I’ve been busy watching the markets in the short-term. Is day trading for the foolhardy? Perhaps, but I’ll admit that there is a sense of excitement that is fun. Before you go jumping to conclusions have I actually been trading? NO About the most I’ve done is move a few positions around a bit and make sure that I’m covered on the downside. This market is so volatile, and we are in options expiration week, which just amplifies matters much.
Besides learning about charts and indicators real estate and a possible war between Iran and Israel are on my radar. A while back I sent a question to Elliott Wave wondering if they have done a wave count on the Case Schiller index. After patiently waiting I received a response, and here you go…
Elliott Wave count Case Schiller
Yes, you are reading this correctly in that there may be another 20% decline or more before the housing downtrend finally abates. Elliott Wave is based on Fibonacci and social moods. In many instances they have been spot on +- a bit of time. Additionally, if their forecast about the market is correct the downtrend isn’t complete.
As for Iran I’ll do another post about that. However, if war does break out or a tanker is sunk in the Hormuz Straight a whole host of problems are going to hit the world. For one oil will skyrocket, gold will skyrocket, and the dollar will most likely tank. How real of a possibility is this? Hopefully a long shot.
The United States’ Commerce Department’s Bureau of Economic Analysis (BEA) will stop publishing a key report tracking foreign direct investments (FDI) into the U.S. Through the discontinuation of the BEA’s “New Investment Series,” the U.S. government and the American public will no longer be able to distinguish between FDI used to acquire existing U.S. assets from FDI used to establish new U.S. businesses.
I really want to be surprised that we will no longer be able to view how many of our assets are being sold off to foreign countries. Before we know it we are going to be owned by everyone else. Imagine… the once wealthiest and powerful nation in the wold was auctioned slowly auctioned off to foreign bidders, and hardly anyone said a thing.
We no longer are able to track the actual amount of currency in circulation via the M3 indicator, and now this. Soon we won’t even have the M1 and M2 figures to look at, which would enable even more credit expansion because nobody could question what the Fed is doing.
This is looking more and more like a systematic power grab by banking institutions. Let’s see who ends up surviving the carnage in the years to come.
GMAC is reducing the amount and number of loans they will be issuing. The best part is that they will only be issuing loans to people with a credit score above 700, who represent 58% of the population as stated in Bloomberg.
So, this just get more and more fun… Seems that the feedback cycle continues amidst a sprinkler system of liquidity. Regardless of what central banks do there will be a contraction in credit if people don’t want to lend. Even if credit is created and guarantees issued… short of holding a gun to banks heads they may just want to hold onto that cash. People already feel poorer, and they also causes a contraction in the economy.
Throwing a ton of liquidity at the problem isn’t going to solve the current crisis, that is what got us into this mess. I’ve been waiting to see what the outcome will be with regards to inflation and a recession/depression. Time will tell.
This may very well be an interesting day…. Asia is taking a major hit as we sleep or well we are about to sleep as is my case. Here is the latest Bloomberg headline:
I’ve been very cautious about the markets continuing on their tumble down and am unfortunately not surprised that this is happening. It seems that the world has reached panic mode and is fleeing paper, which also is another indicator about why gold is so difficult to find.
We just may have reached that point where the markets enter freefall. It is similar to watching a stampede running towards you. You have a few choices:
Get out of the way!
Get run over!
Run like a mad-man and go with the stampede.
I’ll go with #1 or #3 or perhaps a combination of both. When there is panic nothing is rational. Even if things aren’t really necessitating a major sell-off the herd mentality will cause a major sell off. It is self-perpetuating, a feedback loop. Very similar to hyper-inflation. Once the shakeout occurs what is going to happen with all newly created money floating around that nobody wants to lend at the moment, coupled with peak oil, and fiat currencies worth not a whole lot… That’s the trillion dollar question. Not good is all I can say, not good at all.
Imagine losing most of you wealth to the market as did happen similarly in 1929-1932, then due to a massive increase in the money supply prices take off and unemployment rises. Don’t be surprised if the next President resembles Roosevelt and the New Deal. If that ends up being the case I’m even more concerned. He did want to raise taxes to 100% beyond a minimum income. That will halt any growth in an economy because people have no incentive.
On the bright side the amount of panic and fear in the air could be considered a contrarian indicator. Why not…. when there is blood in the streets BUY… oh but wait… HOW MUCH BLOOD??
Hyperinflation, inflation, deflation, depression, recession, stagflation… well which is it? I have no clue, but there is a massive monetary inflation occurring, and a looming recession. Hmmm so does this mean a inflationary depression? Yikes.
Last week I took a break from overwhelming myself about the markets and the state of the economy. The timing wasn’t perfect, but I had personal reasons.
Before I start on the quest of exploring our present situation of the potententional…”ion”s I want to make sure we are on the same page. Therefore lets have a defining moment:
Money: Easily exchangeable, is relatively scarce, and is a store of value.
Inflation: An increase in the money supply
Deflation: A decrease in the money supply Hyperinflation: A self-perpetuating unstoppable (more or less) state of inflation
Recession: A significant decline in business activity, mainly a contraction in the economy or slowing of growth
Depression: A long-term economic state characterized by unemployment and low prices and low levels of trade and investment
Stagflation: A period of time characterized by high inflation and recessionary conditions.
I’ve been looking at calls for the vaious scenarios and needed some clarification as to what happens in the various situations. For the most part it seems obvious, but I’ve been struggling with the increase in the value of the United States dollar. Our national debt is above 10 trillion and rising rapidly as the recent bailouts continue, and the most recent increase in military spending added another $612 billion that we have to pay for.
Why is the risk of deflation so frightening that the Fed, Treasury, governments, and foreign central banks will do anything to stave it off? Deflation is like the grim reaper knocking on your door for a fiat currency. A fiat currency survives on debt and inflation (credit expansion). Too much inflation and it can become worthless, and negative inflation (deflation) and it gains value. That sounds like a good thing but it isn’t. As the currency gains in value debt becomes more expensive, and thus more difficult to pay off. Imagine taking out a $100,000.00 loan with todays dollars and paying it off with dollars from 1930. Good luck! During deflation prices also fall due to the decrease in the money supply and as there is no longer credit being handed out for people to use to consume and invest. The whole system comes tumbling down and the reaper walks in the door to say hello!
When credit is created (a loan) that is an increase in the money supply, and when it is paid off that is a decrease in the money supply. Say the loan is $100.00. That is $100.00 of money put into existance with a very small percentage actually backing it. Now I repay my $100.00 loan and that credit is erased and the money supply contracts. This is the normal situation that occurs daily. However, if people don’t want to lend or borrow then we have a problem.
No credit means no ability to borrow, which means no abilty to purchase goods and services. Everything is based on debt today. The change began in 1913 with the Fed, and the ultimate shift to fiat money was in 1972 during the Nixon presidency when we abandoned the gold standard and thus savers were punished from that day forward.
Okay this leads to me to the strengthening of the United States Dollar… Why I ask is it getting stronger. Many argue that it is because Europe is weakening, which may be part of the picture. However, I read something that made a clear point that because European banks are required to hold dollars for various toxic debt they hold denominated in dollars they normally use the interbank markets based on the LIBOR rate. However, that market is seized up and nobody wants to lend so they start using the EUR / USD credit swap market. As they purchase dollars its value goes up. Notice today that the Euro gained against the dollar when the Fed decided to start purchasing short-term commercial paper. They are stepping in and becoming the new mainstay for that market: which one? EVERY MARKET <Interesting…>
Many of us worry about our own personal bubble or world within. We sometimes forget that we are part of a larger system. No, I’m not talking about anything spiritual or religious, but a system as a whole… The Earth is a system and for everything on Earth to function there are interdependencies. Those interdependencies begin to break-down when a system fails or is interrupted.
For example: When people feel scared or helpless they look towards authority for the answers. Folks, the answer is within yourself and everyone around you. Why not talk to the person next to you at the street crossing, in line, on the bus, airplane, or train?
CarrotMob came up with an idea that coordinates a group to make a difference or change. I like the idea of giving a business, customers, in exchange for something. In this instance it is a ton of customers for 22% of profits to go towards improving energy efficiency of the store.
Say on a normal day you pull in $2000.00, but on the day CarrotMob comes around you pull in $9000.00. Okay so now you are taking 22% of your profits and putting them towards a long-term energy conservation program that is directly benefiting you the store.
Let’s have some fun with numbers (these are only an example to illustrate a point):
Crazy right? NO
I think we have forgotten, but are starting to wake-up that as a group of individuals we have the ability to do anything.
Let’s now take this to a bigger scale as CarrotMob does at the end of the video. What if a hundred thousand people went to a solar manufacturer and said hey we all want solar for our houses. If we guarantee 100,000 orders will you give us a discount?
This isn’t a new idea… collective pooling of money to make purchases. However, what makes me excited is that this isn’t a Business – Business transaction, but a Group – Business transaction. Sure there are more complexities involved when you are dealing with 100,000 orders versus a bunch of orders for one company, but it is possible.
We are a nation founded on thinking outside the box to come up with innovative and new ideas. The energy crisis that we are and will be facing isn’t outside the grasp of an entrepreneur. Unfortunately there is a big BUT here…
What motivates an entrepreneur? :: wealth
What inhibits an entrepreneur? :: regulations and taxes
You say that regulations are necessary… perhaps, but what happens when there is a corn subsidy or ethanol subsidy? – Money that may have gone towards an innovative idea is redirected towards corn and ethanol, which may not be the best solution. I don’t know about you, but I highly doubt a few individuals are capable of deciding what is for the greater good, using public money. There are unforeseen consequences of such actions.
It is what we don’t see that concerns me. What could be manufactured instead of ethanol plants? We may never know to the full extent because the path of least resistance leads companies to produce ethanol. If I’m guaranteed certain monies from the gov’t, if I do this (the entrepreneurial idea with no subsidy) or that (governmental idea with subsidy), of course I’ll do that because it is easier and has an implicit profit regardless of the profitability of the company.
In looking at the present bailout package… my concern is what we are missing and not seeing. If this package or a variation thereof passes what could that money have been used for? $700 bn dollars is a lot of money. We are going to be over a trillion dollars in debt after it is passed and that is only for THIS year.
The bankers and government officials “employed” by the bankers don’t want you nor I to truly understand how the present system works. Just take a look at my previous post.
In conclusion I hope that you realize that as a group of individuals we can do anything. Fear will keep us paralyzed, major traumatic events allow the Constitution to be thrown out the window, and the media feeds us a story they want us to believe. We are a nation of entrepreneurs! You have a choice.
Frankly I’m not surprise to see what the Fed is doing and can only imagine what this is going to look like if this bailout goes through. There is a precedent throughout time that inflating the monetary supply only prolongs the inevitable. This is a sad state of affairs and I see only troubled times ahead for the once mighty dollar. Like the Romans who clipped their gold and silver coins the United States is creating more and more money from nothing. Why do we need a bailout package when we can just print money? It isn’t actually printed anymore, but issued through treasuries between the Fed, the Treasury, and private banks.
We are headed towards a recession if we aren’t already in one. Inflating the money supply while in a recession presumably means higher prices. The contraction in prices we recently saw was perhaps a byproduct of the Fed contracting the money supply, which it has now reversed course. During the Great Depression of 1929 many banks tried using their depositor’s money to help keep the market afloat just as the Fed is now doing… The outcome? You know what happened…
Now we are taking the opposite position and inflating. What happened to Rome… and thanks to Mike Hewitt at dollardaze.org he lists many countries plagued by hyperinflation.
Angola (1991-1999)
Argentina (1975-1991)
Austria (1921-1922)
Belarus (1994-2002)
Bolivia (1984-1986)
Brazil (1986-1994)
Bosnia-Herzegovina (1993)
Bulgaria (1991-1997)
Chile (1971-1973)
China (1939-1950)
Free City of Danzig (1923)
Ecuador (2000)
England
Greece (1944-1953)
France (1789-1797)
Georgia (1995)
Germany (1923-1924, 1945-1948)
Greece (1944-1953)
Hungary (1922-1924, 1944-1946)
Israel (1979-1985)
Japan (1944-1948)
Krajina (1993)
Madagascar (2004)
Mexico (2004)
Nicaragua (1987-1990)
Persian Empire (1294)
Peru (1984-1990)
Poland (1922-1924, 1990-1993)
Romania (2000-2005)
Ancient Rome
Russia (1921-1922, 1992-1994)
Taiwan (late-1940′s)
Turkey (1990′s)
Ukraine (1993-1995)
United States (1812-1814, 1861-1865)
Yap (late 1800′s)
Yugoslavia (1989-1994)
Zaire (1989-1996)
Zimbabwe (1999 – present)
The fiat money system that we presently have, which in its present form has only been in existence since 1971 when we went off the gold standard. To say that we have a precedent for what may or may not happen is incorrect. We are now in uncharted territory, however history has its lessons.
Fox News did a ten minute interview with Ron Paul and actually gave him the time to clearly state what is going on. If the anchors were actually listening I don’t know, and frankly they need to. The present situation is dire and people are only barely starting to take it seriously. Given that Bernake is a student of the Great Depression he thinks the only way out is government intervention through bailouts and inflation. The issue with that is we have a problem: Excess has built up in the system and it needs to be corrected. By easing the debt burden on the banks the problem doesn’t go away, but only gets pushed further out into time.
According to Austrian Economics whenever a bubble forms due to excess credit it must be deflated. During the deflation excess inventory is bought at cheap prices, and the economy then moves forward. This allows the economy to go though a minor correction and then move on. The mortages need to be sold off and housing prices need to come down. Our fiat monetary system only survives on debt and credit, which we are finding out has its limits.
Instead of letting the system correct the taxpayer might be on the hook for other people’s mistakes. Why is it imperative that house prices go back up? Let them readjust to a point where people can afford them. We will survive, and in the short-term it might be rough. The dollar is at the brink of destruction. A bailout will necessarily ensure that the dollar will be dumped because nobody wants to hold worthless paper.
Warning: If you see interest rates rising and the dollar falling this is a sign that major players are getting out of the dollar. This is cause for concern.
Bernake, Paulson, and Bush are selling this proposal as a way to avoid a catastrophe. A necessary evil that if not enacted immediately will be the downfall of the United States and its citizens will suffer. Bush in his address to the nation did comment on the credit problem, but then went for the jugular and instilled fear just as Bernake and Paulson have been doing. He said that he believed in the free-market, but tough times call for decisive action. If he truly believed in the free market the Fed would not exist, there wouldn’t be sugar tariffs and corn subsidies, and I could go on and on. If you believe that we went into Iraq because of WMDs (Weapons of Mass Destruction) then go ahead and believe him on this one.
I find it quite convenient that we have major swings in the stock market and then this proposal comes to light. The banking crisis isn’t something new. Its been going on for over a year, and why now must it be passed right before Congress goes to recess. Fear will induce irrationality and it is imperative that this bill does NOT pass. I would rather face major banks failing then have the government try to sort this out.
I’ve attended a few performances by David Copperfield and he has performed the unbelievable. Before my very own eyes a group of thirty people vanished into thin air. Where did they go? I watched the unbelievable made real right in front of me. How could this be an illusion created to fool me into belief? I ask you… HOW?
David Copperfield and Harry Houdini would probably be a better pair to run the government at this point. At least they would give us a good show. The current officials in office make my gut wrench. We have migrated from the land of the free to nationalization of private property in the name of free markets. Whoa… okay let’s get something straight. WE DO NOT HAVE FREE MARKETS… NOT EVEN CLOSE
If we actually had a system that represented free markets the Federal Reserve (a PRIVATE bank made up of member banks that are also PRIVATE) would not exist, we would still be on the gold standard, and the government wouldn’t even consider a bailout of the taxpayer’s funding, and the United States Treasury would not be proposing this amazing relief package for those who are mainly responsible for getting us into this mess.
So, I mentioned two masters of illusion… Why? What is being pulled off at the moment is happening in front of our eyes and for some like me is atrocious. However, for others they think it is essential to the integrity of financial markets, financial institutions, and YOUR house. The entire bailout is being purported as a bailout for the helpless homeowner, the saver, the middle class.
The problem is that nobody knows how much any of this debt is actually worth. Say the government buys $700,000,000,000,000.00 worth of debt at $0.20 on the dollar, which is great discount. If that debt is in reality worth less than that we have a problem. When will these notes be paid back, and in what form are the notes?
Chris Martenson managed to grab part of an article that later disappeared from Bloomberg that said:
“The Treasury’s thinking is to make it as big and wide as possible so they have the flexibility to act if need be,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which manages about $108 billion. “There have been losses on a whole range of U.S. debts and as the economy deteriorates in response to the housing slump those losses could escalate.”
Treasury officials now propose buying what they term troubled assets, without specifying the type, according to a document obtained by Bloomberg News and confirmed by a congressional aide.
This effectively means any type of debt. Let’s take a moment to see what forms of debt exist:
Credit Card DEBT
Mortgage DEBT
Automobile DEBT
Bond DEBT
………. and the list goes on ………….
So, we have the United States government wanting to take on all this debt in the name of saving the financial markets. Let’s just take the debt from the banks to clear up their balance sheets so they don’t have to write it off, which would cause them to have to increase their reserves because their assets are now below the minimum. We could lower that further, but it has already been lowered to 3% of total assets. That means they most likely loaned out the other 97%.
As the Fed creates money our dollar is worth less and less. Where is the Federal Government going to come up with $700 Billion dollars? They will create it from nothing, which the Federal Reserve is great at doing. Inflation will not solve the problem, only exacerbate it. Newt Gingrich opposes it, and admits that if he is wrong in not supporting it that it is the lesser of two evils.
If this bill passes please say goodbye to the dollar as we know it. Foreigners might finally reach the breaking point to where they are afraid to purchase dollars and realize that buying them to keep their currency less expensive is futile.
