.1% of total domestic trading volume. In June, the top 20 stocks accounted for 28.9% of all domestic volume, an increase to record level logged each month. The HFT algorithms are forced methodically in a reduced number of only the most liquid stocks. The game actually results in gradual removal of players from the market. The US stock market will eventually develop into a tomb without volume. At that time, large pension and mutual funds will be forced to consider that their vast portfolios might be worth something on par with the volume-less mortgage bonds tucked away in the acid cellars. Their large investment stakes in stocks simply will not be redeemable. The SPX stock index chart should conjure up images of Wiley Coyote legless over the canyon.
GOLD OCCUPIES A DIFFERENT PLACE
The effect will differ from the past, due to the Paradigm Shift in full force. The effect on the gold & silver prices will surely include some initial downside movement. However, this time around, with sovereign debt under absolute siege, the way it plays out will be very different. However, this time around, with gold having taken a reserve currency role, the way it plays out will be very different. However, this time around, with USFed balance sheets wrecked and bloated, the way it plays out will be very different. Imagine a powerful stock market decline panic with a coincident crisis in sovereign debt. USTreasury Bonds might still attract big money, but this time it will be Dumb Money that refuses to recognize the USTBond as the last sovereign debt to be attacked with a vengeance. Usage of new government debt to prevent the disaster in asset prices will force a vicious cycle of ruin, which will infect, corrode, and destroy remaining confidence in all things paper. Gold has in the last several months claimed an important spot at the opposite head of the monetary reserve dinner table. It is a key ingredient in non-Anglo backroom restructure initiatives. The Untied States bankers are trapped in quasi-depression 18 months deep into a Zero Interest Rate Policy climate, after Round #1 of Quantitative Easing is complete, and wasted fiscal stimulus that sent the annual budget deficit above 10% of GDP.
Recall a Jackass Axiom: The first nations that abandon the USDollar and the US$-based financial system, both with banking and commerce, will be the leaders in the next chapter, part of the Paradigm Shift and its effect. Recall the Sound Money Corollary: The next global reserve currency cannot be paper based, operating by fiat and faith, since no paper currency can replace a fiat paper global reserve currency. Thus the Intl Monetary Fund and their hapless Special Drawing Rights ploy would serve as a mere raft of papyrus reeds, tied together, heading over the cliff waterfall onto the rocks, with a predictable outcome.
Gold lies at the nexus of the systemic vulnerability, the linchpin holding the fiat game together, but with a suppressed hidden basement price mechanism ready to explode. The corrupted illicit actions have done harm to the gold & silver markets, in addition to the stock market, and the bond market, even the housing market, in fact all markets anchored to the USDollar. No US$-based market is fair of equilibrium based anymore. All are distorted beyond recognition. Without the constant props, these markets would all likely collapse of their own weight toward significantly lower price levels, real levels.
OMINOUS COMPARISONS OFFER WARNING
The long list of horrendous realities is soon to force emergency changes to official policy. The telltale summertime distractions are here, like vacations at the beach, in the mountains, at Uncle Ernie's, as well as backyard barbeques. We are about to observe a repeat of the Great Depression stock decline pattern, with pattern recognized broadly, despite all the funny money thrown into the wind, into banker pockets, and into Black Holes. That pattern was identified by a strong recovery off a nasty decline, mislabeled a return of a stock bull by compromised clowns and well paid charlatans, followed by even lower low price levels. A titanic battle is underway. On one side is the political cabal that wishes for decline, breakdown, and wreckage in order to carry out its political agenda of concentrated power, even emergency power like martial law or at least rationed supply. On the other side is the Weimar option of hyper-inflation, as the extreme new money creation leaks into the system and forces prices of everything upward and skyward.
A dynamite type risk exists, unfortunately. If much higher price inflation becomes engrained and recognized, if the official price inflation statistics reflect reality (a horrible thought to the USGovt stat-lab fiction writers), then grand powerful effects would come to the bond market. Worse still, grand powerful effects would come to the sick thorny cancerous appendage to the bond market, the credit derivatives. Refer to both the Interest Rate Swaps and the Credit Default Swaps. Recall the USGovt has a huge conflict of interest. They sell USTreasury Bonds. They have issued over a fresh $Trillion each year for the past two years, enough to threaten their bond structures. So a bust to the USEconomy and a bust to the US stock market works well with their plans, in concert with their motives. They must create more bond demand to match the extraordinary supply. Heavy duty price inflation would kill the plan. But a stock breakdown fits well with the plan. Heavy duty price inflation would ignite a credit derivative explosion, or a series of explosions, as their long fuses are both hidden and criss-crossed. These fuses would be easily lit from a bout of broad price inflation.
The key to holding the USEconomy hostage is the excess reserves held in the USFed vaults, and the tighter lending rules among banks. Bear in mind that three types of credit creation exist in the USEconomy. In order they are 1) vendor finance (which has largely vanished), 2) bond securitization (which has largely vanished), and 3) bank loans (which have largely vanished). So the USEconomy is being strangled. One could say that vendors and bond issuers and banks recognize the heightened risk of falling collateral value and weakening income streams. Sure! But beware of the plan and carrying it out.
The current economic decline might have much more powerful sinkholes, criss-crossed dynamite fuses, and major triggers directly ahead. The US housing market has begun a powerful resumed second decline. Somehow, university textbooks in Economics curriculum failed to cover the current situation of extraordinarily high bank inventory of foreclosed homes, working opposite to an extraordinarily strong decline in home purchase applications, amidst a banking system heavily dependent upon $100 billion temporary intermediate credit lines, while the big banks park their Loan Loss Reserves at the USFed, and the USFed struggles to avoid repeated powerful Quantitative Easing programs. (That last very long sentence should be read a few times in repetitive fashion.) If truth be known, the USGovt and Wall Street firms fund many university professor chairs, thus perpetuating the false education process that inculcates fallacious theories.
Recall that the entire 2002-2005 USEconomic expansion was built atop the housing & mortgage bubble, a chapter fully endorsed by the erudite prestigious but reckless heretics among the national economic counselors. To be sure, the May end to the home tax credit has made an effect. The housing market will enter its fourth consecutive year of decline. My ongoing forecast stated since 2007 was for two years of home price bear market. My 2008 forecast was for two more years of home price bear market. My 2009 forecast was for two more years of home price bear market. My 2010 forecast is for two more years of home price bear market. That is a better and more credible approach to forecasting then a more honest approach: ENDLESS HOUSING BEAR MARKET.
The upcoming S&P500 stock plunge will serve a purpose, perhaps a planned purpose. It will permit the USGovt to announce with expedience a resumed Quantitative Easing in order to prevent an economic collapse. Renewed stimulus and accommodation will be rendered a snap, easy as pie, with no political obstacles. Deficits be damned, will be the battle cry!!
The Gulf of Mexico disaster will soon spread like an oil-soaked wildfire of economic destruction down South, which could easily affect the supply chain with grain delivery up the Mississippi River. Barges with oil-soaked hulls will not be permitted up the river. In fact, electricity power generating stations along the coast are at risk of shutdown, due to the likelihood of oil entering the water intake valves. The great majority of US states are at the end of their rope with budget shortfalls and federal negligence, certain to result in broad layoffs, even dismissal of police and teachers and garbage collectors. These three groups of workers are commonly viewed as most critical. If police vanish, then chaos erupts. If teachers vanish, ignorance prevails along with idle youngsters on the streets. If garbage piles up, then the rotten Third World finances will feature matching bookends of rotten Third World debris, garbage, and putrid refuse piles. If only festering rancid bonds produced an odor, they would stink.
Mega-trend comparisons offer further strong warnings, reflecting powerful changes compared to autumn 2008. They pertain to the USGovt debt picture with horrendous $1.5 trillion annual back-to-back deficits. They pertain to the monthly $200 to $300 billion federal debt issuance that has become a standard billboard feature, along with newfound scrutiny toward the USTreasury complex. They pertain to the new reality of the 10-year USTreasury yield (TNX) that used to be hovering around 4.0% level but is now under the 3.0% red light level. They pertain to the US housing market set for a surprising sinkhole event, since supply is not only rising, but is hidden, while demand is falling, absent the tax credit stimulus. A nasty shock event from liquidity drought is coming right around the corner. First sight will be the SPX in a heavily publicized tumble. It will scare whatever wits remain among the compromised USCongress for sure. The plunge will scare the wits out of the US public again.
Four other mega-trend factors hover with a nasty specter. 1) The nation of Mexico is in the midst of a failed state breakdown into pure chaos. 2) The Gulf of Mexico is fast turning into a kill zone, both ecologically and economically, whose impact will be powerful and soon. 3) The European Bank Bailout with its $1 trillion in aid fixed absolutely nothing across the Atlantic, but did send a few $100 billion into USTreasurys, with no tangible lift to the USEconomy. 4) Refusal to permit big financial firms to fail acts like a cancer, whose 20 months of progression since autumn 2008 has taken a hidden but deadly toll.
RENEWAL OF EXTREME MONETARY STIMULUS
The US money supply shows incredibly ugly powerful declines in circulating money. Contrast this graph to that of the broad money supply, which counts funds stuck in the bank vaults and stuck in the USFed itself, ensuring no usage for lending capital. Broad money supply is skyrocketing, as money velocity is careening downward. The Leading Economic Indicators all look miserable and ominous. None of these many factors were showing such dire signals 20 months ago (maybe LEI was). Anyone who believes the USFed and its lackey runners working in the USGovt will not reverse course and begin Quantitative Easing Round #2 are just plain simpletons, tails on the dogs of policy whiplash. A confirmation signal comes from the sub-3% long bond among USTreasurys. Recoveries coincide with the long bond yield rising, not falling. This contradiction of recovery claims escapes most economists, hacks entrenched.
As the USEconomy falters in the second half already underway, instead of recovering, the USGovt will soon announce the expedience of a resumed Quantitative Easing in order to prevent an economic collapse. The USGovt will also soon work toward a massive economic stimulus plan in almost emergency atmosphere, which might actually contain some stimulus, unlike the last farcical display of political avoidance. The states will send governors to WashingtonDC directly into the snake pit.
The discredited economists will continue to harp for more of the same non-remedies that have turned on the masters, in systemic ruin. Keynesian abuses have rendered the nation into the last ditch, as bankers with economists at their side press harder on what has failed to work !! Private discussions among bankers reveal a growing desperation, as typical remedies have accomplished nothing. We hear of much less bang for the buck. We hear other stupidity like volume of stimulus being important, whereas quality of stimulus is hardly mentioned, a Santelli theme on CNBC. The Earls of Keynes must be sitting back in horror watching the bitter fruits of their misguided policy. The choices seem like polarized options, more corporate welfare or more collectivist activity couched in an expanding Politburo that soon will feature 20 pages of newly listed health care agencies. Solutions are sorely and universally absent.
Look out below. Investors had better be in gold & silver heavily. It is time to roll out the new currency (Nordic Euro) backed in part by gold, and maybe oil too. Buy with both hands any further hefty discount offered on physical metal gold & silver. This time, the COMEX and London Metals Exchange might suffer a default event that coincides with the US stock rout. The strain on physical supply might be powerful, precisely when the paper prices come down with the corrupt markets, enough to break the paper gold & paper silver markets beyond repair. Any US stock rout will be matched in the London FTSE and European bourses. Physical gold & silver demand is enormous. Vast inventory supply in silver is exiting the metals exchanges, without much reporting. Basic physics dictate that a gold default event will occur in the COMEX and LBMA before long, after so much physical metal removal in the face of growing demand. Each month the differential potential grows more acute, thus less deniable, and closer to realization. My sources tell that gold bullion is exiting Switzerland and London, heading to Hong Kong and Singapore, in a big big way!!
ABSENT LIQUIDATION, REFORM & RESTRUCTURE
Add the absent economic stimulus and absent monetary accommodation, the newest features after hollow political resolve supposedly has entered the room. The Obama Admin has under 8% of its ruling cabinet and agency heads with any business experience whatsoever. Consider that an important factor in the lack of job growth. Little do they comprehend, nor their banker masters, that liberal money creation actually destroys capital, destroys businesses, and destroys income. The US political leaders and banking leaders have not learned the lesson of economics in half a century. Worse, the Obama Admin tax hikes are soon to kick in. They must pay for the Health Care Program that was supposed to pay for itself after all. Tragically, the banking and political leaders are caught in a bind fashioned from their own propaganda and lies. They have been talking without end about a USEconomic recovery, fragile though it may be, a recovery that needs more nurturing. It needs more reality instead. So the bankers and politicians will let the USEconomy swim without life preservers, ride the bicycle without the training wheels, walk without crutches. A bad chapter is soon to be written. At least the charlatan hack clown heretics will be able to produce more demand for USTreasury Bonds, the most important bond they sell. The public, the investment community, might soon catch on. The USGovt and Wall Street have never made any legitimate effort to reform or restructure. Their entire motivation and purpose has been to raid the USTreasury and Congressional till, to grab as much banker aid as possible, and offer nothing in return for bonafide reform.
The tax cut stimulus is going away. The car purchase tax credits are going away. The mortgage bond monetization program is going away. The jobless benefit extension beyond 99 weeks is going away. The lack of job prospects is not going away. The missing incentive for business expansion is not going away. The vast budget gaps and pension obligations for many US states is not going away. The home foreclosures and bankruptcies are not going away. The challenges in securing credit and loans is not going away. The syndicate control of the USDept Treasury is not going away. The sacred defense budget is not going away.
The endless war is not going away, nor are its heavy costs. The Independence Day commemoration (July Fourth) brought to mind the sacrifices by soldiers. CNN ran a surprisingly candid report during the holiday. The USMilitary is spending $1 billion per year to fight each known Taliban in Afghanistan, from an admission. The annual budget in the wartorn nation is $100 billion, to fight an estimated 100 Taliban from Pentagon data. This war is about narcotics production, processing, distribution, trafficking, and money laundering. See the recent attacks at the narcotics money laundering clearinghouse in Baghdad Iraq, run by JPMorgan Chase. The Trade Bank of Iraq has been the site in bombings outside and murders inside. The natives have finally figured out what the bank is all about. They might be trying to muscle in for a share. Even the Russian Govt has brought attention to the vast export of heroin to their country from the US-occupied nation of Afghanistan. Oh lest one forget, vast sums of cash are exiting the Kabul capital, billion$ loaded on flights. The USMilitary has exported freedom to the tiny rugged nation of Afghanistan, the burial ground of empires whose leaders cannot read history books. In defiance, they choose to ignore history as the next chapter is written about them in a continuing theme. As the US slides further into the Third World, my forecast is for the USMilitary to morph into a fully functioning private syndicate with many business units. Profit has been its motive for many years, hardly defense of our liberty.