FedUpUSA

Archive for August 3rd, 2011

No, not in theory; I mean literally.

Readers of FedUpUSA know that I don’t post Alex Jones.  This is primarly because I disagree with his positions on a number of things, but on this point he is correct.  The Super Congress has officially made the United States a dictatorship.  Snuck in with the debt ceiling legislation that was supposed to ‘save us all’ – is a frightening circumvention of the checks and balances of the power of our 3 branches of government.

This is not a partisan issue, either.  Both Republicans and Democrats agreed to this.  Indeed, NO ONE on either side of the aisle objected to this!

Alex Jones covers the high points of the horrifying new powers that this new small group of people has in this video.  Watch it.  Pass it to everyone you know.

It is also worth reading the article from the Huffington Post:  Super Congress Getting Even More Super Powers In Debt Deal

Our Republic is being destroyed right before our eyes – all because those in power refuse to stop borrowing, spending and giving money to the banks.

For weeks now, I’ve been warning about a market collapse. Among the numerous items I pointed out were:

1)   The US economy rolled over in a big way in Q1

2)   The Euro Debt Crisis was spreading to Italy and Spain

3)   China was showing signs of economic contraction

4)   Mutual funds were overly invested in stocks

5)   Historical patterns forecasting a collapse

6)   Signs that the Fed had lost control of the markets

And on and on.

Meanwhile the mainstream financial media’s consensus was that everything was just fine and that at worse the “recovery” was slowing just a bit. The Euro issues were contained. The US debt issues weren’t a problem. And the Fed would be able to get the economy roaring in no time.

Well here we are and the markets are an absolute bloodbath. Other than hopes for QE 3 there really isn’t much to be bullish on. Indeed, we are very likely heading into the REAL Crisis in short order.

That Crisis will be a Crisis of Faith in the US Fed’s ability to contain and/or solve the problems of the financial system.

For 80+ years, the US financial system has operated under the belief that the Federal Reserve could handle any problem. This belief was put to the ultimate test in 2008 when the Fed faced off against the biggest Financial Crisis of the last 80 years. And the ONLY thing that kept us from the brink was the belief the Fed could fix things.

It couldn’t. And we’re all beginning to see that now.

So when the next Crisis hits it will become clear the Fed CANNOT fix these issues (it never could but most people hoped regardless). And that’s when the real collapse will begin as the entire financial structure of the markets (mutual funds, hedge funds, investment banks, etc) comes unhinged.

Remember, the issues that caused 2008 were never actually dealt with. They were merely swept under the rug. And with leverage levels now higher than they were during the Tech Bubble, a much
weaker economy than then, and the US Federal Reserve itself now virtually bankrupt with garbage debt, the next Round of this Crisis will make 2008 look like a picnic.

On that note, if you’ve yet to prepare your portfolio for Round Two of the Financial Crisis, you can find actionable investment ideas that will not only protect your portfolio, but help you produce outsized profits in my FREE report, The Financial Crisis “Round Two” Survival Kit.

This report is over 17 pages long and includes detailed analysis of why the First Round of the Financial Crisis happened, why the next round (Round Two) will be even worse than 2008, and which
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Good Investing!

Graham Summers for ZeroHedge

Here’s the case for dumping stocks and not touching them for at least two years.

The case for “buying and holding” stocks boils down to four words:  don’t fight the Fed. Forget moral hazard and all the fancy stuff; the reason to load the truck with stocks is that the Fed is invincible, and its mighty machinery of manipulation can drive stocks higher no matter what else is happening.

Put another way: when the Fed succeeds in driving the dollar to near-zero, the value of stocks will be near-infinite.

The case to dump stocks now and not even look at the market for two years is based not on worship of the Federal Reserve’s infinite wisdom and power but on the charts.The abject, pathetic, remarkably complete failure of QE2 has driven a stake  through the heart of the Fed’s political power and its reputation for wisdom; it has been revealed as a clueless cabal, basing policy on textbook models of what “should happen when we do this.” Alas, real life doesn’t follow moldy old PhD theses, and it doesn’t worship the Fed or listen to the cargo-cult incantations of the Keynesians.

Financialization anf globalization have run their course, along with cheap abundant energy. As the giant 17-year bubble in stocks deflates, those entrusting their money with Wall Street face stupendous risk and potentially massive losses.  (Shameless pitch alert.) My new book An Unconventional Guide to Investing in Troubled Times is all about withdrawing your trust from Wall Street and investing your capital in alternatives such as localized, productive assets which do not depend on financialization or globalization for their value or income streams. (It’s currently #5 in the Kindle Store’s investing category, and #9 in Amazon’s Investing Bestsellers category, so there’s some interest in the topic.) You can read the first chapter and other stuff here.

Let’s let the charts speak for themselves, shall we?

Here is the S&P 500 from 1965 to 2011: note the giant double top, and the gigantic bubble which began inflating circa 1994 as financialization and globalization began their long domination of the economy.

Only massive government intervention reinflated the bubble in 2009-11, and now gravity is reasserting itself.  The trendline projects to the next low around 600, while  the bubble-retrace projects to around 450.

Since volume is the weapon of the Bull, let’s check in on volume: oops, it’s been dropping since 2009. Looks like those in the know have been selling into strength bigtime.

Courtesy of the always insightful Doug Short, here is Doug’s overlay of the current market and two previous stock market bubbles, the Dow 1929 and the Nikkei 1989.Note that the market was rolling over last August, but the Fed launched QE2 and added a year to the “recovery.”  Can they extend it another year? based on their dwindling political capital, the answer is “unlikely.”

Interestingly, the low hit by previous bubbles corresponds rather closely with cycle-seer Martin Armstrong’s turn date of July, 2013. (He also pegs August 2014 and September 2015 as turn dates as well.)

This overlay of the 2002 decline and the current market also offers food for thought.As in, “this sucker’s going down.”

Again courtesy of Doug Short, the Q Ratio, which is at highs not seen since the last market top.

Since the U.S. dollar and the SPX have been on a see-saw for years, it’s interesting to compare the DXY’s recent decline with its action back in the summer of 2008, just before the global financial Ponzi scheme imploded.

And to state the Bullish case, here’s the Fed’s pet parrot:

Looks like they’ll need to teach it another line.

Charles Hugh Smith – Of Two Minds

A critical Italian government bond auction is coming up Thursday, August 4. That bond auction is highly likely to fail. However, if it does fail, don’t expect results to be reported that way.

The chief economist at Citigroup says ECB to Revive Bond-Buying to Protect Italian Auction This Week

Former Bank of England policy maker Willem Buiter said the European Central Bank will revive its bond-buying program to safeguard this week’s auction of Italian bonds.

“The ECB will intervene on whatever scale is necessary to allow Italy to conduct its auction on Thursday,” Buiter, now chief economist at Citigroup Inc., told reporters in London today. “If the ECB doesn’t come in, the Italian bond auction is likely to fail.”

Nonsense from Citigroup

Buiter’s statements are of course complete nonsense. If the ECB steps in it will be because the auction failed. The act of intervention will not turn a failed auction into a successful one.

What the hell is the matter with chief economists who do not understand simple economic principles?

Protection? Really?

Here is another ridiculous headline on the same subject from The Telegraph: ECB to protect Europe by buying bonds

The European Central Bank is expected to signal it is stepping into the eurozone debt crisis on Thursday by reopening its purchases of government debt, amid fears the turmoil will claim the economy of a nation that is “too big to bail”.

Officials on Wednesday night said the ECB’s monthly meeting was expected to see a reversal on the buying of sovereign bonds after 18 weeks of staying out of the markets, because of an EU institutional vacuum that threatens to drag down Italy and Spain, the region’s third and fourth-largest economies.

With EU officials scrabbling to fine-tune changes to allow the eurozone’s €440bn (£384bn) bail-out fund to intervene in the markets, central bankers are expected to reluctantly accept the precedent of allowing ECB bond buy-backs in May 2010.

Measures allowing the European Financial Stability Facility (EFSF), the bail-out fund created last summer, new powers to buy the bonds of struggling countries were agreed at an emergency euro summit on July 21 in an attempt to protect Italy (whose public debt and bank exposure is shown in the interactive graphic above) and Spain.

However, legally changing the basis of the EFSF and ratifying the changes in 17 eurozone countries, where the expanded fund’s role is controversial in German, Dutch and Finnish parliaments, could take weeks or even months, leaving a dangerous vacuum.

“We’re watching the ECB which, unlike the eurozone, can intervene now and build a bridge until the EFSF can take up its new role in the autumn,” said an official.

Buyer of Only Resort

The idea the ECB can “protect” Italy by buying Italian bonds is as silly as the idea the ECB could protect Greece by buying Greek bonds. We all know how the Greek purchase turned out.

Market forces will overrule anything the ECB can do.

Worse yet, the ECB is exacerbating the problems. If the ECB misprices bonds and does so repetitively, other participants will eventually step to the sidelines and the ECB will become the buyer of only resort, with a balance sheet full of garbage and obvious implications.

Who Will Bail Out the ECB?

Who pray tell will bail out the ECB? The correct answer is no one, and this is one of the driving forces of gold.

For more on nonsensical central bank actions driving the price of gold, please see Quantitative Easing Begins in Switzerland to Counteract Soaring Swiss Franc, Central Bank “Aims to Bring 3-Month LIBOR to 0%”; Gold Soars

Mike  “Mish”  Shedlock
Global Economic Analysis

We now know exactly how much Turbo Timmy had to pilfer, er, “borrow” from various things (like government worker retirement accounts) in order to not run out of money while the debt ceiling was frozen, and it’s not a pretty picture.

The August 1st DTS

The magic number is $14,293,975

Now the August 2nd DTS:

The magic number there is $14,532,332

That’s $238.357 billion.

Remember, May 16th was the “official” day the debt ceiling was hit.  So Turbo has been running roughly $100 billion in the hole a month.

That sounds like about $1.2 trillion, but in fact it’s worse.  Why?  Because June is a heavy deposit (tax payment) month due to estimated taxes.  How big of a deal is this?  Pretty big – June saw receipts of $108.372 billion, while July saw just $54.069 billion – about half.

Oh, the debt limit increase deal added $400 billion immediately.  After taking care of the theft, er, “borrowing” that had previously occurred there is now just $162 billion remaining.

Anyone care to bet on whether Congress will get its act together before two more months run?  At current “burn” rates, and considering that September is also a estimated tax deposit month, that $162 billion should just about get us through September – and that’s all.

Coming soon: A huge national finance education of the masses