Interest rates & Bond charts

regarding Louise Yamada, she basically says the same thing as us for the long term. The markets entered into a secular bear in 2000 and she expects it to last until about 2016 or so. Secular bears last 15 - 18 years on average.

Regarding her comments about long term interest rates, she is right about that too, they have yet to break their long term secular trendlines from 1980. Here's some charts of TYX and USB, 30 year rates and 30 year bond

The Greatest Lie ever Perpetrated

People tell you to get out of debt and save money.

Money is created out of debt. When you get a loan, it is brand new money, created form absolutely nothing. If you get it all in cash, then those notes are paper debt obligations, in which you must pay back. But, after only a few seconds, if you handed it back over the counter again, you'd owe a little more, wouldn't you? So where does that extra money come from? Someone else's paper debt obligation certificate.

So, when you have a lot of debt and then you're out of debt and saving money, what you are actually doing, is now hoarding other peoples' paper debt obligation certificates. This is why if new loans aren't continuously made, the entire system doesn't work.

If everyone tried to pay off their loans, there would be no money at all, yet there would be a lot more money owed than even exists!

This is a pyramid scheme. They are illegal. But not for the banks.

The colonies used Colonial Scrip. It was interest free money. http://en.wikipedia.org/wiki/Colonial_scrip

Other Money

Here are some examples of non-debt money

House
Wine
Gold
Silver
Collectibles

You may be wondering why the money supply is expanding so much. It is because then, the debt is easier to pay in real terms, since the debt doesn't inflate. Your taxes might even go down. But one thing is for certain, and that's that savings will erode. Prices will go up. There will be no such thing as "Saving for something". Why save? You can't beat inflation really. If saved for something like a car for a few years, then that car's price is now 10% higher a few years into the future. So, you're better off getting a loan, and paying interest to the banks immediately, than saving for a car.

This is the system we live in. There is actually not a lot of sense to teach saving (sorry) since you can't out-save inflation. It's a pay as you go approach.

If we were on a gold standard, then of course you'd have to save, because borrowing 20 or so ounces of gold isn't easy. If you don't pay the bank back, they'll shut their doors, and people will be covered by the FDIC insurance if they had their electronic debt obligations there, but even the FDIC doesn't save. Banks pay into it, but the government doesn't actually keep that money. They just create new money to bail people out if banks fail. They borrow from the Fed, and pay interest and inflation the money supply even more, and cause inflation.

This is the best movie I have found that explains it all: http://tinyurl.com/yjkxdel

Good Trading,

Trend, S&P500, Gold and the US Dollar

Chart by Matt from BBT

Oct 26th market Update

Market Commentary:

Earnings news was extremely upbeat today, as giants Microsoft, Amazon and Capital One easily out performed expectations on all fronts, posting higher top line and bottom line figures (revenues and profits) and with positive outlooks, to boot.

For the day Microsoft was up 5.38%, Capital One was up 6.84%, and Amazon was up an astounding 26.8%.

To go along with today’s unbelievable earnings releases the existing home sales numbers released earlier today came in much better than expected, surging 9.4% versus a consensus of 4.9%, with the National Association of Realtors noting that the jump in sales was mostly due to first-time homebuyers entering the market via the government’s $8,000 rebate program, a program that congress is now considering to extend and expand.

In addition to the improving headline home sales numbers, distressed properties, which has accounted for around 50% of all home sales this year declined significantly – now representing only 29% of total sales.

Yet despite all this very good news, stocks gave up yesterday’s gains on selling that started early and continued to increase all day long.

Why?

When there is finally some good news to trump, you would expect the market interventionists to use this good news to ramp the markets to new heights … it has happened so many other times this year.

I think many of you know the answer. After all, I have been harping on this subject for a number of weeks now. Check out the following chart. It represents the trading in the dollar today, with each candlestick representing a 15 minute period.

As you can clearly see, today was the dollar’s day again. The dollar was supported steadily all day long. If the dollar gains a footing here the equity market is going to be in real trouble.

I suspect there are a huge number of dollar short positions that have grown steadily over the last 6-7 months. Many investors have been long the market and short the dollar.

Should the dollar gain a bit more support those who have seen dramatic gains by being short the dollar will be forced to cover short positions to pocket the gains. This means that to book their profits they must do the equivalent of shorting a stock. They must buy the shorted security and essentially go long to benefit from the previous short position(s).

If too many dollar shorts head for the exit at the same time you will see the dollar rocket skyward, as it did last year, when it jumped from the low 70’s to the 90’s.

Guess what that will do to the equity market?

A huge amount of money will move from equities over to the dollar side in hopes of gaining on a new rally in the dollar. And the stock market rally that investors have come to love and appreciate will vaporize overnight.

What leads me to believe that this represent a real risk?

Since I base much of my analysis on technical perspectives, the dollar appears to be carving out a bottom and crude oil appears to be carving out a top. But there are some fundamental reasons that give me concern as well.

Several banks have issued credit card change notices in the last few weeks, stating that their APRs are shooting up to 30% in November. This means that despite the impressive re-capitalization that has occurred with many big banks, there is still a huge credit crisis hidden under the cover of mark-to-whatever-the-banks-want.

These banks must know that a huge number of credit card accounts are about to default and so they are taking this action to create new capital as either (1) irritated customers decide to pay off these absurdly high interest rate debts or (2) uninformed customers will continue paying their payments, unaware that 30% APR is being applied to their balance, thus generating a huge increase in interest earnings for the banks.

I have also read that a large number of home sales in the distressed category are being done under strange circumstances. Many foreclosed properties have multiple offers at the asking price, but with caveat of pending new financing.

In lieu of the banks accepting these offers (with financing) for the asking price, the banks are accepting cash offers at prices significantly below the asking price. Accepting prices much lower suggest to me that the banks know that new financing will become very hard to come by … maybe not at all!

Both of these recent steps taken by the banks suggest to me that the bank insiders know that another big credit crunch is on the horizon and there is no way in @#$* that new financing is going to become available – nor is credit going to be available on credit cards even with astronomical interest rates being tacked on.

Another financial scare will lift the dollar into a safe haven for cash and will create huge short covering in the dollar – the likes of which has only been seen when this last bear market hammered home in October, 2008.

Today was unnerving in the sense that economic news and housing data were about as good as any bull could have ordered up. And yet, the markets sold off on what appeared to be minor support for the dollar.

Caution is the by-word. Watch the dollar and crude oil like a hawk over the next couple of weeks. They are your canary to the stock market.

We are Witnessing a New Renaissance, and Gold is Ready for $1,000/oz

In the first quarter of 2009, we reached the climax of US banking collapse. Global central banks hurried to apply fiscal and monetary stimulus, including unconventional "Quantitative Easing", which entailed the printing of over $1.5 trillion to buy troubled mortgage and derivative assets. Our conclusion then was

"In Q1 we likely saw the peak of the dollar. Mr. Bernanke and Mr. Obama continued with hyper-inflationary fiscal and monetary policies which will spark the resumption of commodity bull. Asian markets are breaking away from US equities, this is what we anticipated. I look to accelerated global recovery and volatile markets, with positive uptrend ahead."
So what's in store for the rest of 2009?

We are entering a new renaissance:

With the talk of financial crisis receding, the focus will be back on the dollar. The US budget deficit is projected to reach $2 trillion in 2010. As the generation of baby boomers enters the entitlement phase, the deficit will only likely to go higher. Medicare spending for the first time exceeded contribution, and the Medicare trust fund became a net seller of US treasury instead of being a contributor. While the budget deficit situation is alarming, what concerns me the most is the waning appetite of foreign investors on dollar debts. Dollar debts owned by foreign investors currently stand at over $12 trillion. China, Brazil, India, and Russian are explicitly warning US to reign in deficits to save the dollar. I wonder when their patience will run out.

The dollar standard lasted 4 decades and channeled 70% of the world's resources and investment to America, a country with 5% of the world population.

The jettison of the dollar standard will ensure uniformed distribution of wealth and investment throughout the world. I would boldly state that the global growth will accelerate as we enter a new renaissance with industrial and hi-tech revolution that will put the 1900's industrial revolution to shame.

Peter Schiff's take on the economy

Happy Days Aren't Here Again
by Peter Schiff




Have you heard the great news? The recession is over! It's true; I saw it on TV. Why fret about growing unemployment lines when banks are paying big-time bonuses again?

Proof of the turn was apparently revealed by the 2nd quarter GDP figures that showed that the economy declined by only 1%. After four consecutive quarters of negative GDP, the green shoots now assume that growth will resume over the summer. But before we pop the corks, it may be worthwhile to ask, "what really has changed, and what is responsible for our new lease on life?"

In truth, because of the continued profligacy of the government and Federal Reserve, the imbalances that caused the current recession have actually worsened. We are now in an even deeper hole than when the crisis began. Rather than wrapping up a recession, we are actually sinking into a depression. If things look better now, it's just because we are in the eye of the storm.

We must remember that recessions inevitably follow periods of artificial growth. During these booms, malinvestments are made which ultimately must be liquidated during the ensuing busts. In short, mistakes made during booms are corrected during busts - and in the recent boom we made some real whoppers. We borrowed and spent too much money, bought goods we couldn't afford, built houses we couldn't carry, and developed a service sector economy completely dependent on consumer credit and rising asset prices. All the while, we allowed our industrial base to crumble and our infrastructure to decay.

In order to lay the foundation for real and lasting recovery, market forces must be allowed to repair the damage. However, current policy is counterproductive to this end. Trillions in stimulus dollars have kept the party going, but now what? How does deficit spending by the government address the problems that brought about the crash? It doesn't; it just delays and worsens the hangover - and we have to hope we don't die of alcohol poisoning.

By interfering with the unpleasant forces of the recession, we simply trade short-term gain for long-term pain. By propping up inefficient companies that should fail, we deprive more effective companies of the capital they need to grow. By holding up over-valued asset prices, we prevent the prudent or less well-off from snatching them up and, in doing so, creating a new price equilibrium based upon reality. By maintaining artificially low interest rates, we discourage the very savings that are so critical to capital formation and future economic growth. In addition, the false economic signals the Fed sends the market prevent a more efficient re-allocation of resources from taking place and leads to even more bad economic decision being made. By running such huge deficits, we further crowd-out private enterprise by making it harder for businesses to invest or hire.

The recently passed "cash for clunkers" program (currently on-hold, as it ran out of funding in one week) is a perfect example of how government policy can make the economy worse. By incentivizing Americans to destroy fully paid-for cars so they can go deeper into debt buying brand new ones, the government weakens an already crippled economy. The last thing we want to do is subsidize Americans to go deeper into debt by buying more stuff. Don't they realize that is precisely the behavior that got us into this mess?

Think about it this way. If your friend were in trouble because he had too much debt, would you encourage him to take on even more? Wouldn't a real sign of progress be a reduction of debt, even if he had to cut back on his everyday expenses? What is true for an individual is also true for a collection of individuals, even if they call themselves a 'government.' If, as a country, we are even deeper into debt now than we were before, we are worse off. Period. The fact that the additional debt enabled better short-term GDP numbers is a long-term negative.

Since we have learned nothing from past mistakes, we are condemned to repeat them. As if we have not already suffered enough as a consequence of the Bush/Greenspan stimulus, Obama/Bernanke are giving ever larger doses, which will prove lethal to any recovery. The recession is over; long live the depression!