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Suspend your logic. "It's all good - and getting better!" "Good times just ahead." "The dollar doesn't matter." The stock market posted a decent gain yesterday on what is arguably bad news. The bad news being that unemployment was actually up a tad in the latest report, and the US dollar, although jammed up at mid-session, didn't hold onto its gains as the week ended.
My personal outlook is for the stock averages to go on to new nominal highs - and even 16,000 becomes possible, but not on anything approaching reality. It's really more a function of the Dow companies having some intrinsic value, and with so much money being created at the moment (being loaned into existence with low-interest loans), the number of dollars effectively chasing the asset (the Dow average, or pick almost any other index) will naturally drive its nominal price up.
As I've explained before, the Fed is trying to throttle inflation just enough to prevent the onset of a wildly deflationary global collapse, while at the same time, stepping on the economic brakes hard enough for obvious inflation not to appear. When it does, government (hedonically) makes most of it disappear. --- Overseas, investors in the UK (as one example) are likely laughing their (you-know-what's) off at us because it turns out that the job report yesterday contained a major revision to the previous month's job figure and as "The Independent" headlined it this morning "US Jobs figure that trigged Fed's rate cut 'was a mistake'. Oops. So sorry.
Meantime, I'll keep watching is the consumer debt figure (which the Fed touts as their "Consumer Credit" report - because bankers don't want to call debt by an ugly or repulsive name so they call it 'credit' instead) and then there's the roughly 14.5% present growth rate in digidollars. That's why the Fed stopped reporting M-3 a year ago March.
Feeling better about being a bull? Paper gains may seem appealing,; but in past economic cycles, a fifth wave of stock appreciate has usually been accompanied by major increases in things like the metals, commodities, and oil. So, I am out of paper largely, playing in commodity options for now: The way I see it, a Fed policy of "economic stability" in lieu of "sound money" (a much more important metric to humans saving for a rainy day or retirement, but that's only my view) is about as close to a guarantee of higher commodity and energy prices as one can find...so making 'money' there should be a no brainer. Metals, energy, grains.
Recession? Not yet. I'm bullish on the market (*including the Dow) because absent some exogenous event, we have consumers continuing to pile on debt - and as long as the debt monster is alive, and people keep trading their work for paper and buying things beyond their pay grade, the economy will do fine. Friday's Consumer Debt Report (OK, so it's called "consumer credit, but I'm just trying to be a little more honest about how eCONomics works here) the annual rate of increase was 5.9% - which means production will continue and good times for investors seem ahead.
George the bull? No: George the realist. Don't bet against the house. Especially when they control the printing press. And worry about being up to your ass in debt? Nope: Just exercising your credit strenuously.
Cool. There's just one problem: Unintended consequences.
I'm all for science, except that recently, humankind's track record at turning new science into a genuine improvement in humanity has been a little spotty. While it's true that genetic engineering of crops, for example, has led to increased yields on a per-acre basis, I think most folks would have to admit that it has also served to concentrate more and more power of corporations who use such technology to round up more corporate profits.
We know, for example, that StarLink, and other forms of transgenic corn, have been at the center of a controversy over whether they cause an increase in allergic reactions in humans. And, then we have the case of Iraq, where 'corporate seed' is required - not optional. I refer specifically to Paul Bremer's "Coalition Provisional Authority Order Number 81 which says in part:
In other words, if a farmer's crop in Iraq happens to have been exposed to a genetically modified crop, then the farmer may not save and reuse his seed.
Yet, here's the catch: The seeds of genetically modified crops tends to pollinate off the property of the originator. While most people are terribly ignorant of the outreach of GM seeds (and pollens) there are a few places where the battle lines are clearly set, as in Percy Schmeiser, who was the Canadian canola farmer sued by corporate agribusiness after Roundup Ready genes drifted into his fields from surrounding farms and contaminated his crops.
So while the claims of being able to artificially create life from the 'ground up' are pretty interesting from a science standpoint, there's the huge issue of containment of such life forms.
Having already failed miserably to contain things as simple as Frankenfood canola and Frankenfood corn, I see little reason for optimism on whole artificial life.
And if the subject of food control and DNA dispersal into the environment through artificial vector's isn't convincing enough to make the point that "Man can invent things that we're not intellectually or spiritually prepared for yet" do you really want to have the conversation about our track record in another field - say nuclear energy and weapons? --- On the brighter side, such a discovery might make it possible to grow the perfect political animal. All you'd need would be to engineer a species that can talk out of both sides of its mouth at the same time, does exactly the opposite of what it promises to do, and comes with an extended lower GI tract where its head is often stored.
OMG, wait! I think we've already got those.
US-backed president Musharraf is planned to be the next president of his country, although there's still that question about whether he can head up the military and serve as president at the same time. Hmmm...Pakistan as Southwest Asia's Florida, maybe?
Vlad Putin continues to prepare for ruling from behind the scenes in Russia. Sort of like the Wizard of Oz, he'll be behind the curtain still running things, it seems.
Taiwan is being slapped around by Typhoon Krosa today. It then heads for China.
This whole illegal driver's license thing is such a mush - You saw recently where in Colorado, a group of illegals were waiting for their licenses and got put to the head of the line of legally entitled folks because the interpreter got off before the licensing operation closed for the day? File under : "Sucks to speak English."
Topps 21.7 million pounds of beef being pulled from store shelves can be costly. Ask Topps Meat Company which is now going out of operation. according to reports. --- Kraft has a chocolate recall underway.
Washington Mutual (WaMu) says due to the mortgage market (mess) their earnings will likely drop 75%...
Merrill is writing off $5-billion from related issues.
With the linguistics pointing to a Big One (possibly a double-quake) we're watching the daily reports from USGS. Might want to bookmark this. Should be before the 18th of the month unless we get that volcano to reroute air traffic soon.
My arms are sore, my back is sore, and Elaine's got bruises on her arms - but it's done. This week we finished putting in over 1,100 feet of goat fencing. And while that was going on, the water heater disaster (which meant reflooring part of the house) and a ton of client work on top of all that.
This weekend? A little R&R - setting up the big lathe in the shop and framing in a new cabinet in the kitchen where a new hot water heater lives. Sunday, for Peoplenomics subscribers, a practical approach to portfolio balancing. I get asked questions about that all the timely so this week some focus on 'all season profitability'.
No, this is not a discussion of what's ahead for the dollar -- as in the "dollar's fate being in limbo". Nope, this as we do each week, is an examination of options available to us 'little people' as the dollar goes limbo -- using the word as in the Caribbean "how low can you go Limbo" dance. As simple chart, a simple question, a review of Russia and Argentina's experiences, and a quest for some simple contingency plans, that's what a number of readers are asking about. The trick, as with any good Limbo (the dance) is how to figure out how 'low you can go' without hurting yourself or having your personal economic fall over. To steal half a lyric from Bobby McFerrin, "Don't worry, be happy, be limbo..."
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If you find the alternative contexting of major financial and global affairs presented on this site of interest, please tell your friends about it. That way, more people will become aware of what's going on in the economy, and with more smarts, maybe we can wake up America. Click here to shake them from their sleep. Also, if you operate a website, a link is always appreciated and I will link in return.
Order our handy ebook "How to Live on $10,000 a year or less - and learn to live like a Third World person now. It's coming anyway, with big job layoffs this summer - and by ordering now, you can beat the rush...You may have more time to read this fall if the economy falls apart as I expect...
Friday October 5, 2007 Special Update: PayPal Back Up 10:44 AM Central - whew!
In the kind of condition the financial world is in, even the smallest things cause me jitters. For example, as of a minute ago, the PayPal site was down. www.paypal.com. Hopefully this will be a short-lived problem.
Cheap Money and Bankrupt Policies While it is all but a certainty that this morning's job report would be used to pimp up the prospects of the stock market - and maybe even power it to a new all-time-high today, some of the most important economic news missed by LameStreamMedia has been buried in testimony given before the House Committee on Financial Services at a hearing titled "System Risk: Examining Regulators' Ability to React to Threats in the Financial System" chaired by Barney Frank.
I realize this is not going to be quick, but please book mark the testimony that's online and read the comments of the presenters. Among the experts:
In all, it's about 50-pages of reading. More than you'll have time for this morning, especially with the "news" about September employment. In particular, Robert Kuttner's remarks about parallels to the 1920's abuses and the subsequent invention of serial bubbles to avoid paying the piper his due, resonates with the framework of this site.
So please come on back when you get some time over the weekend, and read it all because I think it will help put today's financial situation into context. You might even be able to get a sense of what's coming next.
Myth building is going full steam today. Consumer confidence is reported up - and then this morning we hear the latest on jobs. Good and better. OK, that sounds fishy if you recall all those construction jobs that ended, and yeah, what about all those 20-30 thousand mortgage industry layoffs? The Construction jobs going bust? Shhh!!! Didn't happen! Faulty recall, Citizen. (Do you need some re-education?) Just read the latest 'statistics' and don't ask too many pointed questions:
Did you catch it? The catch phrase "Essentially unchanged." In August the unemployment rate was 4.64% and in September it was 4.69% - so unemployment ticked up a tad. You hearing that? Nope. Not on any of the reports I've seen so far.
Also, only 14,000 construction jobs were officially lost, while manufacturing dropped 18,000. Services on the other hand were up 143,000. Doing what? Who knows.
And what about the CES birth-death model that approximates the number of new jobs that are created and which are little more than statistical shots in the dark? Well, the CES model contributed 17,000 jobs in the latest month, -- only 3 1/2% percent of all jobs claimed created.
But wait! What about housing and mortgage worker layoffs? Shhh!!! Just bad dreams. Don't be so damn negative. Even if you are one of the victims.
The conventional wisdom around real estate markets is that 'despite the disappearance of the sub prime loans, there's still plenty of money to loan for well qualified people' - at least that's the meme I get watching the parade of talking heads on the Cyclops.
But the reality seems to be at odds with the media reports. Take, for example, this headline "Homeowners shunned as values dive..." out of the East Bay area. I'll just take another one of those skeptic pills, thanks.
We don't hear too much in the mainstream media about what happens when a bank fails and a 'shot gun marriage' of sorts is arranged with another bank taking over the failed one. Besides NetBank a week ago, we have one now in Ohio:
Ed and Elaine Brown, the couple convicted of tax evasion in New Hampshire have been peacefully arrested at their home in Plainfield on Thursday night after a months-long standoff. --- Sometimes they win - other times they lose (they being IRS). What you don't hear about in the mainstream is about the IRS loss in Nevada this week. --- Like a lot of Americans, I have to admire the guts of the tax protesters in general - who make the point that the income tax was never intended to be a direct capitation on everything everyone makes. Still, the advice I follow and advise everyone I know is "Report it all, Pay it all, and don't mess around by trying to step on the tail of The Beast."
A couple of readers have asked "Isn't it true that the income tax is illegal?" My unwavering answer is that for me (age 58 with a life expectancy of 90) I've got about 11,600 sunrises left on this here plane. How many of those days do I want to spend quibbling over paper? My answer: zero. You're welcome to fill in your own.
Yeah, I admire the Browns. But I also know the difference between a protection racket and federal income tax is: government owns the playing field in the latter. It's a matter of odds - and I have other plans.
I love it when those who would 'lead' us, are caught red-handed casting multiple votes. After you recall about how you and me may have to show a photo ID to vote, check out this hilarious video of Texas lawmakers caught casting votes for other members of the legislature.
To cast this in Orwellian light: Everyone in Texas is equal - just some are a little more equal than others...and the video proves it to me....
Idaho's Sinator Larry Craig is not able to just go back and change his guilty plea to un-guilty. I'm impressed the court stood its ground - and wasn't bullied by positional power of the office in this, but I have to admit I'm appalled by the whole affair. Craig now saying that he intends to serve out his term.
Meantime, those jocular folks in Idaho have made headlines by having a Bonners Ferry woman remove her (underwired) bra to get past a federal courthouse metal detector. Why it's taking so long for ceramic belt buckles and Kevlar bras to come to market, I have no idea. But, if I were single, I might be hanging around security check points more...
Those fun folks at the Associate Press have collected a number by Craig and others which are interesting to read. Cynic's Side bet: Has something to do with a retirement package if he hangs in for the whole term, yah think?
Speaking of security: More details are coming out about the woman who died while in police custody at Sky Harbor airport in Phoenix. This is not sounding good for the cops at all.
A single mom in Minnesota has been busted on sharing tunes on the internet, and it could cost here $220,000 in damages. --- Here's an interesting thought: What would happen if the music industry had someone come along with the recording industry version of Linux and said: We'll give you 'x' dollars for the CD's - and then after that, you don't get additional revenue - the songs become part of the public domain. A sort of musical 'open source' idea?
OK, so there would be a lot less lawyers, agents, and so forth, but the other side is that 'open source' music would be immensely popular with just regular folks who like tunes and want to share without facing jail/fines/ruined life for it.
Thursday, October 4, 2007 Revolution Meme: Secessionists Talk Meetings kicked off in Tennessee Wednesday which are considering whether there could be a peaceful secession of States from the Union. Apparently some folks in Vermont, not to mention the League of the South, would like to see if such change could be accomplished peacefully. While the Constitution doesn't prohibit States from leaving, one has only to look at the Civil War to remember what the cost was of one group of states trying was.
Here in the South, the version of the Civil War I've heard casts the Civil War as one about slavery in some regards, but it was more broadly about State's Rights and the powers of the Central Government to impose its will, taxes, and rules, and values on States. In most of the North, the version of the Civil War I heard was that it was virtually all about slavery.
Do I think the strong central government is going to let any state peacefully exit citing differences of opinion on tax, war, money, and other key issues? Not hardly! Nevertheless, it's making news (watch the video here) and certainly part of the rising rebellion/revolution meme we've been looking for because of the linguistics forecast. One speaker in the video made the point that people in Georgia are more interested in protecting our borders and outsourcing jobs than the federal government is... Speaking of which...
The Feds will have more power over States when it comes to siting power lines. Quick - look surprised.
Thumbs down to children's health care - can't have that and a big war push, too, don'tcha know. --- Decisions like that one might be lurking off stage as 35-year Senator Pete Domenici throws in the towel. I remember when he used to be a Republican. Heck, I remember when Republican wasn't a bad name to be called...
With all the incessant headlines about the more corporately blessed politicos/put ups/power crazed out there, it's nice to see Ron Paul's fund raising as doubled in the latest quarter. Gee, does this mean there are still others besides me who believe in strong state government, small central government, sound money, and a vigorous Constitution? How about that...
For a while last night, as many as 3,200 miners were trapped in the Harmony Gold mine in South Africa. Overnight, rescue work has continued as last time I looked, 1,700 had been saved. The rescue operation will continue. No appreciable impact on the price of gold.
While we're waiting to see if we get the Big One (the third and fourth in our Summer/Fall quavers, major earthquakes series) in the Indonesian archipelago or on the US/Canadian West Coast, the story about the land slide in San Diego caught our eye. Likely not related - probably more to do with too much construction on too steep a hill...but it does make me wonder... --- Looking at the recent earthquake activity, there sure has been a lot of motion up in Alaska. Odds of a West Coast quake (li9nguistically) shift toward the US if we get an air traffic disruption of 1 1/2 days or longer from a volcano...so I keep a close tab on air traffic stories. Here's a weird one:
The FAA air traffic facility in Hampton (GA) reportedly has a mold problem. And that, in turn, may be leading to health issues for workers. --- Meantime, areas of the country where there was flooding earlier this year are finding a leftover: mold and fungus growing in home.
Mold is just popping up all over, it seems - take the case of a Sacramento high-rise which is being partly closed because of mold discovered by a painting crew. Then there's a Cleveland school building being tested after what looked like black mold was discovered. --- When I was a kid, I never heard about mold stories - now, over the last 5-years, or so, it seems it has come up a lot both in conversation with friends and in occasional headlines. Is it because we've been putting in so much air conditioning, which in turn can cause moisture inside walls, which is a breeding ground for you-know-what?
Buying or selling a home? Mold checks are becoming more and more common for home inspections and likely worth it, given the kind of health issues that can arise... And remediation is expensive - take the $24 million just to do the hospital in Oxnard, California.
Missed one banking story:
Like fishing - can't catch them all, I guess. NetBank has been acquired by ING Direct...which as I understand it, will protect the depositors.
In response to yesterday's homework assignment:
This is something I've been watching for a number of months - companies thinning out the depth of inventory on the shelves. That's just money-at-rest from an accounting standpoint.
You'll remember yesterday I explained that just because you own a home and your mortgage is written off by the lender, doesn't relieve you of the obligation to make payments. Well, this morning, here's more from the same person...
Yeah, this one is a nightmare. I'd have to go look at the rules of credit and collections and consult with a zillion lawyers to get this one right. But, I think that as a person who had established a loan with one company, that you can't object to the loan being sold, because almost certainly somewhere in the fine print/weasel wording there is likely language in the loan docs where you agree to agency of ABC or other assigns. Under contract law, you'd still be stuck with making the payment to ABC.
The next hurdle would be proving that your loan was actually written off. Remember, the making of an IRS claim by XYZ may involved writing off some x percent of a tranche of liar's paper - not likely 100%. Maybe 99.5% So they could claim that your home was not written off.
Besides, government isn't going to advocate for the consumer on this because even though XYZ might 'write off' your loan, thus being made whole on their money, who besides you would win anything? This way, the banksters double dip!
What this does do is sets up a marvelous opportunity for a new company 4-5 years down the road to buy the shell of some publicly listed former real estate company with a zillion dollar of tax-loss carryforwards and build a new business on that platform. I've seen it done first-hand in the past - good way to hide income for a few high tech firms that avoided taxes for years by starting with a corporate shell that had a zillion in tax loss C/F's.
As usually, it's one of those money games which involves enough lawyers and bureaucrats that no one wins in the end. The fine print in most mortgages obligates the buyer to whatever assignment and agencies the loan originator feels like - along with the clause that says if your house falls by more than 'x', they can come after you to make up the difference so they don't go upside down on their loan portfolio.
Ain't finance fun?
Say, here's something that I guess I'd read as evidence that corporations are taking 'human form' and claiming human-type rights: "AT&T will suspend accounts of detractors" the story is headlined.
Email from down under:
A reader wants to know:
Depends what you mean by "so much." First on the money/metals side: I am converting paper at a modest rate into useful things - and I've stopped acquiring precious metals. Why? A couple of ounces is all I figure we will need. If you look at the experience in Russia, during their collapse and recovery (and other examples as well) too much gold or silver made a person a target. And if you have any, you might find yourself needing body guards if inflation really runs away.
As a result, my continued emphasis is on things tha5t can have a positive return no matter what the future holds: sustainable property being above all. We still don't have our well in yet, although yesterday Elaine and I finished fencing the first of the goat pastures - putting in over 1,000 feet of fencing so far.
But to return to the question "Why so much?" Elaine and I both have kids by previous marriages. I've got three - she has five. We expect that should the economy run into the kind of potential trouble ahead - whether a runaway Weimar-like inflation, or a collapse into incredible deflation, we will still be shelter for our immediate family.
When you get serious about trying to plan for housing and feeding 10-20 people, the definition of "enough" changes dramatically. Suddenly a year of food for two people is only enough for a month and a half. Milk from one goat works for 2 people, but not 20.
So, depending on what your planning parameters are, 'enough' is highly contextual. It's like the books on machining, casting, welding, and construction. I know a good deal of it now, and probably don't need most of the books. But my son? He's a product of an upscale school system in a big city - in other words, he's got no clue what a 'witness cut' is on a milling machine, for example.
So there's some element of knowledge preservation, start over planning - it's almost like building an ark. One canoe, one paddle and one fishing line for one person. A couple of really big dugouts for the whole tribe and another for fishing gear..
Wednesday October 3, 2007 Somewhere in the back of my mind, I seem to recall that automobile sales in 1929 experienced a sharp decline in August, about 2 1/2 months before the big Crash. I want to recall it as being off 20% in a month as consumers pulled in their horns, but I can't find a specific reference to the number.
However, you can get a sense of the era by reading a bit of "Avoiding Default: The Role of Credit in the Consumption Collapse of 1930" by Martha L. Olney's work in the Quarterly Journal of Economics (Feb 99) which notes in part that:
But the key point is that the Crash of 1929 was heralded by a stock peak in the auto sector some 6-7 months before the Crash of 1929 and the decline in consumer demand starting in August/September.
One of the best summaries of the economic drivers behind the first Great Depression, in my view, was Martin A. Armstrong's "The Greatest Bull Market in History". Although he's in prison and not due for release until 2011, Armstrong's review of events leading up to, and after, the Great Crash is really a seminal work. Reading Armstrong in part, one gets the sense that auto stocks peak, then demand peaks and then the gates of hell open:
This all leads to me developing some context for you of the automaker reports out this week. Ford was the largest decliner, but even Toyota - which I consider a global bellwether - was down 4%. If consumer confidence declines further, and if consumers aren't willing to step up and continue buying at the frantic pace, the US 'consumer economy' could be in serious trouble.
Still, if I look at Armstrong's history, where auto stocks peaked around March 1929 - some seven months before the Crash, I have to look at the big carmakers, like GM whose stock hyas peaked this year in late June, Ford, which peaked on July 1st, and even Toyota, which peaked at the same time, and wonder "Hmmm...what happens 6-7 months from those old highs if the autos don't make new highs and darned quickly?" Honda peaked two weeks after the pack.
You better pray Ford was just having a bad month in their showrooms and that this isn't the front edge of a trend.
Other than a few sales reports here and there, and the ISM Services and crude inventory figures today, I'm not looking for much out of Wall Street until the factory orders figures tomorrow or the new unemployment data comes out on Friday. Already the headlines are "U.S. stock future edge lower" but more than anything, it sounds like a day for No-Doz.
The headline "Questions Raised Over Terror Exercise" once again focuses me on the notion that while there are no doubt a few religious extremists who want to kill Americas, the whole field of terror has turned into an economic bonanza which had kept the arguably shaky economy from collapsing under the weight of malinvestment and scammy loans. Exercise away - I don't want to be in soup or bread lines.
I keep a mental file of stories that I consider totally 'ignorable' because although they might masquerade as 'news' events, they are little more than various personalities clamoring for public notice (toward the end of power/control/status/ego fulfillment), or they are opinions voiced by people no more informed than you or me. To show you what I mean, and just how utterly conditioned by corpmedia you are, let me run through some of the 'cult of personality' names but give you just a few letters of each knowing you're conditioned to fill in the blanks. Sad to say, you'll probably get most of these...but that's my point:
All the problems of the world and corpmedia fills up pages/air/video with cult of personality stuff - and people mindlessly go along.
While the military is claiming that the Missile Defense System is operational after another successful test, we have to note that it was not tested against a MIRV'ed target. Yes, one missile may be able to shoot down another, but what happens if the missile being fired upon has already split into multiple warheads, and each has gone its separate way? I smell billions more for development. Let's tax and spend on that!
In a way, it's sort of like claiming that we've developed a 50 caliber sniper gun for single warhead threats. What we will likely really need to deal with MIRV's will be something more akin to a shotgun. But think of the budget growth and employment in the defense industries that will come...Yee haw!
On Steve Quayle's show tonight; 7 PM Eastern 6 Central, 5 Mountain, and little hand on the 4 for California listeners.
A laptop battery that could run 30-years without a recharge? By then, Vista might be working right...maybe but I'm not holding my breath....
A reader writes this:
Well, sadly, you're still on the hook for the loan secured by the home. Try to think of it as two separate relationships. One is between the buyer of the home and the lender; The second/separate relationship is between the lender and IRS. If the lender writes off the whole value of the loan (on their financial statement and in tax filings) it simply changes their tax liability on any future income from that loan... like when you send in your next payment. At least that's my understanding of things. Colored by being around too many attorneys.
As long as the paper/contract with the lender remains unburned, the home owner is still on the hook, regardless of the tax representations made to IRS to maximize the lender's balance sheet or minimize their tax liability. So, sorry...no free lunch in view here.
The next email is also interesting:
Sounds good to me: Buy a
keyboard with a working Caps Lock button, write a 200-word report, and I
will post it here and let readers grade it. We'll make it a class
project. Here's a great student review email:
Damn - another missed commission. Oh well, rmember I don't give financial advice - see the disclaimer. This is just a news/discussion/long wave econ theory hang-out.
Our next class starts like this (and it was signed by a real professor, which is why I elevated it to the post-grad 600 series of classes):
No, we probably won't. But the odds are better out here. The agenda for CorpGov is clear: Forget all that scientific data that says planets in our whole solar system are heating up - let's convince everyone that 'global warming' is a winnable war for 7-billion carbon producers and start doing a little money-rendering sociopolitical climate control. Examples:
"Quebec levies first carbon tax" "Dingell proposed new taxes to fight global warming"
So, here we are - being scammed: Power to the Powers, obedience to the corporate advertising programming, and question nothing! Bomb Iran! Buy something you can't afford. Vote Republicorp. Spy on your neighbors and coworkers. It's the only way we'll also survive!
Tuesday October 2, 2007 The email from several readers is simple enough - it goes to the idea that economic things are not making sense lately:
Let's separate this into some specific questions to answer and then get to it:
What this reader hasn't realized is one of the People's Economist's greatest secrets - which I shall share with you forthwith: this is not the Twilight Zone. This is an economic cartoon.
Currency Game Suppose for a moment that you and I are investors and we read about a really hot market going on in Pottsylvania. (If you're really awake this morning, you'll remember that Pottsylvania is not a theoretical place at all, but is the home of the legendary Boris Badenov, arch-villain in the Rocky and Bullwinkle (cartoon) Show.)
Let's also suppose that Badenov's colleagues in Pottsylvania have taken over the treasury and they are printing money like crazy.
At the time we make our first investment in Pottsylvania, the Pottsylvanian currency (which I don't recall hearing named, but it makes no difference) is trading dead even with the US Dollar.
Now we wait. After a year, the Pottsylvanian stock market has doubled. But! The value of the Pottsylvanian currency has been halved - as the global community has grown tired of Fearless Leader and his other government pal, Mr. Big.
"I don't get it yet - what are you saying this morning, George," you're thinking to yourself?
Answer #1: We are living in Pottsylvania - and things are really going to pot.
You're welcome to fill in contemporary news figures to play the roles of Fearless Leader and Mr. Big, but be advised that if you do, you may find yourself walking instead of flying if the Pottsylvania Security Apparatchik is leaked word of your thinking. "All hail Fearless Leader!" And a fine Decider he is.
Commodity Cycle Here in Pottsylvania, the commodity cycle is well and quite alive. As the overseas price of the Pottsylvanian currency has gone down, the price of gold (except for that questionable gold in the Bank of England that I told you about yesterday) has been generally going up.
this morning, gold is headed down, but that's only because the Powers That Be (no doubt friends of Fearless Leader & Mr. Big) have engineered a short-term dollar rally.
But again, let's not be deceived on this point. Going back to the days when we were 'outside Pottsylvania' you remember that every time the Pottsylvania market hit a new high, it would suck other people into the game - the hot money folks - and as this money comes in from the sidelines to buy up more Pottsylvania stocks, there's a momentary twitch up in Pottsylvania currency.
The smart residents of Pottsylvania, knowing that the nefarious Fearless Leader has a goon squad in the back room printing money - so it's almost like a guarantee that commodity prices will go up - it's just a matter of timing.
You'll recall that in Pottsylvania, the publication of the broadest measure of the money supply was banned by Fearless Leader's pals in the Pottsylvania Central Bank because it would tip people off that wild inflation was busily at work trying to counterbalance instance deflation.
The Fed buried M3 (M3: M2 + all other CDs, deposits of Eurodollars and repurchase agreements. ) on March 23, 2006 for fear that Pottsylvanians might wake up top what was going on. They have anyway, just not too many of them. Trader Bart and John Williams. not doubt in Badenov's sights for daring post such things, have a very good approximation of M-3 which says that inflation is running along at roughly 14.7% annually measured at the M-3 level.
This happens because in a fractional reserve/ fictional reserve banking system, where interest charges demand inflation occur to keep the game alive, people don't generally think about their actual purchasing power. Instead, they accept whatever is repeated incessantly by Pottsylvanian media.
Simultaneous to this, in a parallel cartoon, we see former Pottsylvania Fed Boss, Alan Greenspend, who got the current catastrophe going by nearly halving the purchasing power of Pottsylvanian money during his tenure in office, and by pimping Adjustable Rate Mortgages while giving only lip service to credit worthiness, is now on a global jaunt to salvage his image for history books. That's an up hill fight, I'd judge. Where are the interviewers asking him how he can claim any form of success with hundreds of thousands of homes going into foreclosure? At least he never retracted his support of gold, although it was effectively buried for the longest time.
So on days like this one, where gold is down a few bucks and the hype is that the market has just made a new "all-time-high, the People's Economist falls down on his knees and gives thanks to Universe that another buying opportunity for gold, silver, grains, and what have you, is at hand.
Answer #2: The Commodity Cycle is doing fine - don't be distracted by short term day or week long discontinuities - play the Big Game and win with the Big Trend.
Record High Dow? It all depends on how you want to talk about the 'all time high'. Yes, in nominal terms the Dow hit an all time high on Monday which will reset our 'time to crash' chart work.
But, let's see how things look to a less sympathetic, more suspicious investor. The first thing to check out would be how what I call the Aggregate Index looks. (Down at the bottom of this page). This index is very simple. It assumes that in early 2000 when the Dow (and other indices) were hitting all time highs - including the NASDAQ which was the darling back then, that you put equal amounts of money into the Dow 30, the S&P 500, and the NASDAQ Composite and then just held on. The Aggregate Index is still 2,000 points in the hole, and that's ignoring inflation. \ ON the other hand, if we use the Fed's inflation numbers, we can see that the Dow (in purchasing power terms using Pottsylvania government figures ;which don't exactly pass the sniff test) we can see how the Dow is up 7-10th's of 1 percent since 2000, while the NASDAQ Composite once 5048.62 (and 6024.92 adjusting for inflation) has retained only 45.4% of its 2000 level.
If you want to jump for joy, don't let me remind you that on an inflation adjusted basis, the Russell 3000 would need to hit 1008.41 to make up for inflation since 20000, and as we sit this morning at 895.2, the Russell is still 11.2% behind 2000 levels in terms of inflation-adjusted purchasing power.
And if that isn't bad enough, for the Dow, we're now 7 1/2 years of inflation into the future and I'm only using 7 whole year numbers. If we accounted for another half year of inflation based on the real price of things at the store, I don't think you'd like the results.
All that said, I expect a flurry of emails today from readers who will ask "How is it you overlooked the dividends paid out by the Dow in your accounting of things?" To which I'd ask "How come you don't take into account all that NASDAQ money (a few trillion) that were wiped out and the huge number of companies that went belly up to the point where there has been a whole web site dedicated to the mismanagement and malinvestment in high tech?"
Then there's the matter of the Mortgage Implode-O-Meter which shows 161 companies in the corporate graveyard. A companion Hedge Fund Implode-O-Meter shows 19 hedge funds down and gone.
So, as another trading day on the Pottsylvanian Stock Exchanges gets underway, I'm reminded that this is more like a cartoon than Rocky & Bullwinkle (and George of the Jungle) creator Jay Ward would have ever believed.
Except this one ain't so funny. Where's my copy of "Bullwinkle on Business"?
Follow the lead of Zimbabwe: Let official inflation go to 6593% in August and then announced a new currency. Yeah, that'll fix things up just fine - new paper, more zero's - go get 'em while they're hot.
The Bank of England was stiffed today - no takers on a £10-billion note auction. Sucks to be a banker, huh?
Hey, Maybe they could sell of that cracked gold!
One report says Gordon Brown is pulling 500 British troops out of Iraq. Another report says 1,000 will come home.
Gee, that would leave 4,250 Brit soldiers to vote absentee from Iraq if Brown calls an election.
No doubt, some staffer in the White House today will run around waving the Time article "Putin's Plans to Stay in Power" by hand-picking a successor puppet so he can rule from behind the curtain.
I can just hear this echoing through the halls of the WH "Hey! Let's endorse Hillary and then make sure she keeps the War going!" That ship, of course, has sailed.
A "Diana Crash Inquest begins" today in the UK. Yeah, this for sure signals something is going on that the sheeple are supposed to be distracted from - why are they still brining this up? Gag me. Quick, let's do a 2-hour special on this one! --- And a celeb parenting decision is also much the buzz among the blissfully unaware. Like it somehow matters in real life...
A NY Post report covers a woman who alleges she lost her job over her perfume use...
The EU is mulling an internet clampdown to combat 'terrorism'. Excuse me? Every serve needs a DNS entry and everything can be tracked back using the (not going to talk about it) layer of phone systems. So why not just bust the perps?
You know about the Windows tracetr command? About Visual Trace Route? Puts a map to things for you...
Of course, we know what the answer is: Selling 'Terror!'.
The internet is way too powerful and threatening to the powers-that-be, so we need to clamp down on the innocents, not the guilty. Got it?
The headline "Democrats Surpass Republicans in Fund-Raising" could be easily rewritten by a cynic like me as "Corpgov buying more democorps war support - figures republicorp have no chance of fooling enough people next time around..." Democorp keeping the war going just fine - let's fund them!
Hmmm.. new study "Boys and men worry less." Is this because women are smarter, or because of testosterone's mind-numbing effects? Whatever...
Phones are ringing off the hook in Irving Texas in support of deporting illegals. --- Since 10% of Mexico's population is already in the US, I wonder if betting that with housing and construction layoffs in the USA if Mexico's economy is starting to shudder from the lack of it's dollar fix? Bet that worries the hell out of 300-families that run things there...
Remind me to check with my Mexico City reader...I also need to ask him if he wants to distribute a new tequila in the Mexico market... Sometimes consulting is fun. Salute!
Monday October 1, 2007 More Web Bot Hits Forming? One of the linguistic events that we've been on the lookout for, based on the www.halfpasthuman.com predictive linguistics work is for there to be some kind of call for an audit of gold stores along in about this timeframe. Temporal markers are rare as political honesty, but as I told subscribers to my subscription service Peoplenomics on Sunday, it looks like that is being primes for fulfillment with some odd headlines and a curious email.
So, I was hardly surprised when the scanning caught a headline a "Bank's gold reserves deteriorating" - referring to the 'bank' as the Bank of England.
I'm not metallurgist, but I have pounded a piece of gold enough to know that with a little patience, you can pound gold out so flat as to be nearly translucent - so the idea of gold 'cracking' is absurd. Gold is the most malleable/ductile stuff around. So what's with the real story?
The Bank of England blames it on some gold melted about 50-years ago in New York But the part of that which got me to really pondering was:
But how 'minor' is the issue? More importantly, what does this emergence of the meme imply for us 'little folk'? It seems, in order of highest likelihood first that...
That last would put us clearly into the realm of fiction, and until type of 'crack' is more thoroughly explained by the BoE, which means, of course, that the issue might be around for a while.
I'd be willing to wager a small amount that if there is more pressure to discuss/reveal the depth of cracks and so forth, that some one/faction/interest would then call for an audit of US gold reserves to see if w3e had any of that 'cracked gold' in the US stockpiles...
Oh yeah, one more thing that might play into this 'audit of gold stocks' meme is this email that came in from a reader (Peoplenomics subscriber) overnight:
I bet you that gold didn't have cracks in it.
How real are national gold reserve claims? Seems someone (or a faction) is likely to make an issue of this. We'll watch the price of gold for hints. --- And while all these matters are going on, we've heard from one source that there is enough demand for silver in Europe at the moment that prices are privately going as high as US$16 (plus shipping) per ounce, but I don't have confirmation yet.
It could be US paper dollar purchasing power is expected to fall that much more, or, it could just be one of those rumors that makes the rounds in the precious metal circles. If you're in Europe, and you wouldn't mind, let me know what the local coin shops are charging for a 1-ounce silver round and we can convert that to dollars and come to the truth of things quick enough, I expect.
Yemen's Volcano As I reported last week, the third in the major earthquake series (we're awaiting #3/4 at 8.0 or greater and with substantial losses) is currently expected in the Indonesian archipelago - unless we get a northern hemisphere volcano that disrupts air traffic.
Not surprising then that I've received a half dozen emails referring to the "Volcanic Eruption Reported Off Yemen" story asking "Is this it?"
The telltale thing to watch for would be a day and a half of air traffic being disrupted in the area of the volcano and downwind. If we get that, then it increases the odds that the major quakes to come (3/4) will be US West Coast. I haven't seen anything yet (it's early, though) indicating air traffic disruptions off the Yemen event. 8 dead so far, though. The 7.3 quake on Sunday as not likely a Big One linguistically.
The Java volcano is on the wrong side of the equator linguistically to change the Big One to US West Coast centered (we hope!).
Sorry, using language on the internet as a 'time machine' is not a presact science - yet. Although it's good enough that there will be an ALTA 0708 run by the look of things, and in that one, the time monks will be stretch the forward view out to the 2009 timeframe.
Michigan At Work Michigan government is back to work after a shutdown for a few hours over budget issues. The real problem is yet to come, I expect, as Michigan residents will likely start to appeal their property tax assessments now that housing prices have come down - and that will likely mean this is the leading edge of a bigger story to develop over the next year or two - tax rebellion kind of thing.
The loss of military lives (in country) is reported at the lowest level since July 2006.
The bad news is that former UN envoy John Bolton is still out beating the bomb Iran drum. --- Speaking of wars and such, the US has launched a "Most Wanted" list and $200,000 reward program for information leading to the arrest of the top no-goodnicks in Afghanistan. Cash talks? We'll see. Hasn't worked to root out Osama bin Laden yet - and the stakes much higher there - $25-million. Wonder if that could be paid in Euros?
A former chess grand master is running for the presidency of Russia. A curious gambit.
No, not the one that one of my favorite web sites - the other first Monday (in October) is when the US Supreme Court sits down to work.
A woman has died in custody at the Sky Harbor airport in Phoenix according to reports.
Citigroup's recent challenges have resulted in some big writedowns - impacting profits. --- UBS is reporting a large loss in their fixed income group - look surprised. --- And yeah, the stock futures have slipped a bit on this news.
Not live, but you can sign up for a beta test if you have time to spend helping Microsoft work out its bugs.
Me? Being a self employed consultant I have this really simple philosophy: If I work, it's on someone's clock or my own.
A screech from the chicken house this morning when E went up to let out the chickens. One 12-guage round just dispatched either a chicken snake or copperhead...
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Elliott Wave International
Write when you get rich,
George Ure, The People's Economist
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