Al Peia's Blog: September 10, 2010 posts

Business / Economic / Financial

[ This link to a somewhat more cumulative blog posts page will precede current days news since most all topics remain current in terms of impact and longer-term effect and can be searched by topical index term more easily. The same is provided since the blog site http://alpeiablog.blogspot.com has just been censored as to size by google which is typical for google as nsa / cia / gov’t shill as more are becoming aware of. The same is true for microsoft, another co. that’s seen their best days and relies on the government to maintain their monopoly. Up to now the better page http://www.scribd.com/alpeia is provided for ease of formatting and clarity thereby while the Washington Post page is the real deal but without formatting http://www.washingtonpost.com/wp-srv/community/mypost/index.html?plckPersonaPage=PersonaComments&plckUserId=alpeia&newspaperUserId=alpeia ]

Unemployment Claims Not as Bullish as They Seem (Why? Kudrna:‘The Labor Department reported Thursday morning that new claims for unemployment dropped a seasonally adjusted 27,000 to 451,000. Unexpected bullish news, right? The markets immediately gapped-up on this information as the bulls found good reason to buy. Unexpected positive news is almost always met with a bullish move north as it’s rarely priced in. However, a useful tidbit of information about that shockingly large drop came out after the gap-up. Bloomberg reported that nine states didn't file claims data to the Labor Department in Washington because of the Labor Day holiday earlier this week. California and Virginia estimated their figures and the U.S. government estimated the other seven. Coincidence in the large drop or not? We will see when the next revision comes out but usually those revisions fail to make headlines as we are already focusing on future claims. This has been a great cover-up method for a long time…’

How Government Reporting Will Intensify the Inevitable Simon Maierhofer, On Friday September 10, 2010, 12:41 pm EDT ‘Natural carbonation keeps a champagne bottle under constant pressure. The more you shake the bottle, the higher the pressure gets and the further the cork will eventually fly. Figuratively speaking, the government has been shaking the bottle. Watch out when the cork pops. On August 10, the Associated Press reported that the Federal Reserve has found a new trick to jumpstart the economy. Below is the full quote that shows why we probably can't expect unbiased assessments coming out of Washington, or the Fed's corner: 'The Federal Reserve policymakers are pondering ways to jumpstart the economic recovery. The trick: making sure whatever they do or say doesn't rattle Wall Street.' Some of the recent government statistics have been 'interesting' no doubt, and we know the administration has spent trillions in an attempt to lift the economy, but would it go as far as actually fudging statistics? We'll examine potential cases for 'data spiking' in a moment, but for now we'll take a look at one of the most popular government statistics, which is misleading to say the least.
GDP - Like a Flag in the Wind
GDP reports are prepared by the Bureau of Economic Analysis (BEA) and are a science all in itself. GDP reports are often revised. The 'advance' estimate is published at the end of the first month following the close of a quarter. In addition to the 'advance' estimate, there are first and second revisions called the 'preliminary' and 'final' estimates. The 'final' estimate is reviewed annually, usually in July. Once every several years, the BEA reviews all data back to 1929. On July 30, the BEA lowered Q2 2010 growth from an estimated 2.7% to 2.4%. The real GDP for all three previous years was revised as well. It was lowered by 0.2% for 2007, it was lowered by 0.6% for 2008 and it was lowered by 0.4% for 2009 (see chart below)[chart]. In percentage terms, the real GDP for 2007 was revised down from 2.5% growth to 2.3%. The 2008 decrease was lowered from 1.9% to 2.8%, and 2009 growth was revised up from a 0.1% to a 0.2% increase. In essence, the BEA proved that the recession was (or is) much deeper and the alleged recovery much weaker than previously reported. Imagine if you would have based your 2007 and 2008 investment decisions on GDP reports. But wait, there is more. On August 27, the BEA lowered the Q2 2010 GDP growth from 2.4% to 1.6%. The financial media, however, applauded the reduction since the final 1.6 number was still higher than the 1.4% economists expected. Stocks rallied over 2% that day.
Unemployment Numbers - Not Deserving of Your Trust
Unemployment in August increased from 9.5% to 9.6%, but that's ok. Why? According to the financial media, the increase of unemployment was due to an increase in labor force. An estimated 6.6 million students will be graduating and joining the labor force this year. An increasing labor force is a reality, not an excuse to rationalize higher unemployment numbers. The real unemployment rate (U-6) reported by the BLS (but neglected by the financial media) jumped from 16.5% to 16.7%. Nevertheless, stocks rallied nearly 3% when unemployment figures were released on September 3rd. According to the BLS, the manufacturing sector lost 27,000 jobs in August. This, however, contradicts the positive August ISM manufacturing report, which rose from 55.5% to 56.3%. Here is the analysis from the Institute for Supply Management: 'A PMI in excess of 42 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the 16th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 13th consecutive month.' If you ask the unemployed, it doesn't feel like the manufacturing sector is improving.
Changing Rules to Accommodate Growth
Amidst the biggest financial meltdown since the Great Depression, the administration had to act quickly. The sheer amount of toxic assets overwhelmed the banking (NYSEArca: KBE - News) and financial sectors (NYSEArca: XLF - News), which led to the fall of Lehman Brothers and credit contraction around the globe (NYSEArca: EFA - News). It was impossible to eliminate trillions of bad loans or revive the ailing real estate market (NYSEArca: IYR - News). It was impossible to prop up faltering sectors like consumer discretionary (NYSEArca: XLY - News) and technology (NYSEArca: XLK - News). In short, it was impossible to change reality. It was, however, possible to change the prevailing perception and hide the root problems. In fact, it wasn't just possible; it proved to be fairly easy. The government simply urged the Financial Accounting Standards Board (FASB) to change some rules. On April 2, 2009, the FASB changed Rule 157. The ripple effect caused by massive real estate losses suffered by the 'too big to fail' banks (NYSEArca: IYF - News), as well as regional banks (NYSEArca: KRE - News), threatened the integrity of the entire system. The 157 Rule change allowed banks to park all their losses in a bucket called other comprehensive income (OCI). OCI appears on the balance sheet, but not on the income statement and thus does not affect earnings. In late 2009 and early 2010, banks exceeded their earnings expectations - at least on paper - which created the perception that the economy was recovering. As it turns out, the timing for the Rule 157 change was perfect and coincided with the biggest stock market rally in recent history. A 50%+ run in the Dow Jones (DJI: ^DJI), S&P (SNP: ^GSPC), and Nasdaq (Nasdaq: ^IXIC) intensified the perception that the economy was on the mend. Before the accounting rule change and other government efforts, the ETF Profit Strategy Newsletter predicted the biggest rally since the October 2007 all-time highs. Via the March 2nd Trend Change Alert, the newsletter advised to close out previously recommended short positions (some gained 100% and more) and buy long and leveraged ETFs, many of which gained 50%, 100% or more.
Back to the Future
All was well until April 2010. Prior to the April highs, Mr. Bernanke, Mr. Geithner, and the President were campaigning for their fair share of credit for rescuing and reviving the country. Rather than examining and disclosing some of the government's questionable methods, the media jumped on the bandwagon and tickled the alleged 'saviors' egos. By doing so, the pressure in the champagne bottle was increased. More investors bought stocks under the mistaken view the economy had improved. This increased the pool of stock owners and the pipeline of sellers. As per the most recent GDP numbers, investors found out that the state of the economy is worse than previously thought. Furthermore, the government has lost credibility and some of its associated ability to inflate stock market confidence. Watch out, once the cork blows! Investors leaving the market could send prices falling as fast as champagne gushing out of a bottle. In fact, this exodus probably started already. On April 16, the ETF Profit Strategy Newsletter noted that: 'The cork seems to have popped. Reality is setting in. The pieces are in place for a major decline.' Following the April highs, the ensuing decline erased eight months worth of gains in a mere 22 trading days. An initial wave of somewhat critical media reports quickly faded as the stock market stabilized. Sideways trading tends to calm the nerves and get investors re-engaged before the hammer drops again. What's the moral of the story? Faulty government data and trend-following media reports tend to distort the real picture and postpone and intensify the inevitable.
The ETF Profit Strategy Newsletter combines the analysis of various indicators with common sense and out-of-the-box thinking to formulate a short, mid, and long-term forecast.’

Successful Economic Policies? For Whom? Last week, in the wake of another uptick in the official unemployment rate, the administration continued to claim that their economic policies were working, just not fast enough.

Can America Recover When The Majority Of Americans See A Double Dip, And Think The Country Is Fundamentally Broken? Earlier this week we asked, can the economy really recover when 92% of the population says the economy is garbage in a survey? That was the number in a WSJ/NBC poll, and it would seem to indicate a major headwind in terms of sentiment.

IMF Resumes Direct Gold Dumping, Sells 10 Tons Of The Shiny Metal To Bangladesh It has been a while since the IMF sold gold directly to sovereign countries.

Obama rating hits new low Overall, 41% of voters say they at least somewhat approve of the president’s performance. Fifty-eight percent (58%) disapprove.

The Anniversary of 9/11 Washington’s Blog | If even the 9/11 Commissioners don’t buy the official story, why do you?

Congressman Ron Paul Hints At 2012 Presidential Campaign Steve Watson | “It’s something I think about every single day.”

Hamilton and Kean Call for Domestic Terrorism Agency Kurt Nimmo | A bipartisan effort is underway to demonize patriotic Americans as domestic terrorists.

Doctors Giving Veterans Questionnaire to Determine Mental Illness Infowars.com | In 2007, a bill passed in the House and Senate allowing government to deny Second Amendment to veterans.

Drudgereport: Thousands of Afghans protest Quran-burning plan...
Tennessee preacher to burn Quran...
Topeka, Kansas church vows burning...
Protester plans to burn on Wyoming's Capitol steps...
FLASHBACK: Muslims Burn Bibles and Destroy Crosses...
Ground Zero imam ignores pastor's two-hour deadline...

12 soldiers face trial after Afghan civilians 'were killed for sport and their fingers collected as trophies'...

U.S. drops in competitiveness ( Washington Post ) [ Fourth place for pervasively corrupt, defacto bankrupt america? I don’t think so; not in their wildest dreams, and there’s a lot of that in america these days, but little else. Reality says america’s place should be in the twenties at best. Previous: U.S. drops in competitiveness (Washington Post) [ Singapore, Sweden, … ? Don’t make me laugh! From defacto bankrupt, meaningfully lawless america’s perspective, this fallen ranking was a gift and one must be asking, what were they smoking (or whose money were they taking?) and is the rest of the world really that bad off? ] Large deficits and a weakened financial system make the U.S. less competitive in the global economy, according to World Economic Forum's new ranking. Sweden Is A Better Place To Do Business Than The U.S. – [Well, that part is true, but …]. ‘…Sweden, by contrast, has “the world’s most transparent and efficient public institutions, with very low levels of corruption and undue influence.” Which loosely translated from wonk-speak sounds like, “You’re better off dealing with honest socialists than crony capitalists.”’ [ True enough, but I still don’t buy it (the rankings), especially america’s fourth place (as opposed to lower) ranking.]

Capitol Hill workers rack up back taxes ( Washington Post ) [ When you consider the pervasive corruption in their ranks and the redundancy / non-productive nature of government jobs, the case becomes irrefutably stronger for the abolition of same; particularly the lifetime appointees along with their plush accouterments, courts, etc.. Then there’s tiny tim geithner’s tax red flag, scofflaw hypocrit that he is. ] Capitol Hill employees owed $9.3 million in overdue taxes at the end of last year, a sliver of the $1 billion owed by federal workers nationwide but one with potential political ramifications for members of Congress.

Yeah! The lack of prosecutions and teeth therein has led to continued and bolder frauds and a complicit u.s. government! Stocks extend gains after drop in jobless claims [ Washington Post ] I was very disappointed to see this headline without disclaimor. Very disheartening.

[ It’s really quite amazing, and you won’t get this from the ‘money honeys’ or other mainstream drivel (actually I got this from the CBS news reporter, 1070am radio, but NOT their business report), the so-called better than expected jobs report (albeit bad at 451,000 continuing claims) was actually based upon federal government estimates for those reports that were not submitted owing to the holiday … and we all know how conservative the u.s. government is in making estimates, especially in election cycles when desperation abounds … riiiiight! ( Drudgereport: GOV'T MAKES IT UP: JOBS NUMBERS 'ESTIMATED' FOR WEEK... 'BETTER THAN EXPECTED'... ) Then there’s the ‘need more capital’ news from among the strongest players in the European sector, viz., Germany’s Deutsch Bank, which can only mean, particularly in light of their adoption of the fraudulent wall street american mark to anything valuation of worthless paper, still out there in the many (hundreds?) of trillions. (see infra, ‘…ECB chief economist Jurgen Stark tells German MPs that the banking system is insolvent. This led to complete shock because the newspaper headlines from July suggested the opposite. The German policy establishment is under the illusion that its banking system is sound because it passed what turned out to be fraudulent stress test…’) Now, if the German banking system’s insolvent, is there a term for double, triple, quadrupal, etc., insolvent for what the american banking system must be? One doesn’t need clairvoyance to know that only bodes ill. Stocks Cling to Skinny Gains, Can't Shake Banking Concerns ]

The Eerie Implications of Market Volume and Mutual Fund Flows ‘… Here's a more compelling question: If two-thirds or more of daily volume is a function of high-frequency trading, what are the implications for index prices over the long haul? A year has passed since I posted some charts illustrating the incredible ratio of S&P 500 volume devoted to five financial stocks. Today's game is no doubt different from last September. It may be about making money, but it probably has little to do with investing — which may explain a lot about current volume metrics and mutual fund flows. I'll update these volume charts periodically in the months ahead.’

Report From Europe: Fall in U.S. Weekly Jobless Claims Cheers Stocks The Mole … Today is Rosh Hashanah, the jewish New Year, in which it is believed the names of the righteous are recorded in the book of life, those in the middle ground are given ten days to repent and become good, while the wicked are deleted from the book of life. In essence, it is make or break time for the year. One wonders if we might be entering a similar phase for Ireland with landmark decisions over the fate of Anglo Irish Bank taken (with the cost of the funeral to be know in early October) and the funding cliff for Irish banks to refund some €25bn of maturing debt this month pending (though I feel fears over their capacity to roll this debt is way overblown)… Today’s Market Moving Stories

Figures showed that the July US trade deficit declined more than expected today and reached -$42.8bn. Thus, June’s spurt to $-49.8bn seems to have been a blip in the data. In July, total exports gained M/M 1.8 percent while imports decreased 2.1 percent. As for growth, foreign trade is still set to be a slight drag on GDP in 2010Q3. After all, imports started into Q3 on a very elevated level (and significantly above the 2010Q2 average). However, the drag will be much less than Q2’s -3.4pp.
While US initial jobless claims fell 27k to 451k last week. Claims moved sideways since the start of the year (the average since Jan is 466k), indicating that the improvement on the labour market did make scant headway. All in all, after a long spell of weak data, today’s releases offer some respite.
In a combative speech, Obama conceded his policies have “fed the perception that Washington is still ignoring the middle class,” was billed as a major economic address to unveil a new round of proposals to kick-start a flagging economic recovery. The president did introduce three new policy proposals the White House has been rolling out for nearly a week: $50 billion in additional infrastructure spending, a permanent and expanded research and experimentation tax credit and a measure allowing businesses to write 100 percent of their investment costs off their taxes through 2011. But Mr. Obama’s speech was far more about politics than economics.
ECB chief economist Jurgen Stark tells German MPs that the banking system is insolvent. This led to complete shock because the newspaper headlines from July suggested the opposite. The German policy establishment is under the illusion that its banking system is sound because it passed what turned out to be fraudulent stress test. Jurgen Stark is reported to have told a group of Christian Democrat MPs in Berlin that the German banking sector as a whole is undercapitalised. More controversially, he advised them to privatise the saving banks – the ultimate taboo because the savings banks are consider sacrosanct. FT Deutschland reported that Stark also relayed the assessment of US bankers that the German system could not conceivably survive the introduction of the tougher capital rules of Basel III.
Japan has no choice but to intervene in currency markets to prevent the yen’s strength from decimating the nation’s industry, Barclays Capital said. The yen reached 83.35 versus the dollar yesterday, the highest since May 1995, threatening Japan’s export-led recovery. Industry and jobs won’t likely return from abroad even if the currency weakens eventually, and that prospect may force policy makers to intervene “in the immediate future,” said Tetsufumi Yamakawa, co-head of Japan research at Barclays. “If the yen’s strength lasts at current levels, factories, investment and jobs will all move overseas,” Yamakawa said at a forum in Tokyo yesterday.

Australian job growth exceeded forecasts in August, sending the unemployment rate down to 5.1% and driving the nation’s currency higher on speculation the central bank will resume raising interest rates. Employers added 30,900 workers in August, exceeding the median forecast for 25,000 in a Bloomberg News survey of 25 economists, the statistics bureau said in Sydney today. The jobless rate matched the lowest level since January 2009.,,

Worth a read: Michael Lewis has a field day: Beware of Greeks Bearing Bonds (Vanity Fair)

Tiny tim geithner Says China Needs to Let Market Drive Up Yuan Bloomberg | U.S. Treasury Secretary Tiny tim geithner said China must let the yuan rise more quickly to show trading partners that it’s following through on its promises [ Riiiiight! … Everyone’s just clamoring for american advice on the global meltdown precipitated by ‘american advice and consent’.]

Bad Math - Why The Bullish Case Doesn't Add Up Simon Maierhofer, On Wednesday September 8, 2010, 3:19 pm EDT
1+1=2 2+2=4
The simplicity and accuracy of those calculations is undeniable. How about this equation? Fundamental Weakness + Technical Sell Signals + Overpriced Stocks = Lower Stock Prices. This calculation also seems to be simple and accurate. Let's look at some equations that don't make sense.
1+1=3 or Better Earnings = Higher Stock Prices

2+2=5 or Weaker than Expected Economy = Rising Stock Prices

3+3=7 or Positive Analyst Estimates = Higher Stock Prices

4+4=9 or Technical Sell Signals = Higher Stock Prices
5+5=11 or Overvalued Stocks = Higher Prices

Too Big To Fail Global Banks Will Collapse Between Now and First Quarter 2011 Matthias Chang | Quantitative Easing spearheaded by the Chairman of Federal Reserve, Ben Bernanke, delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months.

“I Am Jim Cramer And I Approve Of The President’s Message (Because The Market Moved Up By 3 Points)” There are women (and men) who will do anything for a price. Then there is Jim Cramer.

Jim Sinclair: Strap In For Gold’s Move To $1650 By January Now that expectations for Gold at very significant prices are being offered by various rational sources, there is one thing you can be sure of. That one thing is $1650.

Obama Added More to National Debt in First 19 Months Than All Presidents from Washington Through Reagan Combined, Says Gov’t Data In the first 19 months of the Obama administration, the federal debt held by the public increased by $2.5260 trillion, which is more than the cumulative total of the national debt held by the public that was amassed by all U.S. presidents from George Washington through Ronald Reagan.

Here Are 13 Signs That We’re Actually In A Depression Right Now Gregory White | David Rosenberg has outlined, in his latest letter, the 13 reasons with this so-called recovery is actually a depression.

(9-10-10) Dow 10,462 +47 Nasdaq 2,242 +6 S&P 500 1,109 +5 [CLOSE- OIL $76.45 (-54% for year 2008) (RECORD TRADING HIGH $147.27) GAS $2.74 (reg. gas in LAND OF FRUITS AND NUTS $3.11 REG./ $3.26 MID-GRADE/ $3.35 PREM./ $3.69 DIESEL) / GOLD $1,248 (+24% for year 2009) / SILVER $19.83 (+47% for year 2009) PLATINUM $1,551 (+56% for year 2009) / DOLLAR= .78 EURO, 83 YEN, .65 POUND STERLING, ETC. (How low can you go - LOWER)/ 10 YR NOTE YIELD 2.79% …..… AP Business Highlights ...Yahoo Market Update... T. Rowe Price Weekly Recap – Stocks / Bonds / Currencies - Domestic / International This Is a Secular Bear Market and The End of Buy and Hold … and Hope MARKET MANIPULATION AND HOW THE LATEST BUBBLE-FRAUD PRE-COMING CRASH IS BEING ACCOMPLISHED 3-11-10 6 Theories On Why the Stock Market Has Rallied 3-9-10 [archived website file] Risks Lurk for ETF Investors The bull market that never was/were beyond wall street b.s. when measured in gold Property Values Projected to Fall 12% in 2010 Jan 31, 2010 The Week Ahead: Risk Is Off the Cliff; Unwind Has Begun Jan 31, 2010 01-13-10 Forecast for 2010 from Seeking Alpha Contributor THE COMING MARKET CRASH / CORRECTION 1-28-10 Maierhofer (01-15-10) 11 Clear Signs Economy Sinking Economic Black Hole 1-22-10: 20 Reasons Why The U.S. Economy Is Dying And Is Simply Not Going To Recover Current Economic / Fiscal Charts Trendsresearch.com forecast for 2009 1-7-10 Crash is coming! ‘WORST ECONOMIC COLLAPSE EVER’ Must Read Economic / Financial Data This Depression is just beginning The coming depression… thecomingdepression.net MUST READ: JEREMY GRANTHAM’S QUARTERLY UPDATE 25 January 2010 (850 on the S&P) by TPC The Next Wave of Collapse is Coming Sooner than you think Sliding Back Into the Great Depression ABSOLUTELY, ABSURDLY, RIDICULOUS! SELL / TAKE PROFITS WHILE YOU CAN SINCE MUCH, MUCH WORSE TO COME!

Castro Admits Communist Economics a Failure

Go to following pages for above links:
http://www.albertpeia.com/currentopics2ndqtr10108.htm
http://www.albertpeia.com
http://www.scribd.com/alpeia

Pastor Terry Jones Calls off Koran Burning, Ground Zero Mosque May Be Moved Pastor Terry Jones today canceled his plan to burn Korans at his Florida church after claiming he has struck a deal with a New York Muslim cleric to relocate the so-called Ground Zero mosque.

UN Blueprint: Dismantle Middle Class, Build World Government A UN blueprint for putting the organization back at the forefront of global governance alarmingly reveals the agenda to re-brand global warming as “overpopulation” as a means of dismantling the middle classes while using “global redistribution of wealth” and increased immigration to reinvigorate the pursuit of a one world government.

US soldier ‘kept Afghan body parts’ At least two of the five US soldiers charged in the deaths of three Afghan civilians had kept body parts taken from Afghan corpses and threatened subordinates, according to new documents released by the US army.

Random Pat-Downs Turn PATCO Into Police State “We can conduct any kind of search we want,” said McClintock. “We could ask TSA to bring wands or X-ray machines like they have in airports, though we don’t think that’s appropriate for PATCO riders at this time.”

Gerald Celente Calls Out General Petraeus On Koran Warning Hypocrisy “You hear someone like General Petraeus saying burning the Koran could be dangerous to American troops – hey General Petraeus – how about invading Arab countries and occupying them and killing innocent people? You think that could be dangerous to American troops? Oh no no, our foreign policy has nothing to do with this – they don’t like Americans because we go to Disneyland and shop at Walmart.”

Ground Zero Mosque Imam: If You Don’t Build It, They Will Attack Moving the project to another location would strengthen Islamist radicals’ ability to recruit followers and will likely increase violence against Americans, the imam said.”

Clinton Talks World Government at the Council On Foreign Relations Kurt Nimmo | Simply substitute the phrase “American leadership” with “leadership by the globalist cabal.”

Barack Obama: Puppet on a String Jurriaan Maessen | The United States is unfolding an agenda that has been pushed for by international banks in conjunction with the CIA.

Business as Usual: Fed Court Slaps Down Torture Lawsuit Against CIA Kurt Nimmo | Once again, national security trumps the rule of law and the corporate media provides cover.

UN Blueprint: Dismantle Middle Class, Build World Government Paul Joseph Watson | Globalists set out agenda to re-brand global warming as overpopulation in bid to impose carbon taxes.

Claims of Recovery But Results Nowhere To Be Found Bob Chapman | The American public is alarmed at what they see going on.

Drudgereport: GOV'T MAKES IT UP: JOBS NUMBERS 'ESTIMATED' FOR WEEK...
'BETTER THAN EXPECTED'...

Treasuries Tumble Following Weak 30-Year Sale...

600 Lockheed execs take buyout (Washington Post) [ Talk about having your fingers on the economic / fiscal pulse of the nation. This should be a new leading economic indicator which, unlike many of the others, is less prone to manipulation. All hail, the ‘golden goose’ is dead! Drudgereport: MORGAN STANLEY: U.S. Government Bond Defaults Inevitable … This is a global depression. This is a secular bear market in a global depression. The past up move was a manipulated bull (s***) cycle in a secular bear market. This has been a typically manipulated bubble as has preceded the prior crashes with great regularity that the wall street frauds and insiders commission and sell into. This is a typical wall street churn and earn pass the hot potato scam / fraud as in prior crashes’. This national decline, economic and otherwise, will not end until justice is served and the wall street frauds et als are criminally prosecuted, jailed, fined, and disgorgement imposed. ] The move reflects a shift underway as defense contractors scramble to prepare for Pentagon budget cuts.

Reform's unexpected fallout (Washington Post) [ Riiiiight! That reform thing … everything but prosecution of the perps who are back to their churn and earn ways as some of their worthless paper moving ways have been legislatively sanctioned / adopted in the form of mark to anything valuation of worthless assets / paper which debacle is waiting to rear that ugly head! ] Nation's battle for regulatory reform wasn't supposed to have this kind of collateral damage. But the new law is threatening the existence of a day-care center, which has operated for 24 years in the District.

U.S. drops in competitiveness (Washington Post) [ Singapore, Sweden, … ? Don’t make me laugh! From defacto bankrupt, meaningfully lawless america’s perspective, this fallen ranking was a gift and one must be asking, what were they smoking (or whose money were they taking?) and is the rest of the world really that bad off? ] Large deficits and a weakened financial system make the U.S. less competitive in the global economy, according to World Economic Forum's new ranking. Sweden Is A Better Place To Do Business Than The U.S. – [Well, that part is true, but …]. ‘…Sweden, by contrast, has “the world’s most transparent and efficient public institutions, with very low levels of corruption and undue influence.” Which loosely translated from wonk-speak sounds like, “You’re better off dealing with honest socialists than crony capitalists.”’ [ True enough, but I still don’t buy it (the rankings), especially america’s fourth place (as opposed to lower) ranking.]

Afghans question U.S.-style capitalism (Washington Post) [ As indeed they should inasmuch as the same is neither capitalism nor american style in the traditional sense referenced here. Defacto bankrupt, in decline, and pervasively corrupt, meaningfully lawless america is a nation unworthy of emulation! ] Kabul Bank became the pride of Afghanistan's financial system by offering the conveniences and thrills of 21st-century capitalism. But the scene outside the bank's headquarters Wednesday was far from that modern ideal.

Fed sees widespread slowdown of growth (Washington Post) [ Stocks rally anyway … the ‘miracle of computerized programmed trading’ even if the math and fundamentals don’t add up …

Earnings season is over. Most companies beat earnings but issued cautious forecasts. This is particularly true of the tech (NYSEArca: XLK - News) and financial sectors (NYSEArca: XLF - News). By large, profits are still driven by cost-cutting, not organic growth. Retail sales, which make up about one third of the economy, continued to fall after the second quarter ended. Additionally, the expectation that taxes will go up might have moved some companies to pull some of next year's income into this year. This can't be good for Q3 and Q4 profits. As we've seen in January and April of 2010, positive earnings reports are not bullish for stocks, especially if future guidance is weak.
2+2=5 or Weaker than Expected Economy = Rising Stock Prices
On July 30, the Bureau of Economic Analysis (BEA) lowered the Q2 Gross Domestic Product (GD) growth from an estimated 2.7% to 2.4%. On August 27, the Q2 GDP was lowered further to a jaw-dropping 1.6%. But it didn't stop there. The real GDP for all three previous years was revised as well. It was lowered by 0.2% for 2007, it was lowered by 0.6% for 2008, and it was lowered by 0.4% for 2009. In percentage terms, the real GDP for 2007 was revised down from 2.5% growth to 2.3%. The 2008 decrease was lowered from 1.9% to 2.8% and 2009 growth was revised up from a 0.1% to a 0.2% increase. In essence, the BEA proved that the recession was (or is) much deeper than perceived and the alleged recovery much weaker than previously reported. This comes as no surprise, as the key sector of the financial debacle - real estate (NYSEArca: IYR - News) - remains in a funk. The U.S. Census Bureau reported that the number of vacant properties, including foreclosures, residences for sale, and vacation homes, reached 18.9 million. Fannie Mae and Freddie Mac continue to lose money. Has anyone ever wondered how banks (NYSEArca: KBE - News) can make money on the same kind of loans that pushed Fannie and Freddie to the brink of ruin? Since bad real estate loans triggered the post 2007 economic meltdown, how can the economy recover without real estate leading the way?
3+3=7 or Positive Analyst Estimates = Higher Stock Prices
A recent Associated Press article observed that 'analysts only seem to hit the mark with their estimates in the strongest economic times (2003 - 2006).' Why? 'The problem is that analysts get most of their information from the companies they cover. Corporate managers have every incentive to stay positive for as long as they can.' Is that true; as true as 1+1=2? On April 26, the day the S&P (SNP: ^GSPC) topped at 1,219, the Dow (DJI: ^DJI) at 11,258, the Nasdaq (Nasdaq: ^IXIC) at 2,535, Bloomberg reported the following: 'U.S. stocks cheapest since 1990 on analyst estimates.' Contrary to analyst estimates, the ETF Profit Strategy Newsletter stated that 'the potential exists that Monday's high marked a significant top.' Since April, the broad market dropped as much as 17%. In March 2009, with the Dow below 7000 and the S&P below 700, analysts lowered their earnings forecasts from $113 in April 2008 to $40. On March 2nd, the ETF Profit Strategy Newsletter sent out a Trend Change Alert and recommended to buy long and leveraged long ETFs such as the Direxion Daily Financial Bull 3X Shares (NYSEArca: FAS - News) and Ultra S&P 500 ProShares (NYSEArca: SSO - News).

If you care to know, until recently, analysts estimated that earnings for the S&P 500 will exceed their 2006 all-time high, in 2011. Based on that assumption, stocks are cheap. How about that for flawed math?
4+4=9 or Technical Sell Signals = Higher Stock Prices
The 200-day moving average (MA) is one of the best-known technical indicators, as it provides delineation between technically healthy and sick stocks. On May 20, the S&P closed below the 200-day MA for the first time since late 2007. Every attempt to rally and stay above it has since failed miserably. On July 2, the 50-day MA for the S&P dropped below its 200-day MA for the first time since late 2007. The same holds true for mid caps (NYSEArca: MDY - News), small caps (NYSEArca: IWM - News) and nearly all individual sector indexes. For good reason, this is called a Death Cross. Over the past ten years, the death cross has been accurate 75% of the time, with a 19.72% average return on six winning trades and 6.95% average return on two losing trades. [chart] In addition to the Death Cross, there are two head and shoulders patterns, one in the making for over 10 years, and the other has the breadth suggestive of a major meltdown (see September ETF Profit Strategy Newsletter).
5+5=11 or Overvalued Stocks = Higher Prices
As explained above, based on overly optimistic earnings estimates, analysts believe that stocks are cheap. Rather than basing a future outlook on estimates, it makes sense to use facts as a foundation for any outlook. Why add an extra variable to what's already an unpredictable market? Ask Yale Professor Robert Shiller, who's done extensive research on the subject of valuations, and he'll tell you stocks are historically overvalued based on the current P/E ratio. Compare today's P/E ratio with the P/E ratio seen at major market bottoms, and you'll see that stocks are overvalued by more than 50%. Another gauge that doesn't lie is dividend yields. A company's dividends are a direct reflection of cash flow and financial health. The current yield is 2.65% for the Dow and 2.05% for the S&P. Dividends are close to their all-time low set in 1999 (we know what happened then). This means that companies are cash strapped and overvalued. Looking at a long-term chart of dividend yields plotted against stock prices shows clearly that markets don't bottom until dividends skyrocket. Just as ice doesn't thaw unless the temperature moves above 32 degrees, the economy won't thaw and show signs of life unless P/E ratios drop to, and dividend yields rise to, levels seen at major market bottoms. The ETF Profit Strategy Newsletter includes a detailed analysis of four valuation metrics, along with short-term target ranges for stocks and the ultimate market bottom. Based on simple math and common sense, the July lows are certainly in danger. But it doesn't stop there.

Report From Europe: Panic Amongst the PIIGS (Seeking Alpha – The Mole) [ Sounds far from hunky-dory to me and as the wall street frauds would have you believe and used as a rallying point this day. Total b*** s***! ] ‘U.S. stocks fell for the first time in five days Tuesday, ending the longest streak of gains for the S&P 500 Index since July, on concern the European debt crisis may worsen and hamper global growth. Bank of America (BAC) and Citigroup (C) fell at least 2% as European banks slid on concern stress tests understated potential losses from sovereign debt. Meanwhile ConocoPhillips (COP) and Chevron (CVX) slumped more than 1.2% as crude oil fell the most in a week. But Oracle (ORCL) rallied 5.9% after naming Mark Hurd, former chief executive officer of Hewlett-Packard (HPQ) as president. Today, despite some token buying by the ECB and a decent Portuguese bond auction, the bond vigilantes have again been out doing their worst pushing the Irish / German 10 year spread out to levels not seem since 1988 when the debt GDP ratio was 118% . Indeed yesterday saw the worst single daily performance by Irish Government bonds ever in terms of spread widening. Greece is also back in the crosshairs in response to a downward revision to Q2 Greek GDP to -1.8% from -1.5% originally, and on news the National Bank of Greece plans to raise Eur2.8 bln of capital. The latter may be especially alarming in the current environment, but really reflects a desire for extra security and also a cash hoard to potentially spend on weaker rivals. ATEbank stands prominently in this respect. (picture)
Today’s Market Moving Stories
The stand-out mover in FX today was GBP, which rallied sharply, largely it would seem on news that Vodafone (VOD) has sold its stake in China Mobile and intends to use 70% of the proceeds (£4.2bn) to fund share buybacks. The macros community had started to build GBP shorts in recent days and this M&A flow prompted a flurry of short-covering, assisted as well by better than feared Halifax house price data.
Irish Banking
According to the Irish Times this morning, the bank’s chairman has stated that a statement on Anglo should be expected today. Who will make it or what the nature of the announcement will be is not evident, but keep eyes peeled around 4pm. Recent media reports have indicated strongly that an orderly wind down of the bank over 10-15yrs is the new preferred option. But what the markets are really looking for is an update on the total FINAL bottom line kitchen sink cost of the bailout and whether its closer to Eur 25bn or S&P’s recent & much criticized Eur 35bn figure. UPDATE – SEE VERY BOTTOM OF THIS POST. ..
Japan
Japanese Finance Minister Yoshihiko Noda said he is prepared to take “bold” action on currencies, including intervention in foreign-exchange markets, after the yen reached a 15-year high against the dollar. “We will take bold action if necessary and naturally that can include intervention,” Noda told lawmakers in parliament today. “We have to use every option available as a strong yen is likely to have a severe impact on companies.” The yen rose to 83.52 per dollar yesterday, the highest level since June 1995, as concerns about weakening growth in the U.S. and Europe bolstered the currency’s appeal as a refuge.
UK Outlook
A U.K. index of hiring for permanent jobs in August showed the slowest growth pace in 10 months, KPMG LLP and the Recruitment and Employment Confederation said. The gauge of full-time job placements dropped to 56.3 from 60.2 in July, the groups said in an e-mailed report today in London. That’s the slowest pace since October. Readings above 50 indicate an increase in hiring. The U.K. is bracing itself for a period of austerity as Prime Minister David Cameron pledges to reduce the country’s record budget deficit. U.K. shop price inflation accelerated in August as the price of food rose at the quickest annual pace in over a year, a survey showed Tuesday. Total shop price inflation was 1.7% on the year in August and 0.1% on the month, compared with a 1.5% annual rate and 0.1% monthly decline in prices in July, the monthly survey by the British Retail Consortium showed. That was due to a more-than-one percentage point rise in the cost of food. Food prices were 3.8% higher in August than a year earlier, while food prices rose 0.2% from July. And July’s UK industrial production figures suggest that the manufacturing sector continues to enjoy steady, if unspectacular, growth. The 0.3% rise in manufacturing output was the third such gain in a row and pushed the yoy rate of output growth up to a new cycle high of 4.9%. Overall industrial production saw a similar monthly gain. For now, then, the output data are defying the rather gloomier tone of some of the recent industrial surveys, such as last week’s CIPS report on manufacturing. But it is worth remembering that the surveys normally lead the hard data by a few months, so it would be no surprise if output growth were to start to weaken over the next few months. And even if output posts similar increases in August and September, industry won’t make as strong a contribution to GDP growth in Q3 as it did in Q2. Overall, UK industry is still doing pretty well, but it may not last too much longer. (picture)

Company / Equity News

UK homebuilder Berkeley Group has issued an interim management statement this morning covering the period from 1st May 2010 to 31st August 2010. The group pointed out that demand for properties over the period has been resilient, particularly in London which has a shortage of supply and specific demand from international purchasers. Outside of London, which is more reliant on the UK domestic economy, a lack of credit availability and weak consumer confidence is weighing on transactions currently.
Barratt Developments also reported full year results this morning. The group reported a full-year loss of £118.4m compared to a loss of £468.6m. Market expectations were for a loss of £125m. Revenue declined by 11% to 2.04bn with the group selling 11,377 homes during the period, compared with 13,277 last year. The group’s operating margin increased to 5.9% from 1.8% a year earlier. The group expects a ‘modest’ increase in average selling price this year, however the group noted that the outlook for new housing ‘remains challenging’. For clients looking for exposure to a UK home builder, Persimmon is my preferred play.
Securities firms (investment banks) around the world will cut as many as 80,000 jobs in the next 18 months as revenue growth begins to slow, said Meredith Whitney, the former Oppenheimer & Co. analyst who now runs her own firm. The reductions, about 10 percent of current levels, will come after 2010 compensation payments. “The key product drivers of Wall Street’s revenues and profits over the past decade have been in a structural decline over the past three years,” Whitney said in the report. “2010 marks the first year in many in which Wall Street-centric firms will go through structural changes.”
Vodafone’s $6.6 billion sale of its stake in China Mobile Ltd. is the biggest divestment since Chief Executive Officer Vittorio Colao took charge in 2008. Investors want to know what’s next. Vodafone sold its 3.2 percent stake in China’s largest mobile phone company today. About 70 percent of the proceeds will be returned to shareholders through a stock repurchase and the rest will be used to pay down debt, Newbury, England-based Vodafone said in a statement yesterday.
Nokia Oyj, the world’s biggest maker of mobile phones, has a lot riding on its annual showcase event next week as it tries to claw back lost ground to Apple Inc.’s (AAPL) iPhone and devices based on Google’s (GOOG) Android software. The Finnish company is likely to focus attention at Nokia World in London on its high-end Symbian smartphone line, including the touch screen N8, its latest effort to take on Android and iPhone handsets.
Google’s CEO Eric Schmidt said the company plans to extend its Web television service from U.S. viewers to global consumers in 2011. Google has an agreement with Sony Corp. (SNE) to launch Web TV in the U.S. this fall, while Samsung Electronics Co. (SSNLF.PK), the world’s largest television manufacturer, said today it may make sets run by Google’s software to compete with Sony and Apple Inc. in the market for TVs that access movies, shows and games online.
The life of Germany’s nuclear power plants will be extended by up to 15 years under a deal agreed between energy companies and the government of Chancellor Angela Merkel. Germany’s energy giants will pay [euro]15 billion to fund research into renewable energy and Berlin will, in return, set aside a 2000 agreement forced by the Schroder government to wind down all nuclear energy plants by 2025.
According to the FT, Ryanair (RYAAY) may return to the market for a purchase of up to 300 airplanes, the Financial Times said late Tuesday, citing an interview with chief executive Michael O’ Leary. O’Leary told the FT his company also plans on writing to aviation authorities asking to use a single pilot for short-haul flights, the report on the FT website said.
Evidence emerged yesterday that the strained relations of late between Tullow (TUWOY.PK) and the Ugandan Government over the issue of tax arising from the Heritage Oil transaction eased somewhat based on comments attributed to the Energy Minister. Questioned on the Government stance regarding the recently rescinded Kingfisher licence in Block 3A and Tullow’s ability to redress the situation, the Energy Minister appeared to soften the Government position indicating a favorable response should Tullow apply.
Dana Petroleum (DNPXF.PK) offered a strong defence this morning against the unsolicited offer of £18 per share from the Korean National Oil Company (KNOC) and also announced the widely anticipated acquisition of Petro-Canada’s UK assets for a cash consideration of £240m ($372m).

And finally UPDATE – Text of announcement on Anglo Irish
The Minister for Finance today briefed his Government colleagues on the strategic options for the future of Anglo Irish Bank. The Minister conveyed to the Government the views of the Board of Anglo Irish Bank, the Central Bank, the National Treasury Management Agency, the Department of Finance, the EU Commission and his own assessment of the position.The Government decided that Anglo Irish Bank will be split into a Funding Bank and an Asset Recovery Bank. Anglo Irish Bank has not expanded its loan book since it was nationalised in early 2009 and this will remain the case. It is intended that in due course the Recovery Bank will be sold in whole or in part or that its assets will be run off over a period of time. The guaranteed position of depositors will be unchanged by the new arrangements and no action is required of them as a result of today’s announcement. The depositors will become customers of the Funding Bank which will be fully capitalized and continue as a regulated bank. In order to restore the reputation of the Irish Financial System it is essential to bring finality to the problem of Anglo Irish Bank – our most distressed institution. The Government’s primary objective in dealing with Anglo Irish Bank has been to minimise the cost of this distressed bank to the Irish taxpayer. The Board of Anglo Irish Bank submitted its preferred option to the Minister and to the European Commission at the end of May for consideration under State Aid rules. The board’s plan envisaged splitting the bank into an asset management company and a new good bank. The asset management company would have managed out over time the bank’s lower quality assets remaining after the transfers to NAMA. The new good bank would have managed the remaining share of the loan book, retained the bank’s deposit funding and sought new lending opportunities to grow the bank. The Minister acknowledges the good faith and hard work of the board in producing a credible proposal for the future of the bank. However, the Government has concluded that this plan in its current form does not now provide the most viable and sustainable solution to ensure the continued stability of the Irish banking system.
Resolution Proposal
In these circumstances, the Government has decided to opt for a variation of the board’s restructuring proposal. The Government’s decision does not affect existing guarantee arrangements. Under the restructuring plan, the Funding Bank will be a Government-backed/guaranteed specialist deposit bank which will contain the bank’s deposit book. It will be a stand-alone, regulated bank, completely separated from Anglo’s loan assets and it will be owned directly by the Minister for Finance. This bank will not engage in any lending, but will provide a secure home for Anglo’s depositors and any new customers who wish to deposit their funds with it. Depositors with the Funding Bank will be completely insulated from the future performance of the rest of the current Anglo Irish Bank loan book. The Asset Recovery Bank will also be a licensed regulated bank. Its dedicated focus will be on the work-out over a period of time of the assets not being transferred to NAMA in a manner which maximises the return to the taxpayer.
Costs
The Government believes that it is essential to identify, with as much certainty as possible, the final cost for the restructuring and resolution of the bank. This will underpin international financial confidence in Ireland. Accordingly, the Central Bank will determine the appropriate levels of capital needed in both institutions. Its decision will be announced by October.
EU Commission
The Department of Finance has conducted intensive discussions with the EU Commission in recent weeks about the future of Anglo Irish Bank. The Minister for Finance met Commissioner Almunia last Monday to discuss the issue. A formal detailed plan is being prepared for submission to the Commission for approval.
The Minister said: “Today’s decision by the Government will provide certainty about the future of Anglo Irish Bank. Resolution of this, our most distressed institution, is essential to the promotion of confidence and stability in our financial system.”
8th September 2010
ENDS
Brian Meenan
Press Office
PH: 6045875
email: brian.meenan@finance.gov.ie ‘

Here Are 13 Signs That We’re Actually In A Depression Right Now Gregory White | David Rosenberg has outlined, in his latest letter, the 13 reasons with this so-called recovery is actually a depression… David Rosenberg has outlined, in his latest letter, the 13 reasons with this so-called recovery is actually a depression.Rosenberg sums it up like this:

This is what a depression is all about — an economy that 33 months after a recession begins, with zero policy rates, a stuffed central bank sheet, and a 10% deficit-to-GDP ratio, is still in need of government help for its sustenance.

Go to following pages for above links:
http://www.albertpeia.com/currentopics2ndqtr10108.htm
http://www.albertpeia.com
http://www.scribd.com/alpeia
http://alpeiablog.blogspot.com
http://www.albertpeia.com/alresume.htm

http://www.albertpeia.com/wallstreetlunacy2ndqtr10108.htm

You may post a comment on my blog on any topic: http://alpeiablog.blogspot.com

So Broke We Can’t Pay Attention Howard Beale | You spent the whole day yesterday worrying about today, and now that it’s here, was it worth it?

The Financial Industry Is A ‘Gigantic Parasite’ We Don’t Need Anymore Vincent Fernando | Strong words from ex-Morgan Stanley Andy Xie.

Deflation Never Had A Chance What the deflationists fail to acknowledge is that in a purely fiat monetary system deflation is a choice not an inevitability. To put it in simple terms, if a government is willing to sacrifice its currency there is absolutely no way deflation can take hold in a modern monetary system.

There Are Now Enough Vacant Properties In China To House Over Half Of America On the assumption that each flat serves as a home to a typical Chinese family of three (parents and one child), the vacant properties could accommodate 200 million people, which account for more than 15% of the country’s 1.3 billion population.

Drudgereport: BLIAR BUSTED: Former UK PM's autobiography includes dialogue from meeting with 'Queen' -- taken from fiction movie! Developing...REV: THE BURNING WILL PROCEED...
'Meant to Be a Warning'...
Vatican: 'Outrageous'...
NYPD: 'Dangerous'...
Holder: 'Idiotic'...
Clinton: 'Disgraceful'...
Palin: 'Unnecessary provocation'...
FBI: Retaliation 'Likely'...

Petraeus Speaks Out on Quran Burning...
Endangers Troops...
Pastor Says Church Not Deterred...
Hartford City Council meetings to begin with Muslim prayers...
2 SOLDIERS KILLED IN IRAQ, 9 WOUNDED

ADDICTED TO STIMULUS: $50,000,000,000 MOREDems wary of WH's huge new spending plan...
Obama takes aim at Boehner... 'They talk about me like a dog'… [ If the shoe fits ... President Obama calls African-Americans a ‘mongrel people’ President Obama waded into the national race debate in an unlikely setting and with an unusual choice of words: telling daytime talk show hosts that African-Americans are “sort of a mongrel people.” ]

'They talk about me like a dog'...
FLASHBACK: President-Elect Obama: Mutt 'Like Me'... 'Even liberal elites concede that Obama's presidency is crumbling'...
BARONE: Sinking with Obama, Democrats plan political triage...

Muslims Protest Plans to Burn Quran...
'Death to America'...

Fears rise as EU nations aim to raise borrowing... Roubini: More than 400 US Banks Will Fail...

'COMBAT OVER': US TROOPS BATTLE IN BAGHDAD...

Why the Furious Bear Will Come Back - Simon Maierhofer, On Tuesday September 7, 2010, 4:34 pm ‘The Top Ten List has become a staple of David Letterman's Late Show. We don't quite have the space to discuss ten reasons why the bear market isn't over (if we did, we'd probably put you to sleep), but we'll take a crack at a Top Five List. Without further ado, here it is:

#1: Forget About Earnings

Using past earnings numbers to project future performance is like basing your Roulette bet on the numbers that won previously… [chart]

#2: Budget Deficits

The 2011 U.S. deficit projection for 2011 was raised from $1.2 trillion to $1.4 trillion...

#3: Banks - Nothing but Fluff

…Fundamentally, however, nothing had changed… 'The house of cards was much bigger and started to stretch beyond Wall Street…The government postponed the collapse of the 'whole deck' thus far. As of recent, however, some disturbing information has surfaced. Bank of America admitted to hiding bad assets and Goldman's 82% profit drop shows that the days of fat trading profits - such as seen in Q3 and Q4 2009 and Q1 2010 - are over… It doesn't take an economist to know that taking money from your savings account and transferring it to your checking account can't be counted as income.

#4 Real Estate

In late July, the market allegedly rallied because new home sales jumped 24% to 330,000 units in June. We feel the urge to put this number into perspective. May sales were revised from an original 300,000 units to 267,000 units - this is an all-time low. Bouncing off from the lowest level on record, new home sales did indeed increase 24%. Is that reason to celebrate though? Chances are the 330,000 will be revised lower in the future. Regardless, 330,000 homes sold pales in comparison to the 1.4 million homes sold in 2005.The U.S. Census Bureau reported that the number of vacant properties, including foreclosures, residences for sale and vacation homes, reached 18.9 million. It shouldn't be too long before those bleak fundamentals are reflected in the performance of real estate ETFs like the iShares DJ US Real Estate ETF (NYSEArca: IYR - News) and SPDR DJ REIT ETF (NYSEArca: RWR - News). ..

#5: Consumer Confidence

During periods of economic expanse the Conference Board's Consumer Confidence Index has averaged a reading above 100. Recessions average a reading of 71. The current confidence reading is at a dismal 50.4. The chart below paints this sad picture. [chart] Consumer spending is said to make up about three quarters of the economy. How can the economy recover without participation by the consumer? It can't. That doesn't mean stocks can't rally temporarily. Such a disconnect between the economy and Wall Street's dream world tends to be short-lived.

Sentiment Confusion

… More importantly though, the optimism surrounding the April highs is indicative of a major market top, a top that implies a decline much deeper than the 20% we've seen thus far. This conclusion is certainly supported by the above-mentioned Top Five list and many other indicators…

‘We are still determined’: U.S. pastor vows to carry out Burn-a-Koran day on Sept 11 despite death threats As Gerald Celente said on the show today, General Petraeus’ comment that burning the Koran could upset Muslims is the height of hypocrisy. Did Petraeus ever consider the notion that bombing and occupying their countries also wouldn’t go down too well? This whole issue is about manipulating us into a helter-skelter race war as a distraction from the economic collapse and to rally the country around another war in the middle east.

NYPD Top Cop: Planned Quran Burning Is “Dangerous” [ I personally wasn’t going to comment on this and let others draw their own conclusions; especially, as pointed out by Celente, when america’s been bombing and killing civilian muslims in droves, based on lies, and even for drug trade pre-eminence, etc.. After all, it’s not too difficult to dredge up memories of other historical book-burners, ie., that Austrian house-painter with a brush mustache, etc.. But really, isn’t this guy jones a neo-con dream come true? I think he’s just a publicity seeking, mentally unbalanced dummy. He even looks a bit like john bolton. But, in america, mental unbalance has become the new normal. ] Police Commissioner Ray Kelly sided with Gen. Petraeus last night, calling a planned burning of Qurans on the anniversary of Sept. 11, “unwise” and “un-American” during the 9/11 Museum and Memorial’s fundraising dinner at Cipriani Wall Street in Manhattan Tuesday night.

TSA Plans to Use Homeboy in Ball Cap “Avatar” on Naked Body Scanners Kurt Nimmo | Scheme ignores the obvious health risk of radiation technology.

9/11 Truth is Still the Issue James Corbett | Where does the 9/11 Truth Movement stand and where it is heading?

50 Mind Blowing Facts About America That Our Founding Fathers Never Would Have Believed The Economic Collapse | The United States is a much different place today than it was in 1776, and unfortunately many of the changes have been for the worse.

Al-Qaida and Taliban threat is exaggerated, says security thinktank Guardian | Strategy institute challenges idea that troops are needed in Afghanistan to stop export of terrorism to west.

Rioters Attack LA Police Station After Death of Immigrant New York Daily News | Hundreds of demonstrators took to the streets for the second night in a row in downtown Los Angeles Tuesday night to protest the police shooting of a

Petraeus: Neocons favorite general Russia Today | Ten Afghan civilians were killed Thursday in a NATO air strike on three vehicles carrying civilians, President Hamid Karzai said in a statement.

Obama infrastructure proposal may hit election year wall (Washington Post) [ It has nothing to do with the election at this point, although the motivations for same are suspect. It’s really a matter of political capital; and wobama has NONE! Zero! Zed! Nada! He’s totally and unequivocally, DONE! ] What seems virtually certain is that the proposal for initial spending of $50 billion on planes, trains and automobiles most likely will wait until next year.

Obama to unveil more stimulus, tax breaks for business (Washington Post) [ It really is quite astounding how quickly the tides have changed against wobama. The amazing thing is that as president he had the easiest act in the world to follow; viz., dumbya bush. He blew that royally. How? Why? Make no mistake, wobama is as over as over can be. Even his dem compatriots are saying of this desperate act … too little, too late. And yet, this truth is seen from their limited perspective only with regard to the election, when in fact, this is as true economically as it is long-term for the nation. All he had to do was what he said he would do; and, that especially applies to the self-destruct, ill-advised ramped up war spending in Afghanistan. Wobama is undoubtedly the biggest b* s* artist in the history of this nation and really bought his own failure by not remembering what got him elected in the first instance in terms of popular vote (the ultimate source of electoral victory a point for reflection in light of ever more evident quid pro quos, ie., no wall street prosecutions, ramped up war spending, etc..]

To consumer advocates, antitrust enforcement lacking (Washington Post) [ Unfortunately, at least for those who still care, america’s long past the glory days of the trust-busters. In fact, america’s long past the days of any meaningful law at all. See infra, RICO Summary to FBI Under Penalty of Perjury, which includes how sam alito as u.s. attorney parleyed cover-up and obstruction of justice et als into fed.ct.appeals and u.s.supreme court lifetime appointments. The corruption’s incredible but very real. ] The Justice Department's antitrust division has yet to exercise its signature power: to bring a case against a corporate titan suspected of abusing its dominance.

Pearlstein: The bleak truth about unemployment (Washington Post) [ When I saw this headline I felt certain that Mr. Pearlstein would be discussing the reality that the real unemployment rate exceeds 20% with that ‘stopped looking’ fudge factor removed as merely a convenient subterfuge. But, alas and lamentably, I was wrong. To be sure, Mr. Pearstein’s topic is important and probably more optimistic than anyone deserves to be in light of some grim realities that most dare not mention with the defacto bankrupt nation just barely surviving on that wonder drug called hopium (see infra, DeCiantis: ‘Students of behavioral finance must have had a field day this past week. In the wake of a month of dismal economic reports, Wall Street got its risk on with a few better than expected reports on manufacturing sentiment, home sales, and employment. Hopium, it appears, is a powerful drug. [ HOPIUM … YEAH! I KIND OF LIKE THAT METAPHOR WHICH RINGS TRUE! ] ). As for Mr. Pearlstein’s ‘how to make the american economy competitive again.’, I liken this Gordian knot of a problem to one for which magic mushrooms, along with hopium, are as far as reality will permit in terms of even imagining such could possibly be the case. You cannot unring the bell on the irrevocable structural changes wrought by the greediest, most corrupt, and, though often wrapped in the flag, treasonous, lawless elements of american society; governmental, quasi-governmental, and private business (which included the necessary technology transfers). That’s reality! ]

September: In Like a Lion, Out Like a Lamb DeCiantis: ‘Students of behavioral finance must have had a field day this past week. In the wake of a month of dismal economic reports, Wall Street got its risk on with a few better than expected reports on manufacturing sentiment, home sales, and employment. Hopium, it appears, is a powerful drug. [ HOPIUM … YEAH! I KIND OF LIKE THAT METAPHOR WHICH RINGS TRUE! ]

Economists spent August cautiously lowering their outlook for the second half of the year as Obama's "recovery summer" failed to bear fruit, the Federal Reserve failed at both of its twin mandates (stable prices and full employment), and bullish analysts failed to convince investors that the market was ready to climb to fresh highs. As a result, stocks ended the worst August in nine years with rising calls for stimulus and fears of the dreaded double-dip.

Then came September. In like a lion, surging nearly 3% on the first trading day of the month on the heels of a better-than-expected survey by the Institute for Supply Management of the manufacturing industry. Representing (statistically speaking) nearly 30% of the US economy, the number was expected to fall after a series of similar Fed surveys from around the country indicated that American heavy industry -- that engine of growth over the last two quarters -- was finally loosing steam. Instead, it leapfrogged every estimate on The Street to post its first advance since May. Granted the rise was modest, but the surprise factor flipped the all-important risk switch and a reinvigorated camp of bulls poured back into the market, convinced that their creeping suspicions about a slip back into recession were all just a bad dream.
[chart]

Outside of a few trading irregularities, the data itself forced the bears to take pause and reflect on the substance of the report. The economics team at Goldman Sachs may have summarized it best:

"Without question, the report was better than expected...[but] the details of the report actually reinforce the case for further slowing in this sector. As shown in Exhibit 2, the gap between the indexes for new orders and inventories, an important lead indicator of movements in the composite index and in industrial production, almost disappeared in the August report. As recently as May, this gap was a robust 20.1 index points. The clear—if uneven—downward trend in this indicator actually strengthens the case for a decline in the composite index in coming months. The bottom line: US manufacturing output may still be expanding, but the risk that these goods are winding up on the shelf has increased."

More telling, however, was the dissection by semi-permabear David Rosenberg that helps to put the August print into context:

In a nutshell, ISM did smash consensus expectations in August but the composition left much to be desired. The coincident indicators firmed but the categories that actually lead manufacturing activity softened across the board.

As we said at the outset, the ISM index was at complete odds with the regional surveys. Philadelphia, New York, Milwaukee, Richmond and Kansas City were all down. Dallas and Cincinnati were up. In the past, when we had a 5-to-2 ratio to the downside, the share of the time ISM managed to eke out an advance was 4%.

It would be wise to lean against the market's initial dramatic reaction to this data. The ISM orders/inventories ratio is a decent leading indicator and it sank to 1.033x from 1.065 in July. 1.278x in Julne and 1.441x in May. The hidden nugget in today's report is that this ratio has decline to levels not seen since February 2009. And the last time it fell this fast to this type of level was in the September to December 2007 period (1.03x from 1.30x) when once again, there was tremendous confusion and intense debate over whether it was a recession/soft patch in the economy and the bear market/corrective phase in equities.

Suffice it to say that in the past 30 years, with eleven observations, ISM dropped to 47x in the three months after such a decline in the orders/inventory ratio to such a low level as is the case today. That is the average, the median, and the mode. The highest ISM reading three months hence was 51.9, so if past is prescient, today's data was likely a huge headfake.

[chart] The ISM report also overshadowed another important data release on construction, but we'll get to that later. The next feather in the bulls' cap was a pair of data points on residential real estate -- the sick dog of nearly every major developed economy in the G8. The first revealed a rise in July pending home sales (5.6%) after a precipitous drop in May (30%) and a further drop in June (2.6%) as an $8,000 tax credit expired. Analysts collectively expected a drop of 1%. Needless to say the markets were pleasantly surprised.

A closer look at the data reveals two key narratives not captured by the popular media or trading desks. First, it's important to contextualize the "rise" in pending sales by looking at a longer time series that tells the same story (this particularl series only goes back to 2005). The graph below speaks for itself.

[chart]

Second, the reported data may suffer from a disease common to many of the economic statistics released every day: Seasonal Adjustment Disorder (SAD). Given the inherent seasonality of the home buying cycle (higher during the summer when kids aren't in school, lower in winter when the weather is less than ideal for moving) economists at the National Association of Realtors make adjustments for these factors to make monthly comparisons easier. However, that can sometimes mask changes in the raw data, as was the case with the August NAR release. As Rosenberg suggests:

While the increase in pending home sales is encouraging, we did dig through the data and found that the not seasonally adjusted numbers (the raw numbers) fell by 7%, with declines across the country. This makes sense as July is usually a slower month for homebuying activities.

We wonder if there is a chance that the seasonal adjustment factors could be overstating the monthly increase given that we have seen such huge volatility in the housing numbers in the recent year making the seasonal adjustment process more difficult. Recall that Standard and Poor’s issued a note about the Case-Shiller home price index saying that “the turmoil in the housing market in the last few years has generated unusual movements that are easily mistaken for shifts in the normal seasonal patterns, resulting in larger seasonal adjustments and misleading results.

Another data point that drew a lot of bullish attention was Tuesday's housing release on prices. After a few dismal years, any news that isn't a decrease is more than welcome by just about everyone, rich and poor, domestic and international. Tuesday's Case-Shiller print was no exception, as home prices "jumped"...by a mind-numbing 1%...two months ago in June... on a rolling three-month basis (i.e. April through June).....still reflecting the last dying gasp of the home buyers' tax credit. Again, a little context:

[chart]

And how the markets rallied.

Friday's bulls, reinvigorated after a powerful (and low volume) start to the month, launched their attack on a new front: employment. Long a forgotten weapon in the bulls' arsenal, private payrolls climbed by a larger-than-expected 67,000 in August, beating expectations for a 45,000 gain. At that rate, it would only take a little under 9 years to rehire the 7,000,000 people who lost their jobs during the recession but have yet to find new work (assuming no increase in population). Only 7,000 permanent government jobs were shed during the month, though economists expect that number to rise as state and local governments face crippling budget deficits. The other 114,000 new claims represent the last major layoff of temporary census workers, who rejoin an army of job seekers that have collectively become one of America's most structural economic challenges.

[chart]

Obviously plenty of reason for the markets to celebrate.

Now for the bad news.

On the same day as the ISM Manufacturing survey was released to considerable fanfare, July's construction spending was released by the Census Bureau and confirmed a worsening year-over-year decline of nearly 11%. Month over month, spending was down 1% in July and suggests another downward revision to third quarter GDP.

More from Goldman:

Construction outlays dropped 1% in July from a level that was revised down a whopping 2.7%. This dismal construction report flew below the market's radar, as it normally does since it usually comes out alongside the ISM manufacturing survey. One might dub construction outlays the Rodney Dangerfield ("I don't get no respect") of US economic indicators. Of all the data released this week, it has the most direct bearing on the real GDP "bean count" next to the monthly consumption report. Hence, since consumption was only modestly better than expected, a case can be made that third-quarter growth might actually be lower now than we thought a week ago despite all the upside surprises.

[chart]

Wednesday also revealed that another source of bullish sentiment in July may have been a little premature: auto sales. After months of steep retail incentives and easy year-over-year growth comparisons, cash- and credit-strapped Americans returned to a more cautious consumption path. As the second largest leveraged purchase in a typical household, auto sales reflected that shift. Only Chrysler, the runt of the litter, managed to squeak out an increase in sales in an otherwise sluggish retail environment.

[chart]

Finally, on Friday the latest ISM Non-Manufacturing survey was released and was every bit as disappointing as everyone expected the manufacturing survey to be. The index slowed to 51.5% in August from 54.3% in July and 55.4% in May, and its components were even less rosy. From Econoday:

A new optimism after today's jobs report -- not so fast. The ISM non-manufacturing report shows broad and deeper-than-expected slowing. New orders at 52.4 are down more than four points in August for the slowest rate of month-to-month growth so far this year. Employment, which in this report includes government workers, is signaling contraction, at 48.2 for a nearly three point decline for the worst reading since January. The composite headline index at 51.5 is down exactly three points for what is also the worst reading since January. Backlog orders are basically flat, export orders are down, deliveries are showing less delays, and general business activity is slower. Imports did rise as did raw material prices.

[chart]

In response, the market cut its morning gains in half, only to rally into the close to retest the morning highs. What makes this week's schizophrenic ISM interpretations so dangerous is that the upside surprise on Wednesday was based on data that captures roughly a third of the economy, while Friday's non-manufacturing disappointment approximates activity in roughly two-thirds of the economy. So of course the markets ended the week up 3%.

Once again, Goldman's analysts try to walk a fine line between sell-side optimism and buy-side skepticism:

On the whole, it's been a good week for US economic data...reports on factory activity, pending home sales, and the labor market have surprised to the high side. In fact, some of these readings have benefited from positive judgmental adjustments, as factors not readily apparent in the headline indicator have also been better than expected. However, this does not mean that the outlook for US economic activity has improved, except insofar as the better-than-expected news eases market worries about a "double dip". At least some - perhaps most - of the improvement ... reflects what Paul Krugman once called, in a much different context, "The Age of Diminished Expectations". In the current setting, we note that several prominent forecasters have marked down forecasts of economic activity and therefore may also have lowered their sights on the higher frequency indicators.

Interpretive bias is inevitable when any new data is released. Optimists will quickly find a silver lining in any dark cloud, and pessimists will pick apart even the most robust reports of growth and tease out a bearish narrative. Investors should think twice when these competing forces fall out of balance -- when markets are as unabashedly bearish as they were in late 2008, or as unapologetically bullish as the were during the second half of 2009.

If the first few days of September are any indication of how the month will unfold, we may be back on the perma-bull track. When disappointing data is released, investors cheer for more fiscal and monetary stimulus. When data is surprisingly positive, investors cheer at the prospect of a sustainable, organic recovery. As we saw in early 2010, this "heads I win, tails you lose" mentality is particularly vulnerable to rapid and substantial correction, and a September that entered as a lion may finish the third quarter as a lamb.

Disclosure: Long safety, short risk (no specific stocks mentioned)’

Correlation and the S&P 500 [ I really think this author was a bit too diffident in talking about the computerized churn-and-earn scam which eats away at the real economy , but the discussion highlights at least this immense problem area ] ‘The immense correlation between the market, and almost all risk assets on Earth is not a new subject to FMMF readers. [Jun 30, 2009: Bloomberg - Correlation Among Asset Classes Highest Ever] I beat this dead horse monthly, mostly out of abject frustration. [Sep 2, 2010: Why Bother with Individual Stocks in the Perfectly Correlated Market?] I don't have an issue when the market is up 2-3% or 90% of stocks move in the same direction, it is all these days the market is up or down 0.7% when it drives a person nuts.

Friday, for example, every position I had but one was up. As I type this every position but one is down.

This correlation madness started to become an issue in 2007 as we were told that hedgies control 40%(ish) of each day's trading volume. As I said then, since mutual and pension funds are relatively staid players, the 'fast money' is the marginal buyer, and 'hot money' in the form of hedge funds - especially of the quant variety - are the marginal buyer. The problem now is they seem to be the only buyer as equity fund withdrawals continue on pace as the retail guy floods into bond funds.

So we have a market dominated by computers trading to computers, all using related algo's - happy, happy, joy joy. Now we hear things such as 60-70% of trades flow through these players... and since EFTs are the weapon of choice, computerized trading of EFTs have taken over the market. [Jun 29, 2010: Correlations Among Asset Classes Reach Ever Higher Extremes as HAL9000 Algos Dominate Life] The SPY ETF is now about 9% of ALL volume as of last check, and we had a time about 7-8 months ago where Citigroup (C), AIG (AIG), Fannie (FNMA.OB), and Freddie (FMCC.OB) were 40% of all volume. Pathetic.

Frankly, it makes the market a frustrating and 'less fun' place. The market used to be a four-dimensional jigsaw puzzle, comprised of fundamental, technical, psychological, and 'animal spirits.' Now it's just the dumbed down two-dimensional Etch a Sketch. Shake it at 4 pm every day, because it has no memory from day to day. Sure you can adjust (in fact you must adjust) if you plan to stick around, but when everything is a 1:1 correlation, it simply reduces the market to 'stoopid' and coming in each day, checking your brain at the door, and staring at the S&P 500 chart trying to guess where it will be in 3 hours, 3 days, and 3 weeks gets to be boring. [Jul 15, 2010: WSJ - Correlation Soars on S&P 500 Shares]

But this is the ~~casino~~ market we have built, and I don't see anything changing anytime soon. The other issue is it makes it so much more difficult to outperform the market. Surely there are a handful of stock names that still outperform (or underperform) but with almost everything swaying in the exact same direction as the market, creating alpha is difficult. Most of the performance nowadays is not about stocks, but due to calling turns in the greater market - increasingly hard to position for as you scale in size. Especially when the majority of the turns are due to binary reactions to economic reports or Fed announcements - it's simply placing your bets on red and black, not a stock market.

I've written about said frustration in the past amongst the "human" hedgies, [July 8, 2010: Hedge Funds "Frozen in Headlights" as BiPolar Market with 1:1 Correlation in All Things Not Named U.S. Treasuries Causes Confusion] and this is taking a toll on the mutual fund managers as well.

One of my big beefs with the mutual fund industry is that many players - especially in the bigger funds - are closed index funds. They all have super cool names but almost anything in 'large cap value' or 'large cap growth' were hybrid closet indexers. They basically flip an Exxon (XOM), Intel (INTC), or a Microsoft (MSFT), with a Walmart (WMT), Verizon (VZ), or a Cisco Systems (CSCO) -- change the order, weighting, and indeed are able to charge a nice fee for doing nothing other than being the S&P 500 with a small twist. I cannot tell you how many 401k plans I reviewed for people, where I went to look at the top 10 holdings of the 12-15 mutual fund choices and 90% of them were identical (just in different order in weightings!). The statistic of 0.99 correlation amongst the S&P 500 and many of the largest funds is quite remarkable and points to my 'closet index' beef, but with the mechanics of our new paradigm market, it has taken it to a whole new level. It also says a lot of people are wasting their money paying management fees for what is an S&P 500 ETF clone.

That said, even with the closet index situation that has been growing for a decade+ you used to be able to try to outperform if you plied your trade in small or medium caps (or international markets), but the HFT + EFT = GLEE environment we now live in has made that increasingly moot, since most of those stocks now move in unison as well. If your stock is not in a major EFT it generally sits ignored with low volume... if it IS in an ETF than it doesnt matter the company specifics - as long as the algo's are buying (or selling that ETF) as flavor of the day, every component in that ETF is a winner (or loser)! Stoopid is as stoopid does in the market with 1st grade logic.

One gentleman I've admired for many years is Will Danoff at Fidelity Contrafund. [Sep 9, 2008: Will Danoff in Kiplinger Magazine] His fund has been huge in size for years on end (I'm talking multiples the size of the biggest hedge funds - Contrafund is now up to $62 BILLION), yet he has been able to somehow outperform his peer group (and until the past 5 years the S&P 500) by a wide margin, mostly by being somewhat contrarian. This despite holding many positions and not being extremely concentrated - a feat I find quite remarkable since once you start owning 200-250 positions I don't know how you can beat the market over time. (Contrafund owns 445 positions as of last quarter!) Danoff is highlighted in this piece, which is why I mention him - he is no dummy.

Via Bloomberg:

Fidelity Investments’ William Danoff, the stock picker who led the Contrafund to benchmark- beating returns, isn’t looking very contrarian these days. Danoff’s $62 billion Contrafund, which seeks to beat the market by picking stocks whose value hasn’t been fully recognized, has tracked the Standard & Poor’s 500 Index more closely this year than in any year during its four-decade history.
“Danoff usually finds ways to go against the grain, but these days there isn’t much that’s contrarian relative to the macro theme,” Adviser Investments’ Lowell said. “This is a trendless market and it’s not providing him any room to break away from the S&P 500.”
Investing abroad hasn’t helped stock pickers like Danoff because correlation has shot up even between regions.
Danoff isn’t alone. Six of the 10 largest U.S. stock funds show correlations of 0.99 this year, meaning they moved almost completely in sync with the market. Managers are struggling to stand out and attract new money as fear of another crisis prompts investors to move in and out of markets without discriminating between securities, industries or geographies.
Robert Doll, BlackRock Inc.’s chief equity strategist, said while stocks moved in lockstep before, this is the longest he has seen correlation persist across markets. “We were expecting 2010 to be the year when stock selection would add value, but that hasn’t been the case.”
Doll says even the most high-quality stocks have been hurt among a larger sell-off in risky assets. “We’ve scratched our heads many times during this year as the macro picture is driving everything,” Doll said. “It can be frustrating along the way, but we’re just focusing on the fundamentals and eventually we’ll get paid for it.”
The correlation between the U.S. equity benchmark and its individual members was 0.81 in the 50 trading days through July 7 and has since remained close to that level. That’s almost twice the historical average of 0.45 over the past 30 years.
The increase in correlation is making it difficult for actively managed funds to beat their benchmarks and produce better returns than lower-cost index products. “You can’t pick any mutual fund, even if has previously been a winner, and expect it to outperform in this market.”
Mohamed El-Erian, the chief executive officer of Newport Beach, California-based Pacific Investment Management Co., says investors have a “risk-on/risk-off” attitude that leads to sometimes “violent” swings, such as the sell-off in markets worldwide on Aug. 11, after the Federal Reserve indicated that the economic recovery had lost momentum. “We were particularly struck by the size and correlated nature of the market moves,” said El-Erian.
Correlation may be linked to the increased use of exchange-traded funds and index funds in the stock market, especially those that focus on particular industry groups, said Brian James, co-director of equity research at Boston-based Loomis Sayles & Co. Assets in U.S. ETFs have grown to more than $821 billion from $608 billion at the end of 2007, according to Investment Company Institute. “It is almost axiomatic that if you have an increased presence of single-purpose ETFS and futures traders, it moves stocks in one direction,” said James.
Correlation has been particularly pronounced for companies with larger market capitalizations, and for the larger funds. James said that 90 to 95 percent of large-capitalization stocks have tended to move in the same direction this year, up from about 70 percent prior to the 2008 financial crisis.
The largest U.S. stock fund, the $148 billion Growth Fund of America, has seen correlation increase to 0.99 this year, from 0.84 in mid-2008. For the $37 billion Dodge & Cox Stock Fund, run by San Francisco-based Dodge & Cox, the correlation measure was also 0.99 this year, compared with low of 0.81 prior to the height of the crisis in late 2008.

Disclosure: None’

Obama seeks $100 billion business tax credit (Washington Post) [ All just monopoly money now! And, of course, pre-election talking points as war spending ramps up in Afghanistan. Sounds like … uh … uh … plan? Bankruptcy plan? `Drudgereport: MORGAN STANLEY: Government Bond Defaults Inevitable …` ]

Economic events for this week (Washington Post) [ Well, I’ll stick with nobel prize winner Krugman (infra) among other similar dire but realistic forecasters who, beyond the spin and fake market-frothing data (especially so close to the mid-terms) have a track record of being right when everyone else was ebulliently wrong, mr. fraudulent-wall-street-glass-half-full-though-empty. ] After a busy week of economic data, this one should be quieter, offering the Federal Reserve's compilation of anecdotal information on the job market and new details on trade.

Obama defends policies and offers new proposal (Washington Post) [ No you can’t wobama … b*** s*** everyone again! ‘Yes, we can … NOT!’ That dog don’t hunt anymore wobama. Drudgereport: Obama takes aim at Boehner... 'They talk about me like a dog'… [ If the shoe fits, wobama … keep gearing up Afghanistan … sounds like a plan]... ]Faced with twin challenges of boosting the economy and saving congressional seats, the president tries to do a little of both on Labor Day.

Krugman: It's All Downhill From Here Cullen Roche Love him or hate him Paul Krugman has been awfully right with regards to the macro picture in the last few years. He’s one of the rare economists who had the foresight to see the housing bubble and the likelihood of economic downturn that would result from it. Krugman recently caused a stir when he said the US economy was headed for the third depression. He isn’t back down from that outlook:

I’ve had a couple of conversations lately with people who follow politics and public affairs, but aren’t that close to the economic discussion — and I’ve discovered that there are two comforting delusions still out there.

Delusion #1 is that we’re on the road to recovery, just more slowly than we’d like; to be fair, the White House keeps saying this.

But it’s not at all true. GDP is growing below potential; employment, even if you focus just on private employment, is growing more slowly than the working-age population. If you ask how long it will take us to return to, say, 5 percent unemployment on the current track, the answer is forever.

Delusion #2 is the belief that the stimulus may yet do the trick, because there are still substantial funds unspent. I tried to deal with this last year. The level of GDP depends not on total funds spent, but on the rate at which funds are being spent, which has already peaked; GDP growth on the rate of change in the rate at which funds are being spent, which peaked last year. It’s all downhill from here.

If you can ignore the schizophrenic market for just a second it’s hard to reject Krugman’s macro outlook. The private sector has been running on fumes since the debt bubble burst in 2007. The government’s extraordinary actions helped bolster the economy, but merely papered over what was a very weak private sector. As we see the government step aside it’s difficult to imagine that the weakness at the private sector won’t again be exposed for what it really is.

Government Bonds: Can the U.S. Maintain Confidence in Its Debt? Cliff Kule Massive, unsustainable government debt - it's everywhere. Especially in America. At some point, will the world begin to lose confidence in America's growing debt? Will interest rates then skyrocket? Will a Greek-style crisis in U.S. government bonds then ensue? Is there any way out?

America can claim its debt problems are not as bad as some countries. But that ignores some important points:

See an interesting chart on how America's financial condition is worse than several other countries.
Even the most respected bond manager in the world, Pimco's Bill Gross, believes there are several countries including the U.S. whose financial ratios are in dangerous territory - the "ring of fire".
A loss of confidence in the U.S. dollar and U.S. debt could bring a "Greek-style" crisis to the whole world. Consider that the U.S. dollar has been the world's reserve currency since 1944; it has been accumulated by the whole world as a form of trusted and secure savings. There are trillions of dollars of U.S. government debt accumulated as reserve savings by banks around the world (see chart below courtesy of Hugo Salinas Price) and realize that most reserves are held as U.S. government bonds. A loss of confidence in the U.S. dollar and in the ability of the U.S. to service its growing debt could trigger an epic disaster. [chart]

Is there any way for America to maintain the confidence?

One way would be for America to become fiscally prudent, simply stop creating money and debt, let the massive deflationary forces of credit contraction and consumer de-leveraging run their natural course. This would cleanse the system of toxic debt. It would also clearly and immediately cause another Great Depression.

Another way would be for America to simply print more money, create more debt, blindly following Keynesian economics that brought us into this mess in the first place. Attempt to "inflate away" the debt without losing the confidence of investors that buy the U.S. government bonds. This has been tried many times throughout history with disastrous consequences.

The chart below (courtesy of Economic Edge) shows how increases in debt are recently giving less and less “umph” to economic GDP growth to the point now of negative GDP growth. Eric Sprott has produced an excellent study suggesting that 9 cents of "growth" is coming with every dollar we go deeper into debt. Bud Conrad has produced calculations that are equally discouraging. This massive debt-driven money printing would therefore likely lead some form of hyperinflation in a futile attempt to stimulate economic growth.

This leaves one other option.... a direction that is hardly ever considered... a policy tool still waiting to be tried!... America could return to the gold standard... Why? Because the gold standard system would back the U.S. dollar by real money, and enforce a responsible discipline of fiscal and monetary policy that Congress and the Federal Reserve cannot currently do. In turn this would maintain confidence in America's debt.

“The gold standard has one tremendous virtue: the quantity of the money supply, under the gold standard, is independent of the policies of governments and political parties. This is its advantage. It is a form of protection against spendthrift governments.” Ludwig von Mises (1881-1973)

Monetary systems on a gold standard system cannot increase money supply as needed. Under a gold standard system, paper money is backed by something of real tangible value. The total amount of gold limits the total amount of paper money that can be created. New money must be backed by additional gold. Omnis’ Jim Rickards suggests this possible solution: a “gold backed currency at a non-deflationary price… sound money leads to sound growth and the creation of real, not illusory, wealth.”

In 1971, President Nixon simply severed the tie between gold and U.S. dollars. As he closed the gold “window,” Nixon proclaimed “We are all Keynesians now” (referring to the Keynesian economic school of thought where gold has no function). Austrian School economists and Cliff Küle would like to say – We are not all Keynesians.

Did severing the link between the dollar and gold work to strengthen confidence in the U.S.? Please consider:

Within a generation of that move, the U.S. went from being the world’s largest creditor nation to the world’s largest debtor.
TIME Magazine of 1979 said:

Until the greenback is once again made as good as gold, many millions of people will persist in believing that the barbarous relic is still a better bet.

Recently speaking about Goldman Sachs’ problems at the Peter G. Peterson Foundation, former President Bill Clinton said,

There is a bigger problem here… too much of our growth was in finance ever since went off the gold standard.

The dollar “tie” to gold might be “re-tied” just as simply as it was untied. In a certain respect, America never really went off the gold standard. The tie between gold and U.S. dollar was simply adjusted to 0%. So, simply adjust it back. What tie would be needed today to restore America back to the gold standard? Let’s do the simple math.

Official figures for the total amount of gold reserves held by the U.S. Treasury are 8133.5 tonnes of gold. This gold is owned by all Americans and is held in trust by the government for the people. Given that 1 metric tonne is 32150.746 ounces, that amounts to:

8133.5 tonnes x 32150.746 ounces/tonne = 261498092.591 ounces

If we look at recent Federal Reserve data, we note that the total U.S. M1 seasonally adjusted money supply is at $1712.2 Billion of currency. Therefore if we were to take the total currency and back it by the total amount of gold, this would give:

$1712.2 billion divided by 261498092.591 = US$6547 per ounce

There you have it – if the U.S. were to devalue the U.S. dollar, setting gold at 6550 U.S. dollars per ounce of gold, the country could position to go back on the gold standard. Global confidence in the U.S. dollar and in America's debt would be maintained. It may be as simple as finding the right price for the government gold holdings to give "backing" to every dollar in circulation.

$6550/ounce is approximately the current value necessary to give "gold backing" to the current level of M1 money supply. If the U.S. wanted to expand the money supply further to stimulate the economy, it would need to set a new price for its gold holdings which is even higher than $6550/ounce or somehow get more gold. The U.S. could then be in a position to expand money supply as necessary to stimulate growth and able to extend credit to other nations. This is an essential ingredient to restoring confidence and keeping the title of reserve currency. After all, a reserve currency should be able to extend credit to nations in need, not be in need of credit from other nations.

As Jim Rickards states, this one-to-one ratio backing of gold with the U.S. dollar

would comfortably support a broader U.S. money supply on a one-to-one ratio and maintain confidence in the dollar and U.S. sovereign debt.

Perhaps only then could global confidence in the U.S. dollar and in U.S. debt be maintained – if not, either a deflationary depression or a hyperinflationary depression could be in store as confidence wanes with increasing levels of public debt.

Back to the Future

Nick Barisheff, President and CEO of Bullion Management Group, emphasizes that gold is money:

Gold is not and never has been a currency. Gold is something entirely different and far more valuable. It is money.

Cliff Küle suggests that to maintain confidence in its debt, America must bring back the gold standard, anchoring the U.S. dollar back to real money - gold, as Article 1 of the Constitution of the United States commits it to be.

Disclosure: No positions

Al Peia's Blog

Friday, September 10, 2010

September 10, 2010 posts

Business / Economic / Financial

Successful Economic Policies? For Whom? Last week, in the wake of another uptick in the official unemployment rate, the administration continued to claim that their economic policies were working, just not fast enough.

IMF Resumes Direct Gold Dumping, Sells 10 Tons Of The Shiny Metal To Bangladesh It has been a while since the IMF sold gold directly to sovereign countries.

Obama rating hits new low Overall, 41% of voters say they at least somewhat approve of the president’s performance. Fifty-eight percent (58%) disapprove.

The Anniversary of 9/11 Washington’s Blog | If even the 9/11 Commissioners don’t buy the official story, why do you?

Congressman Ron Paul Hints At 2012 Presidential Campaign Steve Watson | “It’s something I think about every single day.”

Hamilton and Kean Call for Domestic Terrorism Agency Kurt Nimmo | A bipartisan effort is underway to demonize patriotic Americans as domestic terrorists.

Doctors Giving Veterans Questionnaire to Determine Mental Illness Infowars.com | In 2007, a bill passed in the House and Senate allowing government to deny Second Amendment to veterans.

Too Big To Fail Global Banks Will Collapse Between Now and First Quarter 2011 Matthias Chang | Quantitative Easing spearheaded by the Chairman of Federal Reserve, Ben Bernanke, delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months.

“I Am Jim Cramer And I Approve Of The President’s Message (Because The Market Moved Up By 3 Points)” There are women (and men) who will do anything for a price. Then there is Jim Cramer.

Jim Sinclair: Strap In For Gold’s Move To $1650 By January Now that expectations for Gold at very significant prices are being offered by various rational sources, there is one thing you can be sure of. That one thing is $1650.

Here Are 13 Signs That We’re Actually In A Depression Right Now Gregory White | David Rosenberg has outlined, in his latest letter, the 13 reasons with this so-called recovery is actually a depression.

Castro Admits Communist Economics a Failure

Pastor Terry Jones Calls off Koran Burning, Ground Zero Mosque May Be Moved Pastor Terry Jones today canceled his plan to burn Korans at his Florida church after claiming he has struck a deal with a New York Muslim cleric to relocate the so-called Ground Zero mosque.

US soldier ‘kept Afghan body parts’ At least two of the five US soldiers charged in the deaths of three Afghan civilians had kept body parts taken from Afghan corpses and threatened subordinates, according to new documents released by the US army.

Random Pat-Downs Turn PATCO Into Police State “We can conduct any kind of search we want,” said McClintock. “We could ask TSA to bring wands or X-ray machines like they have in airports, though we don’t think that’s appropriate for PATCO riders at this time.”

Ground Zero Mosque Imam: If You Don’t Build It, They Will Attack Moving the project to another location would strengthen Islamist radicals’ ability to recruit followers and will likely increase violence against Americans, the imam said.”

Clinton Talks World Government at the Council On Foreign Relations Kurt Nimmo | Simply substitute the phrase “American leadership” with “leadership by the globalist cabal.”

Barack Obama: Puppet on a String Jurriaan Maessen | The United States is unfolding an agenda that has been pushed for by international banks in conjunction with the CIA.

Business as Usual: Fed Court Slaps Down Torture Lawsuit Against CIA Kurt Nimmo | Once again, national security trumps the rule of law and the corporate media provides cover.

UN Blueprint: Dismantle Middle Class, Build World Government Paul Joseph Watson | Globalists set out agenda to re-brand global warming as overpopulation in bid to impose carbon taxes.

Claims of Recovery But Results Nowhere To Be Found Bob Chapman | The American public is alarmed at what they see going on.

So Broke We Can’t Pay Attention Howard Beale | You spent the whole day yesterday worrying about today, and now that it’s here, was it worth it?

The Financial Industry Is A ‘Gigantic Parasite’ We Don’t Need Anymore Vincent Fernando | Strong words from ex-Morgan Stanley Andy Xie.

TSA Plans to Use Homeboy in Ball Cap “Avatar” on Naked Body Scanners Kurt Nimmo | Scheme ignores the obvious health risk of radiation technology.

9/11 Truth is Still the Issue James Corbett | Where does the 9/11 Truth Movement stand and where it is heading?

50 Mind Blowing Facts About America That Our Founding Fathers Never Would Have Believed The Economic Collapse | The United States is a much different place today than it was in 1776, and unfortunately many of the changes have been for the worse.

Al-Qaida and Taliban threat is exaggerated, says security thinktank Guardian | Strategy institute challenges idea that troops are needed in Afghanistan to stop export of terrorism to west.

Rioters Attack LA Police Station After Death of Immigrant New York Daily News | Hundreds of demonstrators took to the streets for the second night in a row in downtown Los Angeles Tuesday night to protest the police shooting of a

Petraeus: Neocons favorite general Russia Today | Ten Afghan civilians were killed Thursday in a NATO air strike on three vehicles carrying civilians, President Hamid Karzai said in a statement.

No comments:

Post a Comment