07/14/09 thoughts

Good website for investing styles

Double your money

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Urban Survival...

PPI Report: This One Means Something

OK, the Producer Price Index is out...and if you have some time, let me explain why this one is important. There are three measures of producer prices: The crude goods, the intermediate, and the finished.

If you go back over a fair bit of time (and all I had time to whip up for this morning's report was going back to January of 2007) and you put together the cumulative impacts, you can estimate how the corporate profit picture is doing internally - and eventually this comes out as earnings which in turn drives the market. With me so far?

Before we get into Mr. Ure's chart du jour, let's first table the latest 'facts' from the Labor Department report and then we'll get on to the chart...

"The Producer Price Index for Finished Goods rose 1.8 percent in June, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This advance followed increases of 0.2 percent in May and 0.3 percent in April. At the earlier stages of processing, prices received by producers of intermediate goods climbed 1.9 percent in June after moving up 0.3 percent in the preceding month, and the crude goods index increased 4.6 percent following a 3.6-percent rise in May. (See table A.)

The June acceleration in finished goods prices was broad based. The index for energy goods jumped 6.6 percent after advancing 2.9 percent in the prior month, prices for consumer foods increased 1.1 percent following a 1.6-percent drop in May, and the index for goods other than foods and energy "

Gobbledygook. This is all pretty much meaningless crap unless you have some kind of framing context for the data...which I happen to have handy in a chart, so hang onto your coffee cup.

Here's how I went about this little charting exercise - normally the kind of thing I'd save for Peoplenomics readers: I took the data set going back to 2007 and asked "OK, so if crude goods cost $100 this month (Jan '07), and finished goods were $100 then (Jan '07), then how would the running spread between crude costs and finished costs look over time through this morning's report?"

As you can see in the chart below, there appears to be a spread (time lag) of anywhere from five to seven months between when the PPI figures show up and when stocks hit extremes of valuations. In other words, when the PPI crossed my hypothetical zero axis (no profit or loss on the crude versus finished goods) [yellow circles in the chart] and extremes of market valuations [green for the high and red for the lows] we can get a sense of how things are going for the overall market.

Here...look for yourself...

Now the point of all this is what? Oh, this might actually argue that the market high might not come until 6-8 months from now. depends when we get a zero crossing, under this theory and then add on 4-5 months...not the linguistically expected 'falling apart' scenario that shapes up in language. Could it be that what the linguistics are picking up is the most extreme case ever of 'market climbing a wall of worry'?

That's what ought to make this fall so damn interesting. We'll have a chance to test linguistic expectations (dropping markets, bank holidays, etc) against this approach to PPI, which says right now the big picture from the boardroom level is that 'things aren't that bad'. The lag time between when input costs and output prices peak I expect is a combination of transportation, warehousing & inventory, and shelf time, plus hysterisis till the sales figures get accumulated and aggregated into something meaningful.

But, pretty cool to see how the relationship (out of phase as it is) works, huh?

Here's what I think is going on. The linguistics may be hitting the zero crossings as the language would become intense there, but the data doesn't come in till maybe six months later...just a theory, but bears watching, huh? Linguistics hit the end of the zero-area in October of 2008, after all. Especially interesting if we get a zero-crossing in September (which is when the actual numbers start to look bad) but then we could kick around for several months (5-7 anyway) while the data-cycling catches up and the market low comes along.

06/26/09 thoughts

John: yea

well good

what are you doing for the afternoon

9:03 AM i like your dads response

9:04 AM you are reading too much crap

haha

me: I know I laughed too

9:05 AM me: fortunately my (our) fathers are smart enough to have side stepped the whole thing and know the only person that is ever going to take care of you is yourself
Sent at 8:58 AM on Friday
Bowie: I dunno......sometimes I wonder
Certainly more so than average, but I have my doubts.

The timeless financial wisdom of those who lived through the great depression was somehow lost on many of their children.
Sent at 9:01 AM on Friday
me: I know it is unbelievable
Why are we ~27 and understand this better?
are we just arrogant, or are we really smarter?

about the email I just sent

9:06 AM John: nice

well

9:07 AM i think we were saved by WWII the first time around and it was different bc everything was based on gold

this depression is in many ways different

they are trying to do it in the wrong way from what i understand

i could be totally wrong

you know better than i

9:08 AM me: I agree with you...you know I purchased a hand gun

gold and silver

and a landcruiser

and outdoor gear

John: also the people in office think that just throwing money at everything will fix it

me: and a solar panel

John: haha

wow

nice

me: the problem is people DO NOT UNDERSTAND

John: that is true

9:09 AM me: it isnt money that needs to be thrown at something it is VALUE!

John: yea

me: money is a representation of value

if people dont believe it anymore then it is worthless

9:10 AM I would argue that inflation is just the slow erosion of people's believe in the value of a dollar

with the advent of creative financing it just got worse

John: yea

i agree

9:11 AM i think that people just dont think

or rather think deeply enough about consequences

look for a quick fix

9:13 AM me: Who needs nukes when bankers have ink?

just read that

9:14 AM thought it was funny

John: hahaha

thats really funny

i like that

sad but true

9:18 AM have you still been running

i think if i had infinite wealth

9:19 AM i would like to live in newport and fly to austin for gmes

games

everyweekend

that would be nice

im kind of jealous of you getting to live there

any more thoughts on the boat

9:21 AM me: Two Word Jokes Friday

Been really getting into one word jokes lately. Word's like "normal;" and "transparency" go into my Book of One Word Jokes which features other, older jokes now pretty much in the scrap heap of history: "Peace." "Equality." "Freedom." "Progress."

9:22 AM we shall see

John: lol

me: yeah, Stephen Pearce has been doing it for a few years now

ass hole

John: yea

me: I am so jealous that I am taking over his life style

9:23 AM John: i am jealous

me: I actually cranked up running again this past week

John: yea

nice

me: come on out!

John: i think i will apply out there

me: I mean if you are going to watch the end of the world you may as well sit in the front row...California here I come!

9:24 AM John: hahaha

f-it

haha

me: I think this entire conversation is going onto my blog

it's going to be awesome

John: nice

9:26 AM ok dude

im out

call me later

9:29 AM me: adios

06/25/09 thoughts

Yet another good article supporting my thinking.

Is The American Banking System A Ponzi Scheme In Disguise?

Posted: June 25, 2009 10:35AM by Derek Simon

Email Article

Buzz up!

Filed Under: Banking, Hedge Funds, Loans, Mortgages, Regulations

On Friday, June 19, 2009, Texas billionaire Sir Allen Stanford, who was knighted by Antigua in 2006, was indicted by a federal grand jury in Houston for allegedly attempting to defraud investors through his Antiguan-based Stanford International Bank (SIB).

In what the SEC has called a "massive Ponzi scheme", Stanford is alleged to have "misused and misappropriated most of" the $8 billion entrusted to him by SIB's 5,000 to 6,000 investors, including more than $1.6 billion that went to Stanford himself in the form of personal loans, the indictment asserts. (For background reading, see The Biggest Stock Scams Of All Time.)

Not surprisingly, Stanford has denied any misconduct. In a tearful and sometimes defiant interview with Brian Ross of ABC News that aired April 6, the financier promised to fight what were then just allegations "with everything in me."

"I will die and go to Hell if it's a Ponzi scheme," Stanford told Ross. "It's no Ponzi scheme. If it's a Ponzi scheme, why are they finding billions and billions of dollars all over the place?"

Shut up; just shut up, Sir Allen. You had me at "I will die and go to Hell."

The Blame Game
Seriously, as egregious as Stanford's crimes are purported to be, how different was his organization from many of today's more, uh, "traditional" banks? According to that same ABC report, government officials claim they have "found only $500 million of the missing $8 billion in the alleged scheme." If I'm doing my math correctly (and if I'm not, I'm sure I could still find work as an SIB accountant), that amounts to a $7.5 billion shortfall - far less than the $33.9 billion that Bank of America (NYSE:BAC) was required to raise as part of the Fed's "stress test" back in early May.

The sad truth is, not since the blundering Uncle Billy nearly busted Bailey Savings & Loan in the classic 1946 film "It's A Wonderful Life" have financial institutions been so careless with their customers' money. If, in fact, a Ponzi scheme simply entails paying investors with other people's money, rather than profits, haven't some of our nation's largest banks been just as culpable as SIB?

After all, Washington Mutual (OTC:WAMUQ) was still cashing checks when it was losing money hand over fist, wasn't it? Yeah, the company was eventually shut down, but no one accused former CEOs Kerry Killinger and Alan Fishman of any wrongdoing. Yet, in 2007, while Killinger was taking home a $14 million salary, WAMU was taking a $67 million hit to its bottom line, thanks in large part to Killinger's aggressive - dare I say "irresponsible"? - lending strategies. Worse yet, according to The New York Times, Killinger and other WAMU executives "were excluding mortgage losses from the computation of their bonuses." (For related reading, see Executive Compensation: How Much Is Too Much?)

And how about Fishman? In less time than it would've taken WAMU shareholders to put their hands over their heads and lay face down on the bank's cold, tile floor, he was in and out as the company's chief executive officer. Nonetheless, for just 17 days of work, Fishman was paid approximately $20 million, according to FoxNews.com.

Someone Else's Money
Of course, WAMU wasn't the first bank to spend money it didn't have, and it probably won't be the last. For years, bank reserves, the amount of liquid assets some countries (like the U.S.) require financial institutions to keep on hand for withdrawals, have been dwindling. In an April 2008 blog entitled "Myths About The Monetary Base And Bank Reserves", Swedish economist Stefan Karlsson notes that "bank reserves in early 1990 were $60 billion as compared to $42 billion now."

At least in the United States, this practice of fractional-reserve banking continues to flourish, undoubtedly because the U.S. government continues to insure deposits - now for up to $250,000 - thanks to legislation signed by President Barack Obama on May 20. With such guarantees in place, is it any wonder that banks are lending depositors' money to practically anyone with a pulse? (For more on FDIC insurance, see Are Your Bank Deposits Insured?)

Heck, in Ohio, you don't even need a functioning ticker to get a loan. In March of 2007, Ohio mortgage brokers Mark S. Edwards and Mark D. Musselman were both convicted of 48 felony counts of mortgage fraud, which included using the "identities of recently deceased individuals to purchase properties," court documents revealed.

The Bank of the U.S. Government
Such abuses have led some to question the government's role in the banking industry.

"I believe the government needs to exit both the both banking and monetary arenas," said Douglas French, president of the Ludwig von Mises Institute, the self-described "world center" of Austrian economics. "Deposit insurance should be abolished."

In a June 11 post on the Mises Web site, French argues that "there is no incentive for bank depositors to go to the trouble of determining a bank's soundness if the government is going to guarantee deposits."

To bolster his point, the Mises Institute president cited a recent column by Forbes.com contributor Bernard Condon entitled "The Reverse Bank Run." In the piece, Condon notes that "in a curious twist to the traditional bank run, Americans seeking high yields on their money are causing deposits at struggling banks to mount in seeming lockstep with their troubles." (To read more about this debate, see The Government And Risk: A Love-Hate Relationship.)

"The problem is," Condon explains, "it's the banks in bad shape that often offer the highest rates on deposits."

Somewhere, Charles Ponzi has got to be smiling.

06/23/09 thoughts

A Lost Decade for Jobs

Posted by: Michael Mandel on June 23

Private sector job growth was almost non-existent over the past ten years. Take a look at this horrifying chart:

Between May 1999 and May 2009, employment in the private sector sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period.

It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. Take a look at this chart:

Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.

But even that gives the private sector too much credit. Remember that the private sector includes health care, social assistance, and education, all areas which receive a lot of government support. I’ve been talking about the HealthEdGov sector. Take a look at this table:

10-year Job Growth: HealthEdGov Sector Dominates
Industry	Change, May 1999-2009
	(thousands of jobs)*
Private healthcare	2898
Food and drinking places	1567
Gov educ	1390
Professional and business services	885
Gov except health and ed	843
Social assistance	796
Private education	772
Arts, entertainment, and recreation	188
Gov health	148
Mining	133
Financial activities	130
Utilities	-40
Transportation and warehousing	-43
Retail	-91
Accomodations	-119
Wholesale	-166
Construction	-238
Information	-525
Manufacturing	-5372
*Gov health and gov educ based on April 2009 estimates
Data: BLS

Most of the industries which had positive job growth over the past ten years were in the HealthEdGov sector. In fact, financial job growth was nearly nonexistent once we take out the health insurers.

Let me finish with a final chart.

Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back.

TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/14742.1362013618

Reader Comments

Christine

June 23, 2009 02:28 PM

Does this incorporate real estate industry-related data? (I don't see it, but RE drove quite a bit of growth for several years...)

CompEng

June 23, 2009 02:39 PM

I'm not sure how to translate this information into a story, or especially a policy response.

Is it, like the conservatives would say, that government spending and healthcare subsidies are sinking the rest of the economy?

Would you continue your interpretation that we are failing to find the next big economic growth area?

Is it the populist story that opening the floodgates to globalization is bringing our job market down to sea level?

I don't necessarily see a contradiction among these.

Brandon W

June 23, 2009 02:53 PM

Not even so much the past 10 years as the past 8. It's fallen off a cliff. While I'm all for cutting government spending as a principle, it makes you wonder what would have happened (or what WILL happen) with cuts in government spending rather than the growth we've seen. Where would we be?

lark

June 23, 2009 03:31 PM

Whee! I love rollercoaster rides, and the real fun is when you go down...

Seriously, how much of this is due to the economic fads of offshore outsourcing and unlimited globalization?

Because this chart is incomplete. Think of all the job growth going in in low wage countries e.g. India and China. Compare their job growth, to ours. That is the true picture.

lark

June 23, 2009 03:34 PM

Whee! I love rollercoaster rides, and the real fun is when you go down...

Seriously, how much of this is due to the economic fads of offshore outsourcing and unlimited globalization?

Because this chart is incomplete. Think of all the job growth going in in low wage countries e.g. India and China. Compare their job growth, to ours. That is the true picture.

Hugo van Randwyck

June 23, 2009 03:37 PM

As the trade deficit increased, and manufacturing jobs declined, so did the jobs that people, who worked in manufacturing, spent money on decline. How about a graph showing the real, after inflation, increase in house prices, and change in manufacturing jobs. As house prices/rents increased, manufacturing companies couldn't afford to pay people a living wage, to cover housing expenses. Wall street/bankers irresponsibility helped drive out manufacturing jobs. The health care business is easily fixable, with competition. Google: health tourism usa savings, for info on 50-80% savings. There is even an association. What would happen if health spending fell from 14% of GDP to 8%? There would also be a big increase in airline business, and improved manufacturing opportunities. Some of the health tourism companies also offer corporate programs. Apparently medical tourism is a $20 billion market, with expectations it could grow to $100 billion, by 2012. Renewable energy is in a growth phase.

GW

June 23, 2009 03:50 PM

You don't think this could in some small way contribute to our current economic problems, do you? Is it possible that if people can't get jobs and wages are down, that could possibly hurt their ability to pay for houses, college, cars, and other stuff? Or is the last 8 years of that chart what Republicans mean by "trickle down".

Dailydubya

June 23, 2009 04:02 PM

Why, it's almost as if you're saying that the Bush years weren't really that great for working families. How can that be?

Doug

June 23, 2009 04:05 PM

The past eight years have been a disaster.

Doug

June 23, 2009 04:05 PM

The past eight years have been a disaster.

Tad

June 23, 2009 04:16 PM

Being in manufacturing for the past 22 years thats my I went in for business for myself.chek out my site at www.JustVerve.com for your health

chusaberliner

June 23, 2009 04:17 PM

What does this mean? That the private sector jobs were greatly inflated due to
"illusory profits" based on loose credit expansion? Now it appears the federal government is taking on all the private sector debts and creating its own debts by having more outlays than tax income (i.e. to create unproductive, non-income producing government jobs). It is obvious that the US government has monetized its debts in large part by pawning them off to foreign governments who hold about 40% of all US government debt. Now the Asians and Europeans are afraid to sell their dollar holdings in fear that the same "in and of itself" will devalue the holdings of their dollars. (i.e. for every dollar you sell, you decrease your remaining dollars by a certain percentage). I suggest we allow the foreigner to buy anything they want in the US. This will create jobs but also demand based inflation.

shadrak

June 23, 2009 04:19 PM

So much for free unprotected trade, is that the way to look after your people? And where exactly do you think all the jobs went?

Hugo van Randwyck

June 23, 2009 04:35 PM

Maybe an interesting graph could be the pay, or maybe % of GDP these sectors are taking. I'm not sure how Wall Street irresponsibility is included in these numbers. I feel they are a bigger threat to American security, than China or Russia. Here goes. The finance companies/Wall Street allow people to buy houses above three times earnings. So without any extra work, they/Wall Street earn more money. Since people need to live, manufacturing employees need more pay, to pay for higher rents etc. The manufacturing companies lose money, so they merge - so earning fees for Wall Street. House prices go higher - so businesses move manufacturing offshore - so earning foreign exchange fees for Wall Street. Also the trade deficit increases, so WS earning fees for America borrowing more money overseas. As economy performs lower, there is a budget deficit, that Wall Street helps fund, so earning more fees. Where are the ethical people in Wall Street, who care about America? Lower house prices, and clear out the stable in Wall Street, and let manufacturing prosper, and create jobs.

JohnB

June 23, 2009 04:36 PM

Christ Michael, congratulations on just having realized what many of us have been trying to tell you for years. As an industrial engineer who had a career change to IT in the supply chain space, I could have told you just how much trouble we've been in. Facts are, a housing bubble created a 'fake' manufacturing and construction era, and now that's crashed and burned, leaving government and healthcare as the only decent sectors left. And they can't grow without some other form of industry supporting them. The wholesale outsourcing and offshoring thats occurred in the last decade has been unprecendented; and guess which 2 sectors that impacted most? I'd actually like to see a chart of the construction industry job gains/losses for each year over the last 10 years. I'd bet, you would have been amongst those trumpeting what a success that was. Until we get some proper coordinated industrial investment and strategy going in this country, to fight what's been going on overseas, this country will continue going down the crapper. Green is the industry to do it with; but only if you refuse to hand over the keys to the Chinese. And that means telling GE and others to stop exporting the technology as fast as its being developed.

sam

June 23, 2009 04:41 PM

This is a surpise? We needed Mike to figure this out? We know where the job growth went: India and China. So tell me hot shot, how ya gonna fix it?

sam

June 23, 2009 04:44 PM

This is a surpise? We needed Mike to figure this out? We know where the job growth went: India and China. So tell me hot shot, how ya gonna fix it?

sam

June 23, 2009 04:47 PM

Tell us something we don't know. I'm sure I have lost $100's of thousands in income during the last 10 years because of off-shoring. That's money I didn't spend on the goods and services produced by the companies that shipped the jobs out.

econguy

June 23, 2009 04:59 PM

So much for the presumption that the economy would grow no matter what corp tax rates are even after the 10k pages of special legislative gimmicks,liability and regulatory costs, mandated private sector-paid benefits, minimum wage, and double taxation efforts were piled on. Sure it doesn't matter to those with short attention spans and win-the-day PR specialists and Clintons. But is does matter over time and especially during major shake outs.

Kartik

June 23, 2009 05:02 PM

I don't think the public sector is a savior. Rather, it is the parasite that is killing the host.

Government spending has been rising to create these jobs. This causes rises in tax rates AND deficits, which choke off the private sector.

Just look at the jobs situation in high-tax states (CA, MA, NY), vs. low-tax states (TX, NV). That says it all, even though all fall under the same Federal taxation.

Chart government spending as a percentage of GDP, relative to private sector job growth, and THAT will tell the whole story.

Kartik

June 23, 2009 05:05 PM

5 million jobs lost in manufacturing were jobs mostly held by men.

The job growth in Health/Ed is in jobs held by women.

5 million blue-collar men out of work, and 5 million women who have gained cushy, well-paying jobs. Top that off with anti-male media bias and divorce laws. Note the increase in gun sales over the last few years (women aren't the ones buying those either).

Gee... what could possibly go wrong?

GLL

June 23, 2009 05:12 PM

All of our leaders regardless of party are on the "globalist" express. We are being economically strip mined of our industrial base. Our standard of living is to high to compete with exploited labor in other nations so our labor force shrinks. Meanwhile, we buy all the things that we used to make by borrowing money from the countries we outsourced our industrial base to, this will go on until we are eventually bankrupt and our standard of living drops to the level to be competitive if we stay on our current course.

Kartik

June 23, 2009 05:14 PM

Everyone is blaming India and China for capitalizing on opportunities created by US arrogance and socialism.

They have done nothing wrong.

Official government policy is to transfer wealth from men (manufacturing) to women (HealthEdGov).

Whether through divorce court, welfare, sexual harassment laws, affirmative action, or economic 'stimulus' policies, the State wants to transfer wealth from men to women, and make men second class citizens.

When the last straw breaks the camel's back, the backlash won't be pretty. More men are earning less than women, more men are moving overseas, divorces are rampant, gun sales are rising.....

tilly

June 23, 2009 05:28 PM

Tell us something we don't know. I'm sure I have lost $100's of thousands in income during the last 10 years because of off-shoring. That's money I didn't spend on the goods and services produced by the companies that shipped the jobs out.

Bah Humbug

June 23, 2009 05:32 PM

We have sold our souls to the Asian manufacturers, just like Europe did to the US 100 years ago. It's now so late, that American workers can't sew a button on a shirt anymore.

gabe, san diego

June 23, 2009 05:39 PM

Thank you Globalisation!

dw

June 23, 2009 05:58 PM

This describes the real cause of this mess. had jobs kept growing, then wages would have been up, and the need for easy credit wouldn't have been needed by so many. but that was wall streets plan. they kept jobs down (all the while saying every thing was great and every thing they suggested would create jobs!) so they could make those loans and get their killer incomes. and now that we have seen the whole mess blow up, business are desperate for customers who can buy their goods. but no longer exist.

dw

June 23, 2009 06:00 PM

This describes the real cause of this mess. had jobs kept growing, then wages would have been up, and the need for easy credit wouldn't have been needed by so many. but that was wall streets plan. they kept jobs down (all the while saying every thing was great and every thing they suggested would create jobs!) so they could make those loans and get their killer incomes. and now that we have seen the whole mess blow up, business are desperate for customers who can buy their goods. but no longer exist.

iLovecars007

June 23, 2009 06:00 PM

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lancest

June 23, 2009 06:12 PM

This is why I no longer reside in US. Places like California are still expensive to live in despite NO JOB GROWTH.

Bob Melvin

June 23, 2009 06:12 PM

The number of jobs available will shrink in the next 10 years, just as we bring in more people. We will successfully outsource the US economy to permanent + 15% unemployment within the next 15 years. During down times the numbers will hit %20. It is inevitable. The question is what the future will look like as far as social stability. I see a disaster coming.

Laurent GUERBY

June 23, 2009 06:16 PM

A data point: from OECD, employment rate from 2000 to 2007

- Men aged 25-54
France 87.1 to 88.3 = +1.2
USA 89.0 to 87.5 = -1.5

- Women aged 25-54
France 69.6 to 76.1 = +6.5
USA 74.2 to 74.5 = +0.3

- Both sexes aged 25-54
France 78.3 to 82.1 = +3.8
USA 81.5 to 79.9 = -0.6

Note: "35 hours" work week laws were passed in 1998 and 2000 in France with delayed application in time.

j

June 23, 2009 06:25 PM

While unskilled jobs are down, skilled professional jobs are up. Globalization has resulted in more high paying skilled jobs in the USA. I and my peers have never done better.

Brandon W

June 23, 2009 06:37 PM

Kartik,
You often cite corporate tax rates as being the fault of anything bad that happens. Corporate taxes only provide about 5% of the tax revenue, so it's not that corporate taxes are overwhelming. What's more, if the tax rates in the United States are so very ominous, why aren't corporations leaving in droves; why aren't they relocating wholesale to low-tax countries?

...

Urban Survival...

Wither the Markets?

Had a nice conversation with my friend Robin Landry who manages well into 9-figures from his office up in Shawnee, Oklahoma. Robin, you may recall, got onto the short side early a number of weeks back, and actually had a small loss (his first in the last eight trades, which is so far above most of us as to not even be funny). He's patiently watching for the Dow's drop further after a bounce/possible entry short today. Here - paraphrasing as best I can - are some of the main points he made after the close Monday when we talked....

"If we get down under 8,250, then it's a 70% chance that we'll test the 7,800 range on the Dow..."

---

"Then if we go below 7,800 any distance, then we come to a 50-50% chance of a retest of the March lows in the 6,626 area..."

---

"The thing to watch now is in [today's] trading whether the 50-hour moving average drops below the 200-hour moving average. That would put the market in great danger of accelerating to the downside."

---

"If we take out the 6,626 level by a couple of standard deviations, then 4,400 on the Dow comes into view..."

So that's how the market sets up this morning. We're likely to see a little pop early as the bulls try to rally things back up. Landry's hoping a decline will halt around 7,800 which would set up one more fling up over the 8,800 area, although he admits that the size of the present advance has already filled minimums, so there's no technical reason for the market not to go down from here.

---

About the only number that has significant weight is the Existing Home Sales which comes in an hour - half hour into the trading day. The problem with this number, like so many others, is that it's an imperfect indicator. I've been hearing stories, for example, that people who are not putting 50% cash down on homes are still writing contracts, but the banks aren't closing on those.

You can see how that can distort things: The people think they have purchased a home, but then the financing sits on the bank's desk and eventually peters out. Statistically it is a 'sale'. Reality: don't bother asking.

---

That the forces of deflation are still out there in a meaningful way hasn't escaped Landry. He's still expecting one more big push down on the precious metals (which I take by extension to include things like oil and other commodities, too) before the big you-know-what kicking hyperinflation digs in. His target for gold? $660 an ounce in his work.

But, I'm not selling my gold coin in any event, since deliveries are still hard to come by without - in some cases - weeks of waiting. I don't do buy now delivery later on anything. Someone gets my money, I want my product. Simple as that.

With headlines about like "U.S. credit rating a "solid triple-A": Moody's" it's easy to see how a run on the gold investors could be shaping up over the next few weeks. That would set off another round of 'good times just ahead' which could get the market to bounce of 7,800 and rally into August, which is Landry's ideal count.

While the dollar is making one last advance, and that might push gold down some, the longer term outlook is for gold and silver to make a moon shot, along with commodities and energy issues. But these things never move as fast as I'd like them too...I just want it all to pop now and get 'er done.

Landry, being more patient than me, and managing well into 9-figures for clients, just follows his indicators and trades accordingly. So we should get a 'dead cat bounce' today in the market, a possible short entry, and sure enough, "Stock futures up modestly ahead of home sales data" reports an AP story out in the last half hour.

To me it's like watching a slow-motion train wreck.

06/19/09 thoughts

Urban Survival...

Coping: Street Level Economics

Every so often I get some grand emails from folks out and about who have a great person-to-person look at the world which is often vastly different that what comes over corpgov teevee. Take this one from Iraq, just for instance:

"Jorge! Thought I’d use the Spanish version as I’m soon to relocate (long with 80% of my expat co-workers) to Costa Rica. If you recall, I was the one giving you the intel scene from Kuwait a time back, and have since November come back “Up North” to Iraq as the $$$ scene in Kuwait had pretty much flat lined when the economy took a big dump last fall. Big dump in that the majority of contracts weren’t being renewed, (individuals that is… the Corporations had the same amount of work, they just started doing the ‘more with less’ thing again and saving $$$ on personnel.) Thing is, once one is addicted to the 86K +/- tax free, it’s damned hard to go back to “Dilbert’s World” in the cubes, and especially harder seeing that there just ain’t no jobs out there for a former soldier to have.

Tinfoil moment makes me think that’s part of the reason we keep in wars left right and centre… the CorpGov can’t afford to unleash a quarter million heavily trained troops into the workforce… think what happened after Gulf One (1990) when Haich Dub the First riff’ed about 3 divisions back into civvies… I was one of them back then and spent two years almost dying to get back in uniform. Nowadays, the troops have BT-DT (been there done that) and most if not ALL of them have ‘trigger time’ and face time killing the enemy. Scary concept to try and close down the wars and get it into a “Dogs and Soldiers Keep Off The Grass” eh? Unlike the wars of times past, this ‘Columbine Generation’ doesn’t fear anyone in power, and are so well trained that it makes me wonder that if the Lefties in the Obama world realize that they HAVE to keep these kids busy, lest we see what you and Cliff have been charting vis-à-vis the revolution meme.

Otherwise, Iraq is no less dangerous than Detroit. Actually, I drive downtown in my unarmored Chevy regularly, unarmored myself and no weapon either. I wouldn’t in Detroit. Baghdad hosted its first tourist group in like 30 years a few months ago, and besides the occasional flare up of the retards who think it’s fun to shoot mortars at the FOBs, the amount of violence is negligible. This stated, it means I’ll probably have someone trying to nab me and cut my casaba off on YouTube but eh… realistically, its mellowed… and I speak this as a ‘homeboy’ as I’ve been here off and on since the end of 03, and if it wasn’t for the heat and lack of decent water, I’d stay longer.

My hopes however, is that we got to war with, oh say Turks and Caicos… or even Jamaica… I heard them Ire-Boys been giving Florida some eeeeevil looks… I say we invade, and I’ll help secure the crops…. Er… the beaches… yeah that’s it… Toke… er… Talk to you later!

Ah, some fine economic and political content to gnaw through here. First off, you're absolutely right about the Columbine generation now defending the country. A goodly number have figured out that the reason the Obama administration is still signing war spending measures (and the latest one is in process of being rubber-stamped) is that there's no way that any of the powers that be want a well-trained - let alone fearless group of Constitution defenders showing up. Why, that's about the worst nightmare that could come along.

The answer, is, as Orwell put it so well thirty-odd years back, is 'permanent war for permanent peace..." Except'in of course, there ain't no peace because no profit in that.

If you think the world is facing a pandemic of swine flu this fall (we are) and that when the second leg down of Depression Two begins, that will be the most serious threat to the nation ever, then think again.

I'd offer that the most serious threat to America is that people are starting to think and no matter how many wars, how much fluoride in the water, no many how many people Big Pharma can get addicted toi pain pills, no matter how many former soldiers will be put on 'can't own a gun list' because of 'combat stress', and no matter that within a year the free expression on the internet wi9ll disappear as a last-gasp attempt by the current ruling paradigm to buy self-preservation by tearing up the rights of free speech, there will still be a few folks who will 'get it'.

06/18/09 thoughts

An email from a friend

In light of Obama's recent statements on his intentions to expand and accelerate spending in order to accelerate recovery I felt the following quote was appropriate:

Insanity: doing the same thing over and over again and expecting different results.
Albert Einstein

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Urban Survival...

Memories of Monopoly

As I was contemplating my navel Wednesday, along with the fine print of the 'financial reform' proposals from the Obama administration, which seem to boil down to more government - and in particular more power for the Fed - I was struck by something: Why not bust up the Fed? Or at least bust up the problematic banks and paper-slinging outfits?

We already have a prototype for monopoly busting in America - in the break-up of AT&T - a move which arguably was a pretty good one, if you can remember at the back to 1974.

The country's present financial condition is indeed precarious, and as our predictive linguistics pals reassure us, they're about to get a whole order of magnitude worse when commercial real estate and Derivatives Crisis II show up in a month or three, so what's the structural solution to what ails us?

When I read about the trillions of dollars worth of bailouts, TARP'ing and so on, I keep coming back to the fundamental design pattern at the root of where we are: The whole notion of too big to fail.

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The engineering concept is well known and well documented: It's under "single point of failure". Look up SPOF and you'll find all kinds of good science on mean time between failures and so on.

You want the answer to the nation's financial crisis - both now and going forward? It's right there in Wikipedia...but too many of the so-called 'economists' who believe in Keynesian horse pooty and that inflation is somehow acceptable (e.g. trashing purchasing power to pay those who demand interest/rent on money) have never studied outside of their own inbred boxes. So here's the lesson...ready?

The strategy to prevent total system failure is

Reduced Complexity

Complex systems shall be designed according to principles decomposing complexity to the required level.

Redundancy

Redundant systems include a double instance for any critical component with an automatic and robust switch or handle to turn control over to the other well functioning unit (failover)

Diversity

Diversity design is a special redundancy concept that cares for the doubling of functionality in completely different design setups of components to decrease the probability that redundant components might fail both at the same time under identical conditions.

Transparency

Whatever systems design will deliver, long term reliability is based on transparent and comprehensive documentation.

Next time you hear about a company that is "too big to fail" - remember, there is an alternative to printing up a whole bushel basket of money and laying the debt involved off on our kids and grand kids: Simple bust up the "too big" operation into a series of smaller ones that are NOT too big to fail. And then stand back and let the market forces work things out as they will. Failure is both episodic and necessary...it's the humus on the forest floor of economics. Has everyone forgotten that?

Seemed to work for the regional Bell operating companies after the AT&T break-up, no?

It's like Harold Geneen - once CEO of ITT - said: "The only unforgivable sin in business is to run out of cash." We have a whole country right there, right now.

Absent a little new thinking (which is laughably absent) where we're going is horrifically clear...although the train coming down that track will be another month or three before it runs us over. That gives you just time to read "Hyperinflation: The story of 9 Failed Currencies".

What both the Fed and the White House seem to miss is that no matter how much Tarp & Talk goes on TV, where the rubber meets the road, credit card companies are still in the tightening mode, as this NY Times article points out.

You saw the latest May traffic stats out of the Port of Los Angeles? Imports down 18%.

Gee, here's a startling thought: No money, no room on the credit cards means no import demand. Radical, huh? When future history is written look for something that says "One of the dumbest moves was to cut credit card limits at exactly the moment people needed additional purchasing power to propel the country out of recession and to hang onto their homes."

We either break up banker cartels, or we write off America via hyperinflation. It's this latter course that's now baked in the cake seemingly.

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Why we're not applying established monopoly-busting as was applied to AT&T to these financial outfits that have America by the financial nuts is plain crazy. Here lately I'm becoming convinced that crazy, with a strong minor in denial psychology and complete ignorance of design patterns and interdisciplinary studies, is a mandatory prerequisite to holding office or being a mainstream sell-out economist.

06/17/09 thoughts

Good thought...

The New Boom-Bust Cycle (Slate - The Net)

By Daniel Gross

If you're waiting on housing and finance to get us out of the mess they caused, then you better pull up a comfortable chair and a bag of popcorn, because it's going to be a long wait. Just as regulators always fight the last battle--regulating accounting after the dot-com meltdown, promising to regulate derivatives now--analysts always look to the last boom to cause the next one. The new reality is that the sector that dragged the economy down is never the one to lead the recovery. (...)

Go to the source

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Another good article...

The recession tracks the Great Depression (Financial Times - U.K.)

By Martin Wolf

Green shoots are bursting out. Or so we are told. But before concluding that the recession will soon be over, we must ask what history tells us. It is one of the guides we have to our present predicament. Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one.(...)

Go to the source

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Urban Survival...

At some point, I rather expect a series of mega disasters. Why? The crooks who orchestrate things behind the scenes in the financial markets will need something BIG to cover their crimes and put the public off their scent.

What they don't want leaking out is the notion that printing up paper with nothing more than ink and a promise doesn't work very well as a long-term store of value. Which is why a steak dinner in the days before the Federal Reserve cost $1 dollar. today, it's 20-times that which means the purchasing power of money has been watered down twenty-times-over since 1913. Well, more actually, but it's all hidden in plain sight behind the big lie "Prices Go Up!"

Truth is that "Money is being watered down." Irwin Allen couldn't cook up a bigger disaster movie. titles like "The Poseidon Derivative", or "Towering Bankferno" rush to mind.