Urban Survival: Free Daily Economic News Update Page

There's an interesting story in the Tombstone Tumbleweed that you really ought to read and make you own mind up about. Basically it says that in the past six weeks, two groups of Middle-Eastern invaders have been caught in Cochise County (Arizona). Click on the story from their site at http://www.tombstonetumbleweed.com, Once there you need to click enter then click on the story. There are, of course, two sides to this. U.S. Border Patrol PR people say no, it's not true. On the other hand, the Tumbleweed says it's not true. We wonder how close this is to the Ft. Huachuca training grounds where the spooks used to learn their communications skills?

More to the point, should you want to "blow off" the Tumbleweed report, then consider this piece from the Arizona Daily Star - that reports a mock WMD was smuggled into the U.S. this past week: http://www.dailystar.com/dailystar/sports/31055.php You might recall one of the TV networks, I think it was ABC, smuggled some radioactive material in a while back on a ship. The government was some kind of ticked off. Was it ABC? Yup. Here's the follow up: http://www.nrdc.org/nuclear/furanium.asp

Sadly Right

Our article about the battle for 10,000 turned out to be sadly right. Good summary at the Detroit Free Press site: http://www.freep.com/money/business/stock24_20040724.htm For that matter, the story at CNN Money is good background too http://money.cnn.com/2004/07/23/markets/markets_newyork/index.htm What's worse, the spread has widened between the NASDAQ 50 day moving average (DMA) and the 200 DMA - so with the 50 below the 200, it is, as Robin Landry noted earlier this week, often a trigger for more negative action (selling). Negative of course, if you're not in Ursa....

Investing Returns

Shreveport's Boomtown Casino: $100. George's net: -$100.

Bush Records Back?

I thought we had enough of this, but apparently the "missing" Bush military records have shown up. Do they shed any light? Nope: http://apnews.myway.com/article/20040724/D8415UKO0.html So if there's no enlightenment, why all the headlines?

The Bulldog edition of Monday's report should be up by 6 PM Sunday - check back then?

Friday

Trading: The Battle for 10,000

I spent a fair amount of time both online and on the phone Thursday trying to get a bead on which way this market would break when trading got underway today. A couple of points to pay real close attention to: First, the 50 day moving average of the NASDAQ got under the 200-day briefly on Thursday before the bulls rallied starting at 11:40 AM Eastern or so. This was a very close call. Intraday action doesn't mean too much to the program trading quants, but when you see the 50 under the 200 DMA, that's something which can trigger sell programs. So that (and Amazon's sales figures) are definitely going to be pushing on the market today. The second thing to watch is the price of gold. In the early trading this morning, it's down more than $3 and that usually means market weakens is to follow (or very bad news).

Where are we going? A good question, and one that I put to my friend Robin Landry, who is a long-time trader and runs a Raymond James office up in Shawnee, Oklahoma. He says there's a chance that this is it, and by it I mean a huge collapse of the market to perhaps a retest of the post 9/11 lows - which would put us in the vicinity of 6,300. On the other hand, we could have a retest and slightly higher post peak high.

Before I get to his comments, realize that he's a technical analyst who uses Elliott theory as one trading tool. He relies on a lot of other inputs as well such as the McClellan and the other usual suspects. His "big picture" view is that we saw the beginning of a Super Cycle down begin with the all time high in the spring of 2000 and that big Wave A ended sometime last fall. Since then, we have been in a Wave B rally. OK, got the picture? Stand back from the chart and you can see what he is talking about.

Here's how Robin put it in our telephone interview:

"The decline we have seen so far is one of two things:

Either the rally that ended on March 5th was wave c or we are in a small wave 4 with one more small rally for a fifth wave up that would complete c of B.

What is making the likelihood of the B rally already over is the breaking of the 200 day moving average and not getting above that.

However, the daily indicators are still saying that we have a possibility for that final rise up.

Where would that rally hope disappear? If we break the low of May 17th of 2003 (around intraday of 9852.59) probabilities increase that the B rally is over and we are now in C wave down .

If this is a third wave C down, it will be the most damaging – the longest and the strongest of the bear market yet. You can’t ride those waves down – you must get out and the sooner the better.

What is very very confusing at this time is the daily charts and data says we should rally up, but George, we had the 50 DMA today [Thursday - G} at 10,215.73 the 200 DMA is 10,212.56 – they are kissing each other. If the 50 goes down through the 200, a lot of institutions start selling. That’s what they’re doing. If the May 17 low breaks, the institutions will head for the the hills and the 50 DMA will cross below the 200 DMA and now you have a major signal that the top is in and the next down wave in the bear market has begun in earnest.

There is very little leeway in the zone we are in right now before things begin to raly or decline catastrophically and get out of hand.

If I was a terrorist and I had any knowledge of technical analysis this would be the time that I would do something because when things are right on the edge and they can go either way, and the complacency is everywhere – no one is worried about the VIX [volatility index - G] right now – that’s when the largest damage will occur. The biggest damage from major market moves happen when you’re complacent.

I don’t know what would be outside the catalyst, but sometimes it goes unnoticed until after the fact – maybe it’s the overall deterioration of the market as a whole. For example, we have good earnings and the market is still not able to rally, that’s bear market action.

The daily says there may be one more rally. The weekly says we’re going down. The monthly says we’re going down. So when you have two out of three like this, the daily is bucking the trend. If we have a fifth wave rally after a fourth flat, the fifth wave is sharp, short, and swift and the rally is the within the triangle when it was formed.

So looking at the S&P or Dow 10753 was the high low 9852 so the difference would be the maximum that you expect the rally to be once it gets started. Looking at today’s [Thurs - g] intraday low – and they’re trying right now – the low today was 9946 so if you take the 901 points from today's low to get 10847 a slight new high – if that happens and nothing else changes on the indicators – and if there were still negative divergences – that would be the end of the big B Wave and down we go.

When you have program trading [which we wrote about two weeks ago for our Inside Report subscribers - G] what they do in the morning is this – they get the market going up in the morning, if nothing has happened they exit and it comes down at night. Very few traders will carry overnight positions and fewer still over a weekend.

Lower highs and lower lows – if this continues, it's a bad sign"

So that seems like a pretty reasonable assessment. As a long-time option trade (and SEC pattern day trader myself) I stopped playing the market when the program trade numbers got over 50% - and they have been holding above 50% of the market volume on the NYSE for longer than I'm comfortable with.

One of our tipsters, EJ, thinks that the developing problems of the GSE's that are propping up the housing bubble are worth noticing: http://biz.yahoo.com/ts/040722/10172925_4.html Oh, I suppose. But we've known that is coming. It's just when the bubble pops that it debatable.

So how do I get rid of temptations like putting on a big put position and hoping for a breakdown and making a huge return? Simple: I'm taking Elaine up to Shreveport today, while Panama gets some quiet time at the ranch, so E can have lunch with a girl friend - and while they're chatting, I will take a $100 bill and run it through the slots (Yes, I'll report my earnings/loses tomorrow) knowing that the odds in the casinos in Shreveport are probably better than the odds of playing this market. Besides, I'll score a few free drinks and maybe a lunch. A lot more than can be said about my discount brokerage firm's approach!

Microsoft's outlook is weighing on the pre-open and my gold trading friends are probably kicking their Fibonacci charts of gold - which looks like the Powers That Be are kicking it like crazy and hyping the U.S. dollar.

Train Follow-up

I had an eye catching email from a reader overnight - as a follow up to our short Train Search story that Steve Quayle and I talked about on his radio show last night: "Also, I live near the San Diego Amtrak tracks and just noticed a Huey with six light banks circling the tracks with spots on while making its way up the line. More train concerns?? P.S. It's midnight here." Nope, not surprised. Something BIG may be afoot - another reason I'm not in the market. I figure my bank will still be liquid - whereas the markets might close for a while if a terrorist attack hits.

Rogue Waves

Since we moved off the sailboat in San Diego (has it really been 2 1/2 years?) I don't usually get into nautical stories. But every offshore sailor's nightmare is a so-called rogue wave. Now, there's satellite evidence that such often reported waves are real - many report atr more than 100 Feet! http://news.yahoo.com/news?tmpl=story&cid=1540&u=/afp/science_sea&printer=1

9/11 Report

A couple of snips from the 9/11 report worth mentioning. One is that U.S. policy on Israel was one of the motivations for the attack http://www.kentucky.com/mld/heraldleader/news/nation/9222612.htm. Our occasional mention that Israel receives more than 30% of U.S. foreign aid is not in any way anti-Semitic - I just pointing out that strategically, big spending in a poor neighborhood often yields unintended consequences. Sort of like putting a box for a plasma TV in front of one house in an inner city neighborhood causes unintended consequences. And Israeli land grabs continue on the West Bank: http://english.aljazeera.net/NR/exeres/7DFB337D-F86C-4AB2-812C-29D64CB7C923.htm

And the report isn't overly happy with the spinster's label "War on Terror" - thinking it might be too general: http://seattletimes.nwsource.com/cgi-bin/PrintStory.pl?document_id=2001986368&zsection_id=268448413&slug=policy23&date=20040723

European Pay Hacks

We mentioned earlier this week that the people of France were about to kiss of their precious 35-hour workweek as globalism takes down their lifestyle STORY. Well lookie here, what's this? Daimler workers in German have struck a deal with trade unions over planned cost cuts. Key quote? "As part of the agreement, managers will take a 10% pay cut, while staff will work more hours and forego wage hikes."

No kidding, imagine that: Global trade is shown again to be hacking down the standard of living for everyone but really marginal people in least cost countries (LCC's) and the Big Lie crap shoved down worker's throats in industrialized countries, aided by economists of questionable intellect, is that (repeat after me) "Globalism is good for everyone, globalism is good for everyone..."

Globalism has and will...

Lower the average prevailing wage on a purchasing power parity basis
Steal America's capability to be industrially self sufficient (Ooops! Too late...)
Allow foreign national to steal internal jobs like the Mexican truckers who are running American's off the road
Increase energy consumption in LCC's so that the oil crisis gets worse..
And last but not least, insure HUGE corporate contributions to lawmakers and presidential candidates who push the globalist's agenda.

Can I, the people's economist, offer any suggestions? Oh sure...but you won't buy it until we're into what Bob Prechter at Elliott Wave sees as the Mother of all Depressions. But try these on:

Vote absentee so there's a paper trail and your voting can't be canceled.
Force Congress to enact a purchase power parity tariff system that will insure that when goods are made overseas that the prevailing wages actually paid to workers will be equal on a purchasing power basis to wages paid in America for the same work. And if the workers overseas aren't paid American wages, you ask? Simple: Charge a tariff on the goods and use those funds to pay U.S. unemployment and to fund R&D and job growth oriented actions within the U.S. In other words, level the damn playing field so company's can't play the wage spread to fatten corporate profits. It's a crooked game - and if you can't see that, you're blind and deserve what you get. Any politician who voted for NAFTA or supports the Free Trade Area for the Americas should be, in my opinion, removed from office for treason. They've sold out American workers.

Recalled at 68?

Think the Army is desperate for troops? Try this on. A 68 year old doctor has been notified he's going to Iraq! http://www.independent-media.tv/item.cfm?fmedia_id=8232&fcategory_desc=Under%20Reported

Earth Oddities

First it was the flocks of birds disappearing - about a month back if I recall correctly. Now, we get 3/4's of the pigeons in a race getting lost! http://www.rense.com/general54/4848.htm I won't tell you what this means to other fowl and anadromous species of fish.

OK, enough of a rant. I've going to Shreveport and work off some of the stress. Check back tomorrow for an update...and if you don't drop by till Monday, have a great weekend. And remember, in Depressions, cash is King.

Thursday

Updated 16:30 Eastern

Train Search Update

Nothing was found on the Amtrak train that was held for over an hour this morning in Newark. But if you're keeping track of stats, which we do once in a while, it looks like there have been seven pretty serious train searches in the past ten weeks:

May 20 – two Amtrak  trains searched – both NYC – Washington trains  
(running total: 2)
May 21 - Philadelphia story about “concern”
June 6 – Chicago – Washington train search (r/t: 3)
June 8 Boston announced random searches
July 5 Miami-NYC train searched (r/t: 4)
July 6 Seattle-Chicago & Portland Chicago (r/t 6) Search (Alaska man 
in custody on this one)
Today: Police & FBI search train at Newark based on suspicious note. (r/t: 7)

This means the Department of Homeland Security, working with local police, are doing a very effective job of stopping trains when there's even a hint of something rotten. Looks to us like a trend of increasing interest...the lessons of Madrid did not go unnoticed. We'll expect many more searches this summer.

I'll be on the Steve Quayle Radio program tonight at 7 PM Eastern talking about this - and where the economy is going. You can click over to www.stevequayle.com and look for the Q-Files and then go to the streaming audio - Listen Live link.

Two for the Bots

OK, maybe it is more than one. Let's start with the market. I've been watching the futures and they are pointing as I write this to a weak opening - and that's on top of a 102 point nose-bleeder yesterday which should not have happened because Sir Alan was telling us how good things are becoming.

One needs to be very careful when watching The Great One's performance. Here's an example. When I watched his testimony, both days, not only was he seemingly unable to answer a direct yes or no question - without gobs of caveats, but he relies so heavily on the word judgment. Here's a little lesson in Texas style straight talk: Whenever you here a word like judgment, try to simplify it to something shorter. In this case, substitute the word guess. You see what happens? The image of the person making the pronouncement changes from a high and mighty judicial sounding person to that of something like a common man. But wait! A common man would never admit that he was guessing about what will happen with the largest economy (and paper debt pile) on earth. If he did, he'd sound like a buffoon. So off to the thesaurus for a tasty word that means the same thing, but makes the speaker sound better.

Unless, of course, you're a straight talking - straight thinking small investor.

I don't mean to get off on a tangent here, but we know from the forecasts at www.halfpasthuman.com in the latest web bot run - which we summarized here many weeks ago - that the market would begin a slow decline over the summer (we expected it in June, but July is fine) which would feel like 15% a month. It looks to us that this forecast is now coming true. Here's the problem, if the bots have nailed this one, it means that we will have a mini-crash around October (the bots thought September, but the timing is the hardest part of the bots).

One other point - the bots also talk about outrage over children - and the Arab world is now becoming upset about reported abuse of children in Iraq by allied forces. Whether the charges are true doesn't matter to this proprietary futures forecasting technique that relies on changes in emotional perceptions. It's all about the emotive content in people's heads and at least two important data points have now come into focus.

Did Cheney Double-Deal?

That question is now swirling around Dick Cheney according to reports in the UK Independent. Some question about whether Halliburton violated sanctions: http://news.independent.co.uk/world/americas/story.jsp?story=543331 This in addition to the Plame grand jury which the web bots said would break in August and would be highlighted by two witnesses to events.

9/11 Report

It's out. STORY But there's nothing we didn't already expect. The British count 10 blown opportunities to avert the tragedy: STORY

Berger Bits Part 2

Things are looking more and more tenuous for Sandy Berger, one time national security advisor to Clinton. Not only has he been accused of hiding classified information in his socks but now - you'll love this - he reportedly tried to get monitors to give him private time so he could take private calls, and then there's the number of bathroom trips: http://www.news-leader.com/today/0722-Guardsleft-138802.html Gotta wonder who his urologist is, eh?

Another Beheaded Body

...has been found in Iraq: http://news.bbc.co.uk/1/hi/world/middle_east/3917091.stm

Watch Ramadi

There's intense fighting in the western area of Iraq where violence has flared around Ramadi. We're watching this because this is the kind of area where the Iraqi government could find Syrian insurgents kicking up things a notch: http://english.aljazeera.net/NR/exeres/49850E13-EDB2-475C-A7D2-ACF38D6C5CBB.htm Good read: Intervention Magazine's latest on how the neocons positioned the war in Iraq to fail: http://www.interventionmag.com/cms/modules.php?op=modload&name=News&file=article&sid=809

Vote Absentee

I am planning to request my absentee ballot this week - so I can have it on hand when the elections are canceled by a terrorist event. Backgrounder on presidential authority to cancel elections is at http://www.prisonplanet.tv/articles/july2004/200704cancelelections.htm but as close as I can figure, the way true patriotic believers in the Constitution can step around the whole debate is to vote absentee. Side benefit: There's a paper trail of votes for the inevitable challenges. Sure, why not? Get your absentee ballot today!

Extinction Warning

Could be that a sixth generation of mass extinction may be of our own doing. So says the article at http://www.innovations-report.com/html/reports/life_sciences/report-31436.html Not a very pretty picture, but the possibilities are there: greenhouse gasses, melting of glaciers raising sea levels more than 250 feet over time (bye bye to Florida) and all the rest. The problem? The species with the most to lose is humans.

Kerry's Party Relabeled

Know the difference between Republicans and Democrats? Could be the Democrats are "War party Lite" says an article at http://www.rense.com/general54/gearsypo.htm

Wednesday

Microsoft - Dividend

For a long time, while the stock was headed skyward, one of the major criticism a few of my more well-heeled relatives had of Microsoft was that the stock didn't pay a dividend. The result of this approach was a mixed blessing: The relatives missed the big run up in stock price, but they also missed the collapse of the tech bubble. Now comes word that Microsoft will dish out nearly $75 billion to shareholders: http://apnews.myway.com/article/20040720/D83UONTO0.html It's a good move - the company is healthy and cash in the bank, while nice, could be spent on something - like the share buyback plan and cash directly to investors.

Johnson's Head

The BBC reports that the head of Paul Johnson has been found - in Saudi Arabia:

http://news.bbc.co.uk/1/hi/world/middle_east/3913629.stm Meantime, the reported leader of al Qaida in the region - supposedly killed Friday night in Riyadh may not stop - or even appreciably slow terrorist activities in the area: http://news.bbc.co.uk/1/hi/world/middle_east/3826423.stm

Interesting problem for the U.S. to address in Iraq: Unemployment. It's now reported in Arab media at 70% - http://english.aljazeera.net/NR/exeres/A66151CB-2105-418B-BFAA-73211A631611.htm

Barrier Battle

The UN General Assembly voted Tuesday to condemn the Israeli version of the Great Wall. http://news.bbc.co.uk/1/hi/world/middle_east/3912487.stm. Israel plans to ignore the vote - which we note was non-binding. Your tax dollars at work.

Chicago Arsonist

A June fire at an office of the Illinois Secretary of State has turned out to be human-caused. In other words, probably arson. A fire last October at the Cook County Administration Building killed six. http://ap.tbo.com/ap/breaking/MGB96OMGXWD.html We mention this because the arsonist seems fixed on attacking government infrastructure.

Global Warming Suits

Looks like attorneys general from eight states and the city of New York are planning to sue major power companies over global warming. http://ap.tbo.com/ap/breaking/MGB96OMGXWD.html We keep pointing out that the sun's recent change in activity is also a major contributor - and besides, humans handing money back and forth won't solve the problems of global warming, seeds of which go back a decades.

More Greenspan

The Senate got an earful of Sir Alan yesterday - his remarks are at http://www.federalreserve.gov/boarddocs/HH/2004/July/testimony.htm if you'd like to read them. I notice which watching him artfully dodge questions from Senators Sarbanes and Bayh that the Chairman seems incapable of issuing a direct yes or no answer to anything. I think the term is weasel wording. Especially weak was Greenspan's defense of globalism, his defense of a lack of job growth, and yes, his lack of understanding that oil price hikes may not be transitory.

Econ Discussions

When you click over to our economics discussion forum, remember when you log in at http://urbansurvival.com/cgi-bin/discus/discus.cgi to click "Enter as guest". The password protected areas are for consulting clients.

Special 12:30 PM Update

L.A. - Next Terror Target?

Several readers have sent me over the past few days an article which was published by Annie Jacobsen on the Women's Wall Street web site. Essentially, the story was that on a June 29 flight from Detroit to LA there a large number of Middle Eastern looking men on the flight, perhaps totally 14 or so. What made it interesting was that the men sat at different places around the airplane and it was a very nervous flight. Still, nothing happened, but the story has been going around the web like wild fire: http://www.womenswallstreet.com/WWS/article_landing.aspx?titleid=1&articleid=716

Today, I have just concluded an interview with a Los Angeles precious metals broker who reported something very similar happened to a flight he was on June 19th. The individual, who we'll won't identify by name (except to DHS staff), says events went something like this: Five or six Middle Eastern looking men got on the JetBlue flight he was on from San Francisco to Long Beach. According to his eyewitness account, the men sat at different places on the aircraft and exchanges occasional signals with each other in the forms of winks or nods. He also said he was extremely uncomfortable. The flight was otherwise normal, and he didn't think any more about the incident until another metals trade (who I speak with occasionally) printed him a copy of the http://www.womenswallstreet.com/WWS/article_landing.aspx?titleid=1&articleid=716 article. That's when he spoke up and my friend put him in touch with me.

I mention these incidents now because it's not one odd flight report - it's two. Granted there are lots of Middle Eastern looking men flying into LA every day. But with winks and nods on two flights, it's enough to make me wonder what's going on or about to go on in Southern California? It might just be coincidence, but it just might be something more. We've learned to be especially wary of coincidences.

3:40 PM Update

As it turns out, there may actually be something more to the nuclear rumor below. I have been comparing notes today with Steve Quayle and will be on his radio show tonight at 7 PM Eastern. Quayle apparently believes that two nuclear weapons were disarmed in the Northeast this week.

I am extremely sensitive to the issue of racial profiling of travelers. It's bad and worse. However, when groups of people – and I don’t mean two or three businessmen, or a family traveling together, I mean five or six people sitting on different parts of an airplane are reported signaling with nods etc. then I think it reasonably comes out of racial paranoia and goes into diligent watchfulness category.

Gradualist's Dilemma

In our analysis of the problem faced by the Fed at its next session BELOW we noted that although the Fed has signaled that it would like to raise rates gently, we expect unexpected softness in the economy to be the issue, not rampant inflation. It therefore came as no surprise when word came out today that housing starts have taken an unexpected turn for the worse: Down 8.5% from the previous month: http://biz.yahoo.com/rb/040720/economy_housing_1.html. All of which leads us to speculate - almost wildly, but not quite - that the Fed Chairman this morning will use words that will frame a "no raise decision" when the Fed BOG meets next. Sir Alan knows that to mismanage the housing bubble will be to tank the world in the process.

This, by the way is one reason why gold is soft this morning. It doesn't take a rocket whiz to figure that if housing starts are down, inflation speculation has chilled - and with it - the chance of a monetary-driven hyper-inflation.

Berger Bits

Someone is going to make dog kibble of former national security advisor Sandy Berger. He alleges that any removal of secret documents from the federal archives was just a mistake. STORY Sorry, I just can't buy it. The myth perpetuated by Democrats is that terror didn't happen until the George Bush came on watch. But there's another take: There's some thought that terror attacks against the U.S. began when Clinton was busy in office (if you know what I mean). And, the book "Losing Bin Laden: How Bill Clinton's Failures Unleashed Global Terror" would sure explain Berger's motivation to become, how shall I put this...forgetful.

France Tastes Globalism

We've ranted in the past about how NAFTA and the Free Trade Areas for the Americas was nothing more than a polite global corporatist's way of scaling back the U.S. standard of living by making people work more - for less. But today we have to give a globalist's jungle welcome to France, which is learning that their much touted 35-hour work week is toast: STORY

As a side note, I had a delightful conversation with an economics professor - colleague yesterday - who I got the impression didn't really care for my rant about how globalism was an economic takedown of workers not in LCC's. The hypnotic refrain "Globalism is great - all hail Globalism" is just how globalists wrap profiteering up in liberal's memes to sell 'em to the sheep.

Brazil Targets Druggies

You may have caught the story that Brazil is planning to start shooting down unresponsive aircraft flying over its countryside starting in 90-days. It's a war on drugs and Brazil is doing the right thing. But here's the gotcha: T^he U.S. says that it is worried about U.S. aircraft being shot down accidentally. STORY But here's the real deal: We all know (being not complete lanolin headed sheep) that the BIG drug money funnels a fair chunk to the business interests of globalists and certain politically connected enterprises. I don't need to remind you of the CIA's past involvement in the drug trade, either, do I? That's what's at work here. Brazil isn't going to shoot down 747's on short final. They're looking at things like Cessna 206's hugging the jungle canopy - and then a shoot down would be a last resort. But if Brazil gets serious, that would no doubt screw up the ultra-complex trail of drug money buying arms, funding guerillas, and all the rest of the sorry mess that is daily fare in that region.

High Sunspot Danger

No big headlines, but privately a lot of power companies and satellite providers are watching the sun closely. Click over to http://www.spaceweather.com/ and read up on Sunspot 652. If this puppy lets off with an earth-directed Coronal Mass Ejection (CME) we could have power problems. How big the problem will depend on if a CME is a "direct hit" or a glancing blow.

Creative Writing?

A reader sent in a query yesterday and wondered about a report from a service he subscribed to that alleged that the U.S. had successfully prevented nuclear detonations on the East Coast. His note:

"Basically, their intel sources reveal that devices had been found and disabled (East Coast sites). One for NYC could not be disabled and was taken out to deep sea where it exploded on July 15. They have links to a seismic site. Notice no data for July 15.

http://www.ldeo.columbia.edu/cgi-bin/LCSN/WebSeis/2004.pl

Wondering why the markets have been dropping this month without the usual interim bounces? Perhaps the hedge funds know about this."

OK, let's think about this for a minute. Suppose it were true and yes, this one web site lacks seismic data for one day. Even if the single site data was gone, a nuclear detonation off the coast would have shown up on seismographs all over the world. The U.S. has a lot of influence, to be sure, but the Red Puma web site http://www.seismo.ethz.ch/redpuma/redpuma_ami_list.html is not censored - and if you want to catch unreported (in the U.S.) quakes, that's where you'd go. July 15th doesn't look suspicious there. I'd chalk that report up to creative writing unless something more is offered as evidence.

Besides, the market is going down because there are more sellers than buyers - something we expect as the Baby Boomers try to retire early. Hey! Speaking of that...

Departure Control

We find that early retirement is starting to cause problems in a number of industries. For example, the Honolulu Star-Bulletin has a story about how air traffic controllers are in short supply: http://starbulletin.com/2004/07/13/news/story2.html. The problem isn't limited to ATC. It looks like it will be a growing problem in other industries.

The real story to watch is how big companies are running into big cash demands to fund pension liabilities. See the stories under the Google search by CLICKING HERE. The way we got into this pickle is simple: Companies back in the 1980's were looking for ready cash to put into R&D, plant and equipment. They figured that when workers got ready to retire, they would be able to raise cash then.

Then is now. And the financial chicken is coming home to roost - in spades and with interest. So if you are crazy enough to be in the market these days, I'd sure make a clear-eyed assessment of a company's deferred pension liabilities one of my due diligence points. Write down this prediction: It will get so bad in coming years that companies will go through a mini merger mania scooping up companies with big cash flow and cash on hand in order to fund pension liabilities.

Of course our investment strategy is summed up this way: "He who shorts and runs away, lives to short another day."

Dah Link Pimp Sez...

"Yo...homie...link yo site to www.urbansurvival.com/week.htm " Let me know when it's up and I will put you on my links page that I'm developing.

Monday

From this week's Inside Report - Another Global Depression Marker

Rotating Bank Runs?

It was just a week or so back that we were telling you about the bank runs in Russia. Part was due to a rumored bank failure and part was due to the crisis of confidence in the wake of the Yukos Oil grab. We notice now that toward the middle of last week there was a minor series of runs in Taiwan. The Bloomberg story says the Taiwanese central bank was ready to step in. The run was really started by mutual funds that could not redeem funds to investors with the result that five funds halted trading.

What was curious to watch was the performance of the Taiwanese stock index. We see that on a Friday to Friday basis it declined a mere 4.7% for the week (about 275 points on an index around 5,777 a week earlier). The reason for point this out is that the mutual fund business in Taiwan ran into liquidity problems last week with what would be a good-size but far from catastrophic decline.

To put it into perspective, a 4.7% decline from Friday's close of the Dow would put the U.S. average at 9,663. True, that would be a two-aspirin headache for brokers, but the technical question is if five mutual funds became illiquid in Taiwan on such a decline, what would be the implications.

On Friday, both the Dow and S&P 500 dipped below their 200 day moving averages (200 DMA). The NASDAQ, which was over 2,100 in January closed Friday at 1,883. Not to rub salt in the trading wounds of tech stock sharpshooters, but from the high close in January (2,153.83 on 1/26/04) we see the NASDAQ down 12.56%. Once again, the data suggests that all of the hyperbole about "economic recovery" is just election year blustering.

We don't very often show our proprietary Global Aggregate Index publicly, but in the interest of providing good value for all readers, even those not willing to part with $30 for the annual subscription, here's this week's picture. It shows that since Jan-Feb highs, the global index is now down 3% for the year. Our expectation is that as the summer progresses, the global picture decline will accelerate, so we'll watch fund illiquidity and bank run stories closely.

The Fed Response

As we have mentioned previously, the Federal Reserve's policy response might be based on the following kind of logic:

"If we had a Depression develop in the 1930's which was deflationary in nature, it stands to reason that whenever we see evidence of widespread deflation, we should pool all of the central bankers' resources and apply them to increasing systemic liquidity. The lesson of the 1930's might well be summarized as a delay in hitting the [monetary] gas is the killer because if the money printing starts too late, the velocity of money will have already slowed so that no amount of pricing - short of giveaway and socialist works programs - will ever get the money into circulation fast enough to maintain velocity and expand the money supply.

Carried to its logical conclusion this means that by a judicious combination of printing lots of money, while concurrently raising rates to control borrowing, we might be able to muddle through a potentially Depression-like era with minimal structural damage.

Of course there are risks to such a policy because it has never be tried before. Indeed, we don't know what will happen when housing prices refuse to collapse due to inflation, but people are no longer able to afford housing because of wage cuts and job losses. Similarly, we don't know how non-banking monetary operators such as stock mutual funds will react because we have never had runs on funds until this past week's incidents in Taiwan.

Still, the evidence seems to suggest that a muddle through with bursts of high monetary expansion and close control of rates to prevent inflationary outbreaks, is the preferable policy to a reactionary Fed which would surely have been well down the road to a specific replay of the 1930's by now otherwise."

This is, it goes without saying, a hypothetical view, but one which seems to meet the test of reasonableness when compared with observable facts such as Fed monetary expansion. One such set of facts will be the rates of monetary increase. According to the Fed's latest release, M-3 is up 4.33% since the first of this year (for an annual rate of about 8.6%) while M-2 is up 3.5% (a more modest 7% annual rate of increase) and last but not least, M-1 is up 3.68% for a 7.3% annual rate of increase.

One of the major policy problems for the Fed is that gauging the velocity of money can be a tricky business. In its simplest form, velocity of money is how often a unit of currency is turned over within an economy. At the macro level this might be generalized as the ratio of money supply to gross domestic product. That's an academically interesting number, but it doesn't do diddly squat or a Fed which is in a "must act" mode.

To be sure an approximation of velocity might be had by watching net savings rates, mutual fund inflows and outflows and things like retail sales, which were down a larger than expected 1.1% in June according to latest figures.

Another approximation might come by looking at weekly mortgage applications. According to the Mortgage Bankers Association latest news release:

"WASHINGTON, D.C. (July 14, 2004)—The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending July 9. The Market Composite Index of mortgage loan applications - a measure of mortgage loan applications - was 643.9 during the holiday-shortened week, a decrease of 6.3 percent on a seasonally adjusted basis from 687.0 one week earlier. On an unadjusted basis, the Index decreased by 25.0 percent compared with last week but was down 60.9 percent compared with the same week one year earlier.

The MBA seasonally adjusted Purchase Index decreased by 6.4 percent to 468.8 from 500.9 the previous week. The seasonally adjusted Refinance Index decreased by 6.1 percent to 1662.4 from 1769.7 one week earlier. Other seasonally adjusted index activity included the Conventional Index, which decreased 6.4 percent to 945.0 from 1009.6 the previous week. The Government Index decreased 4.8 percent to 141.6 from 148.7 the previous week.

The refinance share of mortgage activity remained at 35.8 percent of total applications. The adjustable-rate mortgage (ARM) share of activity decreased to 31.5 percent of total applications from 34.1 percent the previous week.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.95 percent from 5.96 percent one week earlier, with points decreasing to 1.35 from 1.37 the previous week (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.36 percent from 5.39 percent one week earlier, with points decreasing to 1.23 from 1.31 the previous week (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year ARMs increased to 3.93 percent from 3.90 percent one week earlier, with points decreasing to 1.06 from 1.12 from the previous week (including the origination fee) for 80 percent LTV loans. " http://www.mortgagebankers.org/news/2004/wk0714.asp

So to summarize our expectations:

We are likely to see the Fed trying to loosen money a bit in the coming weeks. They may be about to discover that even their 25-basis-point (0.25%) interest move was too much, too quickly for an economy that doesn't have underlying pent-up demand.
Concurrently, we expect that the Fed will not be able to raise rates at their meeting in August, which will be another nail in the coffin of the U.S. dollar related to other currencies.
The Fed will come to realize that they are now at the end of a "long narrowing channel" - a period of time when a broad number of policy alternatives have been narrowed to only a few choices. If they hold on a rate hike in August, Chairman Greenspan will be able to announce that "we said our response would be measured and the option of not raising rates is a possibility under that scenario. However, even if rates are held at present levels, there are enough inflationary pressured building in the system, due to the declining dollar and negative balance of trade, that systemic inflation balanced by deflationary wages, a period of stagflation will likely result.

A return of stagflation is not the death of the economy directly. You'll recall that in December I forecast an annualized inflation rate of 13% in US CPI for calendar 2004. While that seemed a horribly brazen prediction in December, I have to point out that based on the latest CPI numbers from the BLS at http://www.bls.gov/news.release/cpi.t01.htm, the following are already showing significant increases:

Meat, poultry, and eggs are up 9%
Dairy and related products are up 15.9%
Fats and oils (food) are up 9.5%
Hotels are up 5.5%
Fuel oil (home heating) is up 14%
Water, sewer and trash collection is up 6.2%
Private transportation is up 6.1% (even with rebate programs!)
Gasoline is up 33.4%
Medical care services are up 5.2%
Hospital stays are up 6.4%
Education and tuitions are up 7.3 and 7.4%

These increases do have some offsets, but the impact of higher oil prices, which are back up around $41 this week, promise to keep working through the system to the detriment of most consumers. As this work-through process takes upwards of 60-months to fully work through all aspects of the economy, we can see that higher energy prices will continue to be problematic well past the short-term political horizon of November 2004.

It's also a near certain bet that regardless of who wins the election in November that the country will be back into a recession - and more unemployment - by mid spring 2005. With the election past, I would not be surprised to see some large-scale revisions to past economic numbers announced along with a quickly deteriorating rate of increase in productivity. Such increases were largely illusory in the first place, and at some juncture economists will have to revise their thinking about what constitutes "productivity".

Wikipedia, the public encyclopedia has an interesting summary describing productivity this way:

"In economics, Productivity is the amount of output created (in terms of goods produced or services rendered) produced per unit input of used. For instance, labor productivity is typically measured as output per worker or output per labor-hour. "Total factor productivity," sometimes called multifactor productivity, also includes both labor and capital goods in the denominator (weighted by their incomes). Productivity studies analyze technical processes and engineering relationships such as how much of an output that can be produced in a specified period of time.

It is related to the concept of efficiency, which is the amount of output produced relative to the amount of resources (time and money) that go into the production.

All else constant, it benefits a competitive business to improve productivity, which over time lowers private cost and (hopefully) improves ability to compete and make profit. Of course, this happy state of affairs is often temporary, as increases in productivity become generalized and output prices fall, hurting profits.

Increases in productivity also can influence society more broadly, by improving living standards and creating income. They are central to the process generating economic growth.

Many economists see the economic expansion of the later 1990s in the United States as being allowed by the massive increase in worker productivity that occurred during that period. The growth in aggregate supply allowed increases in aggregate demand and decreases in unemployment at the same time that inflation remained stable.

Labor productivity is the same as the "average product of labor" (output/worker or worker-hour). It is not the same as the marginal product of labor, which refers to the increase in output that results from an increase in labor input. "

One part of the illusion of increased productivity has been that the U.S. has transitioned a lot of its "real" economy to overseas outsources. Imagine for a moment that you have 10 jobs in a country. Three of these jobs involve old-fashioned slow to change technologies, such as CNC [computer numerical control] machining. A machined part can only be machined just so fast or you will melt the tool being used. Productivity meets the laws of physics at some point.

But now further imagine that the three machining jobs have been farmed out to least cost countries (LCC's) like India, Malaysia, and Vietnam. What you have left are now seven jobs and we'll imagine for a moment that in each of these jobs, new printers were installed that print 22 pages per minute [PPM] instead of 11 PPM from older printers.

While it is true that the printer speed has increased, the illusion, carefully nurtured by the Fed, is that computing horsepower and faster printers have resulted in more productivity. So have faster Internet speeds and the like. But underlying the hocus-pocus is the ugliness of a changing nature of the workplace from building of actual "things" to the "intellectual property" world. So it is that productivity has increased while the country's industrial self-sufficiency has been shot to hell by outsourcing.

On Tuesday, Greenspan will deliver his carefully scripted semi-annual monetary policy report to the Senate and to the House on Wednesday. In his remarks, we expect Greenspan to deliver words that will tell everyone that He has not decided on an additional rate hike just yet. The language will be a little tricky, however. He needs to keep a lid on interest rates on the one hand, but at the same time not encourage hot money to flee to better rates elsewhere. The U.S. dollar carry trade needs to unwind slowly.

I believe the evidence this week shows that the economy can not yet handle rate increases because it will cool the housing refi market too quickly. And that's a key source of funds to keep velocity of money high enough such that monetary injections can be "borrowed into existence."

You can also expect to hear Sir Greenspan's new favorite weasel word transitory a number of times. Transitory means in Greenspanese "short-term energy price spikes". What has become evident since the last Fed meeting though is that oil seems to be draw above $40 dollars a barrel, and that such price increases, in the face of soaring global demand, are not likely to be coming down any time soon.

Set your expectations for the week for a level to slightly declining market, perhaps accentuated by a brief mid-week Greenspan rally. The buzzwords will may be transitory and gradual with a dash of gradually but not more than a hint of anything revealing the nature of globalism.

Trade ambassadors will be meeting today (Monday) trying to iron out more difficulties with globalism. For the power elite, the last thing they need this week to interrupt the Greenspan confessional or the WTO globalism railroad would be another set of bank runs or a financial crisis of confidence. But with the terrorist truce period for Europe now ended, we expect to see something other than smooth sailing for the world's financial markets this week; our By Fire or By Ice scenarios above (for subscribers), notwithstanding.

Updated Sunday Night: See the NY Times piece on Riggs Bank at http://www.nytimes.com/2004/07/19/business/19BANK.final.html?hp

Sharon - Selling a Meme

We note with concern the reported call of Israeli Prime Minister Ariel Sharon for all French Jews to move immediately to Israel to escape anti-Semitism. http://news.bbc.co.uk/2/hi/middle_east/3904943.stm The story causes me to wonder about how in touch Sharon is with reality in light of the fact that the most recently publicized case of alleged anti-Semitism turned out to be a woman who later confessed that she had made it all up: http://news.bbc.co.uk/2/hi/europe/3897303.stm. No less than French President Chirac was suckered into the fray with his reaction consisting of politically correct vows to fight racial attacks: http://news.bbc.co.uk/2/hi/europe/3880585.stm We note somewhat optimistically that more clear thinkers in France are saying in effect, "hold on a minute..." STORY

Memes - if you're not familiar with the word - are thought viruses. From Wikipedia http://en.wikipedia.org/wiki/Memen

"A meme (rhymes with "dream") is a unit of information that replicates from brains or retention systems, such as books, to other brains or retention systems. In more specific terms, a meme is a self-propagating unit of cultural evolution, analogous to the gene (the unit of genetics). The term was coined by Richard Dawkins in his controversial book The Selfish Gene. The concept predates the coining of the term, however; for example, William S. Burroughs asserted that "Language is a virus". Memes can represent parts of ideas, languages, tunes, designs, skills, moral and esthetic values and anything else that is commonly learned and passed on to others as a unit. The study of evolutionary models of information transfer is called memetics.

In casual use, the term meme is sometimes used to mean any piece of information passed from one mind to another. This is much closer to the analogy of "language as a virus" than it is to Dawkins's analogy of memes as replicating behaviors.

By this definition it appears that Sharon is selling a meme - and a dangerous one at that.

Bolivia Energy Vote

Sell more gas, charge higher taxes - that seems to be the bottom line in the Sunday voting in South America: http://news.bbc.co.uk/1/hi/world/americas/3903803.stm

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