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KB's personal commentary

The key to success in trading is finding a method that you can understand that will allow you to anticipate and read the behavior of the market. With such a method, you can learn when risk to reward is favorable and when to be on offense or defense.

6/29/10 Clearly index averages and the market has been under pressure recently, as expected. Technically market force is moving out of stocks. Bearish ETF's continue to prove the most profitable.

4/14/10 While we certainly have seen momentum carry prices higher, the charts have revealed, as before, that selling into this top carries away the strongest hands and most of the money. Bearish ETF's purchased through discount brokers will prove the best investment next to GOLD which was recommended loudly and often by this blogger since 2003.

1/23/10 The market continues to unfold as previously described. Average gains off their bottom(market top) bearish ETF's have been up 15 to 33 %, made in one week! Even bigger gains lie ahead.

11/21/09 As we've seen there will be false rallies to blind and confuse investors. I recommend ignoring these misleading signals. Take a buy the dips approach, not for the general market but to accumulate bearish ETF's on the dips. These will push substantially higher as the market reverses its' gains and goes lower. Examples of the kind of buying I suggest you look at include TZA, SPXU, SDS, DXD and others that go up when the market declines.

10/1/09 Currently bearish action continues as momentum builds downward. As previously stated, the dollar is in bounce mode but will fall much further later. International markets weaken as well. ETF like FXP and EEV appreciate under these conditions.

8/11/09 With support from an advancing US dollar assets including stocks, commodities, oil, and gold should pull back in this correction. Bearish ETF plays TWM, DXD, TZA, etc. will gain under these conditions.

6/21/09 After a stunning rally the market has finished a large ABC up, consolidated and is set up to correct. Current plays move back to bearish ETF's such as TZA, BGZ, DXD, SDS.

4/2/09 We have a confirmed ABC up in the market. Any corrections provide buying opportunities. Some ideas to consider here are TNA, HON, SSO, BGU, FAS.

3/18/009 Market rally has provided extraordinary short term gains, however even larger returns lie ahead. Begin profit taking for the re-buy on rally corrections.

3/10/09 The market has given signs we are in RALLY mode for the near term and maybe longer. All long plays can be bought or added to here with each pullback.

3/3/09 Certainly a difficult environment, however tremendous opportunity usually arises from such oversold conditions. All long plays offer excellent entry at this time.

2/12/09 Short squeeze rally anticipated, protect bear plays with stops at this time. Currently XLF, FAS, SSO, SPY, TNA in play for short term trade.

2/4/09 Stops were all hit, trade now turns Bearish for the near term. DXD, TZA, TWM, SDS, FAZ, BGZ are in play. Economic conditions and job losses weigh heavily on the markets. Bottom retests may be in store.

1/27/09 As this market fails to move up with sufficient volume the current outlook has come under pressure. Stops should placed and honored at this time.


Friday, September 5, 2008

Market Commentary

......................original commentary posted by Bob Carver at www.marketclues.net ..................

Saturday, October 01, 2011

Are hedge fund managers dumping gold to raise cash?

By Jack Crooks

Jack Crooks The swift sell-off in gold surprised many, as it seemed a foregone conclusion that this gold game was so easy. "Oh yeah, $2,000 gold and beyond is slam dunk — no brainer — don't you know. The U.S. dollar is going into the tank," seemed the sentiment till last week's reality intervened.

What happened? And will gold continue to slide? Let's just take a little retrospective and see if the odds are the top is in on gold.

Earnings Disappointments a Sign of Further Weakness

There's an important sign of further weakness in U.S. markets: Earnings warnings have been coming in fast and furious!

It's not even the heart of the third-quarter earnings season, and we're already seeing companies miss targets left and right. And more disappointments are on the horizon!

You can take several steps to protect your portfolio, and even PROFIT from a further decline! All you have to do is watch our latest video right now — it will show you precisely what steps to take immediately, along with details on the specific investments you can use.

Internal Sponsorship

Let me be clear, though, I don't know if a top is in place. But I want to show you a few charts that suggest this selloff is part and parcel due to the need for liquidity and an indication the currency everyone loves to hate has probably put in a multi-year bottom.

Let's start with the Gold/Silver Ratio vs. Dow Jones Industrial Average (DJIA) Weekly. Now, this isn't a gigantic sample size I grant you. But I think it carries some logic and gives us some insight about the relationship between gold and other risk assets — measured by the DJIA.

As you can see in the chart below, there is a tendency for the gold/silver ratio and DJIA to confirm troughs and peaks:

The correlation of these peaks and troughs in gold and DJIA in the past have represented multi-year moves based on these confirmations. My theory is that silver being more of an industrial metal tends to ebb and flow more closely with risk assets i.e. stocks, thus why this ratio moves in the manner it does.

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Internal Sponsorship

And what is interesting too, is that the last two peaks in stocks have preceded a break in gold prices by five months. You can see it in the chart below comparing Gold and the Dow Jones Industrial Average Weekly.

We've heard a lot of talk about hedge fund managers liquidating gold positions. It makes sense given that risk assets, stocks and commodities, have been hammered.

When fund managers get margin calls on the bad side of a portfolio, they meet that call by raising cash from the winning side of their portfolio ... in this case that would be gold.

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External Sponsorship

If this is true, and stocks and other risk assets, continue to fall based on the decline in global growth and liquidity, gold should follow stocks lower. And the much vaunted safe-haven appeal of gold could be history.

Was the end of QE2 the bell ringing at the top? The following chart of the Dow Jones Industrial Average Weekly can help answer that.

And the Commodities Index Weekly (CRB) chart looks to be turning over, too.

So if you think global liquidity is in trouble, where is the best place to hide, besides short-term U.S. paper?

I would say the U.S. dollar is looking like it can be a safe haven now. Below is a repeat of the dollar chart I shared last week.

And just like I said then:

"This indicates a real and sustainable move into the dollar. It might be a flight to safety and/or liquidity ... take your pick. And it could eventually turn into something much more this time around."

I have one more question for anyone who believed the dollar was heading into never-never land: Why didn't the U.S. dollar index sink miserably to an all-time-new-low as gold blew off to a new high?

The market will soon share the truth. Stay tuned, but if you own a bunch of gold and are heavily short the U.S. dollar, I think it pays to be careful here.

Best wishes,


Source: http://www.moneyandmarkets.com

Friday, April 23, 2010

Goldman Sachs Charged With Fraud: Who Could Have Guessed? Part III

By Elliott Wave International

In this special three-part series, we will release the entire Special Report to you free of charge. Part III is below. You can find the entire series here: EWI forecasts Goldman Sachs company troubles.

Get tomorrow's financial news today! To understand what that means, you must think and act independently from the crowd. Learn how by downloading Elliott Wave International's FREE 118-page Independent Investor eBook here.

Special Section: A Flickering Financial Star, Part III

With the market’s downtrend recently in abeyance, these transgressions failed to capture the imagination of the public or the scrutiny of law enforcement. But the extreme recriminatory power of the next leg down in social mood suggests that Goldman’s dealings will become a lighting rod for public discontent.

In January 2008, Elliott Wave Financial Forecast noted that Goldman’s success relative to the rest of Wall Street pointed “to the eventual appearance of a much larger public relations problem in the future. In the negative-mood times that accompany bear markets, conflict of interest charges will come pouring out.” The recent revelations about Paulson’s and Friedman’s actions are exactly that to which we were referring. Additional claims against Goldman -- including front-running its clients and profiting from inside information -- are already too numerous to mention. As the bear market intensifies, the firm will attract scrutiny as easily as it brushed it off in the mid-2000s.

Based strictly on the form of its advance, a July 2007 issue of The Short Term Update called for a peak in Goldman shares at $234. Goldman managed one more new high to $250 in October 2007; it then fell 81 percent to a low of $47 in November 2008. The stock market’s wave 2 rise brought Goldman back to $193 on October 14. Its affinity for marching in lock-step with the DJIA strongly suggests that Goldman will decline to below its November 2008 low.

Another key socionomic trait is for the most successful recipients of bull-market goodwill to be singled out for special treatment in the ensuing decline. Even fellow financiers are taking aim. In a not-so-veiled reference to Goldman, one Wall Street titan said that big profits made by investment banks are “hidden gifts” from the state, and resentment of such firms is “justified.” Let the bloodletting begin.

Let the Buyers (of Stock) Beware
Goldman’s heavy involvement in the hedge fund industry is another bull market asset that will become a huge liability in the next wave lower. In January, when some minor insider trading charges were brought forward, Elliott Wave Financial Forecast stated that they were only a first puff of “what promises to be a huge mushroom cloud.” The next much larger puff, and its ability to quickly envelop the financial markets, was put on display as the hedge fund Galleon Group went from insider trading charges to complete liquidation in a matter of days. The headlines are already pointing to a potential chain-reaction: “Galleon Wiretaps Rattle Funds as Insider Trading Targeted.” Reports indicate that the Galleon investigation actually began in November 2007, one month after the start of Cycle wave c.

Back in 2007 when Elliott Wave Financial Forecast talked about the “conspicuously tight knit” nature of hedge fund participants, we added that in bear market times, these “men will turn on each other out of a need to survive.” According to reports, that is exactly what happened. The central witness “who brought down the hedge fund” suffers from “financial woes” and “is working with law enforcement in hopes of receiving a lighter sentence.” The bear market is already squeezing the most aggressive bulls from every angle. New legislative and administrative initiatives are being proposed, and in some cases enacted, that will reduce executive pay at bailed-out financial institutions by up to 90% and attempt to shift the cost of bailouts from taxpayers to other large financial companies. The most far reaching “reforms” probably won’t take effect until later, when the decline is over or nearly so.

Finance led the way down in 2007; so we shouldn’t be surprised by its apparent willingness to do so again. ... This time however, the decline will be a third wave at Primary degree, which should be far more intense than the initial Primary-degree decline from October 2007 to March 2009. Stay tuned.


A Time for Honesty, Sacrifice, and a Serious Financial Course Change

Today's guest article is by Mike Larson, who in our opinion, is too optimistic on the budget by far:

What about 2011?

Another $1.3 trillion. And the years after that? More of the same. The White House Office of Management and Budget (OMB) is now expecting $8.5 trillion in red ink over the next decade, with the annual deficit NEVER falling below the 3 percent-of-GDP threshold considered fiscally responsible.

It gets worse …

Those projections assume relatively rosy growth — 3.8 percent next year, and more than 4 percent over the following three years. We’ve only seen a string of 4 percent+ growth readings twice in the past three decades.

The projections also include assumptions about taxes and spending discipline that won’t pass the test of time. One example: The OMB projects $250 billion in savings from a proposed three-year freeze on a significant chunk of domestic spending. Increases thereafter would be limited to the inflation rate.

I don’t know about you, but I think the chance of that happening is somewhere between slim and none! Neither the Democrats nor the Republicans have shown any real spending discipline. There’s no reason to assume they’ll have a “Eureka!” moment in the middle of the decade.

And I’m not even getting into the Social Security- and Medicare-related problems. We’ve promised trillions in benefits over the coming years that also threaten to blow our nation’s balance sheet to smithereens.

Debt, Debt, Debt.
And Did I Mention Debt?

Bottom line: A never-ending wave of budget bombs is headed our way in the coming years. That will drive the total U.S. public debt load inexorably higher — from about $9.3 trillion in 2010 to $18.6 trillion by 2020. And the cost of servicing all that debt? It’s projected to more than QUADRUPLE from $188 billion to $840 billion!

I’m at a loss for words, folks. These figures are horrendous … outrageous … infuriating … and terrifying all in one. They paint a picture of a country that’s on a collision course with financial catastrophe.

We CAN still turn things around. We can pull our nation out of this fiscal tail spin. Heck, if the average Londoner could pick himself out of the rubble of his home, brush himself off, and head to work in the middle of the Blitz, then we can show the same stoic resolve here.

But that will take real political courage and real sacrifices. There is no easy way out.


Frank Rich on The Other Plot to Wreck America, describes how Citigroup (originally called National City) has terrorized America for almost a century now:

Among other transgressions, National City had repackaged bad Latin American debt as new securities that it then sold to easily suckered investors during the frenzied 1920s boom. Once disaster struck, the bank's executives helped themselves to millions of dollars in interest-free loans. Yet their own employees had to keep ponying up salary deductions for decimated National City stock purchased at a heady precrash price.

Trade bad Latin American debt for bad mortgage debt, and you have a partial portrait of Citigroup at the height of the housing bubble. The reckless Citi executives of our day may not have given themselves interest-free loans, but they often walked away with the short-term, illusionary profits while their employees were left with shredded jobs and 401(k)'s. Among those Citi executives was Robert Rubin, who, as the Clinton Treasury secretary, helped repeal the last vestiges of Glass-Steagall after years of Wall Street assault. Somewhere Pecora [FDR's Special Prosecutor in charge of investigating and bringing to justice the perpetrators of the Great Depression] is turning in his grave.

Rubin has never apologized, let alone been held accountable. But he's hardly alone. Even after all the country has gone through, the titans who fueled the bubble are heedless. In last Sunday's Times, Sandy Weill, the former chief executive who built Citigroup (and recruited Rubin to its ranks), gave a remarkable interview to Katrina Brooker blaming his own hand-picked successor, Charles Prince, for his bank's implosion. Weill said he preferred to be remembered for his philanthropy. Good luck with that.

Among his causes is Carnegie Hall, where he is chairman of the board. To see how far American capitalism has fallen, contrast Weill with the giant who built Carnegie Hall. Not only is Andrew Carnegie remembered for far more epic and generous philanthropy than Weill's --- some 1,600 public libraries, just for starters --- but also for creating a steel empire that actually helped build America's industrial infrastructure in the late 19th century. At Citi, Weill built little more than a bloated gambling casino. As Paul Volcker, the regrettably powerless chairman of Obama's Economic Recovery Advisory Board, said recently, there is not "one shred of neutral evidence" that any financial innovation of the past 20 years has led to economic growth. Citi, that "innovative" banking supermarket, destroyed far more wealth than Weill can or will ever give away.

Even now --- despite its near-death experience, despite the departures of Weill, Prince and Rubin --- Citi remains as imperious as it was before 9/15. Its current chairman, Richard Parsons, was one of three executives (along with Lloyd Blankfein of Goldman Sachs and John Mack of Morgan Stanley) who failed to show up at the mid-December White House meeting where President Obama implored bankers to increase lending. (The trio blamed fog for forcing them to participate by speakerphone, but the weather hadn't grounded their peers or Amtrak.) Last week, ABC World News was also stiffed by Citi, which refused to answer questions about its latest round of outrageous credit card rate increases and instead e-mailed a statement blaming its customers for "not paying back their loans." This from a bank that still owes taxpayers $25 billion of its $45 billion handout!

If Citi, among the most egregious of Wall Street reprobates, feels it can get away with business as usual, it's because it fears no retribution. And it got more good news last week. Now that Chris Dodd is vacating the Senate, his chairmanship of the Banking Committee may fall next year to Tim Johnson of South Dakota, home to Citi's credit card operation. Johnson was the only Senate Democrat to vote against Congress's recent bill policing credit card abuses.

Though bad history shows every sign of repeating itself on Wall Street, it will take a near-miracle for Angelides to repeat Pecora's triumph. Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesn't even match the lobbying expenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009. The firms under scrutiny can pay for as many lawyers as they need to stall between now and Dec. 15, deadline day for the commission's report.

More daunting still is the inquiry's duty to reach into high places in the public sector as well as the private. The mystery of exactly what happened as TARP fell into place in the fateful fall of 2008 thickens by the day --- especially the behind-closed-door machinations surrounding the government rescue of A.I.G. and its counterparties. Last week, a Republican congressman, Darrell Issa of California, released e-mail showing that officials at the New York Fed, then led by Timothy Geithner, pressured A.I.G. to delay disclosing to the S.E.C. and the public the details on the billions of bailout dollars it was funneling to its trading partners. In this backdoor rescue, taxpayers unknowingly awarded banks like Goldman 100 cents on the dollar for their bets on mortgage-backed securities.

Why was our money used to make these high-flying gamblers whole while ordinary Americans received no such beneficence? Nothing less than complete transparency will connect the dots. Among the big-name witnesses that the Angelides commission has called for next week is Goldman's Blankfein. Geithner, Henry Paulson and Ben Bernanke should be next.

If they all skate away yet again by deflecting blame or mouthing pro forma mea culpas, it will be a sign that this inquiry, like so many other promises of reform since 9/15, is likely to leave Wall Street's status quo largely intact. That's the ticking-bomb scenario that truly imperils us all.

Have the bankers of Wall Street committed the perfect crime? It certainly looks that way. The only court which could possibly touch these corporate terrorists would be vigilantes in the night with ropes and a hanging tree.


The following article is an excerpt from Robert Prechter's Elliott Wave Theorist. For more information from Robert Prechter on bank safety, download his free report, Discover the Top 100 Safest U.S. Banks.

Perhaps the single greatest reason for the unbridled expansion of credit over the past 50 years is the existence of the Federal Deposit Insurance Corporation, another government-sponsored enterprise created by Congress. The coming rush of bank failures is an outcome made inevitable the very day that Congress created the FDIC. The reason is that the creation of the FDIC allowed savers to believe that their deposits at banks are “insured” against loss.

But the FDIC is not really an insurance company. No enterprise, absent fraud, could possibly insure all the banking deposits in a nation. Nor does the FDIC do so, despite its claims. The FDIC is like AIG, the company that sold too many credit-default swaps. It contracted for more insurance than it could pay upon. Because depositors believe the sticker on the door of the bank, they have abdicated their responsibility to make sure that their banks’ officers handle their deposits prudently. This abdication allowed banks to lend with impunity for decades until they became saturated with unpayable debts.

Today, most banks are insolvent, and the FDIC is broke. This condition is deflationary for three reasons: (1) Banks are coming to realize that the FDIC cannot bail them out in a systemic crisis, so they have become highly conservative in their lending policies, as described above. (2) The main way that the FDIC gets its money is to dun marginally healthy banks for more “premiums” (meaning transfer payments) to bail out their disastrously run competitors. The more money the FDIC sucks out of marginally healthy banks, the less money those banks have on hand to lend, which is deflationary. (3) The banks that have to cough up all this money will become more impoverished at the margin, so banks that otherwise might have survived a credit crunch will be thrown even closer to the brink of failure. This is another deflationary risk.

A friend of mine whose family owns a bank told me that the FDIC recently raised its 6-month assessment from $17,000 to $600,000. In the FDIC’s latest announcement, it is considering requiring banks to pre-pay three years’ worth of “premiums,” i.e. triple the normal annual fee in a single year. It will be a miracle if the money lasts through 2010. When these funds are gone, the FDIC will have two more options: to issue its own bonds and pressure banks to buy them; and to tap its “credit line” of up to half a trillion dollars with the U.S. Treasury. It’s the same old solution: take on more new debt to back up failing old debt. More debt will not cure the debt crisis.

Meanwhile, the FDIC is contributing to the deflationary trend. It has “tightened rules on required capital levels,” which forces banks’ loan ratios to fall; and it has “extended its extra monitoring of new banks from the first three years of operation to seven years” (AJC, 11/19), meaning that banks will now have to wait four additional years before they can go crazy with loans.


Wall Street Warming Up For The Sucker Punch

How does Wall Street soften up investors to get them to buy overvalued shares? They set the earnings bar low and create the impression that companies are doing better than they otherwise are. This earnings season is a good example of how that game works. Most companies are beating estimates, but those estimates are far below what those same companies were earning before the financial crisis.

Fortunately, only truly foolish investors believe the nonsense Wall Street is spewing about earnings. Those foolish investors are on the verge of getting the "sucker punch" as Wall Street insiders are selling shares to them on every rally. Our proprietary money flow indicators have been showing marked bearish divergence as stocks hit new highs, but their money flow shows clearly that insiders are selling out while they can get outrageously high prices for their shares.

What Wall Street has done to America is equivalent to cutting the country's throat. Instead of cutting CEO's pay, the government should be putting most of them in prison and throwing away the key.


The powers-that-be in Washington may have delayed the Financial Apocalypse, but they have also made the ultimate consequences far worse. By building the mountain of debt ever-higher in order to create the facade of a growing economy, they have made it impossible for the United States to avoid the disaster. It's mathematically impossible to avoid. The numbers speak for themselves. Here are some figures John Mauldin included in his Thoughts From the Front Line e-letter this weekend.

Currently, US Government debt is growing at the rate of 11% of GDP per year. If the economy returned to 3% GDP growth next year, the debt would rise to $18 Trillion by 2015, 110% of GDP. According to all the experts, a debt-to-GDP ratio more than 100% will cause massive disruption in our economy. And this is with a very optimistic estimate of GDP growth rate that not many economists think is possible. Even if GDP were to grow at 4%, an even less likely prospect, the debt-to-GDP ratio would hit 100% by 2015. Clearly, the math simply says that the US economy is going to hit the wall in the next five years---and probably a lot sooner than that.

One "solution" to the problem is for the Fed to print money and buy a large quantity of government debt. In fact, that's exactly what the Fed has been doing over the last year---printing money electronically and buying government bonds. 50% of the bonds issued in the last year have been bought with newly-printed money. That's one reason the dollar has been so weak, in fact. By printing money, the Fed has increased the supply of dollars and, according to the law of supply and demand, the price of those dollars has to go down. The fear is that the Fed will be forced to continue to print money to monetize the debt, essentially pushing the value of the dollar down to the point where no one will accept dollars in payment of debt simply because it will be verging on worthlessness at some point in time.


While stock prices have risen, the value of the dollar has fallen. In other words, while the Fed has printed more dollars, the stock market itself has been pumped higher in dollars, but overall stock prices are staying the same in real terms. What looks like a bull market is simply the stock market reacting in an equal and opposite way to the devaluation of the dollar.

This is a good lesson to remember: this is not a real bull market. It simply plays one on television.

While the herd watches and waits for the Dow Industrials Average to hit 10,000 again, the truth is that the real Dow just recently was able to get above 1000 once again. In fact, in March 2009, the Dow hit a low of 619---despite the fact that the media reported it only hit a low of 6469.95.

The difference is that the price of the Dow is reported in US Dollars and the US Dollar has lost a tremendous amount of purchasing power this decade. When nominal stock prices are "corrected" for the loss in purchasing power of the dollar, the Dow looks pretty puny right now. You thought it was a big bear market, but unless you correct for inflation you can't see the true picture.

The Dow made its nominal January 2000 high at 11,834.67. It made its nominal 2009 low at 6469.95. Corrected for inflation, the Dow has lost a bit over 85% of the value it had just ten years ago. In other words, the market has lost more than forty years' worth of gains in just one decade at the March low!

The Big Bull Market In Stocks Is A Sham

Now, the market has rebounded since March and the Dow is knocking on the door of 10,000 as measured in miniaturized dollars. The rally has pushed the market more than 50% higher in just six months, but who has been doing all this buying in the stock market?

It certainly hasn't been the average investor doing the buying. Most of this time, the average investor has looked around him and has seen an economy in shambles, with 20% of the population either unemployed or working part-time jobs waiting for the day when they can go full-time again. And, jobs continue to be lost in this "recovery-less" recovery.

It certainly hasn't been the company insiders who are buying. They've been selling their shares into the rally as they look around and see business dropping off (except for government welfare programs conveniently named "stimulus programs"). With top-line revenue dropping and bottom-line costs also dropping due to layoffs, insiders are selling in record numbers. That is not the formula for a sustained rise in real value and company insiders recognize this for what it is: a grand stock market pump-and-dump operation by the Fed.

While it's probably true that long term investors like Warren Buffett, et al, have been buying, the truth of the matter is that the Federal Reserve Bank has been the biggest buyer of stocks of all. They've been printing money like crazy and putting it into banks. Banks have been buying stocks with that cash.


Compare today's America with that of fifty years ago and you'll quickly come to the conclusion that we have not only lost our way, we have lost our ability to recover from the current depression. The fools on Wall Street have been sucking the country dry and it shows. The economy is running on fumes from government stimulus and very little else. Things are truly different this time: this depression is the death knell for America.

Can it be turned around? Yes, it can, but the chances of doing so are diminishing by the day. It can only be turned around if the inmates of the asylum wake up and overthrow the Puppet Masters who control the financial world. Although we've seen much criticism of the way things have been handled, especially from Paul Krugman in the New York Times, it's clear that business as usual continues being conducted both on Wall Street and in Washington.

The bubble mentality that has come about over the last fifty years is ultimately self-destructive. It appears that the bubble-blowers cannot simply admit that this is so. It started innocently enough. China need employment and exports. America needed lower prices and a financier for our lifestyle. We printed the bucks, China raised their citizens' standard of living by exporting shoddy products to America in exchange for dollars created by computer entry alone. Imbalances in world trade caused huge deficits to build up which ultimately leaked into the financial markets from time to time. Wall Street bankers saw opportunities and rode the coattails of each bubble to its ultimate conclusion: a crash. But, the aftermath of each crash was not the realignment of priorities and reallocation of resources toward a more sustainable future which normally takes place. Instead, a new bubble was seized upon and blown to cover the failures of the last bubble.

No reallocation of resources meant that the unproductive became the dominant producer in the economy, crowding out the productive enterprises which were needed to rebuild a solid base from which to launch economic expansion. Instead, each successive bubble has gotten bigger and bigger in order to hide the truth of this gargantuan Ponzi scheme which is known as the financial system. Our ability to grow in any way other than pushing computer bits around a spreadsheet has diminished to the point where we must order virtually everything from a foreign supplier. American ingenuity is not only lost, bankers will laugh anyone out of the room if they dare to suggest that they could develop new products if they could obtain funding. The only business loans bankers are willing to make are for those traders who import goods and resell them to consumers. Creativity and product development is disappering at an alarming rate, yet the media and the consumer fail to recognize that the foundations of a productive economy are crumbling beneath their feet. Eventually, when the framework for the economy has been completely eaten away internally, the entire structure will undergo rapid collapse.

It appears inevitable that, without radical change very soon, the entire system will self-destruct in a very few years. If you were shocked by the fail of the Soviet Union, don't be surprised when the very same thing happens right here in America. We're doing the same things they were doing. The only difference is that we label our system "democratic" and they labeled theirs "communistic." Deep down, they are two corrupt and unsustainable economic systems which cannot survive over the long run.

As James Howard Kunstler puts it in The Long Emergency:

Here, in the dog days of summer, it seems to me that the situation in the USA is so fundamentally bad, so unpromising, so booby-trapped for failure, that I wonder if there has ever been a society so badly deluded as ours. We're prisoners of our wishes, living in a strange dream-time, oblivious to the forces gathering at the margins of our vision, lost in a wilderness of our own making.

Blissful Ignorance

The only description that fits stock investors today is "blissful ignorance" because they just can't see what's coming.


The American Financial Horror Show

Facts about our current Financial Armageddon:

  • The per-household share of US Government debt was $546,668 at the end of 2008. That does not include any personal debt, just the government portion.
  • The US Government will pay out $101 Trillion in retirement and health care obligations over the next 75 years. It will take in only $53 Trillion in income.
  • Foreigners are shying away from funding the US debt bomb. The gap cannot be made up out of domestic savings.
  • When the US debt-to-GDP ratio hits 100%, the US Government will lose its AAA credit rating. That implies that every company headquartered in the United States will automatically lose its AAA credit rating as well. The reason is that companies headquartered in the USA pay their debts in US Dollars and a sub-AAA credit rating for the dollar would invalidate its usage as the reserve currency, so all companies in the US would then have to switch to another currency to pay their debts.

Bill Gross, Bond King, Says To Ditch Dollars

PIMCO's Bill Gross appropriately started his June commentary with a quote from Balzac:

"Behind every great fortune lies a great crime."

This quote certainly applies to the banksters responsible for the current Financial Armageddon and its aftermath. They've gotten rich by making the rest of us poor. America's net worth has dropped $20 Trillion since Financial Armageddon began less than two years ago. The banksters sold America short, then when the financial crisis hit demanded that the taxpayers of America pay up. That, in a nutshell, is how banksters stole the cash from the people. Ben Bernanke admitted that fact during Congressional testimony on Wednesday morning---his excuse was that the banksters did nothing illegal and therefore had to be paid in full. When you buy your representatives in Washington, as the banksters had done, you make the laws---it's no surprise that one of their flunkies (Bernanke) would make that claim. But, bribery has always been illegal in this country and the banksters were at least guilty of that crime.

Gross is projecting the federal debt to ultimately hit 300% of GDP, clearly an unsustainable figure as interest compounds on interest and the debt simply explodes. Raising taxes---Bankster taxes---will not work at closing the gap. Higher taxes will send the economy into freefall. That will not work.

Although he doesn't explicitly state the obvious conclusion, it's clear to anyone that the only exit strategy for the US Government is a drastic devaluation of the US Dollar. Gross does say, "Holders of dollars should diversify their own baskets before central banks and sovereign wealth funds ultimately do the same." Use your Ovaltine decoder.

Government officials are not talking about it---tiptoeing past the graveyard---but there is really no other solution. It won't make our creditors (China, mainly) happy, but it is the only exit strategy that actually has any hope of working.


FDR inaugural speech(1932): excerpt

In such a spirit on my part and on yours we face our common difficulties. They concern, thank God, only material things. Values have shrunken to fantastic levels; taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; the savings of many years in thousands of families are gone.

More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.

Yet our distress comes from no failure of substance. We are stricken by no plague of locusts. Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for. Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.

True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.

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