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Archive for May 27th, 2010
Larry Pesavento says Beware June 2nd
May 27th, 2010 | 
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Larry Pesavento says Beware June 2nd
Larry Pesavento, the pattern recognition expert , who uses astrological patterns to great effect when trading, is back. After his amazing call seeing April 25-26 as a major turn day, he sees big trouble ahead, starting around June 2nd.
Click on the link below to listen to the Podcast
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Larry Pesavento is a 45 year veteran trader. He began his career trading full time in 1967 while in graduate school getting an MBA in Finance following a BS in Pharmacy. He managed the commodities department of Drexel Burnham Lambert in Southern California from 1976 to 1981. In 1982 he became a member of the Chicago Mercantile Exchange where was a local in the S&Ps currency pits. Following this he worked for a commodity corporation in Princeton New Jersey from 1985 to 1986 and in 1987 he wrote Astro Cycles The Traders Viewpoint and published a newsletter Astro Cycles until 1995. Currently he resides in Tucson Arizona and has spent the last decade working on artificial intelligence i.e. Neural networks and genetic algorithms,using this technology to develop an auto trading system. He has one of the most extensive libraries on the subject of technical analysis and has trained over 1000 traders using the pattern recognition swing trading methodology described in his books. Over the past 25 years he has written 10 books on trading.
Hugh Hendry: I Would Recommend You Panic
Hugh Hendry is the principal portfolio manager and leads both the investment thinking and the research team at London-based Eclectica Asset Management. His billion-dollar hedge fund operates in the eye of the financial storm, the blame for which he says lies squarely at the door of the financial elites: the banks, pensions funds, regulators and governments who were all “asleep at the wheel.”
In my opinion, Mr. Hendry couldn’t be more correct if he tried. And the ‘academic’ from Columbia University obviously overpaid for his education.
Read more about Hugh Hendry and what he has to say about the financial and economic situation here.
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Financial System, Government, Money | 
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Is Europe Heading for a Meltdown?
Is Europe Heading for a Meltdown?
This financial crisis is worse than the sub-prime crash of 2008 because the sums are so much bigger and it is governments that are in dire straits. Edmund Conway explains the dangers.
Mervyn King, the Bank of England Governor, summed it up best: “Dealing with a banking crisis was difficult enough,” he said the other week, “but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there’s no backstop.”
In other words, were this a computer game, the politicians would be down to their last life. Any mistake now and it really is Game Over. Or to pick a slightly more traditional game, it is rather like a session of pass-the-parcel which is fast approaching the end of the line.
The European financial crisis may look and smell rather different to the American banking crisis of a couple of years ago, but strip away the details – the breakdown of the euro, the crumbling of the Spanish banking system to take just two – and what you are left with is the next leg of a global financial crisis. Politicians temporarily “solved” the sub-prime crisis of 2007 and 2008 by nationalising billions of pounds’ worth of bank debt. While this helped reinject a little confidence into markets, the real upshot was merely to transfer that debt on to public-sector balance sheets.
This kind of card-shuffle trick has a long-established pedigree: after the dotcom bust, Alan Greenspan slashed US interest rates to (then) unprecedented lows, which helped dull the pain, but only at the cost of generating the housing bubble that fed sub-prime. It is not so different to the Ponzi scheme carried out by Bernard Madoff, except that unlike his hedge fund fraud, this one is being carried out in full public view.
The problem is that this has to stop somewhere, and that gasping noise over the past couple of weeks is the sound of millions of investors realising, all at once, that the music might have stopped. Having leapt back into the market in 2009 and fuelled the biggest stock-market leap since the recovery from the Wall Street Crash in the early 1930s, investors have suddenly deserted. London’s FTSE 100 has lost 15 per cent of its value in little more than a month. The mayhem on European bourses is even worse, while on Wall Street the Dow Jones teeters on the brink of the talismanic 10,000 level.
Whatever yardstick you care to choose – share-price moves, the rates at which banks lend to each other, measures of volatility – we are now in a similar position to 2008.
Europe’s problem is that the unfortunate game of pass-the-parcel came at just the wrong moment. It resulted in a hefty extra amount of debt being lumped on to its member states’ balance sheets when they were least-equipped to deal with it.
Europe was always heading for a crunch. For years, the German and Dutch economies pulled in one direction (high saving, low spending) while the Club Med bloc – Greece, Portugal, Spain, Italy (and their Celtic outpost Ireland) – pulled in the other. At some point, there was always going to be a problem, given that these two economic blocs were yoked together in the same currency, controlled by the same central bank. By triggering the global recession and shovelling an unexpected load of debt on to Greece’s balance sheet, the financial crisis has effectively smoked out the European folly.
The Club Med nations – and in many senses Britain – were not so different to sub-prime households: they borrowed cheap in order to raise their standards of living, ignoring the question of whether they could afford to take on so much debt. But, as King points out, sub-prime households – and the banks that lent to them – can usually be bailed out. The International Monetary Fund simply does not have enough cash to bail out a major economy like Spain, Italy or, heaven forfend, Britain. So, again, we find ourselves in unknown territory.
There are plenty of episodes in history when countries have been as indebted as they are now, but they are all associated with periods of war. History shows that when nations reach as high a level of indebtedness as Greece, and have as few prospects of growth, they will almost certainly default. Indeed, the IMF, which has pretty good experience of fiscal crises, privately recommended that Greece restructure its debt (a kind of soft default, renegotiating payment terms). It was refused point-blank by the European authorities.
To understand why, step back for a moment. It is fashionable to compare the current situation to the Lehman Brothers collapse, but that understates its severity. The sub-prime property market in the US, together with its slightly less toxic relatives, represented a $2 trillion mound of debt. The combined public and private debt of the most troubled European countries – Greece, Portugal, Spain and so on – is closer to $9 trillion.
Moreover, whereas the pain from sub-prime was spread out relatively widely, with investors hailing from both sides of the Atlantic, the owners of the suspect European debt tend almost exclusively to be, gulp, Europeans. No one is suggesting all of this debt will go bad, but the European policymakers fear that the merest hint that Greece might default would spark a chain reaction that would cause a more profound crisis than in 2008.
The problem is not merely that holders of Greek government debt would dump their investments, or even that they would ditch their Spanish and Portuguese bonds while they were at it. It is that government debt is the very bedrock of the financial system: should Greek government bonds collapse, the country’s banking system would become insolvent overnight. In fact, banks throughout the euro area would be at risk, given that they tend to hold so much of their neighbours’ government debt. That, at least, is the theory, but as was the case in the aftermath of Lehman’s collapse, no one really knows how great their exposure is.
The other, more cynical, explanation for Brussels’ refusal to countenance default is that it fears that this would fatally destabilise the euro project itself – which of course it would. But as the politicians are discovering, organising a European sovereign bail-out is far, far more difficult than rescuing a bank. It took barely more than a few days in September 2008 for the Government to push through the semi-nationalisation of Royal Bank of Scotland and HBOS.
Earlier this month, when the French President Nicolas Sarkozy announced that the continent would be saved by a “shock and awe” $1 trillion bail-out package, markets convinced themselves for a moment that the politicians might be able to manage it. But the challenge of having to co-ordinate an unprecedented rescue across a
16-nation region without a common language or central Treasury is proving too much for Europe’s leaders. Add to this the fact that most citizens (particularly in Germany) resent the idea of bailing each other out at all, and are willing to vote out their governments to prove it, and you get the idea of the challenge at hand.
Despite his rather aloof appearance, European president Herman Van Rompuy put it pretty well this week, saying: “Today, people are discovering what a ‘common destiny’ in monetary matters means. They are discovering that the euro affects their pensions, savings, and jobs, their very daily life. It hurts. In my view, this growing public awareness is a major political development. It forces the governments to act.”
That action, so far as Van Rompuy is concerned, means more integration and some eye-watering spending cuts across the continent. Unfortunately, both are being carried out in haphazard fashion. The bail-out package may pave the way for a central EU Treasury, but it is still being muddled through the legislative process, and could well fall foul of voters in France or Germany. Spain and Italy are, rightly, inflicting severe cuts on their budgets, but so is Germany, which ought, according to a host of economists including Mervyn King, to be spending more, not less.
In the meantime, European politicians, torn in one way by their voters, in another by Brussels, emit even more confusing signals which only destabilise markets further. Angela Merkel’s ban on investors short-selling German bank shares, and the collapse of a swathe of Spanish savings banks have hardly helped, either. And all the while, the euro continues to fall as investors mull its fate. The single currency can survive – but only if its members agree to more political union, and the prospect of that would be about as palatable to the people of Europe this summer as an ouzo and retsina cocktail.
Posted in Debt, Economic Crisis, Economy, Euro, Europe, European Central Bank, Financial System, Government, Money, Sovereign Debt, Sovereign Risk |
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But, You Sputtered, I'm Just A Hack….
But, You Sputtered, I’m Just A Hack….
By Karl Denninger
That is, with all my pesky math and charts like this:
Remember that I’ve been preaching for a while that we embedded a roughly $500-600 billion structural deficit into the economy post-2000? And that now, in response to this recession (and in a refusal to admit that we have been playing credit drunk) we’ve now embedded a roughly 10% structural deficit – three times the former?
Before you consider me a chucklehead for having the temerity to look at the math you might take it up with the BIS - the Bank of International Settlements, or the “bankers’ bank” – which agrees with me:
According to the Bank for International Settlements, the United States’ structural deficit — the amount of our deficit adjusted for the economic cycle — has increased from 3.1 percent of gross domestic product in 2007 to 9.2 percent in 2010.
Gee, you mean they looked at the same chart I’ve been preaching from?
This stuff isn’t hard folks!
Now Einhorn of Greenlight Capital, a rather-well-known hedge fund manager, is sounding off. He said:
A good percentage of the structural increase in the deficit is because last year’s “stimulus” was not stimulus in the traditional sense. Rather than a one-time injection of spending to replace a cyclical reduction in private demand, the vast majority of the stimulus has been a permanent increase in the base level of government spending — including spending on federal jobs.
Yep.
This is exactly what I’ve been saying now since this mess began and the “response” became clear: Government didn’t “stimulate”, it instead built in structural deficits – just as it did in 2003.
But you can read David’s missive any time you’d like, or the BIS’.
The key question is why would the government take such a step?
Some would claim that it was about trying to exert more control over the economy, as of there is some sort of grand conspiracy extant to take every piece of control you have over your life and transfer it to government.
I’m a bit more realistic in my assessment – and less conspiratorial.
Government did this because it was the only way to avoid having to admit that we have too much debt in the system and thus that the economy must undergo the adjustment necessary to bring private final demand and production into balance.
That’s fancy economic-speak for “you can’t spend more than you make forever, and when you stop, paying down the debt you accumulated will make it hurt more than if you never did the bad things in the first place.”
But government was the one that encouraged all the “bad things.” Claims of “home ownership for all” and willful blindness while builders, lenders and Real Estate “professionals” all pumped housing prices to the moon – irrespective of whether the only way you could “buy” such a thing was with a fraudulent mortgage.
In the previous cycle, the marketing and sale of stock in hundreds of companies that never had a chance of turning a profit, being in fact nothing more than a sophisticated and outrageous “pump and dump” scheme with you as the bagholder.
In both cycles people were promised “the best medical science can produce” without concern over ability to pay – either individually or collectively. We can’t actually provide $1 million in medical care to every person in the nation (such an attempt would generate 3.3 x 1014 in cost at our current population; that’s 3 followed by 14 zeros, or 330,000,000,000,000 in expense over a lifetime, which is roughly 30% of the entire nation’s GDP on an annualized basis), but in point of fact you can easily run up that sort of bill in the last year of your life – and if you don’t have to demonstrate ability to pay, many people will do exactly that. We currently spend about 16% of GDP on health care; the “unrestrained demand” level is about twice that, while the actual amount we can afford is roughly 10% of GDP.
Our expectations and demands with regard to health care are three times sustainable consumption – just as is in housing, where we believe we “deserve” a 3,000 square foot house for a married couple, where the actual level of sustainable demand and consumption is about 1/3rd of that.
In a couple of weeks we’ll be able to reprise one of my other favorite charts, the total debt load in the system, as the new Fed Z1 will be released. Here’s the previous chart:
All we’ve done is pulled forward future demand with more and more debt, and having reached the endpoint of this game where rates start to ramp precipitously (and having seen it happen in both Iceland and Greece) we can no longer play “a dollop of debt and a smile” with our own fiscal profligacy.
Obama and the rest of the merry band of clowns in Washington DC believe that if they can just prop up the stock market “consumer confidence” will return and people will “feel rich.” But feeling wealthy and being wealthy are two different things. You may feel wealthy if you have a nice house, a nice car and a nice boat but you aren’t in fact wealthy unless you have all of those things, plus enough capital to live off for the rest of your life, without any responsibility to pay anyone else on a continual compound forward basis – that is, unless you are without debt.
If we deal with the facts the stock market will decline precipitously, as profits are very sensitive to revenues, which will decline as production comes in line with actual final private demand. Standards of living will decline too – significantly so. The 3,000 square foot house for the “middle class” and the idea that one can consume $1 million or more of health care without the ability to pay for it will both disappear.
If we don’t deal with the facts then the stock market will crash, and the austerity we will face will be far worse. Instead of housing prices reflecting 2-3x annual incomes and the average family of four living in a 1,500 square foot house they will be lucky to live under an overpass. Half the S&P 500 will be rendered bankrupt by ever-increasing demands for more taxation, which they will try to pass on to consumers – who have no money. Medical care will be available – with a one year waiting list for critical procedures, rationing by the most-obvious method – you’ll die before your turn comes up. In the extreme case there could even be a breakdown of critical transportation and food infrastructure in the United States.
I want to be bullish on the future of the nation, but until and unless we get the spending under control, which means telling people what the truth is – not necessarily what they want to hear, along with taking the medicine we have avoided for the last two decades - it simply isn’t in the cards.
A Caution On A Broken Market
Posted by Karl Denninger
If this isn’t enough to give you nausea I don’t know what is:
Monday night into Tuesday, 1090 – 1035, a roughly 5% drop. Then on Tuesday, a nearly 5% rise.
Yesterday afternoon there was a rumor that China was “reviewing” it’s Euro Zone holdings, and into the bell the market sold off hard, down 3% from the top, and last night after the Chinese central bank “soothed” markets, we’re up the entire 3% we lost plus a bit more this morning.
As you can see a significant percentage of these moves are happening overnight, trapping the retail investor without a realistic ability to hedge.
The extreme volatility on nothing more than rumors bring back memories of 2007 and 2008, when Charlie Gasbag-a-rino was trotted out every time the market was down 200 points to claim that Ambac and MBIA would be bailed out “imminently”, stick-saving the market time after time. You’d think that such rumors would “wear off” after a while when they didn’t materialize and nobody would believe (or act on) them any more.
You’d be wrong; it “worked” for months.
Then there was “Buffett Will Buy The World, including every insolvent bank in the United States.” That one was good for huge ramp jobs too.
But those at least took place, for the most part, during the daytime. These ramp jobs are all pretty much overnight events, and what’s worse, they’re all government interventions in one form or another by governments that have pretty much already blown their policy-making wads.
Those who believe “we’re in a new bull market” have some trouble with the facts here, particularly with squaring that belief against the ridiculous instability of the last few weeks. Stable, recovering markets and economies don’t vomit up 5% of their value within a couple of hours, only to recover it all when someone comes out and says “oh yeah, we’ll find another trillion dollars laying around in the sock drawer for you.”
I remain firmly grounded in my belief that the odds of all these policy interventions fixing what ails the broader economy and markets is somewhere near zero – to within several decimal places. The underlying issue is one of solvency; the path that nearly all western governments are on today leads to the same handbasket that Greece finds itself in.
In the meantime we have a President and Democrat Congress that clearly doesn’t get it, intending to put through yet another huge spending bill. True to form our hypocritical government has Geithner shaking his finger at the Europeans – telling them to cut spending.
If you are wondering why the markets look like a roller coaster covered in vomit, this might have something to do with it. If we don’t get our house in order and stop acting as if we have an unlimited credit card we will soon feel a rhinoceros horn in a very unpleasant place, and instead of a market that contracts to a reasonable fair value consistent with private final demand (which still whacks 10% or so off GDP) we will instead watch 60-80% of our market’s value disappear.
Buckle up folks – the idiots in DC still don’t get it, and won’t until they get a forcible colonoscopy served by market forces they simply cannot control (hubris and arrogance aside.)
PS: The new Fed Z1 is due out in a couple of weeks, and will give us a good handle on exactly how bad it’s gotten – and is likely to get. Watch for the update!
Posted in Debt, Economic Crisis, Economy, Financial System, Government, Money, Stock Market |
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The Number One Tool Of Financial Enslavement
The Number One Tool Of Financial Enslavement
Today there is a great awakening going on across the United States and all around the world. Tens of millions of people are becoming aware of the growing tyranny of the global financial elite. Yet millions of those same people willingly enslave themselves to those very same financial powers. So how is this happening? It is called debt. The financial powers of the world use it to enslave individuals, corporations and governments. For thousands of years humanity has been taught the proverb that ”the borrower is the servant of the lender”, and yet today hundreds of millions of people around the globe willingly have run out and have made themselves servants of the money powers. You see, when you borrow money from a financial institution, you not only have to pay that money back, but you also have to pay a significant amount of interest. In fact, often the interest ends up being much more than the principal of the loan. Thus the borrower ends up devoting a great deal of his or her labor to earning money for the lender. Certainly there are times when it is necessary to borrow money. But what Americans have been doing over the last 30 years goes far beyond “necessary” borrowing. In fact, the massive debt binge of the last three decades has been nothing short of a huge percentage of the American population entering into willing financial enslavement.
Do you think that is an exaggeration? Just consider the chart below. The word “insanity” does not even begin to describe the growth of household credit in the United States over the last 30 years….
So why is debt so bad?
Well, there are a lot of reasons. Debt strips you of your freedom and slowly drains you of your wealth. It puts the fruits of your labor into the pockets of others.
Getting others enslaved by debt is how the most powerful financial institutions in the world got so dominant. It is one of the most profitable ways of making money ever invented.
What many people don’t realize is just how much interest they end up paying on some of their debts.
For example, if you go to mortgagecalculator.org, you can calculate the amount of interest that you will pay over the life of your home mortgage. According to that calculator, someone with a $250,000 mortgage at an interest rate of 6.5% over 30 years will end up paying over $300,000 in interest before it is all paid off.
So when those 30 years are over, you have bought a house for yourself and you have also bought a house for the bankers.
But there are many forms of credit that are far worse than mortgage debt.
So what are they?
Just look in your wallet.
Do you have a credit card in there?
If so, and if you carry a balance each month, then you are “feeding the monster” and you have financially enslaved yourself.
But you are far from alone.
According to the United States Census Bureau, there are approximately 1.5 billion credit cards in use in the United States.
In fact, 78 percent of American households had at least one credit card at the end of 2008.
So it is a rare person who does not have at least one credit card.
But not only do the vast majority of us have credit cards, we are using them at unprecedented rates.
At the end of 2008, the total credit card debt piled up by American consumers was more than 972 billion dollars. That is an amount that is greater than the GDP of the world’s 122 poorest nations combined.
So why is credit card debt bad?
Well, because it can drain your wealth faster than almost any other method ever created.
For example, according to the credit card repayment calculator, if you owe $6000 on a credit card with a 20 percent interest rate and only pay the minimum payment each time, it will take you 54 years to pay off that credit card.
During those 54 years you will pay $26,168 in interest rate charges in addition to the $6000 in principal that you are required to pay back.
That is before you include any fees or penalties you might accumulate along the way.
Are you starting to get the picture?
Do you really want to repay over $30,000 for a $6,000 purchase?
Of course not.
So what should you do?
Stop feeding the monster.
They are getting insanely wealthy off of your financial enslavement.
It is time to get out of debt.
One of the most common financial questions that people ask today is what they should do with their money.
Well, the answer to that question is a lot more obvious than people may think.
After purchasing all of the food and supplies that are needed for the hard times that are coming, people need to get out of debt.
There are very, very few investments that will add to your wealth faster than debt is draining it.
So don’t let your money sit there and earn a couple of percentage points if you are carrying any debt that you can easily pay off.
Paying off debt will reduce your living expenses and will give you much more flexibility. It will also put you in a much better position to weather the very difficult financial times that are coming.
When you get into more debt, you are playing the game that the Federal Reserve, JPMorgan Chase, Morgan Stanley, Citigroup, Bank of America and Goldman Sachs want you to play. There are always going to be financial predators that are ready to drain your wealth.
But you don’t have to play that game. Work to get yourself free. You will be glad that you did.
proudly supports:
Bill Still For President
for Congress
Michigan 11th District
By Bill Still
There is only one answer for the world economic situation; monetary reform.
1. No More National Debt
2. No More Fractional Lending
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