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Turning Point Past, Tension Ahead
Now that we're past the final part of the 'emotional release' period which ran from roughly September 3 through the 19th, it's now becoming obvious that the last of the release, at least in financial terms, was the Fed going with a larger than expected rate cut this week. Curiously, it is in the fallout from the cut that I can pretty clearly see the 70 days (or so) of rising tension developing, as the dollar declines, which should lead to a resumption of the late November emotional release of energies.
What the Fed has done is drop the dollar to recent historical lows, and the NY Times headlines "Dollar remains at low ebb." Ah, and ebb, is it? I'm glad to know it's just an 'ebb' not a full-scale train wreck, because that's what I expect will come into focus here in the next 70-days or so.
The International Herald Tribune's report that the "Lower US rates damp dollar demand" also seems a bit understated. This weekend, I will give Peoplenomics subscribers some possible price impacts of the dollar decline (along with a handy spreadsheet so person studies of things like your actual home price/valuation change can be assessed) but by far, the two predominate short-term impacts will be on oil prices and imported goods from China.
A 20% decline of the dollar in the market basket price (chart above), implies that $80 oil will become $100 oil, and that a $20,000 imported car will become a $25,000. I think I'll explain to subscribers how we may be in a period when you can 'drive a used Porsche free", too.
The key thing is that the Invisible Depression, Part Two, Week One, ended with a nominal gain in the Dow and the metals, that will likely fade into obscurity next week, as I'd look for the markets to pull back a bit and for recent commodity gains, including metals to consolidate. But, from there, my sense is that we'll be up, up, and away in commodities. (Disclosure: I own commodity options and and am short Oct gold via gold puts while long Dec. silver via call options going into next week - and no, this is not trading advice. It's just my crazed-a** trading. See the site disclaimer.)
The slick thing about the Fed move is that it builds a 'paper bridge' over the 55-60 day danger period for economic collapse, as shown in the following chart:
Naturally, a couple of readers wrote in mightily concerned: "When George gets bullish, doesn't that mean it's time to bail out of everything and get short?" Another called me the 'best contrarian investment indicator on the net." Till a big earthquake which I have penciled in for mid October, anyway...
Because the international purchasing power of the dollar has dropped (Thanks, Ben!) the Canadian Loonie has put in its best weekly performance since 1988. And, on the flip side, because it's a real physical thing that can't just be printed up at will, "Gold near 27-year high as dollar slumps, oil close to record highs" reports CNN Money.
$7 Billion Refinery
Royal Dutch Shell has announced plans to build a new refinery down around Port Arthur, Texas. Apparently, these folks haven't heard/read about the global coastal event which continues to accrete values in the linguistics work from www.halfpasthuman.com, but it promises to be a short-term economic bonanza.
But while this promises some short-term construction, engineering, and development jobs, longer term, it will probably result in only a few hundred jobs, if that; the state of refinery automation being what it is an all.
Which brings me to a morning coffee 'ponder point'. There was a time when a $7-billion project would create thousands of jobs. The problem with high productivity capital expenditures is they become more and more efficient till what we're left with is a capex-driven -jobless growth- economy, that I notice no one in policy positions is talking about. With good reason, I suppose.
And despite the mini-boom this refinery project will create, the Texas legislature continues stealing from the public by selling of publicly funded roads via toll concessions for private interests in order to pocket short-term revenue. Theft by conversion, is what I'd call it. Texas is not alone - that's something going on in all states now under the guide of Public-Private Partnerships. Secretive theft of public assets at sweetheart-deal prices.
Historically, we're in a
curious period, analogous I'd venture, in many ways, to the mergers of
governments and the Church that happened between 200 A.D. and perhaps the
The American Heritage Dictionary's definition of fascism comes to mind: "A philosophy or system of government that is marked by stringent social and economic control, a strong, centralized government usually headed by a dictator, and often a policy of belligerent nationalism." Oh sure, it's an overworked 'hot' word emotionally, but it seems accurate along in here.
This leads me to conclude that the corporation is assuming the same role of the Church in previous times, and thus, corporate interests are now able to play out an updated version of the Spanish Conquest of the New Land. In the historical record, religion was militarily exported to the Americas and in return, the Spanish received boatloads of gold as plunder.
In today's updated corporate version of the same game (power & control, an a piece of the tribute action), the corporations provide a 'war machine' of parallel magnitude (scaled for global population) to export Western values worldwide, and their plunder is debt-paper holders, toll road control, and as we saw this week, "more favored than human citizen" status with bailouts for Wall Street; whilst Main Street (lined with foreclosures) be damned.
Didn't mean to get sidetracked, but the broad view of how corpgov has come into being is important.
Just as the Second Council of Nicaea was a major turning point for the Church powers, where salvation/enlightenment was turns from universally and individually attainable to something requiring obedience to authority and payment of some kind to get there, so too, the recent diminution of individual rights in America for corporate purposes has established the corporate interest above humans in such areas using such tools as eminent domain, and the list goes on.
Freedom, like enlightenment prior to the Second Council, is being contained, quashed, and squashed by a Power Elite that now effectively runs a single-government system in the USA. Corporations mostly give money to both the democorps and republicorps, and the power-trippers seeking ego fulfillment in office gladly take the bait.
Not that the process has been overnight, but rather progressive. As just a single example, recall how government/corporate interests started licensing us of 'the air' with the imposition of the Communications Act of 1934, and the progressive theft of free access and imposition of government control has continued ever since. Witness the corporate moves for another internet and efforts to sink net neutrality, more recently. Accountability for the use of the airwaves was ended in the 1980's as corporate broadcasters successfully lobbied against annual reporting and Public Broadcasting was held up as an adequate check and balance. All of which gets me to:
Rather Leaking Truth
It's against this historical perspective (which we could debate endlessly, I'm sure) that we read up on how Dan Rather is suing his one-time masters at CBS for $70-million. He's making an issue of government and corporate influence over newsrooms:
All of which sounds quite laudable, but is it? An LA Times headline suggests "Dan Rather wanders too far off script" while somewhere in the back of my mind, I recall Rather is reported to be a co-owner in a ranch with, among others, former Secretary of Defense Donald Rumsfeld.
Turns out human eggs may be grown outside the body, says some new science. With the world grossly over-populated, why fertility research is worthy of so much spending is just beyond my pay grade. What happened to adopt?
On the light side: Fred Thompson video clip. "My wife would make a much better First Lady than Bill Clinton, what do you think?"
Castro's Reading Material
Cell Phone Damage
Headline this: "Using your mobile over an hour a day can harm hearing." Say what?
Oh yeah - now the state of New York has dropped the requirement for showing proof of citizenship to get a license to drive. But wait! What about the corpgov push for RealID?
Is the world nuts? Oh, foolish me. I withdraw the question.
Where is East
Farmerly Astronomy: Because I am all wrapped up in construction/remodeling and such due to our Great Water Heater Disaster of 2007, I forgot to mention that you can run out at sunrise this morning and watch where the sun pops up, and where it sets tonight. Put a take in the ground in a line from your observation point to the sunrise this morning. Tonight return to exactly the same observation point and then another line at tonight's sunset. Or, if you read this column late, do the sunset tonight and the sunrise tomorrow.
A string or line stretched between the two stakes will give you very, very close to an exact East-West line (better had we done this yesterday morning and again this morning and the two night observations, but it'll be damn close. A line perpendicular to your string will be the North-South line where you live.
If you don't trust your eyeballs, you can get a string which is 2/3'rds the length of the stake-to-stake distance and put a loop on one end of it. Then slip the loop over one stake and draw a half circle between the stakes. Repeat this circle drawing for the other stake and you'll find that at two places the circle scribing will intersect with a couple of rounded x's. A line between these two x's will be your perpendicular line to east/west, the north-south line.
When you get your lines drawn, and are confident that you know will then be able to calculate with Mayan-like precision whether your home was oriented by detail-oriented people, or just thrown onto the property by randomists, who didn't take the time to square things up.
Oh, yeah, this also qualifies you to become a "46th-degree UrbanSurvival Practitioner."
Peoplenomics: Can the Dollar's Death be Cheated This Week?
This promises to be one hell of an interesting week, and although the original plan (Saturday's, but these things are constantly changing) was to write up the likelihood of China not putting up with Taiwanese independence (to the point of UN recognition) has to take a backseat to the more complex global economic stew: "Can dollar death be cheated, once again?" We've got a number of things to look at, including my "peak to crash" chart, some nuances from my OBV options theory, the Fed meeting, Greenspan comments, and more, not to mention building tensions in the Middle East and even a new investment idea - so let's turn on the 'analysis blender' and see if we get daiquiris or garbage disposal output, shall we? The 19th/Turn Date is almost here, and there are plenty of 'life shifting' events out on the horizon to be considered. Got coffee?
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Live Better for Less
Order our handy ebook "How to Live on $10,000 a year or less - and learn to live like a Third World person now. It's coming anyway, with big job layoffs this summer - and by ordering now, you can beat the rush...You may have more time to read this fall if the economy falls apart as I expect...
Friday September 21, 2007
Triple Witches Take Profits and Fly
After some deliberating, I decided to book some commodity profits, setting up for the end-of-month weakness that I expect next week. On the first day of fall, my commodity account is up 244% while my stock about is now down 98% because I went short in a major way and the Fed move this week put the nail in my S&P puts, so my overall return for the quarter is only 11%.
In addition to clearing my gold call options, I also cleared my corn (nature's gold) options, as well. With the except of a few silver calls for December, I'm basically sitting in cash. Come next week, I will likely re-enter positions, but I expect some end-of-month downward pressure in the very short term, especially for gold, which some of my friends think will be pressed down to the $700 range.
THIS IS NOT TRADING ADVICE - THIS IS WHAT I AM DOING IN MY OWN ACCOUNTS. SEEK PROFESSIONAL ADVISE. READ MY DISCLAIMER PAGE!
Although the Fed move took many by surprise, I was even more surprised when I received an email informing me that Fed Governor Frederick Mishkin has a new paper out titled "Will Monetary Policy Become More of a Science?" Shoot, I though they had developed the art of torpedoing my put option to a 'science' already. Writes Miskin in the opening:
While I've got the balance of the paper on my reading list, a quick scan didn't find the word foreclosure, and the word "political" was only used once outside of foot notes and the appendix, so it's going to take more reading of what's between the lines to figure out what he's saying. A scan of a few more pages says it's a sales piece for Fed control of of inflation and employment, but no where does the term "sound money" appear. Call me a cynic... "Cynic!"
What Sound Money?
Clearly, the decisions the Fed is making are outside of historical norms - and after Greenspend managed to roughly halve dollar purchasing power during his tenure at the Fed, we can only surmise that Bernanke, et al, will continue that fine tradition. Headlines like "Euro roars to record high 1.4120 dollars" attest to the notion that 'Printing Press Ben" is off to a fine state.
Think I'm being to harsh on the Fed? Well, you don't need George Ure to do that - there are Canadians, after all. Not exactly dancing in the streets, but "Canada "loonie" on par with US Dollar" makes a more convincing case that me. Ooops - over par now. So sorry.
As the People's Economist, I would argue that the price of oil, which is making new highs lately, still has the same intrinsic value as it had 5-years ago. What has changed? The purchasing power of the dollar. Oh, and as the dollar gasps, "Oil puts Canada's currency ahead of the US dollar" notes one headline. Yessir. Got that.
What escapes the attention of the popular press (with a few shining exceptions) is that we have two massive 'super trends' that are colliding right in front of your investment portfolio, and yet the implications of the collapse are not seen by the average investor.
In addition to the Fed hollowing out purchasing power of the dollar (to bail out the multi-gazillionaires who made bad/greed-driven subprime predatory loans, and then sold them off as triple A paper, there's this little matter summed up in this morning's Globe and Mail:
My guess? Given that we don't have a massive economic shock (like Quake #3 in the linguistic outlook hitting a key production or shipping center for global trade) I would have to expect that by this time next year, the price of oil will be more on the order of $140 - because as the Fed goes with the 'easy money' plan, not only will pernicious long-term inflation be setting in, but along with that the short-term economic stimulus will continue to drive up demand. Inflation plus resupply shortage by oil. Gee, let me think: What might that spell for oil prices?
Waiting Around for Inflation
We're not alone, thinking this way. John Waggoner writes in USA Today this morning that "Inflation Lurking? Adjust portfolio just in case."
Inflation shouldn't take all that long to show up. You can get snips of it everywhere - it's not not actually here yet. And besides, when it does show up, we have a one or two month period of hysterisis (time lag) till the new price levels are recorded by the guv'mint and then they will be hedonically hoaxed up as best they can to show "Everything is normal, this is a great economy, Citizen."
Don't Overlook Climate Changes, Either
One of our tea-drinking readers, who gets the daily newsletter from the UK's Nothing But Tea web site and tea store, said that yesterday's newsletter basically advised customers that climate change might have some impact on tea prices sooner than later:
They pointed out some positives too, but I got the sense that weather would impact my periodic sips of orange spiced tea, a habit on hold for the past few months due to the high temps here in East Texas.
Remember that food prices are a combination of input costs - and oil is among those, too. So if you have bad weather and rising oil (which hit $84 yesterday), you have to figure that what's in the supply chain will be going higher.
A year ago, my neighbor was paying about $8.75 for a 50 pound sack of medicated goat feed. I just bought some and it was over $10. Pencil in at least 18% inflation for meat goats, and I expect, similar increases for chickens, cows, anything that eats.
Email of the Day
From up in the Front Range country:
Our lower interest rates don't just look bad to international investors, they look "butt ugly, whupped with an ugly stick" outside our own borders. Let's say you were in China and you bought a US Treasury paying 5% when the dollar was at 82 on the market basket.
today the dollar has traded down to about 78.30. Let's do the math. 78.30 divided by 82 is .954878%. 1 minus that means the currency swing overseas has just dropped the purchasing power of the treasury instrument by 4.5%. Now, since this might happen in less than a year, you can see where the Chinese would be getting nervous: They have dollar denominated instruments that can drop faster than the interest accrues -- following this?
On the second part of your question: No, the Fed didn't exactly print money. What they did was encourage others to print money.
When is money created? If I sell you a widget on a time payment plan and charge interest, I am really 'creating money'. So by lowering interest rates, the Fed is encouraging more borrowing and economic activity. While it may not show up in M1 or M2 (and remember they hid M3), the corporate creation of money goes balls out. Housing loans fire up a bit, and inflation follows.
The art of being a Fed governor (or Chair) is to keep these things running by your own plan, remembering that we are in an "Invisible Depression" and so the balance is delicate between hyper inflating and wild deflation. Hope this helps...
Ure Construction and Plumbing
We got the subfloor which was soaked by our water heater disaster all exposed yesterday. Now, just a couple of hours to replace the subfloor, rough in the replacement supply pipes and run the 10-2/g wire, pop in the new breakers, and we should be back in hot water today. I'll try to get a picture for tomorrow of the demolition work - been quite a project - and much to her credit, Elaine has been doing a lot of it. Such is life on a homestead. Teamwork followed by a beer. It's a lot more personable that texting back and forth to your spouse, and for sure more fun...
That will leave me all weekend to finish up the goat fencing - just 600 feet of fence to go. Yee haw!
Thursday September 20, 2007
Update: The New Five Dollar Bill
No, not a Amero - think of this as a Purple Back. New from those "All debts public and private" guys. Hey! Maybe the recession will be a one-eyed, one-gov, flying purple paper-eater, huh?
Hell, I'm sol old I can remember when money (paper) was backed byt he "full faith and credit of the United States." Whatzzat?
$5 doesn't go far on Wall St. so let's open that repo window!
Invisible Crash - Part Two, Day Two
Grudgingly, I have to admit that the Powers That Be and the Fed have been doing a swell job of managing the Invisible Crash - which is what I call it simply because most people don't get what's going on right in front of them. It's almost like a game of three-card Monte. While the nimble fingered trickster might object, "Call it "follow the Lady," they'd say, I call it "Follow the Bubble, Follow the Terror Show, and then Follow the Dollar," around here.
To bring you up to date The Beginning of the Second Depression came in March 2000 when the markets hit all-time highs and the Big Decline began. As it picked up steam on the downside, millions of investors lost trillions of dollars. Then, about the time that the SEC was getting ready to really do something about naked shorting, and (then there's the gold and silver) etc., along come a couple of airplanes which wiped out two buildings and their contents, which in turn gives rise to a War On Terror (a modern analog to the Civilian Conservation Corp of the 1920's and the Works Progress Administration), and that has just been trumped (no, not the Don) by the surprise rate reduction this week. You "follow the Lady" here, right?
Not that I would do anything differently if I had a few trillions: Imagine the pandemonium, human suffering, loss of jobs/life/economic clout, that would have accompanied the US's descent into an obvious Second Depression should the WTC attack not taken place! There would be no missing data for the SEC, there would be not War on Terror, there would be no Operation Iraqi Freedom, and Saddam Hussein would still be alive, although he'd be isolated and still trading oil under the table, no doubt. Oh, and something north of half a million Iraqi civilians would still be breathing.
Instead what we have is an OK economy (as long as you believe the numbers), a huge variable-spending opportunity to keep the economy going, and a Fed that continues to try and walk the tightrope between an inflationary workout of things (like the Weimar Republic) or a deflationary work out like the USA's first Great Depression.
So what's an investor to do? First, let's be realistic.; If you try to get straight answers, such as the real report on 9/11/Twin Towers (Why did building 7 fall down unless it was a rigged explosion, anyway?), or trying to get a question answered by one-time presidential hopeful John Kerry, you're like to get tased (or worse) and that's that. Or, if your actions can be wildly construed as supportive of "terrorists" then your property can be seized and you'll be out on the street. So, let's not rock the boat, at least too much.
Now, here we are at the precipice of what could be a huge decline in purchasing power of the US Dollar and the Fed continues its great economics experiment, gambling (with the whole world's global economy in the pot (to put it in Texas Hold 'Em terms, we're all in on this) walking that tightrope. However, an investor like me sees two immediate impacts.
The first is that the US is probably about top lose it's place as the World Reserve Currency. What that means in a nutshell, is that the USA's paper won't buy as much as it used to. Check the dollar basket price above and you'll see that today it took out 79 and dropped down to the 78+ range.
OK, in reaction to that we're seeing the price of commodities go up. Gold is up, silver is up, oil is up, and even my corn play on the commodities exchange is doing just dandy. So well, in fact, that my broker JB called this morning to tell me that my "nature's gold - corn" was looking good at the open because exports nearly doubled in the latest reporting week. Fine. Saw that coming.
THIS IS NOT A RECOMMENDATION TO BUY OR SELL ANYTHING IN YOUR ACCOUNTS. I WRITE THIS SITE BECAUSE I FEEL LIKE IT AND IT'S ABOUT MY OWN EXPERIENCES AS A JOURNALIST AND ECONOMIST AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE. INVESTING THE WAY I DO INVOLVES SUBSTANTIAL RISK AND MAY RESULT IN THE LOSS OF 100% OF YOUR INVESTMENT. IN COMMODITIES, YOU CAN EVEN LOSE MORE THAN 100% IF YOU DON'T KNOW WHAT YOU'RE DOING. SEEK PROFESSIONAL ADVICE BEFORE TRADING. CONSIDER GAMBLERS ANONYMOUS. OPTIONS TRADING AND STOCK TRADING INVOLVES RISK. DO NOT BET MORE THAN YOU CAN AFFORD TO LOSE. (Whew! Need more coffee after that.).
The second point is that George in the outback of East Texas (we still get tax bills and have an Outback up the road, so it's not exactly the ends of the earth) is not the only one who sees the dollar losing value. Take the headline "Fears of dollar collapse as Saudis take fright"
Much to their credit (or is that debt?) the Fed so far seems to have engineered a fine and orderly decline of the dollar. Naturally, the way I see it, real things are just about guaranteed to go up in price as the dollar declines. Things like anything made overseas, because the dollar won't buy as much there anymore. Yet, despite the prospect of $800-$1,000 gold, $100 oil, and enough money to take Elaine on a cruise from the corn options, this new leg down (care to be on the next crisis being about 70 days down the road from here?), most people don't have their heads open enough to either see, or let alone play along with, the evolving picture.
The meaning of headlines like "Gold hits 28-year high after dlr sinks to record lows" just doesn't seem to register with folks.
Here's a hint: "If you see inflation coming, buy things. If you see deflation coming, own secured debt." I told you in 2005 that I was buying silver when it was under $7 an ounce. Today, it's over $13. In 2001, I told you I was buying gold when it was $280 an ounce. Go check today's prices. I told you I was buying farm land here in East Texas when it was $1,843 an acre. Today, it's selling for between $3,000 to $4,000 an acre, depending on parcel.
But here's something you should write down and frame in your office or put on the refrigerator door someplace:
"PRICE MEANS NOTHING UNLESS YOU ARE BUYING OR SELLING"
We're not inclined to be selling anything in here, and if the Fed's efforts work (to inflate just enough to keep the system from imploding - an interesting notion - then hanging on to a house might be a good thing. The challenge is to keep a roof over your head at the lowest possible price, now that the Fed's (inflationary) hand has been tipped.
If your house price has gone down 15-25%, it might take a couple of years for your former value to be puffed back up again, however, and then there is the risk the Fed will get things wrong along the way.
My deflationist friend Jas Jain sent me an interesting table he's worked up covering house prices in California:
And yes, the housing collapse is still ongoing, as a reader in Arizona checks in with this:
And no, the return of 'easy money' by the Fed is not going to bail out people who are already upside down and about to get trashed by resetting of home mortgage rates on all those ARM's that blow up over the next couple of months.
We've got two days now of a close over 1,521 on the S&P 500 - and as I told you before, it is possible for the stock market to go up while the rest of the economy looks terrible, simply because the stock market is valued like an apartment house in a period of inflation. So, don't be surprised to see the stocks go to all-time record highs now, while you can't find a job, or find the price of milk heads to $7 a gallon. That's just the breaks.
My friend Robin Landry, who has a computer model that has been bullish on the market all through this latest decline, says he thinks the market may have one more huge run up ahead of it. He's looking for a Dow north of 16,000 and I wouldn't bet against Landry's model. "Every dad-gum time I go against my model, I lose money, George and it says we're going up..." he told me.
No doubt, some readers will take my current outbreak of inflation optimism as a sure sign the gates of hell are about to open on the downside. But, for now, that's how I see it: The three-card Monte game has one more move left - a massive 5th of the 5th of the 5th to come before things sink.
Next stops as I see it now? At least a 70-day slide of the dollar, a Dow of 15,000+ as a consequence, and roaring commodities.
Today, while jobs numbers will be reported strong, "Paulson, Bernanke prepared to defend response to Housing Slump" on capital hill.
Here's Bernanke's rap:
In short, just another day in Traderdise. Look at the Chart above: Dollar under 79 on the basket and coming down toward 0.70 Euro. Go things! Bye, bye, paper
While people in South America have been worried about the cause of more than 200 people getting ill after a meteor hit there over the weekend, the latest is that it was likely just gases from the impact. There had been speculation it might have been a spy satellite coming down, but now seems not.
The flooring disaster here at
the ranch continues to unfold. Turns out that yes, I did have one of
those plastic pans installed, but it overflowed. So today, we are
playing the rest of "pick up the mess" as we discover just how far the water
has permeated. I have four sheets of plywood and the number of the
flooring place at the ready, if that gives you a hint.
As a result, I am keeping today's report short - there's o much going on right now that working till late on the floor, the other demands on time, well, you got the idea.
Wednesday September 19, 2007
Fed Move: Orchestrating the "Invisible Depression"
Several readers have asked me to give an analysis of the Fed action on Tuesday and explain what it means going forward. You asked for it...
A couple of years back, I offered the idea to Peoplenomics subscribers that although the economy is likely to crash, there's might be one way to orchestrate a crash to make it 'disappear." The "way" is to walk a perfect tightrope between a runaway deflation, such as the Weimar Republic experienced in the 1920's, and such as Zimbabwe (with 6,592% inflation) is presently in the midst of, on the one hand, while at the same time avoiding the pitfalls that come with a deflationary collapse -- like the one the US went through in the Great Depression of the early 1930's, and what was technically the Secondary Depression along about 1937-38 compounded by perverse economic policies of the time.
From a policy perspective, what this means in practical terms is that the Fed can not operate, and has not been operating, on an even-handed basis. I just lost $1,200 in put options because the 'free market' is not being allowed to be 'free.' Without massive Fed intervention/easing, the stock market would have declined and some of the rot would have been sorted out.
I must be a fool to believe in free markets! Instead of letting the normal forces of free market capitalism cause deserved failures among the companies that over-leveraged, and especially the investment houses which made malinvestment during the real estate/house flipping bubble, the Fed instead threw open the discount window and is providing systemic liquidity like never before in order to keep the corporatist/globalist status quo alive.
Don't get me wrong, I'm not cheerleading a crash. However, I do cheerlead for HONEST MONEY THAT HOLDS ITS VALUE OVER TIME. That went missing in 1913 when the Fed seized America.
You'll notice, that the Fed wasn't pimping easy money when the markets were going up, but was only compelled to rig the table when there's a threat of it going down appeared. Can you say asymmetric policy? This has nothing to do with maintaining sound money - only maintaining the existing status quo of ever-increasing corpgov exploitation of humans. More work, always more work Citizen, for what foreclosed homeowners experience as a declining lifestyle.
Recently, I showed you a 'precrash' chart, showing the danger zone where past markets have dropped precipitously about 55 days after a major peak Today, with a close above my "line of death" brought about by the unexpectedly large Fed cut, you can see that the economic Valley of Death seems likely to be traversed - and it will only take a close over 1,522 on the S&P 3-4 days running to turn me into a wild bull on equities. If I were so foolish...
While the Fed's policy sounds superficially reasonable, and it could be argued that it will bail out homeowners who are already seeing their homes repossessed in record numbers, the real beneficiaries of the cut will be financial institutions.
The Fed knows full well that had the free market been allowed to prevail, the market would have collapsed, just as it did in 1929. What we would have surrounding us would be failed pension plans that were hip-deep in equities and liar's paper, there would be wiped out pensions, even more massive declines in home ownership, the whole gamut of bad juju for the economy.
All of which would be marvelous, if it were to arrive at no cost. Unfortunately, it doesn't. The not very well hidden cost is the quality of life in America continues to decline because of incipient inflation, which though masked from public view by and ostensibly stable economy, the corrosion at the core continues.
Don't forget, the unemployed are only counted so long as their receive benefits. And the substitution of hamburger for steaks in food prices (and other hedonic nonsense) is well-established economic practice. They're both meat, right? And to compare apples with apples, well, that'd ruin the status quo.
To see through the veil of offishuldumb, you need to start watching the economic indicators that always matter (commodities) when the economy transitions from 'nearly crashing' to 'crack up boom.' which gets us back to this morning.
Specifically, I expect commodity prices to jump, and two in particular to watch are gold and oil. Now, get a pencil and let's play Tracking Incipient Inflation - the home version.
We start with a simple observation: 24-hours ago, the price of gold was $715. This morning, as I pencil out the math, the price of gold is $723. (These numbers won't be exact, because they will bounce around with trading noise.) Just notice the numbers. Gold's up about $8.
Next, we look at the Dow which gained 2.51% yesterday.
Could it be that the percentage gain in stocks is about equal to the percentage gain in gold (and maybe oil, too, although noisy and trading dampened a bit) as money just got easier/more plentiful?
$715 gold, before the Fed cut) times a 1.025 gain would place gold at $732.875. My conclusion? Gold should be strong as it plays 'catch up' to the upward repricing of equities, driven by more easy money. The 'yellow dog' has already hit $726.90 today, according to Kitco. Hmmm... 1.6% right there.
If my theory holds water, we should read headlines about the price of oil going to new records, too. Whoops! Hold the phone! "Oil prices rise above US$82 a barrel on US Fed rate cut, tight crude, gasoline supplies..."
The good news is that if you have a 401-K plan, while the paper (notional) value of the retirement fund may remain stable, or even increase, when I look at the incipient inflation, what I see is an M-3 rate approaching 15%, as shown over at trader Bart's site: http://www.nowandfutures.com/key_stats.html The Fed, of course, hid the M-3 (digidollars/easy money report) from sight about a year and a half back, knowing what was coming. No real sound reason, just the magicians saying, in effect, "Not going to let you look up that sleeve." Fine, be that way.
If the Fed can get enough money pumped into the economy, there's speculation that it will help the hard-hit real estate market.
Hiding A Lifestyle Crash
A read of history suggests that in an economic depression, in addition to the simple 'money displacements' which can go hyperinflationary (Weimar) or massively deflationary (USA 1930), the real cost on humans on either track was a downgrade of lifestyles. Those periods were called "Hard Times" with good reason.
So as we fast-forward to the next couple of months, what we have to be asking is something like this: "If there is economic displacement/shenanigans/malinvestment at the same levels as recorded in earlier episodic economic readjustments, what would it 'feel like' or how would it 'manifest in daily life' if there was neither overt inflation or deflation?"
Lifestyle would likely decline. The costs of goods at the store would go through the roof, but the purchasing power of consumers slowly ratchet down.
Because the problem of bankers is now global, namely how do they get their 'interest', the Fed move is sparking a global rally in stocks and paper assets - the bankers at the international level have opted for global systemic inflation sufficient to maintain the illusion of 'growth' while papering over with official statistics the fact that we're working ever harder to maintain lifestyle.
You are going to drive a small car, live in a smaller house, and so forth because from a financial and resource standpoint, the world can't afford the big ones any more. Same thing with highways. The government is selling off highways you have already paid for to pad the state government pockets which is why nationally we're in this new tool-road frenzy. Restrictions on travel, indeed.
Not that any of this should come as a surprise, because the whole method of the banker-class/uber classen/.Powers That Be, is to loan money - push debt on working class, then in order to be paid 'interest', they simply print up more money (so they can get a free lunch) and in return, the purchasing power of the dollars in working class hands declines.
"But it's not a free lunch, when bankers have to face Risk!" you might counter. "Shouldn't they get some compensation for Risk?" Where's the Risk when the Fed bails everyone out, or behind the scene insiders help rig buyouts? Sorry, I'm not biting.
The bottom line is this: You may continue to show a 'paper gain' on investments, but on a purchasing power basis, the top was in in 2000 and what appears before you now is the Fed's best efforts to walk the line between a deflationary collapse and a hyperinflationary collapse. They may be able to pull it off, too. But your purchasing power will suffer - and your quality of life seems likely to continue to fall as what's now only 4.8-cents of purchasing power of the original pre-Fed US dollar is set up to be hollowed out again!
You also need to temper your view of bankers when you read things like Alan Greenspan's book: By the Federal Reserve's own calculator, what cost $100 when Greenspan took over at the Fed was pushing $180 when he left. Greenspan presided over roughly halving the purchasing power of the dollar. I think that's an all-time record for any Fed Chair. A better book title might have been "I halved the Dollar!"
And you wonder why I call them Banksters?
My commodity broker (JB) called this morning to congratulate me on my buying of March '08 corn options a week or two back. "Yes, the Fed has almost insured I will make money on those," I admitted. Same with my gold and silver calls, it seems. Oh well. I guess the way to play in this casino is to bet with the House.
Email of the Day
So just as I write the explanation why banksters are back-slapping and jovial, and the malinvestment guys get bonuses because they got bailed out, a perplexed reader wants to know "Where's the good news in all this?"
Scroll back up to the part about how we get to have an "invisible crash" and your lifestyle gets squashed by the Powers That Be. This is what 'squished' feels like. Get used to it. Vote out all incumbents in 2008.
Here's a really good story to read if you're looking for insight into the generosity that dwells deep in the corporate heart of America: "American Home Tries to Seize Employees' Retirement funds." OK, so there's a generosity shortage...Hey! Maybe we can monetize that! A couple of tranches of Triple A Generosity...yeah! I gotta buy some of that.
Energies from Space
Hundreds ill from a meteor crash in Peru? Sure sounds like that linguistic 'energies from space" stuff.
Linguistically, the Fed meeting seems to have been the capper on the 'emotional release' period. So now we transition to building emotional tensions. While I don't see anything really big yet (I mean other than a guarantee of commodity inflation as I read it) I'm scanning the headlines for hints.
New War Chants
"Neo-cons have Syria in their sights" says an Asia Times headline.
Didn't I just tell you oil went above $82 and seems to be holding there?
In Hot Water
I'm taking the day off client consulting to replace a leaking water heater, which managed to drain onto the flooring and which means I now not only get to put in a water heater, but also peel back flooring and replace subfloor, too. (My, don't we know how to have fun?)
Two highlights out of the trip to the Big Box store to get the water heater. One was a knowledgeable fellow in appliances who said "Thank you for not calling it a hot water heater..." You mean because that would be redundant? I then left him ponder "So, what does it mean when someone says to turn the air conditioning down?"
The other thing: Christmas goods are coming out. Am I the only guy who thinks holidays are no longer holidays? I might start a campaign to require listings of "2008 Commercial Events" instead of "2008 Holidays." Truth in labeling kinda thing.
Tuesday, September 18, 2007
Update: Fed Goes 50 + 50 - But, Is it Good?
The Federal Reserve in a bit of a surprise today tacitly admitted that the economy was going softer, faster, than they had expected and so they have lowered the Fed Funds rate 50-basis points (1/2%) and matched that with a discount rate move of 50 BP's - or 1/2%. Here's the statement:
While the stocks have bounded upwards on the news, it is clearly not an instant solution to the world's economic problems. The British today were forced to guarantee the deposits of all depositors as the headlines today have gone to the note that "British bank under siege as savers bale out."
While we might see a short-term pop in the stocks today, there's a terrible message to foreign banks holding US paper assets - they're not going to pay as much. Now, what follows is that if they don't pay as much, they are not worth as much, although that chicken won't likely be coming home to roost until today.
For the balance of today, we might see a temporary love-fest, but the Fed continues to worry about inflation and around here, we're wondering how soon someone wakes up to the idea that by making investing in US debt instruments less appealing, what we are really doing is forcing a devaluation of the dollar in terms of international goods and services.
So, yes, the Fed can cut, but that kills the Dollar overseas (which means import prices will now rise and that will come along as inflation) or, we could have held rates, preserved the value (purchasing power of the dollar). To me, this is as close to assuring an increase in grains (which I hold) previous metals (which I hold) and all non-paper assets.
It's not like I'm the only guy holding this view - go check out what Dr. Marc Faber told Bloomberg before the cut...
Producer Prices Drop
The Labor Department is out with the latest issue of "rearview economics" today in the form of the Producer Price Index. But what's this? A surprising DROP in the PPI? Can you say the words INCIPIENT DEFLATION?
Finished goods were up 2.2% year-on-year unadjusted, but intermediate goods were down 1.2% and crude goods were down 3%
The 'big dog' in the numbers is energy, which dropped 6.6%, but that's not likely to hold because oil is continuing to climb now...but on the news, maybe gold will slow its rise a bit. Or will it? When the Fed drops today, that will be long-term inflationary...
Ups and Downs
Oil today is trading near record levels. You might want to spin up some trance tunz and ponder whether this is because the purchasing power of the buck is tanking (a tasteless pun, but meaning more paper for the same amount of oil) OR whether it's because there's really no increase in production, despite the increase in demand, regardless of the OPEC hype last week promising another x barrels a day...
Let's update the Pre-crash trajectory chart, which is holding right above the declining trend line. While media hints the Fed will cut, they are in a terrible spot...
"Oh, those." We read the headlines out of Europe this morning and spy headlines like "Spread of banking panic forces ministers to guarantee savings" and "Fears rise over online banking problems", plus "Will the bank runs stop?"
Peoplenomics subscribers are reminded to reread issue 307 (August 26, 2007) for a more complete discussion of bank runs which is bound to spur some personal contingency thinking.
Ammo Runs Going Mainstream
From our "Told you so!" department, there's an AP story this morning about "Ammunition Costs more; some calibers are scarce" and right there on the St. Louis Post Dispatch website. I've been warning you this was coming for how long? What? Did I hear you say March 2006? (scroll down to Ammo and MRE's, and further down to "Encounters with scarcity" on March 22.)
My point is, better to duck, or stock up, 18 months early than one minute too late.
While it's a foregone conclusion that the Fed will lower rates (and pump a little inflation into the system) later today, the Big Ugly of the morning is the August Foreclosure report from RealtyTrac. Foreclosures are up 115% year-on-year for August, goes the report.
Not to be outdone, the Houston Chronicle says the month-to-month change in foreclosures is up 36% from July to August. Do you remember who the office-holders and appointees were, touting the 'highest levels of home ownership in history' just a year or so back?
Even if you manage to hang onto your home, a couple of key things for you to watch for: First, you will want to keep an eye on the Google News search for "property tax" stories. Secondly, you'll want to watch the mail like a hawk and get amped up to appeal your property tax revaluation notice next time it comes in.
You'll feel the second screw will be turned when, despite falling property prices, local governments try to hold on to inflation puffed-up property prices and thus be able to levy higher taxes. Trust me on this - it's coming and in some areas it has already arrived.
Another Guy Who "Gets It"
I couldn't help but notice the fine job Bloomberg TV did this morning interviewing commodity legend Jim Rogers. In effect, Rogers said that while the Fed may cut later today, it will be really inflationary - and for that reason you might want to consider foreign currencies, especially the Asian ones.
What's more, he made comments to the effect that the subprime people were busy a year or two back telling everyone how smart they were as they were cashing their $10-million and up bonus checks. Yet today, without paying anything back, there's an expectation that these people ought to be bailed out. Asks Rogers on Bloomberg, "Is that what the Fed's about? Or for that matter, is that what a just society is about?"
Sheesh! Sounds like something you read...er...here.
Equal Opportunity Tasing
Presidential hopeful Tom Tancredo is asking the US Office of Detention and Removal operations why a U.S. citizen can be zapped with a taser by the Feds, but a Mexican or other illegal immigrant can't be. And you're wondering why I hold that you, me, and other American have had our rights systematically hijacked by ne'er-do-wells inside the beltway.
Question Kerry - Get Tased
Here's a video - which would not be out of place in ...er...a middle Teutonic European country before WWII...
It's not supposed to be an event like 9/11, but I'm really expecting some world changing event, or sequence of events between about noon today (Texas time) and noon tomorrow (ibid) based on what the time monks up at www.halfpasthuman.com have been working on. They've narrowed it down to what seems like about a 47-minute window, late this evening (US EDT) / early morning hours east of Europe.
Monkey mind, of course races: If what's expected were in terra (like pending earthquake #3 in the 8+ range) they wouldn't have a problem telling what it is, nor, if it was part of energies from space, for example, nothing particularly dangerous about a little foreknowledge there; but this is something else.
Needless to say, I will check just before bed, and likely wake up in the middle of the night, to see if CNN has added some new crawler about 'xxxxx' breaking.
In the meantime, to amuse myself, I've taken to clicking the 'random' link on the www.urbandictionary.com site to broaden my personal linguistic base. Seems this is one of the lexical sources where new/changing words and their meanings are sniffed out to seed the web scanning.
I'm particularly pleased with today's Urban Dictionary (no relation) word for the day: Conswervative which is "A conservative politician or other public figure caught doing things that he has denounced on the record." Hell, that suit seems to fit most of the folks inside the beltway and wallet. Those'd be the Capital Hill (intentionally spelled correctly) Errorists.
Anyone for an Errorist Alert System? Natürlich, I mean naturally, the highest danger level for such an alert system would be 'green' as the errorists can't be trusted with money, right?
Beat them drums! Let's see who lines up where: "Russian foreign minister worried about Iran 'war plans'. Hmmm... "China opposes threats against Iran, says opposed to threats of force."
But, is the Western military-industrial complex (don't blame me, that's Eisenhower's term for it) going to wait? "Move troops to Iran border, Brown told" by General David Petraeus.
War tonight, anyone? I figure it's just a matter of time till we wake up to that headline. You know why Gwynne Dyer's book about the ME was titled "The Mess They Made", right? An even bigger one is possible - if you can wrap your head around that...
Email of the Day
From a reader:
Go read up "Argentina - Caserolazo"
I get critical email (surprisingly often) from people who think I'm wrong on many points (I am) and who call me a 'doomster' which I am not. I'm just one of a growing number of people who are seeing through the veil / hypnosis of the mediafog and see there's a lot more important work to be done on this planet than making bullets, collecting 'special' piles of paper, and power-tripping.
All those things stay here (on planet) when you die, along with Ego. So, what's really important is the work of collecting the best possible memories, getting the inner work done, and contributing something to people around you, all the while living in a world possessed by an acquisitory madness of ego run amok.
For a change of pace, check out the Edenhope Project "Recreating hope at the edge of civilization."
There, all better now. I'll go feed Dick Chinney and the other goats; have fun on the freeway.
Monday September 17, 2007
Fighting Words from Greenspan?
I don't normally start off my reports with a plug for other media, but I understand that Alan Greenspan will be on the Today Show on NBC this morning talking about his book, which to my way of thinking, is an explosive problem for the republicorp Powers That Be and a gift to democorps and the global bankers.
Let me explain why. First, Greenspan said that despite all the hype, the Iraq was really is about oil. Then he says, in looking forward to 2030 that double-digit inflation is likely before we get there (this as a time when the Fed is meeting in Jackson hole and due out with an interest rate decision tomorrow which is the toughest test for the republicorp and Ben Bernanke yet as the dollar slide is underway).
Then Greenspan goes out and tells the German news magazine Stern that the Euro may replace the US Dollar as the world's reserve currency! Holy smokes, this is getting to be a HUGE confessional.
Worse, Greenspan is telling British (but it might as well be American, too) homeowners to brace for much higher home rates and issues something, which is I read the reports right, is almost akin to an apology to homeowners for his role in it.
Now comes the point of this morning's report: IF you believe that there are various factions within the Powers that Be - and IF you believe that public statements are how these factions communicate with one another THEN the question is what will be the response of what I'd call the injured party (the oil-fired republicorp)?
Clearly, Greenspan himself is going high enough profile with his tell-all book that a direct 'payback' would be too obvious, but as I sit down with the first cup this morning, my reaction to the story is that Greenspan has issued 'fighting words" and republicorp doctors might want to double up on meds for high blood pressure.
Is Greenspan suddenly a 'runaway cannon' telling truth to all who will listen? Or, is this a prequel to something even larger in the way of a 'message'?
My second thought is more of a tactical question, really: "Greenspan has gotten in a serious first punch, against one of the factions. Is there a follow-on punch to follow, or will the 'injured faction' strike back?
Greenspan's sudden bout of truth-telling on oil, housing, and interest rates (which seems to square with the economic context offered here, on many scores) has set in motion a major shift. Is this the beginning of the turn that was predicted linguistically by Cliff and Igor of www.halfpasthuman.com for the 18th/19th? Sure seems to qualify... Telling the truth is sometimes a revolutionary act.
Is a high enough media profile and a 'tells all' book functionally equivalent to an insurance policy?
In my view, short of an oil embargo, is that the Greenspan story may be the biggest economic event of the year. Oh sure, the slide of the dollar is interesting, and so is the blow-up of the subprime market. But, in terms of getting down to causes and factions, Greenspan takes the cake.
This is a dandy day to see how your news and information filters are working, too. If your favorite media is leading with the "OJ Arrested, No Bail" story, or you're swallowing the latest ladle of political stew about presidential wannbe politics first ("Clinton to offer health care plan" seems to echo forever, doesn't it?), then consider your reality filters set to 'denial/don't want to really know what's going on'.
Not the lead story in LameStreamMedia, but "Britons withdraw Billions in Bank Run" should scare the hell out of you, too. I've been warning that this kind of thing would happen around the start of the Greater Depression, but seems many folks just don't want to believe their 'own lying eyes.' Fine...
We can't have hedge funds blowing up, bank runs, the dollar caving in, and someone running around telling the truth, shouting the equivalent of "The theater is on fire!" without expecting something explosive. Soon come? To crawlers near you - by Wednesday morning, maybe.
"Blackwater security firm banned from Iraq" headlines a report. Apparently, their license to operate was revoked by Iraq's Interior Ministry. I wouldn't want to be his insurance agent about now. There are about 1.2 'contractors' for each 'official solider' in Iraq at the moment, say sources.
Good thing we're just there to install democracy, huh? Shhh! Quiet Alan.
Retired federal judge Michael Mukasey has been picked by George Bush to be his (dare I say 'our'?) Attorney General. While his judicial record seems good, his alliance with Rudy Giuliani's WH campaign is worrisome, in that as John Dean mentions in his book "Broken Government" if you like strongman government, Giuliani is another step past Bush in terms of strong federal powers (diminution of individual rights). So, let me ask, what would you suppose the leanings of Rudy's judicial guy would be?
Hey! Who needs FISA Courts anyway, right? We really need to rewrite Napoleonic justice to republicorp justice. How about Gitmo plays Devil's Island?
War Selling - Get Fear
Oh, those "bomb Iran" drums are beating louder and louder. Sure, the factions are messaging back and forth in public, but that's not going to derail the next war expansion program. Gotta fight terror worldwide - it's our manifest destiny, ain't it? Besides, everyone who disagrees with us is a terrorist, right? Therefore, if you're not with us, you're against us! (Whew! Did someone put something in my coffee?)
Today's 'selling points' are French media: "World should brace for possible war over Iran: France" and "Pentagon develops list of 2,000 bombing targets in Iran." Sounds to me like there aren't that many nuclear sites in the US, let alone Iran, so clearly, this will be designed to hurt more people and break more things than nuclear capability alone...
Around the Ranch
A short report this morning - too much going on around the ranch. The new (registered Boer) goats are getting used to our schedule. The well bearded male has been named Dick Chinney, although Ben Baahnanke was in the running. One of the does may be named Cloven Leechman...the other Marilynn Mungoat. First newborn male goat will be named Igor, we've decided.
Before I venture out to pound more fence post, I will set up a couple of new subscribers to Peoplenomics - got behind due to ranch work this weekend. Sore all over.
Write when you get rich,
George Ure, The People's Economist
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