05/15/09 thoughts

Happy Friday! It is beautiful here in Seattle, and once again I am reminded of why I like this place. Nothing to really add to Urban Survival this morning, so I will let yall mark your calendars. Oh, this should be fun!

Urban Survival...

October 26+/- - Another Web Bot Hit Shapes Up

Oh-oh. Here we go again. Calendar watch time. I can't remember how long ago I told you to put a circle on October 26th (plus or minus a week or so) but that was when Iran would be attacked but oh, my frigging goodness, have you see the "Report: U.S., Allies Put October Deadline on Progress from Iran"?

This is all starting to become almost 'other-worldly' too clear to me: Markets will come down over the next couple of weeks to the high seven thousands on the Dow, we get one more pop up to the 9,600 level. The 'troubles' socially come to visit France and then the U.K. And then here in the U.S.

The n we get the bombing of Iran by Israel in late October, about which time, the U.S. government will be contemplating use of its 'continuity of government' plans due to social unrest brought about by (what else?) economic collapse. And that in turn sets a 4-week temporal 'timer' that brings us to the part where South Korea receives a nuke or two from the North. And then things get bad.

---

Now, whether this all works out precisely doesn't really matter because the meme - thought virus if you will - is out and about. And that in itself is curious to know about in advance.

Oh, and it means Elaine and I already have our NIOSH P100 full-face masks. The dust going global by early November threatens to cross from the conceptual to the physical layer of life. Like we need it. For more on this boundary between layers, see today's "Coping" section.

CPI - Number Of The Day

All our days are numbered, it goes without saying. If you have Microsoft Excel and o some date math, you could figure today as the 134th day of the year. Although lacking that, you would make do with a different number, the Consumer Price Index Report out from the Labor Department:

"The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in April before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This index has fallen 0.7 percent over the last 12 months, due primarily to a 25.2 percent drop in energy prices. The year-over-year declines in March and April are the first since 1955.

On a seasonally adjusted basis, the CPI-U was unchanged in April after declining 0.1 percent in March. The energy index declined for the second straight month, falling 2.4 percent after declining 3.0 percent in March. The indexes for motor fuel, fuel oil, natural gas, and electricity all declined in April. The food index declined as well, falling 0.2 percent in April after a 0.1 percent decrease in March. The index for food away from home increased, but the food at home index fell 0.6 percent with none of the six major grocery store food groups posting an increase. Over the past year, the food index has risen 3.3 percent while the energy index has declined 25.2 percent.

Offsetting the declines in the food and energy indexes was a 0.3 percent increase in the index for all items less food and energy. Over 40 percent of the increase was due to a second consecutive large increase in the tobacco index. The index rose 9.3 percent in April as an increase in the federal excise tax on cigarettes went into effect. A larger increase in the index for medical care, an increase in the index for new vehicles, and an upturn in the lodging away from home index also contributed to the April increase. The index for all items less food and energy has risen 1.9 percent over the past year.

The real story? Unadjusted 12 month number shows year on year we saw a 0.7% deflation happening. You know, deflation as in depressions have that kind of impact, deflation.

Remember the part - maybe six months back - where I tried to describe the simultaneous arrival of inflation for necessaries and the falling prices of luxuries? Hyperstagflation is the term I was using and this morning's report keeps me thinking along those lines.

Getting Real Department

"Obama Says U.S. Long-Term Debt Load ‘Unsustainable’ Gee, whiz, golly willickers. Who would'a thought? Duh...

Yes, the economy blows up late summer and yes people take to the streets and yes, gold and silver should shine. But that's not exactly news around here, is it?

Sham Wow

The latest Ambrose Evans-Pritchard piece in the UK Telegraph is a must-read if you're still skeptical of my disbelief in the 'offishul' government mantra that 'better times are just ahead' jingoisms. It begins:

"US 'sham' bank bail-outs enrich speculators, says buy-out chief Mark Patterson The US Treasury’s effort to stabilise the banking system through the TARP programme is a hopelessly ill-conceived policy that enriches speculators at public expense, according to the buy-out firm supposed to be pioneering the joint public-private bank rescues. "

Just to say it again - as I have been saying since 2000 - Yes, the world really is in a second Depression and No, you're not supposed to notice.

05/14/09 thoughts

Good Article

1. Energy and Basic Materials

"Commodity stocks should be the first ones to rally," says Bruce Bittles, chief investment strategist at R.W. Baird. A reviving economy needs more raw materials and energy.

Some of these stocks already have rallied. The Standard & Poor's energy sector as a whole is down 7% in 2009, but a recent rally has put the oil and gas drilling industry up 19% for the year. Materials stocks are up 16.5% in the past week.

But commodities markets are not infallible. Oil prices hit a record peak last year just a few months before the world economy slipped into recession. Gary Wolfer, chief economist at Univest Wealth Management (UVSP), calls the commodities and energy rebound a "false start." In areas like natural gas, for example, Wolfer attributes the bounce-back not to the economic recovery but to "production finally being brought in line with demand."

...

Urban Survival...

"OK, George. By now you know I often have a different take on things than your average "Joe", or "Economist", or "Wall Street Type" so with this you can also add to that list that I have a different take on Social Security than your average "Government Statistician" or "Elected Official".

The entire thingamajig about Social Security and Medicare running out of money is such and such a year is just a CHARADE!!

The way Social Security and Medicare work is that they "tax" at a rate that is HIGHER than their current payouts. And where do they put that "extra" tax that they collect? Well they "BUY" US Treasury Bonds.

Is there really a "Savings" that is occurring when those "excess" funds are used to buy the bonds? HECK NO!!

What in reality is happening is that the excess Social Security and Medicare tax collections that are not being spent immediately on those programs are being sent over to the general budget to be SPENT IMMEDIATELY on general government programs !!

The ONLY "theoretical" way that the US Government could ever pay back those "paper savings" for future Social Security or Medicare payments is by RAISING THE GENERAL TAX RATE at sometime in the future!!

If you ever happen to take a look at the numbers as to how much they will have to raise the tax rates to "repay" those bonds they are STUPENDOUS!! I forget the actual amount at the moment, but it would require something like an overall INCOME tax hike of 30% or more as I recall. Is that going to EVER happen? HECK NO!!

What these programs really are is a PAY AS YOU GO system ... with a neat little SCAM built in. OVERTAX the lower earning workers so that their overall EFFECTIVE tax rate is higher, often MUCH higher, than those who make a lot more money.

With Social Security and Medicare THERE IS NO SAVINGS FUND!! All there is to back up the Bonds is an "ASSUMPTION" that the US Government is going to raise the Income Tax Rates quite dramatically in the future when it comes time to pay off those bonds (which is never going to happen).

ANY increase in the Social Security or Medicare taxes so as to "Save the system" is really no such thing, it is just a Back Door Income Tax Increase on the lower income WORKERS in the country (remember these taxes do NOT apply to non-workers income, ie: interest, dividends, capital gains etc.) since the money being collected is being immediately spent for general government expenses.

Shoot maybe I can start my own private Social Security System. I can issue you bonds forever, well at least as long as I live. You just keep sending me money every month. I promise you I will pay you back with interest in 60 years!!! (long after I am dead!! and can no longer work) . I promise. I promise. I promise. "

...

Selling California

Psst! Wanna buy a prison? How about San Quentin? This is just one of the real estate pieces being considered for sale as California tries to make budget ends meet. Even the old Cow Palace in Daly City (if you know the way to San Jose from SF) may go. Damn. 'Course it's not bad until the governor's mansion is sold off and Arnold starts operating out of Motel Six...but the problems aren't going away quickly, so stick around a year or two.

Article that states the obvious. Why do people think things are getting better already?

Retail sales fell in April, the second straight month of declines. The news dashes hopes that the falloff in consumer spending has bottomed out as recession-battered shoppers remain reluctant to open their wallets. The seasonally adjusted decline of 0.4% in U.S. retail and food services reported by the Commerce Dept. was worse than expected and follows a decline in March that was revised downward to 1.3%

The unexpected decline—analysts had expected flat sales—was especially jarring because retailers had hoped that gains in retail sales in January and February were the initial sign of stabilization in consumer spending, the main component of U.S. economic activity. As recently as last week, small gains reported by major retailers were being examined for signs of increased consumer confidence, and it's still possible the two-month downturn is just a blip in a larger trend.

"Overall, the report is much weaker than expected and casts doubt on the resilience of the consumer, and thus should temper much of the recent market confidence," Standard & Poor's analyst Beth Ann Bovino wrote.

Future Headwinds

The April retail and food services figures were 10.1% below April 2008. Gasoline sales were down 2.3% in April and 36.4% from last year, reflecting the large declines in gasoline pump prices. Motor vehicle and parts dealers' sales increased 0.2%, but are down 20.7% from April 2008.

There are signs that retailers will face more headwinds in the future. Research firm Retail Forward said on May 13 that a survey found that more than 8 out of 10 women have changed the way they shop for clothing, accessories, and shoes because of the economic turmoil.

"The largest shares of female shoppers are engaging in ways to limit spending on these categories," according to Kelly Tackett, author of the report. "However, many women also are trading down to less expensive brands, styles, and fabrics and changing how and where they shop for clothing, accessories and shoes."

The study said that the tactics for limiting spending are likely to endure post-recession.

And a couple of great comments:

• Biff Wellington May 13, 2009 5:46 PM GMT Since 70% of our economy is based on consumption, it is understandable that the "experts" want everyone to believe things are slowly improving. "Go buy stuff, and don't worry about tomorrow. Obama's got your back," they all say. If 650,000 jobs are lost one month, and 590,000 jobs are lost the following month, that simply means there are a half million less paychecks. The "experts" will say that these numbers show the economy is improving. Now, that's a serious "half-full" point of view. Please explain that to any of the 590,000 who just lost their jobs. I'm sure they will go right out and stimulate the hell out of the economy. Some people seem to be under the delusion that they will just wake up tomorrow and everything will be "back to normal." Unfortunately this is not a dream. But it is rapidly turning into an American nightmare. And all because of the kind-hearted nature of our congressmen, and their banking buddies. But don't worry. I am certain that they now have our best interests in mind. After all, there are elections coming up.
• American Sharecropper May 13, 2009 5:29 PM GMT Keynesian economic theory states government debt spending will spur the economy by encouraging spending of new government printed fiat currency. The idea is that debt dollars would be recouped by the next economic bubble, reducing the crowding effect of government debt and increasing private capital investment. This theory never took into consideration the governments propensity to grow. Keynes created an excuse for government to continually grow at the expense of future generations, forestalling the inevitable Ponzi scheme collapse. We have come to the end of this paradigm. There is no way for us to grow, increase our standard of living while transitioning our form of government into a collectivist state. Within the next ten years, the federal government will either begin to default on its �??entitlement�?? payments or drastically increase taxes (to the point of needing a police state to enforce). As government grows, private capital decreases. The only mystery about consumer (debt) spending is why it has been increasing for the last decade, at the expense of savings.

...

Urban Survival...

Government Going Bust

A report in the NY Daily News tells us (again) what we suspected: Medicare is headed for the rocks and will be bust in eight years if present trends are reversed. Not only that, but says the BBC, the timeline for Social Security to run out of money has been moved up to 2037 - which is four years earlier than had been forecast.

Not that CONgress will be inclined to do much about it, since America's Ruling Class members have set themselves up a system parallel to Social Security, but then you knew that, right? The National Taxpayer's Union site says (in part):

"Members of Congress began paying into Social Security in 1983, as part of a government-wide pension overhaul. This is a requirement, and Members may not opt out of it. They then have the option of participating in one of two pension plans, depending upon when they were elected (most of them do). If elected before 1984, they participate in the Civil Service Retirement System; if elected 1984 and after, they participate in the Federal Employee Retirement System. These two plans are also offered to rank and file federal employees, EXCEPT that the Congressional plan's benefit is calculated on a more generous formula than that offered to most other government workers. The "accrual rate" is much higher, and lawmakers tend to be able to retire earlier with benefits than other federal workers (as early as age 50)."

Think America ought to have universal healthcare? As one site puts it:

"While over 46 million Americans remain uninsured and millions more underinsured, members of Congress receive health-related services that many in the U.S. will never see. "

Seems to me - just thinking out loud here - that if members of both clubs (Senate and House) were living uninsured, falling retirement plan, and upside down in their houses instead of living in their taxpayer provided alternate reality, we'd get a lot more done in terms of social progress. But there I go back into my throw-back role. (I'm still looking for the part of the Constitution that says government can buy insurance companies and banks as it pleases, too, so you just know I'm over-the-edge.

...

Something to think about

Holding the 'Woo

Damn being responsible anyway. After a lot of discussion last night, Elaine and I've decided NOT to get rid of the Daewoo and buy a new car. While it's true that the economy is between crises at the moment, we also expect, based on the predictive linguistics work from HPH that more of the crap will be hitting the fan this fall. Given how dire the outlook is for then, Elaine made some very good points.

First, there's the matter of the cost of the car. Since the Nissan Cube is new in dealerships, the salesman tells me that there is no special financing available yet. Strike one. In the current climate a person would have to be crazy to lay out all cash, or pay any more than zero percent interest for a car. That's just be plain old dumb. So I will call him this morning and cancel the planned test drive with instructions to 'call me when you get zero percent financing going on this one."

Secondly: $20-grand for a Nissan Krom (and that's before Tax & License) is just too much money for a small car. Elaine has read some of the linguistics around the idea of Diaspora (the great global moving about yet to come) and she said "If we ever did have to move - for whatever reason - we won't be able to get hardly anything in a car that small. Besides, can you picture throwing a couple of bales or hay or a couple of sacks of goat feed in the back of it? Honestly, damn fine points. Strike two.

The capper: "You know we could probably get something bigger, cheaper, and with the same kind of mileage if we wait until fall. Besides, these are not times to be into conspicuousness. Strike three.

Humor: The Send Up Story

Humor's a curious thing to analyze. Has patterns to it. To show you what I mean, here's an email I received this morning:

Subject: SEND EM UP!

In addition to communicating with the local Air Traffic Control facility, all aircraft in the Persian Gulf AOR are required to give the Iranian Air Defense Radar (military) a ten minute 'heads up' if they will be transiting Iranian airspace.

This is a common procedure for commercial aircraft and involves giving them your call sign, transponder code, type aircraft, and points of origin and destination.

This was conversation on the VHF Guard (emergency) frequency 121.5 MHz while flying from Europe to Dubai .

It is too good not to pass along.

The conversation went like this...

Iranian Air Defense Radar: 'Unknown aircraft you are in Iranian airspace. Identify yourself.'

Aircraft: 'This is a United States aircraft. I am in Iraqi airspace.'

Air Defense Radar: 'You are in Iranian airspace. If you do not depart our airspace we will launch interceptor aircraft!'

Aircraft: 'This is a United States Marine Corps FA-18 fighter. Send 'em up, I'll wait!'

Air Defense Radar: (no response ... total silence)

Now to the pattern part of the discussion: The original pattern for this kind of email can be traced back to a purported 1995 incident involving the US Navy:

"This is based on an actual radio conversation between a U.S. Navy aircraft carrier (U.S.S. Abraham Lincoln) and Canadian authorities off the coast of Newfoundland in October, 1995. (The radio conversation was released by the Chief of Naval Operations on 10/10/95 authorized by the Freedom of Information Act.)

Canadians: Please divert your course 15 degrees to the South to avoid collision.

Americans: Recommend you divert your course 15 degrees to the North to avoid a collision.

Canadians: Negative. You will have to divert your course 15 degrees to the South to avoid a collision.

Americans: This is the Captain of a US Navy ship. I say again, divert YOUR course.

Canadians: No, I say again, you divert YOUR course.

Americans: THIS IS THE AIRCRAFT CARRIER USS LINCOLN, THE SECOND LARGEST SHIP IN THE UNITED STATES' ATLANTIC FLEET. WE ARE ACCOMPANIED BY THREE DESTROYERS, THREE CRUISERS AND NUMEROUS SUPPORT VESSELS. I DEMAND THAT YOU CHANGE YOUR COURSE 15 DEGREES NORTH--I SAY AGAIN, THAT'S ONE FIVE DEGREES NORTH--OR COUNTER-MEASURES WILL BE UNDERTAKEN TO ENSURE THE SAFETY OF THIS SHIP.

Canadians: This is a lighthouse. Your call. "

Of course the Navy denied it ever happened and even put out an official denial as early as 1997.

What intrigues me about both of these stories is asking "How did they happen?" Are they some kind of deliberate military memeering (meme/thought-virus being injected into the netosphere) or are they just examples of humans thinking they have free time on their hands, getting creative and spinning what they hope to be funny yarns.

The jury is out on which of these possibilities is correct. But it's enough of a pattern you might want to observe your thoughts next time one of these shows up in the inbox. Was it just funny, or did it change how you think in some subtle way?

---

Humor has sure changed a lot. Seems to me that people aren't laughing nearly as much as they used to when I was growing up. Back then seemed like a lot of humor was based on race and sex, but humans seem to be evolving into much more serious-minded people. Polish and Swedish jokes are pretty much gone, and if you're old enough to remember L.S.M.F.T (Lucky Strike Means Fine Tobacco") you might also remember the days when L.S.M.F.T also meant "Loose straps mean floppy..." to high school boys watching the girls play volleyball.

Those were times when we were much more naive. And maybe humor is what helped us as a society get past some of that; I remember being the 'token honkey' at an R&B radio station, LOL.

Maybe humor is just a tool, a reaction to our inner feelings that we (were back then) to embarrassed to put straight out there. Or maybe times really have changed, and nothing much is funny any more. So the patterns of the humor that worked in the past - that makes it past today's broader filtering of what's acceptable - find themselves being replayed every 10-15 years - like the pattern of the "Send Up" and "Lighthouse" stories.

Not that I'm too worried about it as a writer, though. I've been finding delight lately digging out the underlying humor of language. Some words are just hysterically funny on their own; no story needed. They're short, easy to tell, and hysterically funny when you think about them in a Zenly sort of way

My three current favorites?

• "Normal"

• "Transparency"

• and of course, "COMEX"

05/12/09 thoughts

Below is an interesting theory/thought on how to approach investing, and stock market moves/trends. I would not say I strictly invest according to this strategy, but I believe it is interesting what people are capable of getting comfortable to. It seems to me that mentally we can handle incredible changes, as long as we are able to take breathers along the way. For example, every recession is marked with times of increases in equity markets, just as every boom market is marked by brief periods of market decline. I believe this is not necessarily because the markets change that much. I believe it has more to do with our ability to accept change, and our occasional resistance to too much at once. These periods of "too much at once" is when the market acts inversely to the current overall trend.

On that note I just sold my GE stock and GEX ETF in the belief that the overall trend of a bear market has not finished. The past couple of months have just been the breather we all need to accept the new reality. I believe we will now continue our economic downturn. At which point I will buy back these equity positions along with Wells Fargo and an Asian ETF (I still currently hold DIG ETF and SLV ETF).

Today's Urban Survival makes for an interesting read.

...

Urban Survival...

Coping: Guessing "How Far is Down?"

Roll out the china board...here's a really simple way to look at trading. If there's one thing that seems to hold when it comes to markets, it's the fractal nature of things. Using fractals and understanding a bit about Elliott Wave Theory (EWT) You can make some educated guesses about what's ahead for the market.

Take the action on Monday, for example. I know that some very bright people I know - like Robin Landry - are expecting the market to drop for a while and then turn up. But how far is down in the interim? A very common Elliott pattern is for Wave 1 (up or down) to occur with five 'steps' inside of it. So a Big 1 down might be comprised of five smaller steps and it's not uncommon for these to be somewhat predictable. Often (but not always, of course) the first wave down is equal to the concluding 5th down, while the 3rd step down is often 1.618 times the first move.

Schematically, it looks something like this:

Given that the futures were showing a bounce this morning, we may be about to complete '1'. so if 1 = 155 (to round things off) then 2 might equal a 50% bounce (77.5 points) and then we might drop 1.618 times 155 or a further 250.8 points, then a bounce of maybe 125, and then another 155 down. With me on this?

Bounces are never exactly 50%. They can be all over the place. Sometimes 31.5% is enough or 38.2%, other times, various Fibonacci numbers hit, 75% comes up often, too. But for a quick, simple guess, I figure 50% and once in a very green while, it works out right.

Not that it will ever happen this predictably, it's just that by the end of this week, we might see something like a rise to 8,496 plus or minus a pack of gum to complete 2, then a drop to 8,245 putting in the big '3' down, a bounce to around 8,370.5, and then down to 8,215.5. That would finish the move that seems to have gotten underway yesterday.

Would the rally then continue? Why, heck no! Because this little five-stepper might only a fractal of something bigger. In other words, the five little steps could just be move #1 if you zoom out a bit, like so (trashing Elliott numbering conventions I am using A through E to show the larger degree wave):

Now, if it is (and this is an extreme long shot, but worth pondering) if yesterday was 1 within a larger A and if it works out that A completes with a loss of maybe 360 points or thereabouts, then the large A could be 8,215.5, the B could bounce to 8,395 and change, and then we could drop 582 point, which would put us around say 7,813 to finish the larger C, then up 7,993 to finish D and last but not least, a drop to 7,633 to finish the larger E.

So, if you wanted a SWAG at where the market is going, I'd guess in the next day or two, we will go up 75 and then head south again...wild generalizations and NOT TRADING ADVICE OR INVESTMENT ADVICE - it's just what I am personally expecting.

Thing about markets is that if you don't at least have some idea what the game could be, you never know when it's time to exit a trade.

However, once you get any kind of 'vision' about what's ahead, it's easy enough to trade commodity options and pick up a little pocket change. For example, seeing that this could be the start of a market decline that might go 3-5 weeks, I decided to exit some wheat options for September. I had entered the trade about 3-weeks ago at 14½¢ and closed the positions yesterday at 19¢ Even after the commissions for my commodity broker, it's still a decent return if you annualize it. Ever work out what 20% a month compounds out to?

Of course, things never work out as dreamed. Made money on the wheaties, but lost some by exiting half my silver call options too early. Still, hope springs eternal and the discipline of trading is something that's a never-ending battle.

The thing I like about commodity options is that not as many people play them as the commodities market seems to have something of a stigma because people can get in way over their heads. As long as I stick to options, however, the risk is well-defined. Can't lose more than the option price. It's when people start playing around with real contracts that danger appears. On the other hand, good money in that for those who are expect.

Not me, thanks. I just do a little future tripping and generalize that "If the stock market is going down, seems logical that maybe the commodities market will, too. The decline yesterday may - or may not - be the start of a trip down to the 7,600 area. And, if it is...and should we see an 80-point bounce today, followed by a drop to the 7,600 area over the next couple of weeks, then about halfway through the decline, I will start loading up on the long side of commodity options.

Pretty simple strategy: Higher Dow leading to the expectation of rising commodity prices, and downside risk moderated by what I see as building inflation pressures since the Treasury auction results were less than pleasing last week.

Besides, a trader/friend in Luxembourg sent me this historical note:

"The 1930-1931 bear-market rally in the Dow lasted for 70 calendar days. If we count forward 70 calendar days from the March bottom of this year, it would take us to the end of this week..."

Yup, down seems like the next move.

05/11/09 thoughts

Good times are just ahead! (Kidding, but I have enjoyed watching my portfolio get back into the green)

...

Urban Survival...

The story that has my utmost attention today, though, is the one about how "Three big U.S. banks to sell stock and repay TARP." The reason this is so interesting? It's kinda like being in hock to the mob: Just as it isn't in the loan sharks interests to let you ever get out of debt, so too, the Feds may have plans for these banks that want to get out of debt to the government. If they do, there's danger for sure, since these banks won't be beholden to Uncle's schemes and dreams.

Government loves to run business. Maybe it's because they can't run themselves well, they think they can run other things. Take, for example, the case of the EU considering record fines against Intel; these could go to $1.36 billion dollars. All this because Intel supposedly designed a rebate program that would exclude a rival's chips. This is all part of the battle between AMD and Intel which has been raging for eight years. While you and I might be inclined over enough time to let bygones be bygones, in a world run by lawyers, accountants, and government, bygones are billable time, so everyone loses.

...

Good logic that I will continue to think about. This may end up having a significant, unintended impact on oil pricing

Oil, too, has been showing a little price deflating overnight. That's more than anything due to rising supplies. The oil producers have put themselves in a bit of a box - helped by banksters (of course). The banksters have loans gobs of money to many of the OPEC'ers so they can build new hotels, office towers and what have you. So while OPEC might be inclined to reduce production for a while to drive prices back up toward that $80 barrel level, the banker demands are such that they've got to keep pumping...little wiggle-room to control prices. But such is how loan sharks work, as we were just talking about.