ANTIESTABLISHMENTARIAN

Finance, Fuel Prices, Economics, Markets

Still Talking Recovery?

Propaganda broadcast by or through the media can be a powerful tool to sway public perceptions.  Back during the great depression every possible means of convincing people that the worst was over and all was deployed just as it is today. It has an effect that may last a little while, but not for long. When lots of people are broke and unemployed, the reality can’t be hidden for long.

Neither can basic economic data, which is what I propose to do today with only two simple graphs that tell us that there is no recovery underway despite the massive amounts of borrowed money thrown at a mountain of collapsing debt.

ABCconfidence

The above graph reveals a severe divergence between the S&P 500 stock index and the ABC consumer confidence index.  Stocks are soaring, thanks to lots of gasoline thrown on the fire by the Fed, but consumer confidence index says that the consumer is not nearly so exuberant. That’s an understatement; note the index stands at minus 45, while the S&P has rebounded by 60%. If the consumer doesn’t want to spend, then where are corporate profits going to come from? They’ve already burned through capital and borrowing to maintain dividends, but this charade can’t last.  And when there is no correlation between consumer attitudes and stock prices, guess which one always wins?

retailsales

This next chart reveals the actual results of consumer attitudes, and the fact that the stock market has rocketed off on yet another orgy of greed-induced self delusion. Stocks  are now, only six months after reaching their bottom, grossly overpriced. And we  know how it got that way, too. The very same way the monstrous credit bubble created six years ago got created, and by the very same outfit. The man is often dubbed, Bubbles Bernanke.  He is desperately blowing another one using the most extreme tactics of nearly bankrupting the Federal government with debt.

And if you didn’t much care for the ending of the last bubble, this next one will be the bubble to end all bubbles.

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September 30, 2009 Posted by | Uncategorized | , , , , , | Leave a comment

A Terminal Cancer

Michael Moore was on  TV the other day claiming that capitalism has failed. That isn’t true because we don’t have capitalism; our current system is best described as a mutant of fascism controlled by a financial mafia of mega banks that are nothing more than financial crime syndicates. Moore is just a propagandist for a communist movement that disguises itself under the banner of environmentalism and “the people”. One might also claim that democracy has failed as well, but we no longer have a democratic republic. That has been slowly dismantled over the last 100 years, replaced by a sham of free elections that perpetually keeps the same political mafia in office in a fascist oligarchy.

Who would have imagined that Obama would be a puppet of Wall Street and that Goldman Sacks and J.P. Morgan have aligned themselves with the likes of Acorn? Truth is stranger than fiction, but the political criminals have been put to good use by the syndicates.

Crime is a parasitical activity that feeds on its host and ultimately kills it, like viruses, bacteria and leaches. The financial syndicates known as banks have consumed its host to the point where the host is dying. In order to save themselves, the parasites have determined that the best way to save themselves and their political lackies is to increase their rate of consumption. But having indentured the nation to the tune of $109 trillion, they now find little blood left to suck. All that is left is a vast mountain of debt and capital has all but vanished, so next they are turning to the savings and pensions of the people, which is all that remains of the host. Just like Argentina did, twice.

The word on the street is that the Fed is now attempting to drive money out of the money markets, which is where the majority of pension money resides. The purpose of this is to keep the stock markets from collapsing. It is a last gasp effort by the mafia to avoid total collapse, and of course, such actions can only hasten the day of collapse, for do they not claim that this is a 70% consumer economy? And do not corporations and the very mafia itself depend on consumers to fuel their boundless greed? Once the consumer is dead, upon whom will they feed? They have already engaged in cannibalism, killing, cooking and eating their fellow hoodlums; Bear-Sterns, Lehman Brothers, Morgan-Stanley, IndyMac, etcetera.

In robbing the pensions of the hosts, the parasites make one last desperate attempt to save themselves. It is an attempt that can only fail, for with a dead host they cannot continue. And when the host has nothing left to loose, is near starvation, that is when the host reverses roles with the parasite, turns on it and consumes it. That day is drawing ever closer.

To claim that the Great American Experiment has failed hits the nail squarely on the head, for we have strayed far, far beyond any hope of reform and recovery. The cancer is now terminal.

September 26, 2009 Posted by | Uncategorized | Leave a comment

Where Have All the Hurricanes Gone?

Was my prediction that there would be no hurricanes coming near the US spot on or what? Of course, the season is not entirely over yet, but close. Its still possible that one could form in the lower Gulf and move north, but I doubt it. Conditions remain poor for storm formation. Looks like 2009 will go down as a record year for the least number of both hurricanes and named storms.

Actually, I can’t take any credit for this prediction; give all the credit to the El Nino scientists who determined the effects of El Nino with an amazing degree of accuracy. For El Nino and La Nina are the two most powerful weather determinates for the whole planet, and these, in turn, are caused by solar activity. For the coming winter it will be warmer in the uppper Midwest and Northeast; the west will be wetter and the southeast will be wetter and cooler.

You may recall that the claim was that global warming would cause a riot of category 5 hurricanes. What happened?

I brought this up after reading a report on the status of the arctic icecaps that, for the second year running are not only not melting away to nothing, but are increasing in size, so our poor old man-eating polar bears won’t be having to swim a lot. Quite contrary to predictions.  Its interesting too, what has happened to all those ridiculous claims that melting arctic ice would cause oceans to rise and land masses to flood. You see, somebody forgot about Archimedes Principle: an object immersed in a fluid is buoyed up by a force equal to the weight of the fluid displaced by the object. Meaning that if you drop an ice cube in your martini, and that ice melts, it won’t raise the level of the fluid in the glass. Why? Because the ice displaces an exactly equal volume of water. You boatmen should know that.  So, lets’ see now, is the arctic ice cap sitting on land or is it floating? You know the answer: there is no land under the arctic ice cap. Pretty stupid, huh?

But of course our Baptist preacher-man president wants to suck $10 trillion out of our hides to end the global warming that had to be renamed climate change since they can no longer deny that the earth is presently cooling, to be followed by warming, and then cooling again. So we’ll all be driving the equivalent of golf carts to prevent the climate from changing.

But since climate change is controlled by solar radiation, I wonder what they propose to do about that? Most likely nothing since they will likely be content with the $10 trillion at least for a little while, or until they think up some new scam.

September 25, 2009 Posted by | Uncategorized | Leave a comment

Life on the Edge

In watching the markets and the action of the rats in DC and NY over the last couple weeks, I really find myself at a loss for words that can used in public, though I have plenty of words on the tip of my tongue that can’t. I am watching a once great nation disintegrate and descent into a cauldron of political and financial crime and corruption far beyond anything we could have imagined. It brings to mind Sinclair Lewis’s novel, “It Can’t Happen Here.” Of course, it can, and it is. Below is a picture of what our predicament looks like.

Does this look like something we can recover from?

Does this look like something we can recover from?

Harvard economics professor Ken Rogoff said that the level of debt major governments have taken on to tackle the financial crisis is of considerable concern. In a series of recent comments, Prof Rogoff cautions that countries like the US have been running up such significant national debts as a proportion of their total economies that there is the potential for default at some point in the future.

“There’s no question that the most significant vulnerability as we emerge from recession is the soaring government debt,” Prof Rogoff told Bloomberg. “It’s very likely that it will trigger the next crisis as governments have been stretched so wide.”

“Talk about a big bubble that really affects the global economy,” he said recently of the US’s deficit, which is expected to reach $1.84 trillion for the current fiscal year. That represents 13pc of estimated GDP – the highest level since the end of World War Two. [If we back out government borrowing and spending from GDP – which we should – that percentage is really more like 26%, and the debt/GDP ratio would be well over 400%.]

“The huge run-up in government debt has led to patently unsustainable fiscal policies across a number of major countries. So far, the rest of the world’s been willing to finance it, primarily with savings from China and elsewhere, but if investors’ confidence is shaken, we might see the interest rates on long-term debt rising, and rising very sharply.”

Like to the tune of 15-20% says 77 year old former hedge fund giant Julian Robertson. “If Japan or China cease buying our debt, we are facing Armageddon.”

These fears are growing fast as the Fed comes under increasing fire for kiting the stock markets to ridiculously high levels. Take AIG for example, a bust company if ever there were one, its stock has soared from $9 to $46 in only two months. No rational person would buy AIG stock; what’s going here is obvious. The rats who run this nation like a personal fiefdom are engaged in what can only be called criminal market manipulation of the type that is statutorily illegal. The Fed and SEC not only look the other way – as they have been doing for more than a decade – but are directly engineering the kiting of the stock markets by driving interest rates down to insanely low levels so as to force money into equities.

The word now is that the Fed is targeting the money market funds. This will strip mom and dad of whatever little they have left in retirement savings. The idea being mom and pop should be encouraged to speculate in stocks. This is an outrage. One can only wonder when the American people will wake to this massive robbery and extortion. My guess is not until they’ve got virtually nothing left. That day is rapidly approaching.

September 24, 2009 Posted by | Economics | Leave a comment

Ill Tidings for the Economy

Oil and Economic Reality 101

Despite all the hoopla and propaganda coming out of New York and DC, here is a shot of reality. Basic economic indices:

* Producer Prices : 14.9 v 10.0 prior, up 50%
* New Orders: 3.3 v 4.2 prior, down 21%
* Employment: -14.3 v -12.9 prior, down 11%
* Inventories: -18.1 v 0.3 prior, up 6000%
* 6-month business conditions outlook: 47.8 v 56.8 prior

* Consumer credit, down 21% m/o/m

Numbers like this do not paint a picture of recovery. And now onto the effect of continuing high oil prices.

The US has experienced six recessions since 1972. At least five of these were associated with oil prices. In every case, when oil consumption in the US reached 4% percent of GDP, the U.S. went into recession. Right now, 4% of GDP is US$80 a barrel oil. What is the price of oil today? $72.48. Nuff said.

We do not hear much, if anything, about peak oil these days. Not because the problem has gone away, but because world demand has fallen, thereby reducing pressure on supply. Yet even if the economy does not rebound, or at the least not reach the peaks in consumption of 2007, should we not expect the price to fall?

Steven Kopits, oil guru on Peak Oil. “Consumption will tend to grow faster in developing economies for two reasons. First, by their nature, developing economies should grow faster than mature ones….So faster economic growth means faster growth in demand for oil. Further, oil consumption growth follows an “S”-curve. At low levels of GDP, oil demand growth is quite slow. Once a country has reached middle class income levels, per capita oil consumption stabilizes. However, in the middle, as a country becomes middle class, oil demand growth can be explosive. Take South Korea, for example. South Korean per capita oil consumption peaked in 1996; however, in the previous 12 years, the country’s consumption increased nearly fourfold. China is now firmly on the S-curve. Based on South Korean experience, we would expect Chinese oil demand to stabilize at around 50 mbpd around 2032-2035.”

(China currently 8 million per day, US 20 million, Japan 5 million).

Kopits on price: “If you have a flat—or heaven help us, declining—supply of oil, then the emerging and fast-growing economies will have no choice but to start bidding away the oil from the advanced or slow-growing economies. That is consistent with what we’ve seen in the data starting in about 2006. For China to grow, it will have to take away the oil of Japan, the US and Europe, just as it has in the last three years.”

Fifty million barrels per day, 250% of what the US uses! With this reality in mind, the problem becomes painfully obvious. We are already at or very near peak production capacity while depletion rates are accelerating; no significant major new discoveries have been forthcoming. There is no relief from high oil prices in sight. Quite the opposite.

September 17, 2009 Posted by | Oil Updates | Leave a comment

Inflation/Deflation Debate Continues

Robert Prechter – “2010 will go down as the most deflationary year in history.” [Financial sense.com interview, September 7, 2009]

Bob Prechter , CEO of Elliott Wave International, and an unabashed deflationist, has called every step of the current financial crisis correctly. For that reason I listen to what he has to say carefully. The following summarizes that interview.

It is evident that most people believe that the Fed is responsible for creating the massive housing and credit bubble that just popped. I happened to be one of them, but have just discovered, thanks to Bob Prechter, that I was wrong. Here’s why.

  • *(Did the Fed lower interest rates to 1% after 911 and the 2002 recession? Yes, they did.
  • *When the Fed lowers rates, for whom do they lower them? The banks, of course.
  • *Did the lowering of those rates result in bank borrowing from the Fed, causing bank loans to go parabolic? No, it did not.
  • *Why not? Well, despite the low rates, those loans are OVERNIGHT or very short term loans used only for the purpose of maintaining a reserve level. Banks don’t like to borrow from the Fed, so it is a myth the Fed likes to perpetuate that they control interest rates. They do not, and never have.
  • *Okay, so where did the money/credit that caused the housing bubble come from? Mortgage Backed Securities (MBS), that’s where. Banks lured in investors in mortgage bonds with unrealistically high rates of return at a very low price through the scam of crap mortgages.

In other words, banks borrowed the money out of the existing stock of money and used that to lever up the money supply with their 10:1 fractional reserve lending basis which actually is more like 30:1 since they do not maintain 10% reserves, it is more like 3%. So the bottom line is that the bubble was leveraged up out of the existing stock of money. As the bank regulator, this is the Fed’s fault for allowing them to do this. They could have controlled this bubble easily by simply raising the reserve requirement back up to 10%. That would have stopped it dead in its tracks. It also would have wiped out Wall Street, so they didn’t do this
.
The current common wisdom is that the Fed is printing money like mad. That is totally false. But, you say, the Fed is buying $1.25 trillion in mortgage bonds with printed money! EVERYONE KNOWS THAT!!! Everyone is WRONG. The Fed is playing a shell game by exchanging one type of bond for another. Here’s why. Prior to the Fanny/Freddy collapse, none of the MBS were government guaranteed, though many people falsely assumed they were. You see how widespread false assumptions can be? Even China assumed that they were. In the end China forced the US to guarantee their bonds, but not all bonds. Then congress passed the bail out and guaranteed all future MBS debt issuance. All the Fed is now doing is simply making exchanges of one type for another, the guaranteed for the non guaranteed. This includes all the swaps with FCBs. They are not creating new money, they’re playing games with old money.

Yes, the Fed has/will monetize $300 billion of T-bonds to support auctions when necessary. This is basically an emergency bond auction support fund to be used as necessary, and that amounts to little more a cotton seed in the wind.

In reality the Fed is not printing money; its balance sheet consists government guaranteed MBS, bank loans and tons of repurchase agreements, which are basically swaps, which it expects the banksters to honour.

In truth the Fed is trying to stop a massive deflation of toxic paper assets by means of exchanging them for better paper assets, but the fact remains that most of what the Fed has in its account bears government guarantees, for whatever value that might be. It is creating more debt, but not more money since the new debt merely replaces the old, so that is money neutral.

In the words of Prechter, “The Fed is only being a little less conservative than it was in 1930. They are not about to destroy themselves.”

Now you can understand why the dollar refuses to tank and the T-bond market doesn’t crash, and the Fed isn’t worried about the dollar. The whole problem here is that the Fed is never going to tell the truth. It creates illusions to serve its own purposes and is quite content to let the markets believe in the myths of its own creation. The Fed is more than happy to support the illusion it has created of monetary inflation; that keeps the markets lubricated without having done a thing.

The fact is that if you can read the Fed balance sheet, the truth is not hard to find. Not many people know how.

The Fed has failed to stem the credit collapse and asset deflation. Yet it eagerly tells us it has. At best it has temporarily slowed it down, mainly by a sleight of hand. This nation suffers from a massive overload of credit that cannot be repaid. When debt is defaulted, new loans are not made and so the money supply shrinks. So when the effects of the Fed putting bubble gum in cracks of the dike wear off, the economy will resume its debt liquidation with a vengeance. The second leg down of the Greatest Depression lies directly ahead.

Well, then how do you account for rapidly rising prices over the last decade? Certainly Fed policies did add to monetary inflation, for only that can account for the dollar’s loss of value during this period. It is the levering up of credit, combined with rapidly expanding demands on commodities, that did the trick.

Understand here, that credit and money are not the same thing. Similar but not the same. The credit created by banks becomes debt that has to be repaid out of existing money supply. The credit becomes money when turned into a deposit in the borrowers account. It is extinguished when it is repaid out of existing money supply. Note this carefully: When a loan is defaulted upon, the borrower’s debt then becomes the bank’s debt; the bank looses money it never had. And that is where your deflation comes from.

Defaulting debt RAISES the value of money by reducing its supply. That is why people who are betting against the dollar have been and will continue to be wrong.

September 6, 2009 Posted by | Economics | Leave a comment