Toward International meltdown.

If we look at the US inflation rate, we get a misleading figure. While, the US is printing money as if there is no tomorrow, inflation rates are not rising in step (Top figure). Have the Obamabots figured out how to print money and not devalue it? For the short term, the answer is YES. The continued destruction of US banks and mortgage bonds simply holds down inflation. As long as the Obama regime is allowed to destroy private enterprise, inflation is delayed.

That does not mean that inflation is delayed everywhere, just that it is transferred over to the European scene. The second figure down shows the ratio of the Euro divided by gold price. We see this ratio rise. Since, gold prices have been steady and even falling till just this last week, what the graph reflects is the steep drop in Euro prices.

In turn, the price of the Euro reflects the brewing financial storm hitting Europe. On the fron line is the currency of Greece and Portugal that are being destroyed by vulture capitalists. Do we blame the vultures? NO! It is their nature to feast on carrion and the Greek currency is dead meat. Greece's debts have risen to unsustainable levels as the economy plunges and Greece's revenues (shipping and tourism) fell. Greek deficits are running at 13% annually (compare that to our 40%), so Greek default draws near. That will put Ireland, Italy and Spain on the firing line. The strain on the Euro is already heavy and you see it in terms of the Euro's price dropping.

Temporarily, European money flooded into the dollar, causing it to rise. [This may have been helped by the zombie banks buying up dollar contracts]. But, the dollar's days are also numbered. You can see it coming in the value of the 30 year Treasuries (note the head and shoulders forecasting a drop).

It is not surprising that US and European governments are unable to stem the tide of the coming currency failure and continuing sluggish economies. The prevalence of Leftist governments in the past had set the course of Europe and even the ocassional "Conservative" governments are unable to break the chains of Socialism foisted on the populace. Social Democracy is deadly and we see the results coming due. According to the Daily Mail, Soros and other hedge funds are plotting to bring down the Euro and after that the US dollar.

We can expect bonds to be slaughtered and nobody should remain holding bonds.

The estimated time table is to see further drop in the Euro, a devastation in the bond market and then a drop in the Stock Market. Gold prices should hit top in 2012. Hopefully, the radical Obama regime will be removed in 2012 so we can return to a sane economic policy in 2013 when the new President is inaugurated.

Gold breaking out?

It is time to examine the technicals of gold again. Recent pronouncements by Soros and others have predicted the drop in the price of the "barbaric metal" yet Soros himself has holdings in gold stocks. So, we need to re-examine the trading pattern of gold.

The graph shows the price of gold in USD since March of 2009. Several factors are of importance as technical indicators:
1. Gold formed an upward wedge pattern from May 2009 till September 01;
2. Gold broke out of this wedge on the upside on Sep 1;
3. The subsequent rally took gold to 1225 as an interim top;
4. So, the change from 875 to 1225 was $350;
5. Gold then corrected beginning early December 2009;
6. The correction formed a downward wedge;
7. During all this time gold remained in a bull market as indicated by the 50 DMA staying above the 300 DMA;
8. Corrections tend to run the Fibonacchi numbers: 1/3, 1/2 or 2/3 of the breakout;
9. Of the $350 upmove in gold price the Fibonacci numbers would be 117, 175 and 234:
10. Gold broke out of the downward wedge late February and can be expected to resume its rally.

How far will gold rally? That is hard to say. Perhaps 1450, perhaps 1500. Most analysts I read feel that the Stock Market will tank again during the Summer, or maybe the Fall and that this will pull down gold and gold stocks. The FED then has to do more printing to stave off the recession and so gold will take off again toward another plateau of 2200 next year.

Another important technical is the GOLD/XAU ratio, which is the gold price to gold miner index ratio. When this reaches 5, gold stocks will rise at least 3X faster than the price of gold. This ratio is now at 6.91. So, we can expect gold mining stocks to do well, unless this pattern gets blown away.

How about silver? The gold to silver ratio is unusually high now and one would think that silver miners would increase even faster than gold miners. That expectation might or might not materialize. Most of the reaction of gold price is due to it being the true money, but silver is not merely money, but also an industrial commodity. An the use of silver right now is not pushed very hard by industrial demand.

Fooled me twice...

Americans were fooled for the second time. The first time it was in the thirties when FDR managed to keep the Country in a state of Depression for ten years and in fact became the President for life that tyrants dream of. FDR was aided by a Liberal press that a) blamed the economic failures on Hoover and b) successfully conned Americans that FDR was trying to revive the economy and c) concealed the fact that FDR's real aims were keeping the populace dependent on government and redistribute wealth by "progressive" (i.e. confiscatory) taxation.

Along comes Barak Hussein Obama. The Liberal press is at it again. This time, the Media is trying to perpetuate the lie that a great recession had started in 2007, whereas the recession started after the accounting system was changed on Sep 15, 2008 and money circulation slowed to a crawl. It was after that when the economy went into the tank.

This time Americans are not fooled. They know that Obama is not trying to revive the economy, on the contrary! He is doing all he can to nudge us into a depression so capitalism can be destroyed and Marxist redistribution finished. Obama's shadowy figures continue to fail the banks, to drive home owners into default, have the government toke over the banks, destroy private insurance and make the government the source of income for a growing faction of the population.

And we know this how? The Obamabots in Congress are intent on nationalizing the health industry even if they lose in the next election. The unemployed and underemployed now constitute 20% of the work force. Mass layoffs are not only continuing but are accelerating once again. The FDIC reports that the percentage of problem banks has now reached 27%. ONE IN THREE BANKS IS NEAR INSOLVENCY! State tax receipts are still falling and States are laying people off. Over a quarter of homes are now classified as "under water," meaning that the owners owe more than the house is currently worth. This has happened not in spite of Obama's efforts, but because of it. Is it any wonder that consumer confidence has reached the lowest level, since the aftermath of the last Left wing US President, Jimmy Carter?

By now, the financial contagion created by the FED has spread to Europe. Mr Rogoff reports that sovereign debt default is looming for the PIGS (Portugal, Ireland, Greece and Spain),but the external debts of other countries (in terms of % GDP) are not so good either: U.K. 408.%, Netherlands 365%, Belgium 320%, Denmark 300%, Norway 200% Sweden 194%. Default of any of these countries will push us deeper into depression, no doubt to the delight of the Obamabots.

This time it is different though. The difference comes from the existence of Talk Radio. Courageous talk show hosts are exposing the Obama regime and its destruction of America's economy and the servility of the Media. While talk shows are doing fine, Media outfits are laying off workers and face bankruptcy down the road.

And the failures of Vancouver.

I am not talking about the athletes who fell on the downhill, or the ice. After all, just getting to Vancouver as an Olympian is a triumph for an athlete. After all, the Olympics pushes every athlete to the edge to perform and some athletes can perform better than others. That is expected in every competition. And being pushed to the edge to perform, some moves do not work, or not as well as expected. That is part of every competition.

What I am talking about are institutional failures. Let's start with the ice chute for the sledders. It is not only the fastest course in Olympic history, it is unsafe. To be sure, sliding on any of the contraptions used in the Olympics (and not wearing protective gear except the helmet) IS dangerous, but the Vancouver course is unsafe. You could dismiss the death of the young Georgian sledder as a fluke, but several of the teams had crashes during practice. One of the Swiss teams even withdrew and the Swiss are not know for lacking skills or courage.

Another failure of the Vancouver Olympics is the inclusion of short track speed skating. Due to the nature of the track, the number of participants, it is inevitable that there is bumping around the course. Passing is very difficult. Wipouts are frequent and often the a skater may be taken out not due to his poor performance, but just being unlucky and being next to a skater who wipes out. Equally disturbing is the attitude of the South Korean skaters. Not content to just win events, these young men resent the idea that they can be challenged by someone. The unsportsmanlike treatment of Mr Ohno off the ice is simply inexcusable. The South Korean skaters remind us of roller derby, with their gang blocking. The problem stems from the difficulty of telling if someone is simply holding his position (and prevents someone from passing) or deliberately moves into passing lanes to prevent someone from passing. Short speed skating as a sport is simply a bad idea. The sooner it is remover from the Olympics, the better it will be.

Finally, the dire predictions from the Media that these Olympics would be a bust have come a cropper. The games are enjoyable, the competition is keen, attendance is high and US athletes are acquitting themselves nicely. To be sure, Obama is ignoring the event (winter sports are not a black thing) and he is free to do so.

Vancouver: the opening.

With the help of video and the ability to view things at leisure, everyone can watch the opening ceremony even if you did not watch it live.

After I watched the opening ceremonies of the Beijing Olympics, I figured that future opening ceremonies would be affected by that awesome display. The Vancuover Olympics bear this prediction out. Similar to the Chinese show, the Canadian show used the technical elements of screens that can be raised and lowered, light projections, great sound effects and colorful costumes. The Canadian show managed to put forth the best of Canada (as the Chinese show paid tribute to the best cultural aspects of China) without being preechy and remain superbly entertaining. The arts being dominated by Lefties, they were sorely tempted to preach multiculturalism, but thankfully they resisted the temptation.

Personally, I love the romance languages, especially Italien and French. Hearing someone speak French is pleasent to me, especially when I know the subject of the talk, when I can pretty well understand what they are saying and still appreciate the flow of the sounds.

The opening ceremony was eye and ear candy from beginning to the end. The opening scene was a duet (Bang your drum) and it showcased the drums as sound, the singing, people dressed in colorful Iindian costumes, even dancing and speaking. It was the tribute to the North in general. The second theme was the trees and forests of Canada, Fall and its colorful maple leaves, and dancers galore. Th fiddlers and cloggers and dancers of Nova Scotia introduced everything from River Dance to clogging, tartans and some tap dancing. The duel of the fiddler on the roof with his shadow on the moon was very well done and entertaining. The floor of the stadium was transformed via the magic of projections into a sea, traveled by orcas blowing plumes of water and eventually turning into the stylized representation of orcas in native drawings. We saw amber waves of grain, horses traveling across the plain as we arrived to the representation of Western Canada; its mountains and snow sports. Only the verbal presentation of the idea of Canada by the country's poet laurate seemed to be out of place, because it was a bit preechy and stood out in a non-verbal presentation as somewhat jarring.

Bob Costas and his fellow commentator asked the question whether the presentation lived up to the Beijing openening ceremony. Their conclusion was YES. We can not use measures as to whether the spectacle lived up to or even surpassed Beijing. You can not measure such events on that scale. But, we can say that just as Beijing presented the best face of China in the opening ceremony, Vancouver presented the best of Canada and Europe in a Winter context. Yes, it was succesful, enjoyable with considerable intellectual context.

Thoughts on the Winter Olympics.

Every olympiad gives you a different look at the people of the world, or as it is in the case of winter olympics, at the people of the Western world. There is always something, or someone, that leaves an impression on you and it is no different this time.

I had been impressed by the Scandinavian athletes and their ususal dominance of the cross country skiing events. These athletes give everything they have to the race and often fell exhausted after crossing the finish line. I was tremendously impressed by the Finnish skater Kira, whose whimsical, saucy interpretation of the gender difference (she skated to the tune of 'If I were a boy') was simply captivating. Hers were not the best skate, but her ethereal beauty in context of a skate made watching the performance memorable. Norway collected its hundreth medal.

I marvelled at the goofiness and skill of the snow boarders. It is easy to criticize the female American snow boarders in the halfpipe event, but these take skills and talent that most of us will never have.

My most enduring impression is from the Men's figure skating event. Evan Lysacek turned in just about as good a performance as he could do. All three medalists, in fact, performed superbly and I would be hard put to discern the difference. Lysacek is a tall man, dressed in somber black, skating to a somber piece of music. His height, the tight clothing and its color insured that any flaws would be well seen. There weren't many. It was a very deliberate performance, of utter concentration. The effort was notable not only because of its precision, but because Lysacek had outskated himself. He won because of the sheer will to outprform a perhaps better opponent. The Russian skater, who came in second, catted about Lysacek's performance being "dancing." That was because of the incredible grace and style of the American skater.

The olympics is not yet over and something else may grab my attention, but so far it is the tall man, skating with the grace of a ballet dancer who captured my admiration.

Looking behind the numbers.

The Stock Market.

Most eyes are riveted on the DOW trading around 10,000, but what is the context? The DOW reached its top at 14,000, dropped to 6,500 last year and recovered half of its loss since it topped out.

The Baltic Dry Index.

Like the Stock Market, the Baltic Dry Index had a good run last year. So, what is the context for that? The high for the Index was 11,798 in 2008 then it dropped to 772 and recovered in 2009 to 2658. A few days ago it stood at 2571. Again, recovery is only halfway.

Bonds: the canary in the financial mine.

States, cities and counties issue municipal bonds. These are investments for many and safe investments at that. The default rates for munies was 0.04%, compared to 9.8% for industrial bonds. But this is changing. Forty eight of our fifty states are facing deficits. This year this shortfall amounts to $178B (26% of the budget). Next years cumulative deficit (i.e. including this year's) will be $350. Obama's stimulus plan covered some $150B, far short to cover the entire shortfall. The cities of Vallejo (CA) and Harrisburg (PA) have already thrown in the towel and budgeted nothing for bond payments for this year. More will follow.

Treasuries.

The US Treasury has already defaulted. About 11% of newly issued Treasuries are bought by the FED with money it prints. In addition, there is a growing suspicion that of the 40% of the Treasuries where the buyer is unknown, some of it might be the FED as well. The Chinese have stopped buying Treasuries.

Unemployment continues to go up, so revenues are not increasing. A half a million jobs were lost in January.

What does this add up to? Not hard to figure.

Predicting the future is hard

alleged to have been said by Yogi Berra. One of the predictors of the economy and of the Stock Market is the copper to gold ratio (first graph). Copper is an indicator for industrial well-being and gold is an indicator for the health of the financial system. We see a mixed messege in 2008: a period of slow slinking of copper as speculators drove oil prices to $149/barrel, then a recovery, as gold prices fell for a while and the disasterous fall in September onward as the FED stopped the money flow. That is what elected Obama.

We see the recovery in 2009 as anemic and we see the copper to gold ratio beginning to diverge as gold prices rise in response to the flooding of the market with dollars.

THIS FORETELLS OF ANOTHER DROP in the Stock Market.

On the horizon is the burst of the biggest financial bubble in history: the US Treasury note bubble. The coming financial bubble will destroy the dollar, stock prices, the economy and housing prices. It is like a volcano about to blow. You feel the vibrations, you see more steam, small quakes, a little more smoke, but underneath are enormous forces gathering that can not be contained.

America is being betrayed by a bunch of radicals who are now in power. They hijacked the Democrat Party, the FED, the Treasury and are directing the banks. Their goal is to destroy America so they can rebuild it as a Socialist Utopia. Destroying things is much easier than to build things. And some people are ahead in their thinking in wanting the Democrats dethroned and Obama and his fellow radicals impeached. Understanding why this is necessary is key to the effort succeeding.

The coming American Revolution must remove not merely Obama, but all his enablers in the Media and purge education of the radicals who control it. The rebuilding will take long and will be painful.

The past is prolog.

It is time to revisit the past so we might see what the future has in store for us. The first three graphs down (Baltic Dry Index, Copper and Lumber) give us an idea of the state of the economy from a different point of view. The Baltic Dry Index is a measure of shipping, so it is a measure of the world economy. We see a decrease in August 2008 as oil prices peaked then a dropoff in Sep 2008. The second graph is the price of copper. It reflects world-wide demand for copper in industrial use. We see a small decrease in August 2008 then a precipitous drop in September. The next graph is gold price; it began to rise in Nov 2008 and has been going up since.

The Stock Market began its dive also in September of 2008. Normally, the Stock Market dives before a recession hits and recovers before the economy hits.

We see a correction in the Baltic Dry Index, Copper, stocks and gold, but not in Lumber. So, we avoided a slide into a second Depression, but the question is whether we are about to have a double dip recession.

Taken together with the graph of the money velocity and the GNP(see my July 19 post), we reach the inescapable conclusion that something happened in September of 2008 that stopped money circulation and sent every financial and economic indicator into the toilet. And we know what it was! It was the FED putting 'mark to market' accounting into place. Do not blame Wall Street or the big banks! Blame the people who made the change in accounting, which made the big banks insolvent and cost the Country over 10 trillion dollars.

Fast forward to March 2009 and you see a simultaneous reversal in the first three economic indicators as well as in stock prices. The FED had flooded the markets with trillions of dollars to pump up the economy. Yet we had avoided inflation by the continued deflation caused by bankruptcies of companies which were taken over by the government.

And so we arrive where we are today, the time of adjustment in the markets. We have seen a shallow (maybe 10%) correction in prices and recovery from that is under way in the Baltic Dry Index and Copper. Even Lumber (construction indicator) is holding up. Conversely, we see the dollar recovering about a third of its loss, while gold had given up about 10-15% of its recentgain.

Will we now enter into hyperinflation? Not yet. The continued poor performance of the job market is putting pressure on home owners with another wave of foreclosures in the offing. A wave of foreclosures in commercial real estate is also starting. We need to consider the basic formulas of the economy to see where we are heading.

MxV = GDPxP relates the amount of money (M), its speed (V), the GDP and prices (P). While M is being expanded greatly, P is steady and V has improved. Since, this is an equation that would imply that the GDP is still falling, government figures notwithstanding. The reason why GDP growth has been reported shows up in the formula:
GDP = C + I + Govt + Net exports. C is spending by consumers, I is inventory and Govt is the spending by government. So, most of the rise in GDP is due to inventory replacement and government spending.

Given that almost half of the stimulus money is yet to be spent, we shall see further rises in the GDP, though these figures will not reflect a stronger economy.

The last figure shows that when investment falls unemployement rises and we are still in the recession phase.

The markets will be choppy for a while, inflation low, gold will trade sideways and the economy will recover slowly, in spite of the tremendous govt spending. We are approaching seizmic changes in finance though and it is best to satay out of mthe Market.

The UUP cascade and the Markets.

The Market is being manipulated and I will explain the evidence, which IMHO is irrefutible. Let us start with the UUP and the US dollar index. UUP is a "bullish fund" for the US dollar. What exactly is it? It's no secret, Invesco tells us: "The Power Shares DB US Dollar Bullish Fund(Symbol:UUP) is based on the Deutsche Bank Long US Dollar Index(DB Long USD Futures Index) composed solely of long USDX futures contracts. The USDX futures contract is designed to replicate the performance of being long on the US Dollar against the following currencies :Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

So, what is UUP? UUP appears to be a bet on future contracts on the US Dollar. What are the futures contracts? These are options to buy US dollars at a specified time and price. Note that the US Dollar index and UUP are virtually identical. The standard explanation is that it is the US Dollar index that sets the value of UUP.

There is a problem with that explanation. Do you see it? OK, here is the problem. If UUP were merely the status of a bet one made on contracts to buy US dollars, the volume of UUP should not track the price of shares of UUP. If these shares are bought by some of the savviest investors, why should they buy shares when the price is up, rather than buy shares when the price drops? After all, buying shares at high price and selling when prices are dropping is reserved for the ordinary investor. That would stand investment logic on its head. It is far more logical to regard UUP as an option on a bunch of options: so, when there is more money coming in to buy UUP, the price of shares goes up, like they do with stocks.

OK, we know that buying US Dollar futures determines the value of the US Dollar, but does buying shares of UUP determine the value of the US Dollar futures? If so, that would mean that US Dollar values could be manipulated relatively easily, at least for a time, by buying UUP at a cost of $400M/day, which is chump change for central banks.

Note that since December the price of gold has been dropping and gold has bounced off its support level at 1030/oz. The long-term trend for gold remains intact, so gold and gold miners are a screaming buy.

 

<DIV>In the next graphic down, we note the correlation between UUP and the DJI. Not surprising, is it? The Stock Market increase has been fueled by the drop in the value of the US Dollar as previously demonstrated. And the last graphic shows the drop in the S&P 500. Note that just as gold bounced off its support (1030), the S&P 500 bounced off its support (1049). Will the Market retest these support levels? Possibly. However, with both the UUP and the US Dollar way overbought, a rally in gold and stocks is more likely. These are very volatile times untill the corrections are either over or the bear market is re-established.

This will leave us to speculate as to the identity of who is manipulating the currence and gold market. We can be sure of one thing: MSNBS is wrong. Their contention that gold is no longer a safe Haven is full of ...well BS. A good rule to apply is the old Roman qustion in translation: "who benefits?"

The Chinese benefit, because they can convert their dollars into gold at a cheaper gold price. The Europeans benefit, because they can sell their exports better if the US Dollar becomes more ecpensive. The US is not a beneficiery, unless the FED decided that this was a good time to halt the slide of the dollar at least for a while.

WE can expect the slide in the value of the dollar to continue. Why? Because more is being printed. Were it not so then a nation could build prosperity by printing more currency. No matter what is said in the Media, THAT doesn't happen. So, the fundamentals for the dollar are still weak and the technicals point to a rally.

Why road building fails to stimulate.

It is an article of faith among Keynesians (i. e. democratic Socialists) that building "infrastructure" such as roads and bridges will stimulate the economy. Yet, experience tells us that it is not happening. The reason why not is simple. Money for these projects is taken from high earners who know best how to invest productively. Roads and bridges are not necessary for economic growth (except in the long run), because the country already has them. In a sense, roads do not produce income, they are in fact the cost of producing income in the long run. The best way to stimulate the economy in the short run is to allow those best at producing income (the high earners) to keep more of their income so they can use it to produce more.

The Socialists demagogue this as "trickle down economics" and "tax cuts for the rich," but these methods work every time they are tried.