Saturday, August 29, 2009

Issues arguing against the top of Primary Wave 2 here

One of the problems that I have with the market topping here is that we have not seen a single Hindenburg Omen. I would expect to see atleast one before we, this does leave the possibility of an A = C or one higher fib ratio for C to A type situation - possibly pointing to the 9,950 to 10,522 area on the Dow and 1,048, 1,090 to 1,158 on the SP500.

Gold is not cooperating. Pattern looks very much like danerics chart from last week. (Daneric's Elliott Waves) Break over 972 in Gold would be bad for the deflation trade. Best case scenario, in my opinion would be to get Peter Schiff and all the inflationists screaming victory if the trade seems to work even a little bit and then shock-the-monkey with the deflation trade. So, quick pop in Gold and then a drop. Deneric suggested that Gold could rally from this pattern even if the dollar is not cooperating or does not have a commensurate sell-off. 

We have to watch the Dollar pattern closely - as it is potentially unfinished. And the wave structure is very sloppy. Sloppy patterns can be successful, and there are some good things about the dollar action here, so, if the dollar index breaks over the declining trendlines at 77.62 decisively - then this would be a go for the dollar. If the dollar fails here - it does not have much lower to go in my opinion...probably 77 to 76.5ish. (let's hope gold does not make it to 1085 if it does breakout though)

There were three very small moves in the McClellan Oscillator last week - all in a small McClellan move usually indicates a big move is about to happen. At least one range day, but this is a little more abnormal so it could mean more. This is an argument that if we breakdown here, that its a serious breakdown. Otherwise, we could get a rally that's also a signifcant move.

Is our deficit: Capitalist or socialist

This is an interesting way of presenting our deficit issue:
There are two ways deficits occur: One is capitalist, the other is socialist.  
Capitalist deficits come from tax cuts or rebates, empowering households to decide how spending will occur, what items will be purchased, and it is a nice broad spending approach that is proven effective in growing the economy and restoring economic health to the nation. John Kennedy and Ronald Reagan, a democrat and a republican, both succeeded in bailing our nation out of nasty recessions with this policy. 
Socialist deficits come from government borrowing and spending that targets specific objectives, usually tied to political ideology, that fail to all inclusively benefit households. Why is it important that deficits benefit households all inclusively? Because consumer spending accounts for 70 percent of GDP. Under socialism, government is saying they are all wise, and can better decide how money is spent, and who are the lucky select ones who get it, for society's good according to their will. It says the people cannot be trusted to make good decisions, that instead an all knowing, all powerful overseers are to be trusted in making good spending decisions of your money.
thanks to: R. McHugh

More dollar "what-if" discussion, crash warning and recommendations

(this is a companion post to: The Future of the Dollar - the biggest short squeeze)

One of the other points I would like to make in regard to some of my earlier posts, is something that has grave impacts economically and for investors. People need to be very active in managing and understanding what is going on in order to protect themselves and understand the real impacts of a potential dollar rally on their purchasing power, assets and employment.

First and foremost, I would like you to take a close look at this dollar chart? Do you notice anything? Okay, look very carefully at the only significant dollar rally since the Fed has been responsible for the dollar?

Clearly debt pushing policies inflated asset values from 1913 to 1929. During this time dollar purchasing power declined markedly if you want to call 50% markedly. This was Fed engineered. There was a reason so many banks popped up during the 20's...and its the same reason that this century has been the era of the banking - so far - THE FED and its conflicts of interest...and fractional reserve lending. Fractional reserve lending is the manner in which 95% of the money in the world is created and the primary dilution factor for the dollar.

Now lets go back to my previous post, in which I refer to the dollar as a certificate representing the corporation of the United States of America. Well, the dollar IS the stock certificate of the United States...and that certificate is currently not an asset or value but an IOU.

The selling/issuing of dollars through credit (IOU's) - is a short sale that by implication will need to be covered. Its just the same as a short on or AIG common shares or ES SP500 futures...the sale of these securities needs to be covered with the purchase of same to close the transaction.

Ron Paul has said it many times, the dollar reserve system has ended and the question is what is next. But the question is also how are all those short sales going to be closed...what kind of mess will that create?

We have appointed people to be responsible for our national value and stock certificates who are the equivalent of appointing a bunch of AIG shorts to run AIG. Additionally, you can tell that the Fed and it's governmental co-conspirators have done a terrible job...the chart says they did.

Why are they still employed? Normally you would try to cover your tracks or at least do a bad job not a catastrophic one if you were trying to steal from someone while smiling at them at the same time. This dollar chart is catastrophic.

Subsequent to the debt pushing of the 1913 to 1920's, when that debt became oversupplied and dollars to service the debt became scarce - as has happened now - we had the only rally in the dollar purchasing power of consequence in nearly 100 years. That rally for the dollar was the great credit contraction called the "Great Depression" - curiously, this was roughly a 27.2% rally (see: The Future of the Dollar - the biggest short squeeze EVER).

The the Fed used the depression to ensure that their goals would be achieved. The panic of those times led anyone who was scared to the conclusion that its beyond imagination the Fed could engineer such a condition. Worse yet, to be able to conceive that they, instead of attempting to fix the problem, would implement an agenda to make a much bigger one. So, fear led to more and more power which the Fed used to continue to expand its policies - ironically under the guise of preventing a depression which they engineered in the first place.

In achieving these objectives they did an excellent job. Is it any wonder that the SP500 bottomed at 666? I wonder?

Is it any wonder that your Dow Jones Industrials certificates are now worth less in purchasing power in real terms than at the peak of 1929?

So, where to from here? Well, that is a very good question. Look again closely at the dollar chart. Theoretically, the dollar is worth .04 cents. Under a reasonable scenario (but still a bad one), a short squeeze capitulation rally could take the dollar's purchasing power to between 15 to 30 cents...that could be a 750% increase in the purchasing power of the dollar. I am not going to go into details as to what that would do to the values of stocks, real-estate and other assets such as silver/other commodities.

Though I really hope to god that none of this happens...recognizing that it can happen - because it has happened before - is an important thing to do given where we stand currently.

There may be some further efforts to fuel a hyper-inflation story. If gold rallies for instance people will think that inflation is about to explode...but that rally will likely be short lived.

What to do:

Learn as much as you can.
  • Watch the dollar. If the dollar breaks out strongly...then we know a bad case or worst case scenario is playing out. For the scenario discussed here to not take place - the dollar MUST sell-off and remain weak. If that does not happen (I know i am repeating) things are going to get very bad.
  • I also recommend that you evaluate and subscribe to a very good investment newsletter called They have made amazing calls on the big and the short-term picture and really help you to put things in perspective. In a practical and easy to understand way. In addition, they have done a lot of work on mechanical/automated trading systems and have a lot of resources and guidance for this on the site.
  • Make a not trust the FDIC...they are the primary enabler of the debt pushers...I heard these two guys on CNBC discussing how "you should not even worry about the FDIC - its backed by the full faith of the US Government." That's called complacency...complacency and investing do not go together. If politicians were rational, we might not have to worry. But if politicians realize that they will be voted out of office for putting the US taxpaying on the hook for another trillion here and another trillion there...we can not be sure that the faith of the government will be there when its required. I know it seems improbable...but if you told me that we would put the supposedly smartest minds in fiance on the job of protecting our purchasing power, managing prices and protecting the dollar and they would run it into the ground by 96% - I would say that is improbable too.
  • Watch this movie: The Money Masters and show it to people you care about. This movie was made in 1995 and given that is an even more astounding achievement. Absolutely everything that is discussed in this documentary is relevant to what is happening now. Also, go to the website and buy the movie "The Secret of OZ" and please contribute to Bill's work.

    • Watch this movie: Money as Debt. Show it to people you care about.

    • Help Ron Paul and Rand Paul defend the constitution and reign in the Fed
    To help put this stuff in perspective please see my previous posts:
         Bernake - Hurray for the guy who has been wrong 90% of the time 
         Warren Buffett - the ultimate bull-market manifestation 

    The Future of the Dollar - the biggest short squeeze EVER

    Fibonacci is here to help us understand what may happen. 1.272 is a derivative fibonacci number that always seems to popup in natural series movements and is a common target for me in trading. As you can see in the charts below 27.2% is a good number to remember as a retracement target.
    In this post I want to illustrate that nearly every major bankruptcy or insolvency was or is being preceded by a substantial rally. Even insolvent institutions like Bear Stearns, Fannie Mae, Sallie Mae and GE have reflex rallies tied with their final unwind.

    The dollar is just the Corporation of the United States of America - why should it be any different. There is a huge short position on the dollar in the form or actual shorts and demand for dollars created by requests for return of borrowed ones. (just like the stock market version but executed differently)
    1. Debt satisfaction creates a demand for dollars. 
    2. Demand for debt satisfaction creates a demand for dollars. 
    3. Bankruptcy reduces the number of dollars available to use to satisfy debts. 
    4. Asset deflation reduces the theoretical amount of dollars available to satisfy debts. 
    The huge reduction in dollars available to transact real value exchange creates an inflation of the value of the remaining dollars and a reduction in the value of assets that are valued against them...
    I have included a projection of the dollar with regard to what i think is the most likely movement of the next few years. The scaling of time relative to the last 80 years is not accurate...but the concept and the target date of 2015 is reasonable.

    Keep in mind that if the dollar short squeeze produces even a portion of this kind of reaction...we are looking at price s returning towards 1945 levels...Wasn't gas something like 20 cents a gallon then...just a wild guess.

    In any event, the dollar can go to ZERO or very close in my opinion - but needs a huge short squeeze first. That means redeeming all the dollars people traded that they don't actually have - in the form of credits.

    Please note that my projections are the green and red line on the dollar chart below.

    Check out these charts:

    Friday, August 28, 2009

    Tankers anyone?

    China must be pushing the envelope if this email we received is true. They are building new factories, new office towers, in fact the government is threatening bankers with criminal prosecution if they do not loan money for projects. Keep in mind this means the creation of even more supply and manufacturing for a world that needs much much less - not more. But these jokers can't get through their heads that making a new factory no one needs is not a good use of capital.

    But if things are so great over there...why are the oil tankers sitting full and loaded waiting for weeks in the harbor?

    Been interesting seeing how the talking heads are beginning to discuss the Baltic Dry Index. I am a Captain at Delta, and fly to Asia as part of my normal schedules. We are not carrying any cargo too or from Asia, and our planes were always full of "belly freight" up until this last Spring/Fall. In fact it is so severe, Northwest (Delta) is pulling out of the market as a dedicated freight carrier. Something they have done since 1947, all due to the reduction in cargo from Asia to the U.S. We recently pulled out of Guanzhou (70% of the production in the surrounding area used to go to Walmart) due to the drop off in freight shipments. 
    I should tell you about the ships sitting in harbors sometime. We see literally thousands sitting empty in ports or harbors everyday flying over Tokyo, Osaka, and Nagoya Japan and Shanghai, China. On the other hand we also see Hundreds of oil tankers sitting at anchor FULL, probably being used as storage. Appreciate your observations 
    thanks to

    Market Observations

    Today, we had the gap up reversal that I was looking for earlier in the week. The Russell 2000 which is the primary index that I trade closed down 10 points from the high - futures even more. The index is forming a rising wedge diagonal that could be getting very ripe for a breakout.

    Also, last week we had 3 very shallow, small move McClellan oscillator days. That definitely portends a breakout of some sort. If its going to breakout over this divergence it seems like the stage could be set to try that...or a nasty selloff.

    A break of the lower wedge trendline in the indexes in combination with a VIX index breakout will create a significant technical event. Markets fullfiled minimum ideal targets today...though there is divergence here on many indicators, there is also divergence occuring in the metals, currencies, BDI index and the Junk Bond index. Ironically, the gold and silver markets look like it would take only a little bit of panic or fear to get them to move against the expected patterns and make an upside push. If that were to be the case we could get a sell off in the market and then follow that with one last rally to take us to a retest or a new high. Additionally, that could also provide impetus for the dollar to have a pullback to the lower wedge targets that I was mentioning in my earlier posts (77ish). All in all a very interesting setup.

    Ideal timing is for Sept 11 (poetic right?) for a market top and thus the end of primary wave 2. I would be happy with a top earlier since this rally is nuts - so I hope today is it. But they bottomed the SP futures at 666 - so given the minds behind all this ponzi scheme accounting and government by banking concepts - why not take the market up until 9-11? So, I am going to watch carefully even if they take it down hard next week to see if there are clues for a continued move up.

    Though I am very encouraged finally based on today's action...(encouraged in this case means that the market may be setting up for a reversion to the more rational and understandable behavior - ie down). I am planning on being very careful until we get some definitive cooperation between the dollar, gold, silver, VIX and the indexes together.

    One of the other problems that i have with the market topping here is that we have not seen a single hindenburg omen. I would expect to see atleast one before we, this does leave the possibility of a A = C situation - possibly pointing to the 10,000 to 10,500 area on the dow and 1,100 to 1,125  on the SP500.

    Dollar Purchasing Power

    Support Ron Paul
    and HR1207


    VIX Still not breaking moving...

    FDIC Problem List

    Well there you have it the FDIC puts out their list of problem banks...with some 300 billion in assets...and you know what it reminds me of?

    The last time this did this when they down played the problem list by stating that it was 67 billion in total - and then one week later Indymac failed...that was 34 billion alone and was not on the list. Yet somehow magically it failed without anyone's knowledge. And Kudlow and CNBC and company etc all believe everything these guys say?

    Do you?

    So lets do the math they understated the list by 50 to 60% last time, which we know for sure...and they probably understated it this time by at least the same this time - so, its atleast 485 billion...atleast.

    Market observations

    The other day when i was talking about being prepared for a gap up and
    immeadiate selling...WELL THIS IS IT.

    Dollar holds low - looks like a double bottom to me

    New Deal Soaked the Rich, Middle Class, and Poor (again)

    California Started the process of raising any tax it can we have cap and trade...Coral Gables florida has a budget shortfall and they think they can raise real-estate taxes and other local taxes. This is an interesting quote:

    -Jim Powell
    The New Deal was paid for mainly by the middle class and the poor. This was because excise taxes were the biggest revenue generators for the federal government. They applied to beer, liquor, cigarettes, chewing gum and other cheap pleasures enjoyed disproportionately by the middle class and the poor. Until 1936, excise taxes generated more revenue than the federal personal income tax and the federal corporate income tax combined. Not until 1942 — in the middle of World War II — did the federal personal income tax become the biggest revenue generator for the federal government.

    Bernake - victim of banking fraud?

    No one is safe from identity theft, not even the chairman of the Federal Reserve.

    Ben Bernanke's personal checking account became entangled in an elaborate identity-theft scheme after his wife Anna's purse was stolen last August at a Capitol Hill Starbucks. According to a District of Columbia police report, it contained her Social Security card, checkbook, credit cards and IDs.

    It's not been revealed how much money was stolen from the Bernankes' account. But someone started cashing checks on their bank account just days after the purse was stolen from her chair. The thefts helped fuel an ongoing investigation into a sophisticated ring.

    And I thought Barny Frank was hopeless - apparently not

    note: from 8/27/09: Frank is apparently NOT talking HR1207, but an overall regulation. I think Frank still did not make it to my approved list. As one of the strongest backers of FannieMae and Freddie Mac...its clear that he has some conflicts to overcome before I can relate to him.

    Thursday, August 27, 2009

    Market observations

    Wednesday and Today resulted in small McClellan Oscillator changes - today's is  -11, that suggest a trend or range day or two will occur starting tomorrow or Monday

    My concern was that a test of the lower wedge on the dollar could occur if the breakout was rejected...that seems likely at this point given that the market still sports the structure for wave 4 with a wave 5 up finish. As much as I would like to believe that the Euro's and Dollars crazy moves could somehow be capitulatory, they seem to fit with this market structure for the indexes at least for the short term. The dollar does not have much lower to go nor does it seem that the market has much higher to go...however, as my friend Mathew Fraily at Breakpoint Trades has been repeatedly pointing out...there is a thin zone above 1050 on the SPX...that could give us a blow off type move...something that is difficult to rationalize with the market being this overvalued and overextended. But perhaps its not out of context to recognize that there is this magnet to the 1044 to 1049 area...and with the McClellan suggesting a large range day move the possibility of some momentum up could be significant. 

    Dollar- Pattern still valid but probabilities shift

    The dollar made it to the top of the wedge and was rejected - rather viciously this afternoon. This resulted a break of support at the wave 1 high for this wave at 78.42. Triggering a 78.38 stop. That break resulted in a volume move down just ticks above the previous lows at 77.87. Clearly this is creating a different pattern.

    Critical for the dollar market tomorrow is the lower green trend line below. That may hold but it seems more likely that the dollar bottom will be carved out of lower prices. Most likely a falling wedge with targets in the 76.70 area if the trend line on chart 1 breaks.

    European optimism - all eyes are focused on getting back to normal after the crisis was

    Even as the reports come out reflecting that European consumer prices fell by the most in at least 13 years in July after energy costs declined and unemployment rose to the highest in a decade, Europeans are not focused on the potential that there will not be a recovery.

    How can you recover when there is no demand? How do we know there is no demand - well there are lower prices. Much, much lower - 40% lower food costs are stunning for Germany. Yet nearly all of my European friends emotionally  dismiss any reference to future or imminent risks. Spending by Germans is occurring in a mostly normal fashion for individuals even as Nieman Marcus and Sax Fifth Avenue and other luxury stores struggle or close. Food prices have crashed in Germany, temporarily that makes consumers feel better...especially when you can receive 66% of your salary from the government welfare when you lose your job. 

    But what we see is less and less value creation and more and more value combustion. Deflating food prices mean less jobs not more. Many other prices will deflate and result in less revenue, less jobs, and less payments - resulting in lower prices still, less jobs and less revenue. And on top of that we have hundreds of thousands of people in Germany with tons of time on their hands getting paid 66% of their incomes while contributing nothing to value creation is like dynamite to value creation. A double whammy create no value and sap value from the economy by using valuable capital that could be used for something productive.

    FDIC Releases Quarterly Banking Report

    The FDIC lists 416 banks with $299.8 billion in assets as “problem” banks in Q2, up from 305 banks with $220.0 billion in assets in Q1, and 252 and $159.4 billion in assets in Q4 2008.

    The DIF’s reserve ratio was 0.22 percent on June 30, 2009, down from 0.27 percent at March 31, 2009, and 1.01 percent one year ago. The June figure is the lowest reserve ratio for the combined bank and thrift insurance fund since March 31, 1993, when the reserve ratio was 0.06 percent.

    See the report here: FDIC Report

    Great Chart of the Russell 2000 Futures

    No Comments needed here...I have not updated this chart for a month at least.
    We could still get one more throwover to the upside...then the pattern would be extremely high probability.

    Dollar Falling Wedge and Gold

    Break above 78.80 breaks dollar out of 5 month decline.
    Break of 940 sends gold out of pattern and starts downtrend.
    click on chart for a clearer view

    Euro - Bear Flag evolving...

    Watch for  break of the flag

    Dollar Holds Wave 1 High

    Currency Non Confirmations

    Below is a chart of the EURO/Yen and the Dollar/Yen. 
    What is interesting about this chart is the non-confirmations. The times that highs were confirmed by both currency pairs and the ES, resulted in further upside. But non-confirmations by both currencies (highlighted with the Green Bars) resulted in dramatic moves. 
    Also, the USDJPY has given much earlier warnings that not everything is ok in wonderland on many occasions. Trend line breaks are very prescient.
    This is not a scientific analysis...just an anecdotal one in that we are currently experiencing a non-confirmation by both currencies of new highs in the SP500.

    This is an ominous sign...are dramatic results to come?
    click on the chart for a clearer view

    Wednesday, August 26, 2009

    Dollar Update

    It looks like we could get some divergent trading action between the indexes and the dollar...there is an alternative for the indexes which considers the pattern complete. But for now things look up...ironically for both the dollar and the indexes.
    1. One scenario we should prepare for is a gap up to the 1044 to 1049 area on the GDP numbers and immediate selling on the cash markets. (chart is below)
    2. The other scenario is that the market has topped already at the 1038 SP500 area and that we are already in wave 3 down or at best in the middle of wave 2 flat of some sort of a down impulse pattern. (no chats of these patterns in this post since i am not leaning in that direction)
    Right now, my trades are concentrating on the dollar as that chart is clear. The indexes are not clear yet and may rally a bit with the dollar. But if gold fails that wedge and the dollar breaks its huge falling wedge then its likely the market will not be able to hold up.

    Technically, the indexes look like they may want another high...but the dollar looks like its in a bullish falling wedge (possibly a very small wave 4). (See chart 1) I have included count for the dollar. (See chart 2) Initial targets are for the 81.3 area...with higher targets possible. The larger structure points considerably higher than that.

    Also, note that the volume was the highest of the pattern and very light in the decline.

    I know the small charts are hard to read...but click on the for a larger view then it is clear.

    Falling Wedges on the Dollar longer-term
    Bearish pattern on Gold unless it takes out 972 on GDP tomorrow.

    Bear flag in EURO

    It this flag breaks...

    Could start minute wave 5 of 3 of 3 in Dollar

    Possible Tri Star Candle formation on the indexes

    It appears that if todays daily candle on the $spx and the $compq closes around the present postion we would have what Steve Nison (the candle pro) refers to as the tri star pattern.

    Such a pattern is essentially made up of 3 doji candles with the middle doji day being more shooting star. The psychology behind the pattern goes along the lines  that the market has probably been in an uptrend or downtrend for a long time. 

    Obviously in this case an uptrend. With the trend starting to show weakness  bodies are becoming smaller. 
    • The first Doji would cause concern. 
    • The second would indicate little direction left in the market  
    and he indicates that the
    • The third doji would put the nail in the coffin of this trend.
    Because this indicates entirely too much indecision,everyone with any conviction would be reversing positions .In this case obviously from long to short.As he says this pattern is EXTREMELY rare and so when it occurs it shouldn't be ignored.
    thanks to hurricanemalta

    Warren Buffett approves of Bernake Re-appointment

    Warren Buffett the oracle of Omaha and the Berkshire Hathaway CEO was asked by Bloomberg about Ben Bernanke and the FED  he said that he supports the FED and what Ben Bernanke have done also a renomination of Ben Bernanke , he was also asked by CNBC on June 24 wether he thinks Ben Bernanke should be appointed for a second term he answered: 

    watch the video interview here
    "I don't see how you could do better. Yeah. He has taken decisive action at a time when really decisive action was needed, and extraordinary action, things that we hadn't done before. If he hadn't of done -- I give the Bush administration credit on this. (Former Treasury Secretary) Hank Paulson. They don't do everything perfectly. Nobody does. And we were getting balls thrown at your head by the hour. You're going to make some mistakes. But they got us through a period that, if we had different people in those jobs, I'm not so sure we would have gotten through."
    Just watch what happens next...and lets see if Bernake and company caused it, made it worse, or softened the effect...I suspect it will be highly clear that a guy who thinks publicly he prevented the great depression II exactly at the start of the next leg down is not going to be viewed with any credibility. What has Mr, Buffett been smoking...i thought they did not allow that stuff in Omaha.

    Dollar - intraday structure

    Wave 4 could pullback a little more...but we are now in wave iv of 3 of this should be a powerful move up...definately worth buying the dips.

    Dollar - Starting Primary Wave 3 up

    This will not be fun wave to the worst of the financial system and stock market crash is still ahead of us. Last year was the preamble. See: Update on the dollar.

    What should we expect?

    Collapsing financial institutions, thousands of bank failures, FDIC failure (remember by their charter they have upto 99 years to reimburse you for lost deposits),  record unemployment (yes worse than depression levels), more lies from Bernake, Geithner, Obama, et al and total loss of confidence in the financial system...but most of all a shortage of dollars and real money.

    The stock market looks like it may have one more up move left in it...but the dollar has officially started its long move up.

    I will post more charts shortly...

    Tuesday, August 25, 2009

    Dow down 78% this Century (since 1999)

    This chart presents the Dow divided by the price of one ounce of gold. The Dow/Gold ratio is the cost of the Dow in ounces of gold. It currently takes 9.8 ounces of gold to “buy the Dow.” This is considerably less that the 44.8 ounces it took back in 1999. When priced in gold, stock market index has been in a bear market for the entire 21st century and currently the Dow Jones Index trading 78% off its 1999 highs.

    Remember, Warren Buffett wants you to believe that you lose purchasing power when you are not in stocks and especially when your are in treasuries. See Warren Buffett - the ultimate bull-market manifestation. Its obvious what happened to your purchasing power in this chart...remember that the next time you read an op-ed piece by Buffett in the New York Times.

    Also, keep in mind that a roman gladiator could buy a nice new toga, pair of sandles and a haircut and massage for 1 ounce of gold. Today, for the same ounce of gold, you can buy a new suit,  shirt, a new pair of shoes, a tie, a haircut and massage...that's more than a thousand years later...this is an example of what fractional reserve lending and fiat currency does to asset values. It creates the illusion of asset value growth or inflation but does not actually increase your purchasing power. In a world with asset based or value based currency, asset values would trend towards stability rather than instability. Do we have stability? If you say yes...please look at the chart below...if you said no...thank Bernake, the Fed, fractional reserve lending and the host of credit pushing agencies that the Fed inspired...FDIC, SallieMae, FannieMae, Freedie Mac, Federal Home Loan etc.

    The recent five-month rally has the Dow (priced in gold) putting in a significant test of resistance downtrend line from 2007.

    Update on the dollar

    Update on the dollar (via UUP chart)
    The 2 - 4 line held several tests and the dollar continues its pattern of accumulation. I have included a wave 3 target (but not a wave 5 target). 
    The dollar setup an expanded flat pattern and held the maximum extremes for the pattern. Additionally it also held the little 2- 4 line off the 5 waves down in C from the 3-3-5 expanded flat for wave 2. A move out of this range should be explosive otherwise the pattern is invalid.


    SP500 is at significant resistance here with two negative candles in a row. (Gravestone Doji and Inverted Hammer).
    First resistance downtrend line is at the current prices...and the next resistance is 1125 or so. If the dollar is correct then this trendline we are testing now may represent the ending target of the rally off the march lows.

    Perfect falling wedge...quite mature of a pattern.

    Timothy Geithner is more incompetent than Bernake

    Timothy Geithner does not answer the questions in the below video.

    What he forgets to point out is that HE WAS RESPONSIBLE FOR SUPERVISION OF THE BANKING SYSTEM!!!!

    Click on the link below to watch the interview:
    Timothy Geithner - being more incompetent than Bernake

    Its August 25 - do you know where your FDIC is?

    August 27 is when the Federal Deposit Insurance Corporation issues its 2nd Quarter report for 2009 on the state of health of American banks. They will also have to report on their reserve ratios and capital requirements...

    Currently the FDIC faces a spiraling number of bank failures and it may have already tapped into its line of credit at the US Treasury, which is also out of funds, facing $1.8 trillion in over-spending this year. 

    I am looking forward to understanding how they are going explain their funding issues?

    Baltic Dry index is running dry...

    The BDI is not showing any sort of demand acceleration along with the expectations of the market. 
    This looks like a setup for disappointment. 
    I am quite sure that Bernake thinks this is a bullish chart.

    Bernake - Hurray for the guy who has been wrong 90% of the time

    Well, there you have it...

    The depression has been averted 
    and our well alphabeted FED chief is now back on the job with a delusional and resounding endorsement of our president. 

    Could Obama and Bernake care about their reputations less? Now is not the time for them to risk credibility when that's the thing that will be most sorely required in the future. 

    Mind you, this is not just any administration but one of the administrations with the most Wallstreet executives among its ranks in history. Given the alphabet soup that Mr Bernake has created - trying to replace him with someone equally well versed in wallstreet pedigree,  unnecessary complexity, delusional concepts regarding depression economics and special interest adgenda's would be extremely challenging. But since the guy has such a consistent record of being a contrarian indicator - lets reappoint him even if he has been demonstrated to be incompetent. His recent comments certainly will likely demonstrate that incompetence in spades in the very near future. 

    It does not hurt that his policies are directly beneficial to the Wall Street hierarchy and destructive for American's and American business - let's reappoint him anyway - "...he's done a fantastic job". If I was an administration composed of Wallstreeter's I would absolutely reappoint Bernake.

    Mind you that one of the characterisitcs of all the recent administrations - is that they reappoint the very people who preside over the development of a financial crisis as the people to fix it. Geithner, Bernake, Greenspan, Summers, Rubin and the list goes on and on. The fox will never guard the hen house for the hen house owner (even if it looks like he is)...but will be very happy to protect the spoils for itself.

    I think that its rather interesting that Bernake is so confident with himself exactly at the time when he should be most worried. But there in lies the rub. Instead of trying to get reappointed he should quit!

    But he MUST be reappointed in order to help continue the coverup and manipulation executed with the banks, fed and special interest government bureaucrats. Bernake avoided perjuring himself rather well I thought...and that's certainly a skill that also resoundingly votes for his qualifications to command over a ponzi scheme. Certainly he did a much better job than Paulson - who looked like a buffoon trying to explain his roll in the BAC/MER deal. 

    If Bernake was so good at misunderestimating every step of this crisis and the mechanics that it is based on (namely ponzi scheme accounting) then why should we take him at his word now?

    Certainly, among the best attributes of a re-appointee in Government has to be "failure". On that particular skill, our over-confident Fed chief is definately particularly overqualified.

    With the FDIC up it any wonder that Bernake is re-appointed while Obama is on vacation? 

    Ofcourse, if the FDIC gives any reason to doubt the sanctity of the system...the dollar shortage will explode...and so will this trading range for the dollar and the highs for the market.

    SP500 Earnings

    As of May (chart below) this year this is what the indexes looked like:
    There is no substantial progress in the economy that can drive sustained earnings growth and prices are much higher.

    source: EWI international, Robert Prechter

    Monday, August 24, 2009

    Warren Buffett - the ultimate bull-market manifestation

    Warren Buffett is not an expert at value. Value is non-rational and relative. Nobody is an expert at value since it does not exist. (just look at the 150 pe for the SP500 as an that value now? is it value at 7? Either answer is equally inaccurate since they are both totally arbitrary.)

    Warren Buffett is not an expert at  derivatives trading.  He sold billions of dollars of puts on the SP500, FTSE, Nikkei and Stoxx indexes right near the top of the market. There is a difference between being right and lucky. And though my view is that Buffet has more skill than just luck...he has primarily been the beneficiary of luck not skill.

    He has written $37.1 billion worth of puts on four stock markets, he has sold SP500 puts (US market), FTSE 100 (UK market), Nikkei 225 (Japanese market), and the Euro Stoxx 50. Some of the contracts come due in 15 years and others in 20 years. They are all European style, they cannot be exercised before expiration. The reckoning is when they expire.
    As an example, BRK-A may have written $1 billion on the SP500 when it was at 1300 and received $100 million - $150 million in premium to use for the next 15 years. If in 15 years the index is at 1170, down 10%, BRK-A would have to pay $100 million. If it is above 1300, they pay nothing.
    Buffett continues to rationalize his holdings and trades. He continues to play out his own psychological patterns. And most important, he is now a victim of societies psychological patterns in that his decisions seemingly leave him no choice but to try to rationalize his actions and thesis rather than do something about them.

    Certainly, his assumptions can not be made viable or rationalized based on the action of the markets. There has to be some other explanation or causality doesn't there? But isn't it the same story all the time, whenever the gig is up - people always resort to "...but its different this time, its not what it seems, everything will be ok". Well, i never thought I would be saying this about Buffet - but that's exactly the prism he is using to rationalize his situation.

    Methadone anyone?

    In my book, lucky is being on the right side of the credit-inflation story and playing the fiat game well on the way up. What is not lucky is trying to play that same game when the fiat system is dissolving before your eyes. But success via fiat is a high very much like, I guess, heroin or crack...great when you have some - but terrible when you don't. Buffett is addicted to the fiat system and his high is just starting to dissipate. Soon, he will be looking for replacement therapy. Methadone anyone?

    Berkshire Hathaway can not sell its assets - too big to fail?

    Buffett/Berkshire Hathaway can not sell assets since that would set off a panic before they were even out of 10% of them. Buffett can not back out of his puts because he thinks that using the billions in premiums that he has collected will allow him to survive the loss. What happens when he can not do either? Is Berkshire too big to fail too?

    So, what is Mr. Buffett's current investment technique? 

    He's become a promoter and a prop for the fiat money system. Masquerading as the last remaining real Bull-market success-story cheerleader, he's trying to convince everyone who will listen of marvelous and imaginative stories. For example, that his old ways (yes the lucky ones he used in the past) are the best choices, that the dollar is going to go in the tank, that holding cash for the last 8 years decreased your purchasing power. Much better to promote your own bubble manifestations like Well's Fargo, Bank of America, Conoco Phillips, GE and Moody's.

    What I find truly sad and disingenuous is that he has resorted to promoting himself and his distortions via a structured public relations campaign. Specifically he:
    1. has been used as a prop by Bernake and Paulson - obviously for his own benefit. 
    2. is directly lying to people through his Op-ed and interview efforts. 
    What's more, he most likely is keenly aware of these facts. The only difference is that he has to lie in order to save his empire. If you were in his position you would most likely try to do something too rather than just watch the whole thing fall apart - even if it were crossing the line a bit. If Buffett tries to exit stage left he becomes a victim of his own bull-market demagogue status...everyone will try to exit with him. If he lies...he can simply say he was wrong but tried.  (I think Barney Frank uses that technique a lot - but maybe its just most politicians)

    I wish the man no ill will, but when he is advertising that the worst possible investment is Treasuries or cash for the future and that if you held cash or Treasuries over the last 8 years you lost purchasing power - there is no simpler or bigger manipulation of the facts or truth. What's more Mr, Buffett knows it.

    Holding cash without getting interest from Treasuries entitles you to nearly double the purchasing power that you had 6 to 8 years ago. Holding stocks which he flatly states is/was the correct strategy has decreased your relative purchasing power by around 20%. This is a net difference of 70% and my numbers are conservative...How could Buffett be that bad at math and run an insurance company - isn't all they do basically fudging with numbers? The answer is he is promoting a scam and he knows it. Why? Because he is likely a victim of that scam if it fails and can not get out if it does. If our currency system is a ponzi scheme (which it is) then Buffet has bought in hook line an sinker and will promote the fraud all the way down even if he has to lie and distort to do it.

    What a down it will be for Berkshire and Buffett. A high climb becomes a long fall. People remember the fall much more than the climb when judging history - especially when they have no money left.

    Dollar in the tank
    The thesis that the dollar will go into the tank is a credit-inflation manifestation. The dollar is already in the tank - its down over 96% since the Fed took over managing inflation (if you want to call it that)...i mean protecting the dollar. But isn't it ironic, people are sure the dollar will go in the tank when it only has a few percent to go to get to zero. I am sorry to inform Mr Buffett - the dollar is already in the tank and maybe it wants to go up now for a few years. 38% retracement anyone?

    Sunday, August 23, 2009

    Dollar vs EURO - the simple and the stupid version

    Euro is under distribution...(larger red volume bars)
    Negative Divergence...
    Wave 2 up of Impulse down?
    Dollar volume is clearly accumulation...(larger green volume bars)
    Positive Divergence...
    Wave 2 down of Impulse up?
    We will find out soon.

    The question is whether this is wave 2 or an ending diagonal which would require a new low. 
    If Euro fails to break out of recent highs then its an impulse wave otherwise its a diagonal.

    SP500 PE Ratio anyone?

    Not that PE's govern stock prices...but worth a peak anyway.

    Dollar Hits 2 - 4 line to the penny and ideal expanded flat C wave projection.

    Dollar Hits 2 - 4 line to the penny and ideal expanded flat C wave projection.

    Swedish krona loves to make wave 5's that are 1.618 or .618 of 1...especially that just slightly undercut the wave 3 low. Guess what happened friday...

    miracles of miracles...

    .618 of 1. Therefore, I will not be surprised that the bottom is in for SEK...and the dollar.

    Also the expanded flat for the dollar...has hit the perfect retracement level for its wave C projection of A - which is 1.618 of A. You can see this in the chart above. If my 2 labeling is correct then the C wave of the flat projected exactly 1.618 of A...and hit the 2 - 4 line to boot.

    A few references to ending diagonals are popping up now. While I would like the ending diagonal pattern for this wave 5...and its my favorite bottoming pattern to trade...i am not sure if we are playing a game of pattern slip here or not. EWI changed their forecast - seeing down for Euro and likely down slightly for dollar and everyone runs looking for a new way to explain the dollar wave structure - including myself. And I have to admit I always felt that this wave 5 could look short on the currency - so why not play shuffling EW patterns?

    The current pattern is not broken yet, so, its best to keep it simple IMO. Given the FDIC report coming out next week and what is about to happen to the dollar for the long-term - should it be surprising if we get a .5 retrace of wave 1 for wave 5 rather than .618 or 1 or 1.618 retrace of wave 1 for the wave 5 projection. Additionally, I have never seen a substantial divergence like EWI is postulating about with the normal Dollar/EURO relationship. If the EURO is down...dollar will be up that's it.

    For example...i do not like the silver chart at all - Silver should be leading a rally here if its going to bounce. I need to have a lot of imagination to be able to place a count on silver that is strongly up...especially to new swing highs.

    Gold is possibly in the ending of a triangle that could break to the upside but volume patterns are not great and the amount of energy required to break Gold out to its logical target of 1050 to 1080 measured from its triangle will not likely come from an ending diagonal in the Dollar. We need 6 to 8 points down in the dollar for that. I just don't see that as likely in the dollar pattern. Also, the stock market could get an inflationary kick up 150 to 200 points on the SP500 if that were to playout. I have difficulty seeing more than another 50 points, let alone a 200+ PE for the SP500.

    The Yen rebounded huge and broke its 2 - 4 line on Friday. Five wave patterns in the yen that coincide with 5 wave patterns in the dollar often precede interesting price movements. Additionally, the Yen has been in an increasing correlation with the dollar recently...possible that the breakout in the Yen could be pointing to some timing in the dollar.

    FDIC incompetence - where did all the money go?

    The FDIC has about 650 million left...

    What i think is most disturbing is that given that the FDIC has been collecting insurance premiums for 76 years...lets just average it to a guesstimate of $1 billion a year (does not matter if its lower or higher - of course it was lower in the 40's and significantly higher than $1 billion for the last 20 years - [some banks have to pay 1 million dollars per year on 200 million of deposits - that's not chump change]).
    So, how come they only had a maximum of 68 billion dollars in reserve to cover bank failures over the last several years?

    I mean if i invested 1 billion into treasuries at 4% 70 years ago it should be worth over $15 billion today - theoretically they should have around $400 billion by now if they invested my basic assumption for the insurance premiums they received in aggregate at 4%...and quite likely more since interest rates were much higher than 4% for a long time and they likely have collected significantly more in premiums than 70 billion dollars. I would estimate (and keep in mind its only a estimate based in basic assumptions but certainly worth exploring) the the total in premiums FDIC was paid over 70 years is more likely significantly more than 700 billion dollars...(the last 20 years alone i believe they have charged around 300 billion in premiums) - at 4% they should theoretically have much more than a trillion in reserve...even taking into account the S&L crisis.

    So, what did they do with all that money?

    ...and what's more if they can't even invest it properly in treasuries - how can they prop up a failing financial system?

    Clearly they must be incompetent? Or they must be lying? Or could it be both?

    This surely will infuriate the bank runs when they happen next year.

    © 2009 m3, ltd. All rights reserved.