Saturday, May 29, 2010

Wal-Mart makes splashy price cuts to get mojo back

Wal-Mart is counting on $1 ketchup bottles and sub-$4 cases of Coke to get its low-price mojo back.

The sharp cuts, which came ahead of Memorial Day weekend, have already pushed rivals such as Target into price wars. And the markdowns are expected to keep coming throughout the summer.

They're one of the boldest moves the world's largest retailer is making to turn around sluggish business at its U.S. namesake chain and win back shoppers from rivals. The cuts aren't across the store but target 22 foods and other essentials at an average savings of 30 percent -- splashy enough to get attention and perhaps change perceptions.

Hey, all you "hyperinflationists," where is the inflation? Prices are collapsing.

What's wrong with the economy? Nothing that the right policy can't fix!

Thursday, May 27, 2010

Video: US and Global Debt Outlook

The National Commission on Fiscal Responsibility and Reform held some hearings yesterday, tragic.  Here is the video:  Carmen Reinhardt starts at about 9 minutes ths may be of interest to our astute readers.

Does government spending create wealth?

Of course it does. Ask anyone who owns stock in a defense contractor. That's just one example.

US Money Supply plunging at Depression pace

A story out of the UK Telegraph:

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history. The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.

The Fed no longer publishes M3 data, but apparently there are some groups that still compile it.

It's not surprising that money supply is contracting. The vast majority of what we call "money" is bank credit and that is not growing. The other money--the monetary base or the government's money--is showing a sharp slowdown in the rate of growth as spending cuts slowly start seeping in.

The "Debt Clock" is subterfuge

We've all seen the "Debt Clock." That ridiculous meter of the supposed debt of the United States ticking higher by the millisecond.

The debt clock is a deliberate campaign of misinformation and distortion. It' s designed to scare Americans into voting for reductions in social services that benefit the poor and middle class.

These are the facts:

!. The debt clock presents only the debt and does not show the income and assets of the nation, which far exceed the debt and is growing faster than the debt. GDP alone, which represents the sum total output of goods and services, and national income, per year, exceeds the debt by more than $1.5 trillion.

2. The debt is often shown as equaling $45,000 per citizen, however, the economic output and income of the nation equates to $49,000 per citizen, meaning that households, in the aggregate are solvent and have a positive net worth. That is real wealth!

3. Government spending that adds to aggregate demand raises the economic output of the nation, which raises the wealth of the nation in the form of greater abundance of goods and services ("real wealth").

4. Deficit spending raises the savings of the private sector because it adds to the sum total of financial assets owned by the private sector, and includes an increase in incomes in the form of interest payments.

5. Boom times have ALWAYS followed periods of high deficits and recessions or even depressions have ALWAYS followed periods of surplus. Fortunately, we have not had too many periods of surplus in our 200 year history as a nation.

There is a deliberate campaign of misinformation and distortion going on with respect to the debt. Following the prescriptions of those who are telling us to reduce government spending will ultimately lead to lower GDP and lower wealth and income of the nation and by corollary, a broadening of poverty.

Wednesday, May 26, 2010

Blue Angels, USNA 2010

Not economics related, but I took in one of the greatest spectacles in aviation this afternoon.

Pictures here.

Monday, May 24, 2010

Hundreds Of Thousands Of Americans Have Totally Exhausted Their Jobless Benefits

According to Republicans and conservatives, that fact that hundreds of thousands of American have run out of unemployment benefits means that we ought to see a big boom in job growth. For a long time their contention has been that people who receive unemployment insurance have no incentive to look for work and that is what's "causing" our current, high state of unemployment.

Well I'll bet anyone who'd like to bet me that rather than seeing job growth zoom because people have come to the end of their benefits, we'll see something far less redeeming: a major spike in crime and social unrest. It's all coming to a city near you very soon!

Einstein the economist!

Albert Einstein was arguably the smartest human being to ever walk the face of the earth. Here are two wonderful quotes where he talks about the gold standard and macroeconomics.

(Special thanks to Warren Mosler, who dug these up.)

“The gold standard has, in my opinion, the serious disadvantage that a shortage in the supply of gold automatically leads to a contraction of credit and also of the amount of currency in circulation, to which contraction prices and wages cannot adjust themselves sufficiently quickly.” (1934)

“If we could somehow manage to prevent the purchasing-power of the masses, measured in terms of goods, from sinking below a certain minimum, stoppages in the industrial cycle such as we are experiencing today would be rendered impossible.” (1934)

Now...who's going to argue with Einstein?

Legislative Background on the Debt Ceiling

The public debt limit or "debt ceiling" is established by the Congress and the President as a self-imposed constraint on the governments own activities. It is documented in Title 31 United States Code, subsection 3101. Here is a link to the section 3101 of title 31, it is from a while back and still does not reflect the latest law, but you can see the context.

Congress most recently increased this limit via a binding Joint Resolution which has the force of Law if it is signed by the President.

Here is a link to the latest Joint Resolution that raised the debt ceiling. The first paragraph reads:
"Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $14,294,000,000,000."
Instead of revising the text to increase the numerical limit Congress could very easily just strike the whole Section 3101 from the Title 31 USC the next time the limit is near, and then there would be no self-imposed debt limit. Upon passage of the appropriation bills, the Treasury Department could just go do what was necessary to execute the appropriations.

In this regard, if Treasury continues to choose to use the Federal Reserve System as their fiscal agent, they will probably have to continue to issue US Treasury bonds due to the way the Fed runs the banking system and conducts Monetary Policy, but for no other reason such as having to "borrow the money".

Friday, May 21, 2010

EU seeks tougher budget rules to win market trust

This shows you how the Europeans just don't get it. Already strict budget rules created this crisis as it limited the normal fiscal response of running deficits counter-cyclically to sustain output and employment.

Now, member nations of the EU, like Greece, can't pay their debts because their economies are weak and constrained.

So what do the Europeans do?

Make the budget rules even tighter than they were before!

Out of the frying pan and into the fire!!!

Thursday, May 20, 2010

David Walker is a liar!

David Walker runs the Concord Coalition, which is an organization charged with getting our leadership to believe that the U.S. faces an insolvency and, therefore, we should be cutting people's Social Security and Medicare benefits and raising taxes.

Yet, on my radio show in 2008, Walker stated that "solvency was not an issue" and "the checks would never bounce."

Take a listen:

David Walker the big, fat, liar.

Please join my efforts to expose this lying propagandist who is trying to destroy the benefits of millions of Americans. It is nothing short of subterfuge.

Send this audio clip around!

Just sold into this Euro spike!

Euro just experienced an almost 200 point spike up. I took this opportunity to short some more EUR/USD, building my overall short position. EUR/USD is going to at least 1.17 and most likely parity and below.

Welcome to the "Rand Paul" stock market!

Be careful what you wish for as you just might get it.

That is my admonition to voters, particulary the "Tea Partiers" who want cuts in government spending and desire balanced budgets. Some even long for the return of America on a gold standard.

Kentucky Senatorial candidate, Rand Paul, is a proponent of these ideas. His victory in the primary elections this past Tuesday, was a shot across the bow to the stock market. The fact that Americans are voting to usher in a new era of austerity and limitation will be horrible for the stock market and the economy.

While voters who cast their ballot in favor of guys like Paul (Ron and Rand) and perhaps even Schiff, think they're moving the country in the right direction, they're sorely mistaken. All they are doing is ensuring that we will face a long period of dystopia that will result in an unbearable society for millions of citizens.

The American Dream is dying--perhaps it may already be dead--and not because of the debt, but because of an ignorant yet pervasive belief system that grips the electorate and our policy makers.

The world once experienced a period such as this. It was a period when art, science, knowledge, commerce and modernity were suffocated and not allowed to flourish. It was a period marked by superstition, dogma and economic decline. It was a period called the Dark Ages.

My 2010 Outlook predicted exactly what is happening in the stock market right now

If you got my 2010 Outlook that came out in January, you would have been positioned for this market selloff: not just in cash, but making money on the downside.

The Outlook discussed topics such as the austerity measures, government spending cuts, demands for balanced budgets and other highly deflationary policies that would be horrible for stocks.

The second half of the year looks to be a very bad one for equities so you should think about playing it safe or betting on the downside. My 2010 Outlook contains 12 pages of ideas and investment recommendations that will help you avoid any deflation in your own portfolio.

Cost of the report is $39.95. Get it here. Click on "2010 Outlook."

Wednesday, May 19, 2010

Why Rand Paul's Win Is A Horrible Sign For The Stock Market

Read this article. It's talks about EXACTLY what I have been saying and why the stock market is going down.

"But American austerity is coming. Well, we're not going to get a true "austerity budget" with massive chunks of spending taken off. But we are going to get a kind of austerity, whereby the here-and-there bailouts (states, teachers, jobs programs, etc.) will be a lot less forthcoming."

Read the article here.

Gold Prices Dip as Investors Go for Cash

Gold is falling because the forces at play right now are deflationary--big time deflationary.

But so many investors have bought into this ridiculous "hyperinflation" theme because they've seen reserves increase as central banks have brought rates down or conducted quantitative easing. The hyperinflation view is simply wrong.

I am certain that investors in gold will be decimated. I don't know when, but it's pretty much a sure thing. The best investment in the world right now is a Treasury, which will soar as deflationary forces broaden out even further.

Oil falls to an 8-month low

Deflationary forces building due to austerity, spending cuts and other fiscal contractions. Stocks are in trouble.

Mortgage Applications Plummet To 13-Year Low As Tax Cuts Expire

Housing starting to turn down again. We need another stimulus/more housing support. Deflationary forces really building now. Stocks are in trouble.

Tuesday, May 18, 2010

FT: ECB reveals €16.5bn bond purchases is reporting (Hat Tip that the ECB has purchased E16.5B of Government bonds. (Cue the Prospector: They're printin' money! They're debasin' the currency!)

Excerpt from the

The European Central Bank has bought €16.5bn of eurozone government bonds as part of international rescue plan, amid widespread investor concern that the intervention is not yet big enough to stabilise debt markets.....The scale of the ECB’s intervention was at the low end of analysts’ expectations. But the move has broken new ground for the guardian of the euro currency, which had previously resisted buying government bonds outright.
I could not verify this at the ECB website, they have no press release and do not include this transaction in their open market operations results. They must have somehow leaked this to the

UPDATE: Reader BFG has pointed out that the ECB has since posted an OMO to absorb the E16.5B of liquidity provided by the bond purchases. The ECB states that the bond purchases occurred last Friday, May 14th.

PS: Where was the "disaster" that occured between the 14th when they bought the bonds, and the 19th when they took away the liquidity?

Monday, May 17, 2010

Balanced budget ammendment is the "solution" to America's problems

Here it comes!! The Balanced Budget Ammendment is coming, I predict.

Here is an article written by Washington Post columnist, Robert Samuelson, in which he says

"The virtue of balancing the budget is that it forces people to weigh the benefits of government against the costs. It's a common-sense standard that people intuitively grasp. If the Deficit Commission is serious, it will set a balanced budget in 2020 as a goal, allowing time to phase in benefit cuts and tax increases."

This viewi is without question the broadly held view, both by the electorate and policy makers. That's why it WILL happen and it WILL ensure decades of economic malaise, high unemployment, higher poverty and misery and ironically, higher deficits!

Sunday, May 16, 2010

It's still not too late to short the Euro!

In my special report, Euro Crash Alert! that I made available back in March, I detailed 10 different ways to go short the Euro or otherwise take advantage of a big dollar rally. People who bought this report are now making big profits. But it's not too late. You can still get on board this trade, but you have to hurry.

To purchase Euro Crash Alert ($39.95) please go to the link below:

Euro Crash Alert!

Friday, May 14, 2010

"The mother of all evil is speculation"

Quote from Michael Douglas, who plays Gordon Gekko, in the new movie, Wall Street 2, Money Never Sleeps.

President Nicolas Sarkozy 'threatened to pull France out of euro'

It's happening. This is the beginning of the end of the euro.

The Defcit Terrorists are now in full control. Make money while you still can. Your very survival is at stake!

It's futile. The Deficit Terrorists have taken over the world. Their belief system is everywhere. It's going to bring us down--it will bring the world down. All we can hope for is that a Phoenix rises up out of eventual ashes and that will be positive for future generations, but not us.

Right now you should do as I am doing: move to cash or better yet, short stocks--everywhere. We are going down as austerity measures and debt reduction mania takes hold in every country in the world. Prepare for the coming dystopia: Misery, hardship and unrest everywhere.

Make money to protect yourself and your family; you are going to need it. We cannot fight this. The Deficit Terrorists are now firmly in full control of the hearts and minds of the populace and by corollary, the policy makers.

It didn't have to be this way. In a world of abundance and miraculous technology prosperity could have been had by all. However, we are going in another direction because of sheer ignorance.

Things are going to get ugly...VERY ugly. Protect yourself and make money while you still can. Short stocks everywhere. Raise cash. Prepare for a horrible period.

Thursday, May 13, 2010

Drudge Headlines BOE Ignorance

This is a screen shot from Drudge yesterday afternoon:

Seems Mervyn King, current governor of the Bank of England, thinks that Greece, a currency user, is in the same position wrt government "debt" as the USA, a currency issuer.

Drudge linked to a UK Telegraph article here. Excerpt:
"America, and many other large economies including the UK, share some of the same problems as Greece with its public finances: Every country around the world is in a similar position, even the United States; the world’s largest economy has a very large fiscal deficit. And one of the concerns in financial markets is clearly – how will this enormous stock of public debt be reduced over the next few years?
Hey, Merv, how about by changing policy to simply redeem the Treasury Securities and let the current bondholders retain their balances in a a bank account instead? That certainly would reduce the stock of "debt"! It continues:

"And it’s very important that governments, both here and elsewhere, get to grips with this problem, have a clear approach and a very clear and credible approach to reducing the size of those deficits over, in our case, the lifetime of this parliament, in order to convince markets that they should be willing to continue to finance the very large sums of money that will be needed to be raised from financial markets over the next few years, at reasonable interest rates."
Merv, you're the head of a Central Bank, your job is to set the interest rates. Interest rates will neither be "reasonable" or not, they will be where you set them.

This type of commentary from a central banker is very discouraging. He shows little understanding of the true authorities of his civil service position, and correspondingly he is ignorant of the range of actions he can take that perhaps would be in the better interest of the broad population of citizens he is supposed to be working for. Can we get some qualified people in these positions for a change?

The author identifies himself as the economics editor of the Telegraph, he writes:

"It isn’t often one has the opportunity to get such a blunt and straightforward insight into the thoughts of one of the world’s leading economic players. Most of this stuff usually stays behind closed doors, so it’s worth taking note of."
It isn't often one gets the opportunity to witness such butt-kissing of a public official by a supposed editor/journalist. Maybe that is what is necessary these days to gain journalistic access to these public "servants".

I am rooting for the Greek protesters...

I am rooting for those Greek protesters, but my fear is they will be crushed by the Banksters, who appear to have the Greek leadership in their pockets. Get ready, because all this will be coming to a city near you very soon, right here in the good 'ol USA as we start to implement spending freezes and cuts. The states are already moving ahead with it and the Federal Gov't is just sitting by and letting it happen because our leadership has been conned and hypnotized by the Svengali Deficit Terrorists. Meanwhile the Banksters and speculators are frenetically trying to scoop up as much money from taxpayers as possible because they know their jig will soon be up, but until that happens they're working the system to grab hundreds of billions so that they'll still be able to lord over us under the next system, whatever that may be.

PIMCO's El-Erian sees U.S. inflation in medium term

El-Erian is the CEO of Pimco, the world's largest bond fund and he is also the firm's Co-Chief Investment Strategist.

Unfortunately for Pimco (which has had a longtime, good track record under Bill Gross's management), El-Erian doesn't seem to understand the current macroeconomic picture.

After betting heavily on German bonds earlier this year (and against Treasuries), El-Erian is seemingly not worried that Germany is guaranteeing a larger slice of the spreading bad euro debt and the euro is also falling. That's not a good scenario for euro bonds, even if they are German.

Now he's saying that there's too much "money printing" going on and it's going to create inflation. This is a very unsophisticated statement from a guy who used to be IMF Chief Economist. (Then again it's the IMF, so maybe not!)

While central banks are supplying liquidity to bail out banks and speculators who made bad investments, countries are being forced to cut back on spending and that is not inflationary. On the contrary, it is deflationary.

Liquidity provisions only stave off defaults and bank runs; they do not add to aggregate demand. It is not inflationary.

Which brings me to gold. I realize that gold is running up in price, however, if gold is truly an inflation hedge and we are facing a broadening of deflationary pressures (my view), then gold is a huge bubble.

I may be wrong, but I don't think so.

Wednesday, May 12, 2010

CY Fiscal Trends in Major Treasury Spending Items

I've tallied totals of six major line items in the Treasury's daily statements for the first four months of this calendar year. Below is a table of the first four months for the last three calendar years for the six indicated areas of Federal spending:

The Social Security total for January 2010 is lower than the monthly trend, this is probably due to a calendar quirk in December 2009 that brought about $20B of spending forward into December. Adjusting for this would add $20B to the YTD total for 2010 and put the 2010 total at $725B.

For these four months, this adjusted YoY increase of $75B (annualized) represents about 2.1% GDP growth ($14.3T gdp).

U.K. Coalition Government Plans Deficit Cuts, Bank Bonus Curbs

All around the world you see deficit reduction policies and austerity measures being implemented or imposed. All deflationary!! The U.K. is now going to cut its deficit. European nations are being forced to cut back. States in the U.S. are being forced to cut back. Congress has passed "Pay-Go" and a spending freeze will go into effect in FY 2011 (along with the expiration of the Bush tax cuts).

This all points to a serious decline in demand, globally. we come again!

Raise cash in this rally. This is your last chance to get out.

No consequence if the ECB doesn't pay the Fed back!

Warren Mosler had this posted on his blog. Apparently these are the rules of swap contract that the Fed entered into with the ECB. It seems to suggest that if the ECB doesn't pay the Fed back, then the amount owed is just rolled over into a new swap, which just keeps getting rolled over and rolled over and rolled over?

Where is Congress on this?? Where are the Republicans in Congress?? Why isn't Bernanke out on his ass?? Where are the Tea Partiers? Where's Glenn Beck??

We are such patsies!!! When we help our own people there is outcry. When we give free money to the Europeans that never has to be paid back, no one says a thing!!!

Strategist Says Southern Europe Countries Need Wage Cuts

"Is the package big enough?" asked Paul Lambert, the current director of currency and macro strategies at Polar Capital who's also held roles at Deutsche Asset Management, UBS, Citibank and the Bank of England. "That depends on the success of the debt consolidation in the periphery [and] whether they're ultimately able to have falling real wages so that they can come back in line with the core."

Yes, this is beautiful. Here's another arrogant economist who works for a hedge fund, no less, who says that the answer to Europe's problems is to beat it out of the backs of middle class workers, who must now accept lower wages and falling services, even as massive new debt burdens are placed on their countries so that the bankers and speculators who made so many bad bets can get bailed out!

I pray every night that the protesters in Greece will stand tough and not give up the fight against these avaricious predator bastards!

Be prepared for the same thing here in America, when the austerity proposals being pushed by Pete Peterson and David Walker destroy Social Security, Medicare and other programs and raise taxes for the middle class while cutting investment in things like education, food stamps, etc.

All so that they can have more money to play in their high stake games of speculation.

Schwarzenegger Preps ‘Terrible Cuts’ to Close Deficit

"By the beginning of 2010, Schwarzenegger and the lawmakers had closed a $60 billion deficit partly by slashing spending on schools, temporarily raising taxes and borrowing from local governments..."

This is the next shoe to drop and it is likely to lead us into another recession, perhaps far longer lasting than the first because there will not be the comittment at the Federal level to provide any significant money for the states.

Look at the chart below and see how state and local spending is already acting as a drag on GDP. This is just getting started. It will get much, much, worse without help from Washington.

And the sad part about these cuts is that they will affect people who can least afford to lose these services, like the middle class. Less spending on schools, education, police and fire and many other essential services.

Tuesday, May 11, 2010

Tell Congress to Act Now to Lower Energy Costs‏

Visit to learn more about how Congress can dramatically reduce the price of oil and gas. With your help, Congress will take action now on this important issue.

First ECB USD Operation Provides $9.2B for 1 Week

The Fed and the ECB transacted the first in this new go around of FOREX swaps today. The results are here.

Observation: The Eurosystem lasted about 90 days without the benefit of this UNLIMITED access to collateralised US dollar funding at 1%. The previous program (supposedly) ended on February 1, 2010.

Monday, May 10, 2010

Fed Hinting on Mortgage-Bond Sales Brings Bernanke Tightening

As the Fed "funds" Europe with its unlimited forex swap lines, it is tightening money for Americans. Bernanke is hinting at mortgage bond sales, which will effectively raise mortgage rates.

Where is the outrage???

Moody's gets a "Wells notice" from the SEC

A Wells notice is the worst notice any firm can get from the SEC. It could put you out of business.

Moody's got one!

It looks like regulators are finally going after the ratings agencies.

Now Europe's Core Is Getting Contaminated

Morgan Stanley's emerging market strategist, Rashique Rahman, writes:
"...the structural problems in Europe are not solved. Liquidity provision or not, sovereign credit risk has not gone away. Our
work suggests ongoing deterioration of DM sovereign creditworthiness going
forward, manifested by further downward credit rating pressure. Additionally,
the transference of periphery Europe indebtedness to that of core Europe via
the stabilization fund – and further, via ECB purchases – bears very close
monitoring. Contamination to the core (of DM) lies at the heart of contagion for
EM – which again is manifested through DM funding market stresses. The story is not over."

This is what I have been saying. As the core countries take on an increasing share in the "guaranteeing" of all this bad debt, their debt will come under attack, too!

Pimco is long German bonds. Remember my post, where I pointed out that Pimco CEO, Mohammed El-Erian seemed to not understand that German bonds were infinitely more risky than Treasuries. Well, he sold Treasuries and bought bunds recently. That's a trade that could very well end up blowing up Pimco.

Fed bails out Europe!

The Fed has reopened its forex swap lines with the ECB, effectively giving unlimited quantities of dollars to European banks and institutions (and governments)!

The Fed stopped buying Mortgaged Backed Securities here in the U.S. which would have helped American homeowners, but they eagerly rush to bail out the Europeans.

This is beyond outrageous.

Please call, email or write to your Congressional representative immediately and say that the Fed's actions must be stopped!

Sunday, May 9, 2010

Last chance to short the euro!

Once the markets understand how ill-conceived this "bailout package" is, the euro will plummet to $1.00. we come!!

This is the last chance to short the euro before a waterfall decline!!

EU proposes a $1T loan package to defend the euro!

Already experiencing a debt crisis and unable to pay debt service on their current obligations, they are about to borrow $1 Trillion to defend the euro. This is an absolute joke. My 9-year-old son could come up with better policy than this.

The ECB is the only entity that can stop this and they are doing NOTHING!


EU readying bailout fund to support the euro!

This news came out yesterday. The EU nations are supposedly planning a $60 bln bailout fund to counter speculation against the euro.

Let me just say this: It is very problematic to support a currency. Central banks and nations can weaken their own currencies to any degree they want, but supporting it is a much harder job. Basically, there are only two ways to do this. One is by raising interest rates to very high levels. However, if they do this it will kill the Eurozone's economy right now.

The other way is by borrowing to buy your own currency in the Forex markets. This ia apparently the route that the EU has decided to take. So now the EU nations are going to borrow to support the euro when they are already facing a soverign debt crisis. Countries in the Eurozone cannot even service existing debt, but now they're gonna have to borrow more???

This is a crazy idea that is bound to fail.

Sell short any rally in the euro that occurs from this on Sunday night or Monday.

The only real solution to this is if the ECB were to say, "We are going to buy all the debt that we need to buy to keep the system intact." (Debt monetization.) Then it would be game over, the whole problem would go away immediately. However, the ECB didn't even discuss the possibility of doing this at their meeting last week and they essentially told states like Greece, you'd better cut your spending and impose austerity measures.

The Fed could do forex swaps again and that is the chatter in the markets, however, that only supplies dollars and does not necessarily fix indebted nations' euro funding problems. Morever, I've read that members of Congress are watching the Fed now and are not happy about the prospect of a reopening of forex swap lines.

Bottom line: I'm still short and will add to my shorts on any rally off of this development.


Saturday, May 8, 2010

Fed's "exit strategy" has begun!

The Fed has quietly begun its exit strategy. Take a look at the chart below. Reserves have fallen over $200 billion since mid-February and are now just slightly over $1 trillion and headed lower.

Treasuries are rallying now because of a flight to quality, however, the Fed's engineering of this reserve drain means that rates will rise. Sell into this bond rally.

Friday, May 7, 2010

Why yesterday was not the bottom

There's a lot of talk going around about how yesterday was just a "glitch" or that it was just a normal market correction, albeit wild.

I disagree. I think it is the beginning of something more long-lasting.

Yesterday I was at Fox; they asked me to come on to talk about the call I made on shorting the euro. (Many of you have profited from that because you bought my special report, Euro Crash Alert!)

While I was there I was listening to the commentary coming from policy makers, business leaders and market analysts and there was a common thread in the remarks that went like this: The United States had better be careful because we could end up just like Greece.

There was ZERO understanding of the distinction between Greece--a currency user--and the U.S.--a currency issuer. Nada, none, zilch, a big goose egg.

Then I bumped into Ken Langone. For those of you who are not familiar with him, he was the co-founder of Home Depot. He's a billionaire but somewhat of a loudmouth who thinks he knows everything about everything. You see, that's what we do here in this country; if you have a lot of money you are considered to be brilliant. It doesn't matter if you don't know shit, if you have money most Americans will consider you a genius. (The media certainly will.) By the same token, Albert Einstein, who was probably the smartest person to ever walk the face of the earth, made about $60k in today's dollars. Making money...true genius...different skill set.

Langone is this kind of guy. He's rough and outspoken, a great money raiser in his day (that's how he got Home Depot off the ground: he was the Wall Street money guy), but, but hardly a policy genius.

Anyway, he was explaining to me how the country was "broke" and how we have to cut gov't workers' salaries, reduce benefits to people and make drastic spending cuts. I tried to make him understand that government payments to people comprise part of their incomes and that payments made to firms for the purchase of goods and services are part of the income of those firms allowing them to hire people and pay salaries, but he would have none of that. He just couldn't seem to grasp the idea that for every dollar the gov't spends it equates to a dollar in additional GDP. In fact, many people just can't seem to grasp it.

Like most people, Langone believes that the gov't is broke and when it spends it is spending money it doesn't have and that comes off the back of the private sector, blah, blah, blah. The same crap you hear every day.

So as I am talking to him it occurred to me that we have these very influential busines leaders, like Langone, who are out there pushing this view; that major cutbacks in spending must be made and that is the only way we will get back on the road to prosperty.

Whether they know it or not they are pushing the very same austerity measures the IMF is now imposing on Greece...measures that are absolutely designed to make things worse.

This is what we are facing here in the U.S. While the Greek situation should not have had even the smallest influence on our market or our economy, it will, simply because we will end up imposing on ourselves the very same, destructive conditions being imposed on Greece even though we are in a totally different situation.

It's crazy, but it's happening. Whether it is Obama's Debt Commission or the spending freeze or tax hikes to "pay" for healthcare, it's all coming full bore now and it will ensure that the long-term outlook for the economy will be one of persistent high unemployment, weak output and broadening poverty.

Making matters worse is the fact that we don't have the political climate anymore to pass a second stimulus--somnething that is urgently needed--so it's pretty much written in the cards that when we go down this time it will become very, very, ugly.

At some point the automatic stabilizers will kick in and support output and demand at some level, but as Warren Mosler has stated many times, that support will occur the "ugly way."

Bottom line: stocks are going a lot lower.

Thursday, May 6, 2010

I called it!

For months I have been talking about a coming collapse in the euro. In my March special report, Euro Crash Alert! I spelled out the reasons why the euro would collapse and how you could make huge profits on that eventuality.

This is a much bigger call than Schiff's housing market forecast or Meredith Whitney's Citi short and neither one of them has even mentioned the problems in the Eurozone. Schiff continues to stupidly call for a decline in the dollar and a selloff in U.S. Treasuries. He's totally clueless...just babbles.

Tuesday, May 4, 2010

France could be in big trouble!

French banks have the greatest exposure to Greece with about $80 billion--or a little less than half the total exposure--of all European banks' claims on Greece. Credit Agricole and Societe Generale are among individual European banks most exposed to Greece's financial crisis.

With no credible deposit insurance in France, or for that matter in Europe, bank runs are a distinct possibility. A total payments crisis is not out of the question for France and the rest of Europe.

This could be a major top in the stock market!

One arcane little tidbit of data that I follow is the net change in the Treasury's operating cash balance for the fiscal year-to-date. That's a mouthfull, to be sure, but suffice it to say that the number is usually negative, which means that the Treasury is spending money faster than it is taking it in.

However, this number has recently turned positive. That means the Treasury is now collecting money a lot faster than it has been spending it.

There were two other times in the recent past when that happened: January, 2000 and May, 2007. Each time, huge market downturns ensued.

I tend to be right, but early!

Here's the video I posted on Youtube last July talking about how the dollar would rally for a "long, long, time." Yes, I was early, but it is turning out to be a very good call. Schiff is STILL talking about how the dollar is going to crash. Please feel free to go to the link on Youtube and read the ignorant comments of his assinine followers.

"It doesn't get any more ominous than this"

Please read Warren Mosler's comments from his blog.

Merkel’s Coalition Steps Up Calls for EU ‘Orderly Insolvencies’
Posted by WARREN MOSLER on May 4th, 2010

It doesn’t get any more ominous than this.

This would insure an orderly default of the entire currency union.
Which is already in progress.

Germany is concerned that the Greek situation resulted in larger deficits for the other members, and wants something in place so defaults don’t result in this type of fiscal expansion for the rescuers.

If they are in fact looking seriously at this new proposal for a default friendly institutional structure its all coming to an end in a deflationary debt implosion, accelerated by their desire for the pro cyclical fiscal policy of smaller national government deficits.

The next event should be the bank runs that force a shut down of the payments system.

It’s a human tragedy that doesn’t have to happen. I’ve proposed two obvious and constructive fixes that are not even being considered. It’s almost like ‘they’ want this to happen, but I now have no idea who ‘they’ are or what ‘their’ motives are.

As always, feel free to distribute.

EUR/USD will break 1.30 soon!

EUR/USD will break 1.30 soon and trade down to the 2005 low of 1.27 on it's way to parity against USD and possibly even a retest of the 2001 lows of 0.80.

Economic Slowdown Ahead, Says ECRI

This blog said it first and the coming slowdown has been well discussed in my Fiscal Trend Digest.

Monday, May 3, 2010

ECB Blows Off Ratings Agencies

Today the ECB released this statement:

The Governing Council of the European Central Bank (ECB) has decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem’s credit operations in the case of marketable debt instruments issued or guaranteed by the Greek government. This suspension will be maintained until further notice.

The Greek government has approved an economic and financial adjustment programme, which has been negotiated with the European Commission, in liaison with the ECB, and the International Monetary Fund. The Governing Council has assessed the programme and considers it to be appropriate. This positive assessment and the strong commitment of the Greek government to fully implement the programme are the basis, also from a risk management perspective, for the suspension announced herewith.

The suspension applies to all outstanding and new marketable debt instruments issued or guaranteed by the Greek government.

The ECB has in effect nullified the influence of the Ratings Agencies and declared that Greek Government debt will be perpetually acceptable as collateral in European Central Bank operations no matter what these Agencies declare.

Now if we could only get our Federal Reserve Board and Treasury Department to give the Ratings Agencies the same treatment here in the U.S. !

Saturday, May 1, 2010

Deficit fear mongering

IMF style austerity measures are coming to America. This is all being driven by deficit fear mongering. Read this eye-opening article. If you are interested in preserving the standard of living that Americans have enjoyed for generations, we must unify and fight against this.


"What invariably kills any discussion of this sensible solution is another myth long perpetrated by the financial elite - that allowing the government to increase the money supply would lead to hyperinflation. Rather than exercising its sovereign right to create the liquidity the nation needs, the government is told that it must borrow from private lenders. And where does their money come from? Ultimately from banks, which create it on their books just as the government would have done. The difference is that when bankers create it, it comes with a hefty fee attached in the form of interest."

Read here.