The following report came out this morning:
"The European Central Bank, U.S. Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland are taking joint action to make it cheaper for banks to get U.S. dollars if they need them."
Wednesday, November 30, 2011
Tuesday, November 22, 2011
Soicialist "thinking" is one folly after another.
Socialists from Europe and the US are drowning in stupid thinking and are pulling down their countries. Do you recall EU officials who decided what curvature a banana could have? I am not kidding. Then there was the "Global Warming" scam, aided and abetted by scientists from East Anglia getting caught at producing fraudulent data. So, here comes the latest scam: in order to prevent bottling companies from selling bottled water, EU officials decided that bottled water does not rehydrate and can not be advertized as such. They relied on some other fraudulent junk science. Do you then wonder that the Socialists got their countries' finances so screwed up that they can not fund their borrowing. Greece is a basket case and so is Ireland and Portugal. These countries have already received bailouts. Italy and Spain are under the gun now and the new Spanish PM admits that Spain can not finance its debt at 7% rate. Same for Italy. And the contagion is now spreading to Belgium and even France.
Socialists are just as nutty in the US, except we call them Liberals. In a Florida school a girl kissed a boy and the school called the cops because they considered the event a "sex crime." Really? In another school, a Mother warned school officials that her boy's entanglement with a gay student was going to be trouble. The school's answer? Let the boy explore his sexuality. So, the boy shot the gay student.
Nothing shows the stupidity and duplicity of Liberals better than the just concluded meetings of the Deficit Reduction Committee. How Americans put up with the charade and why they allow the Media to misreport it is a mystery to me. The whole thing was a sham. The Committee supposedly was called to decide on how to reduce the deficit by $1.2T in ten years. That's $120B/year. Considering that "baseline budgeting" means at least a 10% increase in the budget each year, the s0-called "cuts" were no cuts at all, but a slight slowing in the increase in spending (the current base-line budgeting calls for an increase of almost $400B/year). So, why did Congress engage in this dishonest charade?
Republicans are deathly afraid of the power of the Media, so they agreed to the lifting of the Debt Limit. The deficit reduction panel was a fig leaf for John Boehner, who negotiated the "deal" with Obama behind closed doors. The Dems had no intention of reaching a deal. What they wanted was a campaign issue. They can now shriek (along with the Media) that Republicans are obstructionists that they want to preserve "tax cuts for the rich." Obama can up the ante by insisting on to repeat the cutting out of the payroll tax, making 47% of the taxpayers paying nothing. There is one more sham to this whole wretched deal: the "sequestering." A $600B cut in the military budget is included as another club that Dems plan to use to scuttle ANY "cut" even the phony cut.
What the Dems want is what goes on in Europe: 50% income tax for workers and even higher taxes for the high earners, emasculating the military and low growth of the economy. That way, Americans will be slaves to state control.
Socialists are just as nutty in the US, except we call them Liberals. In a Florida school a girl kissed a boy and the school called the cops because they considered the event a "sex crime." Really? In another school, a Mother warned school officials that her boy's entanglement with a gay student was going to be trouble. The school's answer? Let the boy explore his sexuality. So, the boy shot the gay student.
Nothing shows the stupidity and duplicity of Liberals better than the just concluded meetings of the Deficit Reduction Committee. How Americans put up with the charade and why they allow the Media to misreport it is a mystery to me. The whole thing was a sham. The Committee supposedly was called to decide on how to reduce the deficit by $1.2T in ten years. That's $120B/year. Considering that "baseline budgeting" means at least a 10% increase in the budget each year, the s0-called "cuts" were no cuts at all, but a slight slowing in the increase in spending (the current base-line budgeting calls for an increase of almost $400B/year). So, why did Congress engage in this dishonest charade?
Republicans are deathly afraid of the power of the Media, so they agreed to the lifting of the Debt Limit. The deficit reduction panel was a fig leaf for John Boehner, who negotiated the "deal" with Obama behind closed doors. The Dems had no intention of reaching a deal. What they wanted was a campaign issue. They can now shriek (along with the Media) that Republicans are obstructionists that they want to preserve "tax cuts for the rich." Obama can up the ante by insisting on to repeat the cutting out of the payroll tax, making 47% of the taxpayers paying nothing. There is one more sham to this whole wretched deal: the "sequestering." A $600B cut in the military budget is included as another club that Dems plan to use to scuttle ANY "cut" even the phony cut.
What the Dems want is what goes on in Europe: 50% income tax for workers and even higher taxes for the high earners, emasculating the military and low growth of the economy. That way, Americans will be slaves to state control.
Monday, November 21, 2011
Political and financial interactions.
1. What is driving up the US Dollar?
The US Dollar Index follows a pattern like a choreographed ballet. During the night here (which is the trading day for Europe), the US Dollar Index increases and during the day here (after markets close in Europe), the Index falls. We had seen this ballet play at 76. then at 77. and now at 78. The Index rises in Europe and falls here, but the rises are larger then the falls. How far will it rise? Hard to tell. When the forces that propel the Dollar weaken, the rise will stop. So, what is driving the US Dollar?
a) Japanese desire to reduce the value of the Yen so they can increase export to the US.
b) This is duplicated by the Chinese. They, too, are interested in keeping up the value of the Dollar. While, the Japanese are telling us that they are buying Dollars, the Chinese are close mouthed. As the value of the Dollar rises, gold is going down. This, too plays into Chinese and Indian hands to facilitate their buying of gold.
c) As the sovereign debt crisis unfolds in Europe, Europeans are piling into US Dollars, which is still the reserve currency of the world.
2. The "deficit reduction Committee."
During the last Summer, the Democrats and the Media staged a phony theatrics when the country was reaching the debt limit of $14T. If the ceiling is not lifted, they shrieked, the Country will default. That, of course was a lie. But Boehner caved and agreed to raise the debt limit by 2.T, enough to get Obama through the election. To give Boehner a face-saving fig leaf to hide behind, the Dems agreed to a "Deficit Reduction Committee" (which is to negotiate how to cut $1.2T in 10 years). Failing to agree on a plan to cut, automatic cuts would ensue beginning in 2013.
When Reagan ran against Mondale, Mondale said he had a plan to reduce the deficit by raising taxes. Reagan replied "you don't have a plan to reduce deficit, you have a plan to increase taxes." The Democrats are replaying that scenario. Dems offer "cuts" that come from getting US troops out of Afghanistan and Iraq in exchange for raising taxes. Sure, it would start by increased taxes on the upper earners, but that is peanuts and more tax raises would be in store. If Republicans agreed, they would suffer the fate of the first Bush.
In fact, the Dems do not want an agreement. They want an issue to run on. A lot of people think that taxing the rich is a splendid idea, even though it would not fix the deficit problem. The Media will blame Republicans as expected. So, the Committee is drafting a statement that they failed. And they will fail unless Republicans will cave today or tomorrow (they already offered a $300B tax increase).
3. The sovereign debt crisis of Europe. It continues. There are no credible plans to pay off the debt, there are only plans to fool the investment public. Investors, meanwhile, have already served notice that they want higher returns on Italian, French and even German bonds and the time is clicking on the ability of these countries to roll over bonds that are expiring. A downgrade for French and Italian bonds is in the works and I do not believe that a change in government in Spain will stave off their downgrade. Further political repercussions are coming. Larry and many others believe that the EU will dissolve and the Euro will be abandoned.
4. Larry's latest forecast. It reiterates what he said previously: the DOW at 9,000, gold back to much lower levels, a temporary high for the US Dollar, etc. Larry believes that only QE3 will stop this process. I still maintain that the FED continues to ease and does not need to declare QE3. But we will see. So far, it goes according to Larry.
The US Dollar Index follows a pattern like a choreographed ballet. During the night here (which is the trading day for Europe), the US Dollar Index increases and during the day here (after markets close in Europe), the Index falls. We had seen this ballet play at 76. then at 77. and now at 78. The Index rises in Europe and falls here, but the rises are larger then the falls. How far will it rise? Hard to tell. When the forces that propel the Dollar weaken, the rise will stop. So, what is driving the US Dollar?
a) Japanese desire to reduce the value of the Yen so they can increase export to the US.
b) This is duplicated by the Chinese. They, too, are interested in keeping up the value of the Dollar. While, the Japanese are telling us that they are buying Dollars, the Chinese are close mouthed. As the value of the Dollar rises, gold is going down. This, too plays into Chinese and Indian hands to facilitate their buying of gold.
c) As the sovereign debt crisis unfolds in Europe, Europeans are piling into US Dollars, which is still the reserve currency of the world.
2. The "deficit reduction Committee."
During the last Summer, the Democrats and the Media staged a phony theatrics when the country was reaching the debt limit of $14T. If the ceiling is not lifted, they shrieked, the Country will default. That, of course was a lie. But Boehner caved and agreed to raise the debt limit by 2.T, enough to get Obama through the election. To give Boehner a face-saving fig leaf to hide behind, the Dems agreed to a "Deficit Reduction Committee" (which is to negotiate how to cut $1.2T in 10 years). Failing to agree on a plan to cut, automatic cuts would ensue beginning in 2013.
When Reagan ran against Mondale, Mondale said he had a plan to reduce the deficit by raising taxes. Reagan replied "you don't have a plan to reduce deficit, you have a plan to increase taxes." The Democrats are replaying that scenario. Dems offer "cuts" that come from getting US troops out of Afghanistan and Iraq in exchange for raising taxes. Sure, it would start by increased taxes on the upper earners, but that is peanuts and more tax raises would be in store. If Republicans agreed, they would suffer the fate of the first Bush.
In fact, the Dems do not want an agreement. They want an issue to run on. A lot of people think that taxing the rich is a splendid idea, even though it would not fix the deficit problem. The Media will blame Republicans as expected. So, the Committee is drafting a statement that they failed. And they will fail unless Republicans will cave today or tomorrow (they already offered a $300B tax increase).
3. The sovereign debt crisis of Europe. It continues. There are no credible plans to pay off the debt, there are only plans to fool the investment public. Investors, meanwhile, have already served notice that they want higher returns on Italian, French and even German bonds and the time is clicking on the ability of these countries to roll over bonds that are expiring. A downgrade for French and Italian bonds is in the works and I do not believe that a change in government in Spain will stave off their downgrade. Further political repercussions are coming. Larry and many others believe that the EU will dissolve and the Euro will be abandoned.
4. Larry's latest forecast. It reiterates what he said previously: the DOW at 9,000, gold back to much lower levels, a temporary high for the US Dollar, etc. Larry believes that only QE3 will stop this process. I still maintain that the FED continues to ease and does not need to declare QE3. But we will see. So far, it goes according to Larry.
Sunday, November 13, 2011
Another agreement with Larry
Conclusion
Merkel and Sarkozy will soon learn that an orderly break-up of the Euro is not possible. Even the slightest hint that a breakup is being contemplated will cause a global financial disturbance that is so great that any perceived benefits of a break-up will be completely overwhelmed by the costs that will be imposed by the market.
By the same token, Merkel and the Germans are unwilling to do what it takes to save the Euro.
Thus, a situation is fast approaching where a crisis is becoming unavoidable. European leaders cannot break up the Euro without incurring unacceptable costs. At the same time, the costs of saving the euro seem prohibitive. The result of this configuration of choices will likely be paralysis that will lead to outcomes that will be dictated by panicked financial markets rather than carefully planned policies.
Markets will move must faster than the Eurocracy can agree on anything of substance. As detailed here, various markets that have served as leading indicators in the past appear to be getting ahead of the curve already.
In the absence of aggressive intervention by the ECB, I believe that Europe could find itself in the midst of a full-fledged crisis before New Year. This accelerated timing could be averted through a series of aggressive and shrewd actions by European leaders and the ECB. However, investors should prepare for this potential eventuality before New Year.
Under such circumstances I would expect the S&P 500 index (SPX) to ultimately fall to the area between 950 and 1,020 within a matter of just a few months. I expect the Nasdaq Composite (IXIC) to fall to the area around 1,850-2,000. The Dow Jones Industrial Average (DJI) should ultimately decline to an area between the 9,000 and 10,000 level.
This implies declines for the SPY, DIA and QQQ of between 20%-30% from current levels.
Given the magnitude of the risks faced on a six-month time horizon, in my view, it makes little sense for investors to purchase or hold even very attractive equities such as Apple (AAPL), Microsoft (MSFT) or Pepsi (PEP). Investors will probably be best served by raising cash and letting the current highly dangerous situation play itself out. I believe that investors that raise cash now and wait for the storm to pass will likely be highly rewarded for their patience and discipline.
James A Kosterhyz todat in seeking Alpha.
Merkel and Sarkozy will soon learn that an orderly break-up of the Euro is not possible. Even the slightest hint that a breakup is being contemplated will cause a global financial disturbance that is so great that any perceived benefits of a break-up will be completely overwhelmed by the costs that will be imposed by the market.
By the same token, Merkel and the Germans are unwilling to do what it takes to save the Euro.
Thus, a situation is fast approaching where a crisis is becoming unavoidable. European leaders cannot break up the Euro without incurring unacceptable costs. At the same time, the costs of saving the euro seem prohibitive. The result of this configuration of choices will likely be paralysis that will lead to outcomes that will be dictated by panicked financial markets rather than carefully planned policies.
Markets will move must faster than the Eurocracy can agree on anything of substance. As detailed here, various markets that have served as leading indicators in the past appear to be getting ahead of the curve already.
In the absence of aggressive intervention by the ECB, I believe that Europe could find itself in the midst of a full-fledged crisis before New Year. This accelerated timing could be averted through a series of aggressive and shrewd actions by European leaders and the ECB. However, investors should prepare for this potential eventuality before New Year.
Under such circumstances I would expect the S&P 500 index (SPX) to ultimately fall to the area between 950 and 1,020 within a matter of just a few months. I expect the Nasdaq Composite (IXIC) to fall to the area around 1,850-2,000. The Dow Jones Industrial Average (DJI) should ultimately decline to an area between the 9,000 and 10,000 level.
This implies declines for the SPY, DIA and QQQ of between 20%-30% from current levels.
Given the magnitude of the risks faced on a six-month time horizon, in my view, it makes little sense for investors to purchase or hold even very attractive equities such as Apple (AAPL), Microsoft (MSFT) or Pepsi (PEP). Investors will probably be best served by raising cash and letting the current highly dangerous situation play itself out. I believe that investors that raise cash now and wait for the storm to pass will likely be highly rewarded for their patience and discipline.
James A Kosterhyz todat in seeking Alpha.
Friday, November 11, 2011
Europe unraveling.
Yes, I have written about the coming unraveling of the European Union, but now that it is almost upon us, we need to look at its history and mechanism. Many of the words that are involved have histories and concepts in them that are at the heart of the matter. Such as, bonds, bunds, basis points and point spreads.
Bund is a word that refers to several things: 1. a way by the water or just a road; 2. an organization or group of people (root is 'banda' a Sanskrit word) and 3. German government bonds. There were Jewish bunds (East European Socialist groups) and National Socialist bunds (such as Hitler's). World War One killed off the flower of French, German and English youth and left these countries with inflated currencies (the war was financed by printing currency). Rather than devaluing their currency in comparison to gold, these countries decided to withdraw currency, which created a Depression that lasted almost to World War Two. Europe became Socialist: Germany ruled by the Nationalist bunds and England by Fabian Socialists, while the US came under the spell of the Democrats of Roosevelt (an offshoot of Fabian Socialism). In the East, Russia came under the rule of a very virulent rule of Socialism known as Communism or Bolshevism. The Bolsheviks got their name from the Russian word "bolshe," meaning greater. The Bolsheviks came to claim majority status in the population, mush as the 99% er "OCCUPY" crowd does today. The Western brand of Socialism (beginning in England and spreading to the rest of Europe after WWII) left most of the Capitalist system in place, but established income distribution through high taxes and government programs of medical care, education and welfare. The Eastern brand of Socialism expropriated the means of production and established central planning by the Communist Party.
Communism cracked up first. People who were good at achieving political power were not good at running businesses. Fabian Socialism in Europe and in America lasted longer, because it allowed those with the talent to run business to to just that. European Socialism is cracking up, because Europeans are further along than we are. Europeans, for example, have government-run free medicine, free education and government-run retirement. All these things required financing. Since, Western Socialism is anti-growth ( higher earnings jack up your tax rate and that means you work for the government redistribution), the government programs were paid for by borrowing money via issuing government bonds.
There are two kinds of government bonds: plain govt bonds denominated in local currency and sovereign bond, denominated in some other currency. When the EU was formed, members of the EU had accepted the Euro as currency, so all their bonds became sovereign bonds. That is why we read about the "sovereign debt crisis." Still, we see the crisis moving from Greece to Ireland to Portugal and now to Italy. Why? Because these countries must roll over part of their debt and the new bonds reflect their credit worthiness. How? Italian bonds are compared to the German bonds called 'bunds' and the rate of interest the Market demands is higher for the Italian bond than the German bund. The difference is quoted in 'basis points'. One basis point is 0.01% interest rate. Thus, if the Italian bond pays 7.0% and the German bund pays 6.5%, then the difference is 500 basis points. The graph shows how the difference between Italian and German bonds has skyrocketed.
What's the problem? As the spreads widened for Greece, the European Central Bank and the IMF stepped in to essentially become the creditors of Greece, so they would not default. With Italy under the gun, the procedure of rescuing Italy will be impossible. Why? Because the Italian debt is too big to finance without printing up a bunch of Euros. Why is a default bad? Because a lot of Italian bonds are owed by European banks and if Italy goes under, the European banks go under. Why can't the European Central Bank (the ECB) print up enough Euros to buy up the Italian bonds, along with the Irish, Greek, Portuguese and Spanish bonds? They could, but Europeans still remember what happened to the currency of Weimar Republic and they are terrified of the prospect. Can the Chinese step in? Yes they can, but they demand trade concessions Europe can not live with. Besides, China does not have enough money.
Is there another way out? That is what the French and the Germans are looking for. So far, they are thinking about kicking out the dead beats and essentially ending the EU. Unfortunately, the Scandinavian countries and Belgium are soon to get under the same gun as Italy.
Could the US help? Yes, temporarily. With the election of Barak Hussein, the US is now running a deficit of $1.4T and growth has slowed as various Socialist schemes and impediments to growth plague the US economy. If another $3T is added the US will go into hyperinflation.
The only way out is to cut back on government programs, reduce taxes and encourage growth. By now, the electorates are so brainwashed with the concept of "free" government programs that they no longer can think of providing for themselves. Besides, the Media and Academia are run by the Socialists and they keep up the propaganda. Short of transporting these people to another planet little can be accomplished.
Ironically, the Chinese Commies understand and China is growing by leaps and bounds.
Wednesday, November 9, 2011
The Market that won't...
Fresh from missing the Summer rally in gold, Larry predicts that gold will fall hundreds of dollars/oz, to recover only after a big drop in the DOW to 9000 and QE3. Since, his prediction is now almost a month old, it is appropriate to examine the data. The top graph shows the weekly gold prices. The graph shows a market that just won't quit. The MACD tells the story that we can now expect the blue columns to cross to the upside and keep going for several weeks before another high is reached, most likely above the previous high.
The second graph shows the DOW. The Industrials just broke out of a wedge on the upside. Granted the preliminary numbers for today show a 200 point drop in the DOW, the MACD shows a steady rise. So, there is no sign of an immediate drop.
Finally, the daily gold price. We see gold rising toward 1,800.
Today, we see counter moves everywhere. The Left prevailed in Ohio and unions were successful in repealing the new labor law, Mississippi turned down a constitutional amendment to protect babies from conception and Berlusconi is promising to resign. The debt avalanche has finally reached Italy and Italian bonds reached 7% - an interest rate the country can not sustain. The ECB intervened to reduce the rate, which raised the value of the US Dollar and restrained gold, if temporarily. Eventually, the ECB will have to print more money to help Italy roll over a total of 1.9T Euro debt.
I think Larry is wrong again. I believe that the FED is printing again and it is not waiting untill the Stock Market crashes. The DOW will stagnate untill we see the next phase of inflation that will cause dramatic rise in equity prices and PM prices.
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