Two Interesting Articles

While those bullish on the U.S. economy think the housing recession will be over by the second half of this year, this article points out that because construction were so high in the past, they are unlikely to fully recover until 2011.

This article points out that inflation is likely underestimated by official statistics and that it is the cruelest tax of all.

Increasing Reasons to be Bullish About the Euro

The current account balance of the Euro zone turned positive again after having been negative in 2005 and 2006. This may perhaps appear somewhat puzzling given the fact that the Euro zone is in a cyclical boom and the fact that the Euro have been so strong.

The explanation for this is in part the fact that oil prices (and therefore the cost of oil import) are much lower than last year (particularly in euro terms) and also the German tax reform which effectively shifted taxation from exports to imports. The shift in the Euro zone current account balance is basically entirely a result of Germany's soaring surplus.

The fact that the current account balance is strengthening while domestic interest rates are rising are good reasons to be bullish about the euro.

Increased European Tax Competition

Corporate income taxes are now being reduced in the large European economies following earlier more dramatic tax cuts in for example Ireland and most Eastern European countries.

Because of the higher mobility of corporate investors, the corporate income tax have a much higher negative effect on the tax base than most other taxes, which is why it is now lower than most other taxes.

Corporate income tax cuts look unlikely in some countries, like America, Japan and Sweden, even though particularly America and Japan have much higher taxes than most European countries. In Sweden the government is too anxious not to be seen as delivering give aways to the rich, so after the abolition of the wealth tax it doesn't dare go any further. In America, the concern is similarly that it will further increase inequality.

Too Many Book Reviews?

Almost everything I read these days comes recommended from some respected source - the book review section of a newspaper or magazine, a fellow blogger, friends and colleagues. I used to occasionally pick up something I've never heard of, by an author I've never heard of, while browsing in a bookstore or library. Sometimes I was disappointed, but just as often I discovered a little treasure from which I learned a lot, received great enjoyment, or both. But with all the books I read based on the reviews and recommendations of others these days, I have little time, and seemingly little inclination, to go browsing for those undiscovered treasures. I wonder how much I've missed as a result.

The economist in me objects that using recommendations and reviews from respected sources helps to reduce search costs for useful and enjoyable books; proxies perform searches for me. To a great extent, I actually believe this. But no proxy is ever perfect because no two readers are likely to have precisely the same tastes across all literary genres. Goodness knows, I have sometimes been disappointed in books highly recommended by various reviewers, colleagues, or friends. It stands to reason that I might have been delighted by some books that they have panned, or simply have not noticed.

I think I need to spend some time just walking through the library stacks and leafing through a few books about which I have never heard.

Asking the Wrong Question

The Washington Post (here) asked its expert panel the following question: "Given gridlock in Congress over the climate bill, is the Obama Administration's fallback strategy to let the EPA regulated greenhouse gas emissions a good idea?"

Only one of the responding experts gave the correct answer to that question, which is that it's the wrong question! Having made an "endangerment finding," at the behest of a US Supreme Court ruling, the EPA is legally obligated under the Clean Air Act (CAA) to regulated greenhouse gases (GHGs), unless Congress acts to remove that obligation, for instance by enacting its own climate legislation.

Is the CAA well structured for regulating GHGs? No. Are the EPA's proposed rules for regulating them under the Act well-designed? They seem to be well thought out, but in trying hard to avoid certain problems stemming form the structure of the CAA, EPA has made them susceptible to potentially successful legal challenges. But none of this changes EPA's legal obligation to promulgate GHG regulations, having found that emissions of GHGs from numerous and diverse sources endanger public health and the environment.

Preference Analysis of Senators, 111th Senate

Happy Birthday Linus Pauling (1901-1994)


The only person to win two solo Nobel Prizes (Chemistry and Politics).

Martin Armstrong – Behind the Curtain, Part II

I’ll get to this latest article in just a minute. First we need to talk about what is happening to Armstrong inside of Ft. Dix.

We learned that he was thrown into the “hole” this past Wednesday and is still there today. What we have garnered is that conditions inside of Ft. Dix are deteriorating ever since a new Warden took over just a few months ago. Many “privileges” have been suspended for the entire 400 person population at the “working” facility that was only designed for 200. It is now, perform your job then head immediately back to the bunk – that’s it all day long type of routine. Tensions are very high inside, this is an open barracks type of facility with bunks literally so close that only one person can stand between them. You can imagine being locked up with 400 guys day in and day out under more stressful conditions than they have to be and you get a recipe for violence. That’s what happened just two weeks ago as riots broke out inside the facility.

Armstrong’s job inside the prison is as a clerk, this is how he is able to also write while he’s there. What we learned is that they searched his locker and discovered that he is helping other inmates with their legal work – something that is completely legal for him to do, but they claim that he is not supposed to have copies of other inmate’s legal documents in his locker and this is the excuse for the solitary confinement – as yet unconfirmed.

But what we hear is that they also found letters he had written complaining about conditions inside the facility. We also know that certain people in power have taken an interest in his case and that the prison is not happy about that or about the media requests or the papers that he is getting to the outside like this one.

Armstrong’s sister has hired an experienced criminal attorney to go into the prison on Tuesday to find out what exactly is going on. We’re afraid that they may be using this game to brand him a trouble maker in order to justify moving him as they attempted to move him out before. Since most of this is third hand type of information we must learn more about the facts and we should know more later this week – I’ll keep everyone informed.

Now to the paper…

This is his most comprehensive look “Behind the Curtain” to date. He examines many issues surrounding what has transpired and mostly focuses on Goldman Sach’s involvement and ties into the government. This is more of a very small book that he breaks down into chapters. I think you’ll find it an interesting read as he blends his experience, his knowledge of history, and the rule of law to bring us a unique look and his view of what has and is transpiring behind the scenes of government and investment banks.

The Extent of the Yen's Decline

There is a joke in Swedish that it is always safe to lend to a Japanese because "de betalar alltid i-yen" (they always pay back [the money]), alluding to the phonetic similarity between the name of the Japanese currency and the Swedish word "igen" which in this context means "[pay] back".

In reality though, lending to Japanese have proven to be one of the worst deals around, at least during the latest decade. Not only is interest rates extremely low, but the exchange rate of the yen have been very weak during the latest decade. While the U.S. dollar have fallen against most currencies, including virtually all European currencies and the dollars of Canada, Australia and New Zealand, it have actually risen against the yen. Implying of course that other currencies have risen even more dramatically against the yen. And while the appreciation of the Chinese yuan against the U.S. dollar have been too slow, at least it have changed in the right direction, in contrast to the yen which have changed in the wrong direction.

Interestingly, this depreciation of the yen occurs at the same time as Japan have had much lower inflation than other countries, seemingly putting the purchasing power parity(PPP) theory into question.

The PPP-theory is valid as a basic framework for analyzing long-term trends in exchange rate movements. But one should always be aware of the fact that there are factors which cause deviations from this basic pattern. Or in other words, there are things that cause fluctuations in the real (PPP-adjusted) exchange rate. One of the most important of them is fact that differences in productivity in sectors with traded goods help bid up wages in the non-traded sectors (where productivity is more similar) of high productivity countries and so help raise the price level in those countries. Note that this is a factor which would cause real exchange rate fluctuations inside currency unions as well.

The other highly important factor is asset price differentials, and particularly bond price differentials or in other words bond yield differentials. Unlike the previous one, this factor would not exist in a currency union. Japan's extremely low bond yields have been a key factor in pushing down the real exchange rate of the yen.

There are other factors apart from these two which cause differences in real exchange rates, but they are the most important and relevant for the case of Japan.

So just how big have the yen's decline been? While OECD estimates ( found here) of real exchange rates should be taken with a grain of salt, they are still likely roughly true. While the yen have fallen so that a dollar now costs 122 yen compared to 85 in 1995, the PPP-exchange rate have fallen from 170 to 124 in 2006. And with inflation in Japan running about 3%:points lower than in the U.S., the PPP-exchange rate should fall to about 120 this year. Meaning that in just 12 years the real exchange rate of the yen has been cut in half (from 170/85 to 120/122).

This dramatic decline in the yen's real exchange rate reflects in part that Japan have had lower population- and GDP growth and so helped push down relative domestic prices. But in recent years, the carry trade phenomena have been a important factor in pushing down the yen.

Louise Yamada - on Bonds...

Louise Yamada discussing her long range thinking on interest rates and bonds. She is explaining exactly what I've been saying about the interest rate cycle and how rates can't get lower than zero on the short end. That means rates can only go up, but the bottoming process can take a while.



She is an expert Technician and points out the same H&S pattern that I have been pointing out for quite some time in long bonds:







Here is the chart showing the interest rate cycle, rates peaked in 1980 and are now effectively zero:







Head of IMF Proposing World Wide Reserve Currency…

This is exactly what I’ve been saying would be coming down the pike from the central bankers. Let’s look at what was said just yesterday by Dominique Strauss-Kahn, the head of the IMF:
Head of IMF Proposes New Reserve Currency

By HARRY DUNPHY Associated Press Writer
WASHINGTON February 26, 2010 (AP)


Dominique Strauss-Kahn, the head of the International Monetary Fund, suggested Friday the organization might one day be called on to provide countries with a global reserve currency that would serve as an alternative to the U.S. dollar.

"That day has not yet come, but I think it is intellectually healthy to explore these kinds of ideas now," he said in a speech on the future mandate of the 186-nation Washington-based lending organization.

Strauss-Kahn said such an asset could be similar to but distinctly different from the IMF's special drawing rights, or SDRs, the accounting unit that countries use to hold funds within the IMF. It is based on a basket of major currencies.

He said having other alternatives to the dollar "would limit the extent to which the international monetary system as a whole depends on the policies and conditions of a single, albeit dominant, country."

Strauss-Kahn, a former finance minister of France, said that during the recent global financial crisis, the dollar "played its role as a safe haven" asset, and the current international monetary system demonstrated resilience.

"The challenge ahead is to find ways to limit the tension arising from the high demand for precautionary reserves on the one hand and the narrow supply of reserves on the other," he said.

Several countries, including China and Russia, have called for an alternative to the dollar as a reserve currency and have suggested using the IMF's internal accounting unit.

Strauss-Kahn said the IMF also needs to do a better job of tracing how risk percolates through the global economy.

"Here it will be essential to improve our ability to monitor several dozen large complex financial institutions that make up the `plumbing' through which global capital flows," he said, while leaving national regulators the job of monitoring the solvency of individual institutions.

This is THE set up, folks. You can bet that plans for this are in full motion behind the scenes. Remember who the IMF is. They are the very same central bankers who run the systems that are now failing in the United States and Europe. They are the very same people who create money from nothing indebting people and countries and taking mostly gold in return as payment. This is how they became the world’s third largest holder of gold.

If a one world currency is put in place, who controls it??? They do? That’s a great status to endow on one’s self, is it not? Take a look at their charter and see who the voting members of the board are, "The governor is appointed by the member country and is usually the minister of finance or the governor of the central bank."

There is absolutely NO REASON to have a one world currency whatsoever – and for that matter there is no reason to have any “reserve currency” either. The only real reason for doing so is to place more power and control in the hands of the central bankers – they use the power of money creation to get what they want, but the power of money creation does not belong to them, it belongs to the people.

Remember, “It’s WHO controls the quantity” that matters.

People still refuse to admit that there are major changes coming to world of currencies, although more and more people are seeing the bad math and are coming to the same conclusion that I, and others, came to quite some time ago. Now the question is going to become, do we want a world controlled by central bankers or do we want FREEDOM?

With the central bankers in power, you will be forced to make this decision at the height of crisis, I can guarantee you that. This crisis will be one of THEIR making. You are about to be blackmailed AGAIN and this article tells you the direction in which you are being led.

Tell the central bankers to pound sand. Support Freedom’s Vision and join the coming Swarms!

Happy Birthday Supreme Court Justice Hugo Black (1886-1971)

Noel Coward's "Private Lives"

Friends of ours from Chicago-Kent College of Law took us to see Noel Coward's 1930 comedy of manners, "Private Lives," at Chicago's Shakespeare Theater on Navy Pier. I haven't been to a play in ages, and this one was just excellent. Apparently, Coward took all of 4 days to write it, after spending out about 2 weeks sketching out the scenes while recovering from the flu in Shanghai. The play was, as expected, hilarious; the actors were superb; and the theater itself - patterned on Shakespeare's Globe Theater in London - was very comfortable.

I might add I find Chicago itself to be fattening. It's way too easy to eat way too much and too well here.

An Outline History of "Cap-and-Trade"

Foreign Policy has published (here) a brief outline history of the development and use of the regulatory instrument known as "cap-and-trade."

The Face of Freedom’s Vision...


We are continually asked to simplify Freedom’s Vision so that it is clear to even the novice what it will accomplish. If only it were as easy as a one liner – “All we need to do is ______!”

But the truth is that the world is a much more complex place, in many cases made that way to obscure what is actually pretty simple. Freedom’s Vision is designed to be much more simple compared to our current monetary system and is completely transparent. What is complex is transitioning from our current system to one that is fair, sustainable, and prosperous, built upon what people know and expect from their dollar system and yet will build people’s confidence in the system, not destroying it during the transition.

First we have to agree that the current system is not working. We contend that at the root of the problem are private central bankers and other special interests who have taken control of our money system, they produce the money, not our government. Most of that money is backed by debt. This creates an unworkable and unsustainable math situation. We also have to agree that the forces of greed always seem to find a way to eventually creep into a system and that this is repeated over and over again throughout history. Finally, we need to agree that moving backwards to systems that have already proven they don’t work is no solution at all and that it’s time to take a step forward.

If we can agree on all that, then we can boil Freedom’s Vision down into the major points that it will accomplish by replacing the current Federal Reserve Act:
1. End the practice of debt backed money at the federal level, returning the power of money creation to the people via Congress as the U.S. Constitution dictates.

2. Clear out excessive debt and derivatives from the entire financial system, thus repairing balance sheets and producing workable debt to income ratios. The following will be accomplished:

a. People’s balance sheets will be repaired by returning tax dollars to the people to be used to directly pay down existing debt.

b. All banks and financial businesses are run through a special bankruptcy procedure to cleanse away unserviceable debt and derivatives. All banks will survive this process and will exit with 10 to 1 fractional reserve ability, a level of leverage that is safe and will be capped by law.

c. State balance sheets will be repaired and all states will create State Chartered Banks based on the successful model of the Bank of North Dakota. Additionally, these banks will assume the roles and functions formerly held by the 12 “Federal” Reserve banks, thus decentralizing control but in a coordinated manner where all states are benefitting equally.

3. Ensure the quantity of money remains under control in the long term by:

a. Ensuring accurate and unbiased economic measurements and reporting. This is easily achieved with 100% transparency in all data gathering and statistical methods, allowing the market to 'police' the government.

b. Create controls that tie overall money quantity to PRICE of ALL asset classes. Target ZERO price inflation and adjust quantity of money spent into existence without debt. Interest rates are set by the free market. This means no more long term inflation or deflation.

c. Separate special interest money from politics. This targeted political reform is necessary to keep the political system functioning for those who it is supposed to serve. Without this piece history proves that the other pieces will not last long, as those with large reservoirs of money will eventually co-opt the system for themselves.

This is a permanent fix that can successfully get us from our current situation to a sustainable and prosperous future without crashing global markets in the process. It is fair and it is just. It puts the long term math on the side of the people, not working against them. Furthermore, it is repeatable and the same procedures can and should be used by other nations to solve their debt backed money problems as well. It does not matter what condition the economy is in before implemented, Freedom’s Vision can be made to work.

Please learn more by reading this simple introduction and by following the links to learn even more:

LINK: Welcome to Swarm USA!

There are four ways to get involved to help get us all on the right path!
1. Please make sure that you REGISTER for the Swarm while you are there, and PARTICIPATE in the Swarms!

2. Please share the site with others and encourage them to REGISTER & PARTICIPATE in the Swarms.

3. Volunteer to help either on the National or State Level.

4. Donate to the American Party PAC.

Thank You!

Morning Update/ Market Thread 2/26

Good Morning,

Equity futures are roughly flat this morning following yesterday’s “miraculous” stick save. Below is a 60 minute view of the DOW on the left and on the right is a 5 minute view of the S&P:



The dollar is flat and bonds are UP. Bonds being up is generally not favorable to stocks and yesterday bonds were up as well and did not fall back during the afternoon pump. This is yet another sign that the action in the equity side was not real. Oil was down hard yesterday but is back up a little this morning, gold held up well both yesterday and this morning.

To me that action yesterday afternoon was nothing but proof that our markets have been taken over by computers and thugs. Someone (who?) floated a rumor that AAPL was going to do a 4 for 1 stock split just as prices were trapped below the very important 1,090 level following more very negative economic data. This morning ZeroHedge produced data showing that Goldman placed a huge long in the futures market just prior to the rumor being floated – the rumor was later denied, by the way, and Goldman was selling into the close after pocketing a tidy seven figure profit on the day.

Here’s what my Schwab account daily summary stated:
Unless you are a day trader, this is a difficult market to make a big directional bet. On Tuesday, the DJIA dropped 100 on the dismal consumer confidence number. Yesterday, it rose 90 on Ben's comments on easy money. Today, it was 190 points down in the morning on an unexpected rise in jobless claims and renewed concerns about Greece. But, amazingly, it suddenly popped higher in the afternoon to close with only a 53.13 point (-0.51%) loss at 10321.03.

Oh yes, “Amazingly.”

This type of action is absolutely driving out small investors. Frankly I think a person is nuts to put any money in any market in which any of the big banks have any input whatsoever. I also reiterate that your money should not be on deposit at those institutions, I can assure you that not one penny of my money is.

Since our government has been taken over by the very same interests, the regulators not only look the other way, but they encourage and support this type of market activity. But since the bankers own the markets, they now can and are holding them HOSTAGE, in the same exact manner that they held the economy hostage when it was on a gold standard. Study your history and you will see this same game being played time and again – “favor our crimes against the people, OR ELSE!” This is what happens when you turn the power of money creation over to them – be it backed by gold or debt, doesn’t matter – as Bill Still says, “it’s WHO controls the quantity that matters.”

This morning the 4th quarter GDP data was revised upwards from the previously reported 5.7% annual rate to 5.9% annual rate. My thoughts, Commrade, can be summed up in one word – JOKE:
Highlights: Fourth quarter real GDP was revised up but the details indicate that the revisions were not for the good. Real GDP growth for the fourth quarter was revised upward to an annualized 5.9 percent from the initial estimate of 5.7 percent. The market forecast was for a net unrevised second estimate. The higher estimate reflected more positive contributions from private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased. But overall strength for the quarter increasingly was in the inventory component as businesses slowed the pace of destocking. Final sales growth was revised to a more modest 1.9 percent increase from the original estimate of 2.2 percent. Nonetheless, the fourth quarter GDP advance is the second in a row. The change in real private inventories added 3.9 percentage points to fourth quarter GDP, compared to 3.4 percentage points in the initial estimate. Business inventories fell a modest $16.9 billion, following a sharp $139.2 billion plunge in the third quarter. Within final sales, there was some strength in investment in equipment & software, posting an 18.2 percent jump, while residential investment advanced 5.0 percent. PCEs rose 1.7 percent in the latest period. Net exports shrank by $10.3 billion with exports spiking 22.4 percent and imports gaining 15.3 percent annualized. Nonresidential structures fell 13.9 percent. Year-on-year, real GDP improved to up 0.1 percent from minus 2.6 percent in the third quarter. On the inflation front, the GDP price index was revised down to a 0.4 percent rise, compared to the original estimate of an annualized 0.6 percent. Analysts expected no net revision to the initial GDP price inflation number. Markets should focus on the downward revision to final sales and this should weigh on equities and help interest rates ease.

Well, I can think of one other word... "Whatever." Where to begin? Do I need to explain every flaw in this data every time it is released? The miscalculations and flaws in this report stack high, one upon the other until it is just simply not representative of what is actually occurring in the real world. This type of totally false reporting of economic data doesn’t really fool anyone, what it does is lead to a loss of confidence in government. More and more people are waking up.

Yesterday afternoon I watched one portion of Obama being questioned about the math of his healthcare proposal by a Congressman. It was quite interesting to see Obama sit there after being told about all the accounting gimmicks and mathematical lies that are contained within the release of their healthcare plan. Didn’t seem to faze Obama a bit… But I can assure you that the real math does not lie and that it ALWAYS expresses itself over time. The bankers, the politicians… they are at the root of the bad math, but they will eventually fall victim to their own doing as the math cannot be defeated with lies and it WILL have the final word.

Citizen Sentiment and Existing Home Sales will come out right around 10 Eastern.

Yesterday’s market action produced several unnatural looking hammers, most were inside type of affairs, but on the Transports it created a large outside hammer. This one is at the end of the wave 2 ramp, it may be an indication of a top, but we need to see prices close lower today to validate it as a possible reversal signal:



The up action produced a lower high yesterday and it did set up a channel boundary.



Again, I still don’t think that action was natural at all, it was a manipulated short covering rally pimped along by a company whose survival was based solely on the use of YOUR funds which you did not authorize. So we’ll just have to watch and see what happens. The economic data is turning horrendous very quickly once again. The up action only comes on game playing but the down action when it comes is on higher volume.

Hey, Goldman had a ticket to ride yesterday, did you?

Beattles – Ticket to Ride:

Happy Birthday George Harrison (1943-2001)

Thursday Oil Market Round-up

Let's start with the P&F chart, because it shows a very important point:



Despite all the talk about trying to boost production etc., prices have only gone higher. Oil has an incredibly strong series of increasing highs. This is a really bullish chart.



On the weekly chart, notice the following:

-- Prices have been in a rally for the last year and a half

-- Prices have moved through resistance levels and then consolidated their gains

-- All the SMAs are moving higher

-- The shorter SMAs are above the longer SMAs

-- Prices are above all the SMAs

This is still a very bullish chart.



On the daily chart, notice the following:

-- Prices have been rallying for 4 months

-- Prices are above all the SMAs

-- All the SMAs are moving higher

-- The shorter SMAs are above the longer SMAs

This is also a very bullish chart

I Like Wind Farms

Driving from Indy to Chicago today, I passed fields of giant wind turbines in Northern Indiana. I must say, I found them aesthetically pleasing, even beautiful. They greatly enhanced any otherwise dull, flat landscape.

I don't know if wind energy will ever achieve the economies of scale necessary to displace a significant part of carbon-based fuel, but I can appreciate fields of wind turbines as landscape art.

Today's Markets

-- California and Illinois are suing Countrywide Financial

-- Bank of American's purchase of Countrywide may pay for itself in tax savings

-- Barclay's Financial is getting $8.8 billion in fresh capital.

-- New Homes sales continue to drop



Notice the following on the SPYs daily chart:

-- Prices are back where they were when the Fed backed the Bear Stearns deal.

-- Prices are below all the SMAs

-- All the SMAs are headed lower

-- The shorter SMAs are below the longer SMAs

-- Prices are below the 200 day SMA



On the QQQQs daily chart, notice the following:

-- Prices are below the 200 day SMA

-- The 10 and 20 day SMA are heading lower

-- The 10 day SMA has crossed through the 200 day SMA

-- Prices are below all the SMAs



On the IWMs, notice the following:

-- Prices are below the 200 day SMA

-- The 10 and 20 day SMA are both headed lower

-- Prices are below all the SMAs

-- The 200 day SMA is headed lower -- and never turned positive.

None of these charts is very bullish. The SPYs chart is turning more and more bearish.

OECD Makes Correct Observation-But Wrong Interpretation

I see here that the OECD observes that deficit reduction based on reduced spending is "deeper and longer-lasting than those founded on increased revenues." So far, so good, but the OECD messes up its interpretation of why that is. The OECD thinks this is because spending cuts somehow lower interest rates more or makes politicians more reluctant to waste the surplus.

But there is no real reason to expect spending cuts to affect interest rates differently than most tax increases (the exception being capital income taxes). Nor is there more reason to expect politicians to not spend surplus/ deficit reductions created by spending cuts than tax increases. If anything, the pressure should be greater in the former case since people are more likely to demand a return to what they are used to enjoying rather than something they never had.

No, the real reason why spending cuts provide more sustainable deficit reduction is this: higher revenues is either due to a cyclical upswing or tax rate increases. In the former case, the revenue windfall is almost by definition unsustainable, in the latter case the tax increases weaken long term growth and undermines the tax base (although the benefits of the deficit reduction will greatly limit this effect in most cases). By contrast, spending cuts will not only not weaken incentives, but will in some cases improve them (such as reductions in unemployment benefits), thus reinforcing rather than limiting the positive effects from the deficit reduction.

The Fed's Statement

From the Fed's website:

Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.


Translation: The economy grew .9% in the first quarter. It's something. But it's harder to find a job, it's harder to get a loan, housing still sucks and it's really expensive at the pump. These are most definitely not good things and they will make it hard to make money going forward.

The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.


If we cross our fingers and think good thoughts, inflation will come down (We'll ignore the fact that UPS and FedEx have warned on earnings because of high prices and that Dow Chemical raised prices 25% because of inflationary pressure). But eneregy prices are really stubborn right now, so we'll keep thinking good thoughts and hope the inflation comes down.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.


We've already thrown a ton of money at the problem, so stop complaining. Because we've put a ton of money out on the street like a cheap hoar we don't expect things to get really bad. But man, energy is really expensive and it could be a problem down the line. In fact, people are actually noticing the energy prices are increasing

That's about the gist of it.

New Zealand's Successful Abolition of Farm Subsidies

Here is an interesting story about how farms in New Zealand remained successful even after farm subsidies were abolished. When subsidies were abolished, farmers were forced to focus on actually meeting consumer demand, and was successful in doing so. Thus, not even from a farm perspective can farm subsidies be justified.

Waitin' On the Fed

Today is Fed day. That means we're all waiting -- Waitin' On the Fed. In tribute to this event, here is a ZZ Top video of "Waitin' On the Bus". Just substitute "Fed" for Bus while you, um wait for the Fed.

Durable Goods Orders Fair

From Dow jones

Demand for expensive goods were flat in May, and a barometer of capital spending by businesses retreated, government data on the economy Wednesday showed.

Orders for durable goods didn't change last month, holding at a seasonally adjusted $213.64 billion, the Commerce Department said. Durables, which are manufactured goods designed to last at least three years, decreased 1.0% in April, revised down from a previously estimated 0.6% decrease.

While the data showed orders going nowhere in May, the report was better than Wall Street expected; economists had forecast a drop of 0.5%.

But durable orders have gone up measurably only twice over the past six months, a sign of what the sluggish economy is doing to the manufacturing sector.

A barometer of business equipment spending - orders for non-defense capital goods excluding aircraft - decreased in May by 0.8%, after rising 3.1% in April.




The above chart makes the data a bit easier to understand. First notice the gray lines which represent the month over month change. Notice the lack of overall movement. We've seen a ton of small moves. There was also a big move about 6 months ago, but that was countered by the next months downward move.

Note especially the year over year number. First -- notice the scale on the right. The year over year change has been fluctuating a bit above 0% for the last 9-12 months. Also note the year over year number is in a clear downtrend. The bottom line is this number is slowing.

Latest Bike from Serotta

I hope the ride doesn't have a "wooden" quality.













UPDATE: It's not really a wood bike, but a painted carbon bike.






Hat tip: PezCyclingNews

Morning Update/ Market Thread 2/25

Good Morning,

Equity futures are considerably lower this morning already erasing all of yesterday’s gains. Below is a 60 minute chart of the DOW on the left and a 5 minute chart of the S&P on the right showing the overnight action:



The dollar and bonds are higher, oil and gold are both lower.

Durable Goods orders came in better than expected for January, largely on transportation orders. Ex-transportation, the number was actually negative. Here’s Econoday:
Highlights
The durables report has lived up to its reputation as one of the most volatile indicators. Taking into account upward revisions to December numbers, January numbers look decent. At the headline level, new orders for durable goods in January posted a healthy 3.0 percent gain, following a revised 1.9 percent rebound in December. The December increase had previously been estimated to be 0.3 percent. The latest number topped expectations, compared to analysts' forecasts for a 1.5 percent boost. But we have a different picture for January excluding transportation. Excluding the transportation component, new durables orders fell 0.6 percent after a 2.0 percent gain in December. But the ex-transportation component was revised up for December from the original 0.9 percent rise. Overall, the headline number exaggerates strength but the core number is OK for such a volatile series after the upward revision to December.
The weekly Jobless Claims jumped back to nearly the 500K mark, coming in at 496,000, the consensus was for 460,000.
Highlights
The number of jobless filing for initial unemployment claims increased in February, pointing to trouble for the February employment report and sending equities and commodities lower in immediate reaction. Initial claims jumped to 496,000 in the Feb. 20 week, the highest level since November. The four-week average, up 6,000 to 473,750, is also the highest since November and is more than 15,000 higher than January levels. In an ominous note for the monthly jobs report, claims offices said heavy weather increased the number of claims in the week. Continuing claims, where data lags by a week, were slightly higher at 4.617 million and are little changed from January levels. The unemployment rate for insured workers is unchanged at 3.5 percent.



What’s there to say about that? Can't you just see the A,B,C wave action in that chart? It’s a tragedy for every single one of those people. Millions have gone all the way through their benefits and are now no longer counted. Oh yeah, the “recession” is over, remember? Still no talk and understanding of debt saturation and the role DEBT plays in squeezing out productivity and workers. These are real people who are being damaged by their own government’s incompetence and greed. Throw the Central Bankers out on their asses and take back the money power! No sustainable fix will occur until that happens.

Is everyone shell shocked again? No one has the guts to take action? How about spreading the word about Freedom’s Vision? Please place links to http://www.swarmusa.com/vb4/content.php/125-Welcome and let people know that there is a way out but that it is THEY who must make it happen.

Did everyone catch that the FDIC admitted they were bankrupt? $20 Billion in the hole in December. Have to beg to Congress and scratch what they can from the zombie banks just in order to keep shutting down the ever growing list of “troubled” banks, now numbering more than 700 by their own account. Of course this means that functionally you are left with only the government standing behind deposits, that would be you and your money system. By the way, the FDIC was actually never solvent! You see, the money they collect in “insurance” was actually immediately SPENT by the government leaving the FDIC only an accounting credit. That’s right, all the FDIC insurance money was never actually there to begin with, and now we’re just catching up to the reality. How can you fix the still insolvent banking system without money? Simple, you perform the special bankruptcy procedure within Freedom’s Vision, but first you return taxpayer money to the taxpayers for the express purpose of paying down debt and making their balance sheets healthy first.

Okay, if the markets break below SPX 1,090 it is your queue that wave 3 down is underway. Wave 3 should take 1,000 points or possibly more off the DOW. The next lower pivot is down at 1,061.

Folks, it’s time to take action if we are going to have any chance of preventing the “other events” that are coming quickly. We are going to have the Grand Opening Swarms soon, but you can help by sending others to the site so they can register and start leaning more about the issues. The Hive is there for discussions and I appreciate everyone going there and on Facebook to get the discussion going for outsiders who may not understand the issues like you do. PLEASE, when you are reading articles at other sites, drop a word about how the issues can be solved by Freedom’s vision and provide the link to www.SwarmUSA.com. It’s past time that we stop all the bull, all the infighting, and we simply come together to effect meaningful change!

The Beattles – Come Together:

U.S. Congress Combines Worst of Left & Right

When you read about this kind of Congressional bill, you remind yourself about a Republican Congressman according to Peter Brimelow said a few years ago: "In America, we have a two-party system. There is the stupid party. And there is the evil party. I am proud to be a member of the stupid party. Periodically, the two parties get together and do something that is both stupid and evil. This is called—bipartisanship."

So now Congress have approved additional funding for the Iraq war. Democrats at first wanted a timetable for withdrawal, but later decided to appease Bush and cave in to his demands to drop the timetable. This despite the fact that they had the upper hand. Because if no funding bill were passed, then Bush would be forced to end the war immediately. And it would certainly be reasonable to demand at the very least that Bush define how victory look like and put forward a concrete and realistic plan on how to achieve it.

And just to make sure that they didn't just appear spineless but really ridiculous and stupid too, Democratic leader Harry Reid still claimed "The days of blank cheques and green lights for his failed policy are over". So that was why you gave him everything he wanted, the way he wanted it?

Ah, but the Democrats apparently think they can answer the likely anger from their base they managed to insert a minimum wage increase into the bill. Not that this in anyway means a compromise from Bush since it included the symbolic "small business tax cuts" he wanted to have. The Democrats have in other word not gotten a single concession from Bush to approve his policies and they still claim that "The days of blank cheques and green lights" are over? Puh-lease.......

Anyway though, so the end result is that the Democrats agreed to continue the futile neoconservative quest to sacrifice thousands of Americans lives and hundreds of billions of dollars to bring Western democracy to a culture hostile to it, and in exchange, the Republicans "agreed" to increase domestic regulations in exchange. A really bad day for liberty and good day for statism.

"History of the English Speaking Peoples"

Say what you will about Winston Churchill as a politician or military strategist, the man could write! His facility with the English language, both spoken and written, remains nearly unequaled more than 50 years after his death. It is well displayed in his History of the English Speaking Peoples, of which I've just finished the first (of four) volumes. I'm no expert in the history of England, so I cannot really speak to the quality of Churchill's book as history. Churchill was not, and did not purport to be, a professional historian. But the book is a sheer delight to read. It is the kind of accomplishment that most writers would consider a crowning achievement. For Churchill, it was only one among many.

Happy 70th Birthday Ron Santo

The man belongs in the Hall of Fame!

Wednesday's Commodities Roundup

Today I'm going to look at two indexes: the CRB and gold. The CRB represents all commodities (although it is more skewed towards energy) and gold represents inflation expectations.



The weekly CRB chart shows a very strong rally that started about a year ago. Note that prices have continually moved higher, broken through resistance and consolidated gains. Regrading the SMA, notice the following:

-- All the SMAs are moving higher

-- The shorter SMAs are above the longer SMAs

-- Prices are above all the SMAs

This is a bullish chart, plain and simple.



On the P&F chart, notice that prices have continually made higher highs.



On the daily chart, notice that prices had a hard time getting through the 120 - 130 area, but have now broken out of this level. On the SMA front, notice the following:

-- All the SMAs are moving higher

-- Prices are above the SMAs

-- The shorter SMAs are above the longer SMAs

This is a bullish chart.



Gold is in the middle of a multi-year rally. It has continually moved higher, breaking through resistance and consolidating gains.



However, the P&F chart shows gold is in the middle of a correction from its rally with ha series of lower highs.



Gold's daily chart shows prices are currently in the middle of consolidating. Also note that prices and the SMAs are bunched together indicating a clear lack of direction.

More Robert Prechter - "Deflation Is Coming and There's Nothing Bernanke Can Do About It"



(ht RRH)

Today's Markets

-- Oil closed at $137/bbl

-- US Home prices dropped 15% year over year.

-- Consumer confidence dropped

-- Corporate profits are seen dropping 10%

-- Circuit City is up for sale.

-- Dow Chemicals raised prices 25% due to energy costs



The SPYs dropped on the open, and the rebounded by 10:39 CST. Then they rallied, broke through the 200 minute SMA but couldn't hold the momentum. THey formed a double top and then fell into the close, ending up nearly where they opened the session.



The QQQQs opened by moving lower but quickly rallied into their 50 minute SMA. They moved sideways until a bit before 1 PM CST when they tried to move through the 200 minute SMA. But they couldn't maintain momentum and gell into the close.



The IWMs opened with a move to the downside where they formed a double bottom. They rose through the 50 minute SMA, but then trended down for the rest of the day.

About Time They Figure That Out

Well, I've been telling them for months, but do they the listen to me? No, they knew, didn't they? Just a harmless little bunny, eh?...Or to return to the subject matter, Wall Street finally realized what I told them two months ago: there won't be any rate cuts from the Fed anytime soon. So, the bond market, have sold off big time with the yield rising from the 4,52% it stood at back then to 4.86% now.

In the meantime as bond yields have soared, stock prices have also soared, up 6% since then. Which of course means that the relative attractiveness of stocks have fallen significantly. If this reflected a permanent lowering of risk aversion and therefore the risk premium of stocks,then that would be sustainable. But if not (as seems more likely), then we could be looking at a stock market correction.

Today's Economic News ..... Stinks

First, home prices are still dropping:

Home prices in 20 U.S. metropolitan areas fell in April by the most on record, signaling the housing recession is far from over, a private survey showed today.

The S&P/Case-Shiller home-price index dropped 15.3 percent from a year earlier, less than forecast, after a 14.3 percent decline in March. The gauge has fallen every month since January 2007. The group began keeping year-over-year records in 2001.

Mortgage defaults and foreclosures are adding to the glut of properties on the market, while stricter loan rules are making it more difficult for prospective buyers to get financing. The prolonged real-estate slump, along with higher fuel prices and a shrinking job market, is taking a toll on consumers and the economy.

``There's such an excess of inventories that we certainly expect to see more price declines,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``The economy is still weakening and housing still looks pretty weak.''

.....

All of the 20 cities in the index showed a year-over-year decrease in prices for April, led by a 27 percent drop in both Las Vegas and Miami. Charlotte, North Carolina, showed a decline for the first time.

One bright spot in the report was that more cities showed a gain in prices in April compared with the previous month. Houses in eight areas rose in value, compared with just two in March. Month-over-month gains were led by Cleveland and Dallas.

``There might be some regional pockets of improvement, but on an annual basis the overall numbers continue to decline,'' David Blitzer, chairman of the index committee at S&P, said in a statement.


This index has been dropping for a year and a half. That's called a trend. And it's not a good trend.

In addition, this isn't going to end anytime soon. Inventory is still sky high and consumer demand is still hampered by massive debt and low confidence.

Speaking of which...

Confidence among Americans dropped to the lowest level in 16 years and house prices fell the most on record, raising the risk that consumers will cut back on purchases after spending their tax rebates.

The Conference Board's confidence index fell to 50.4 in June, lower than forecast, from 57.2 in May. Home prices in 20 cities dropped 15.3 percent in April from a year earlier, according to S&P/Case-Shiller, the most since the group began collecting data.

Consumers, whose spending accounts for more than two thirds of gross domestic product, are being hurt by the housing slump, rising unemployment and higher food and fuel bills.




Short version: this is bad news all the way around. Period.

Learning by Napping

As many loyal readers know, I am an avid napper. Now, this podcast at Scientific American's website gives me another reason to nap: turns out that napping assists the learning process by moving information from short-term memory storage to long-term storage in the cerebral cortex.

I should hasten to add that this research does not support napping in class. In order to move the information from short-term to long-term memory, one must first process the information; and for that I believe it helps to be awake.

Giro d'What?

According to this report at Cyclingnews.com, the 2012 Giro d'Italia will begin with two stages (the first of which would be a prologue) in Washington, D.C. That's right, Washington, D.C., as in the capital of the USA, which last time I looked wasn't even on the same continent at Italy.

Makes perfect sense to me. What could be more reasonable than a 10-hour flight, across 6 time zones, between two stages of a 3-week grand tour? Somebody should start doing some drug tests on race organizers!

The Fed's Problem

As the Fed meets today and tomorrow, let's take a look at the central problem they face (from IBD):

The economy has limped along at an annual growth rate below 1% for each of the past two quarters, and lenders continue to restrict credit.

Yet energy and food prices continue to soar. May consumer prices rose an uncomfortable 4.2% vs. a year earlier.

.....

But the Fed is worried about inflation expectations. Consumers in June expect inflation at 5.1% over the next year, just below May's 26-year high, according to the latest Reuters-University of Michigan survey.

The concern is that workers will demand bigger pay increases to keep up with prices, sparking a 1970s-style wage-price spiral. Inflation expectations, once entrenched, are hard to change.

"Certainly the Fed is scrutinizing inflation expectations because they don't want to get a wage-price spiral going, and so far it has not," Johnson said, adding that "the weak economy is preventing that from developing."


Over the last few weeks, we've seen increased "tough talk" from the Treasury and Federal Reserve about the dollar. This helped to give the dollar a bump up in overall price. But the basic problem still remains. First, growth is slowing:



While the year-over-year number is steady, the last two quarters have shown a sharp decrease. This is expected to continue as the combination of the housing market slowdown and credit contraction lower consumer confidence, which in turn lowers consumer spending.





At the same time, he year-over-year change in CPI and PPI are uncomfortably high putting pressure on inflation hawks. So long as oil remains at an elevated level expect this situation to continue.

Short version: being a central banker would stink right now.

Robert Prechter - “The Bond Market is the Biggest Bubble in the History of the World…”

“Bullish a Year Ago, Robert Prechter Now Sees "the Biggest Bubble in History"

Please keep in mind that the bond market means DEBT market. (Ht – Centerline)



Perhaps a little review of bubbles is in order? Pay particular attention to the part about “Some wise voices will stand up and say that the bubble can no longer continue. They argue that long run fundamentals, the ratios and measurements, defy sound economic practices.” Note which sequence in the 7 bubble stages you are seeing bonds in now, then think about where housing, commercial Real Estate, and equities in general are now.

Ludwig Von Mises noted that the size of the bust is commensurate with the size of the boom and it was Hyman Minsky who accurately described the seven bubble stages (the following excerpt is from my book Flight to Financial Freedom – Fasten Your Finances, written during 2005/2006):
HYMAN MINSKY’S SEVEN BUBBLE STAGES
The late Hyman Minsky, Ph.D., was a famous economist who taught for Washington University’s Economics department for more than 25 years prior to his death in 1996. He studied recurring instability of markets and developed the idea that there are seven stages in any economic bubble:

Stage One – Disturbance:
Every financial bubble begins with a disturbance. It could be the invention of a new technology, such as the Internet. It may be a shift in laws or economic policy. The creation of ERISA or unexpected reductions of interest rates are examples. No matter what the cause, the outlook changes for one sector of the economy.

Stage Two – Expansion/Prices Start to Increase:
Following the disturbance, prices in that sector start to rise. Initially, the increase is barely noticed. Usually, these higher prices reflect some underlying improvement in fundamentals. As the price increases gain momentum, more people start to notice.

Stage Three – Euphoria/Easy Credit:
Increasing prices do not, by themselves, create a bubble. Every financial bubble needs fuel; cheap and easy credit is, in most cases, that fuel. Without it, there can’t be speculation. Without it, the consequences of the disturbance die down and the sector returns to a normal state within the bounds of “historical” ratios or measurements. When a bubble starts, that sector is inundated by outsiders; people who normally would not be there. Without cheap and easy credit, the outsiders can’t participate.

The rise in cheap and easy credit is often associated with financial innovation. Many times, a new way of financing is developed that does not reflect the risk involved. In 1929, stock prices were propelled into the stratosphere with the ability to trade via a margin account. Housing prices today skyrocketed as interest-only, variable rate, and reverse amortization mortgages emerged as a viable means for financing overpriced real estate purchases. The latest financing strategy is 40, or even 50 year mortgages.

Stage Four – Over-trading/Prices Reach a Peak:
As the effects of cheap and easy credit digs deeper, the market begins to accelerate. Overtrading lifts up volumes and spot shortages emerge. Prices start to zoom, and easy profits are made. This brings in more outsiders, and prices run out of control. This is the point that amateurs, the foolish, the greedy, and the desperate enter the market. Just as a fire is fed by more fuel, a financial bubble needs cheap and easy credit and more outsiders.

Stage Five – Market Reversal/Insider Profit Taking:
Some wise voices will stand up and say that the bubble can no longer continue. They argue that long run fundamentals, the ratios and measurements, defy sound economic practices. In the bubble, these arguments disappear within one over-riding fact – the price is still rising. The voices of the wise are ignored by the greedy who justify the now insane prices with the euphoric claim that the world has fundamentally changed and this new world means higher prices. Then along comes the cruelest lie of them all, “There will most likely be a ‘soft’ landing!”

Stage Five is where the real estate industry is today [2005/2006]. This stage can be cruel, as the very people who shouldn’t be buying are. They are the ones who will be hurt the most. The true professionals have found their ‘greater fool’ and are well on their way to the next ‘hot’ sector, like the transition from real estate to commodities now.Those who did not enter the market are caught in a dilemma. They know that they have missed the beginning of the bubble (gold, silver, and oil today [2005/2006]). They are bombarded daily with stories of easy riches and friends who are amassing great wealth. The strong will not enter at stage five and reconcile themselves to the missed opportunity. The ‘fool’ may even realize that prices can’t keep rising forever… however, they just can’t act on their knowledge. Everything appears safe as long as they quit at least one day before the bubble bursts. The weak provide the final fuel for the fire and eventually get burned late in stage six or seven.

Stage Six – Financial Crisis/Panic:
A bubble requires many people who believe in a bright future, and so long as the euphoria continues, the bubble is sustained. Just as the euphoria takes hold of the outsiders, the insiders remember what’s real. They lose their faith and begin to sneak out the exit. They understand their segment, and they recognize that it has all gone too far. The savvy are long gone, while those who understand the possible outcome begin to slowly cash out. Typically, the insiders try to sneak away unnoticed, and sometimes they get away without notice. Whether the outsiders see the insiders leave or not, insider profit taking signals the beginning of the end (remember who has sold their rental properties?).

Stage seven – Revulsion/Lender of Last Resort:
Sometimes, panic of the insiders infects the outsiders. Other times, it is the end of cheap and easy credit or some unanticipated piece of news. But whatever it is, euphoria is replaced with revulsion. The building is on fire and everyone starts to run for the door. Outsiders start to sell, but there are no buyers. Panic sets in, prices start to tumble downwards, credit dries up, and losses start to accumulate.

This is where you may see the “lender of last resort” who is usually the government. The government, although they were talking up a soft landing, are now forced to step in to prevent the crises from spreading to other sectors. Ironically, this is where the savvy investor who profited before, really profits now. With government backing, they are asked to step in and return “normalcy” to a now damaged sector.

The government’s attempt to “put out the fire” usually works. However, the conditions beyond the year 2010 will require oceans of water that the government does not posses. You must be ready!

New Home Sales Plunge to Record Lows…

New Home Sales fell to 309,000 for the month of January, 360,000 was the consensus. Here’s Econoday:
Highlights
January is a difficult month for the housing sector, made difficult this year by still soft prices, heavy inventory, and the still distant April deadline for buyer credits. New home sales fell to a much lower-than-expected annual rate of 309,000 in January.

Prices fell with the median down 5.6 percent in the month to $203,500 for another year-on-year decline, now at minus 2.4 percent. Inventory jumped to 9.1 months, reversing eight months of incremental improvement.

Today's results evoke this morning's mortgage-application report where the Mortgage Bankers Association warns that housing demand remains weak and that buyers see no urgency to lock in prices. Existing home sales will be posted on Friday.



Those who didn’t see this coming have their eyes closed. This is not and never has been a normal economic cycle. This is a Grand Super Cycle top the excesses are everywhere, and especially in housing, they are simply tremendous in scale. Houses are still too expensive in relation to incomes. People, businesses, and all levels of government are saturated with debt while those in power simply work harder to push even more debt into the situation – it is literally insane.

Remember this chart?


Here’s Bloomberg’s report:

U.S. New-Home Sales Unexpectedly Fell in January to Record Low

By Bob Willis

Feb. 24 (Bloomberg) -- Sales of new homes in the U.S. unexpectedly fell in January to the lowest level on record, a sign that an extension of a government tax credit may not be enough to rekindle demand.

Purchases declined 11 percent to an annual pace of 309,000, below the lowest forecast in a Bloomberg News survey of economists, from a 348,000 pace, figures from the Commerce Department showed today in Washington. The median sales price dropped 2.4 percent from January 2009 and the supply of unsold homes increased.

The government’s first-time buyers tax incentive, extended and expanded to include current homeowners, may provide less of a boost to the market as many purchases were pulled forward late last year. Builders also face competition from foreclosed properties that have driven down prices at the same time the economy is having trouble creating jobs.

“New-home sales may be at rock-bottom levels, but it looks like the housing correction is not over yet,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “Everyone who was going to buy for the tax credit has already purchased a new home.”

Sales were projected to climb to a 354,000 annual pace from an originally reported 342,000 rate in December, according to the median estimate in a Bloomberg survey of 72 economists. Forecasts ranged from 325,000 to 386,000.

Three of the four U.S. regions showed declines in new-home sales last month, led by a 35 percent plunge in the Northeast. Purchases fell 12 percent in the West and 9.5 percent in the South. They rose 2.1 percent in the Midwest.

Median Price Fell
The median price of a new home in the U.S. decreased to $203,500 in January, the lowest since December 2003, from $208,600 in the same month last year.

The supply of homes at the current sales rate increased to 9.1 months’ worth, the highest since May 2009.
Housing, the industry that spawned the sub-prime mortgage meltdown and triggered the worst recession in seven decades, appeared to be recovering in 2009 after a three-year decline.

Purchases of new homes have declined from an all-time high of 1.39 million reached in July 2005. They have declined 6.1 percent from January 2009.

New-home purchases, which account for about 6 percent of the market, are considered a leading indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier.

Rising Foreclosures
Rising foreclosures are the main threat to a sustained housing recovery. A record 3 million U.S. homes will be repossessed by lenders this year as unemployment and depressed home values leave borrowers unable to make their house payment or sell, according to a RealtyTrac Inc. forecast last month. Last year there were 2.82 million foreclosures, the most since the Irvine, California-based company began compiling data in 2005.

The lack of jobs is another hurdle. Consumer confidence in February fell to its lowest level since April 2009 and a gauge of current conditions declined to the lowest level in 27 years on concerns about the labor market and the economy, the Conference Board reported yesterday.

Economists surveyed by Bloomberg at the beginning of this month forecast unemployment this year will average 9.8 percent, just a percentage point below the historic post-war peak of 10.8 percent reached in November 1982.

The end of Federal Reserve purchases of mortgage-backed securities, aimed at keeping borrowing costs low, represents another challenge for the housing industry. The program is scheduled to expire at the end of March.

‘Years to Recover’
“The housing market took several years to recover, following the downturn of the late 1980s and early 1990s,” Robert Toll, chief executive officer of Toll Brothers Inc., said in a statement today.
Toll Brothers, the largest U.S. luxury-home builder, said its first-quarter loss narrowed. The Horsham, Pennsylvania-based company’s new orders almost doubled in the three months ended Jan. 31 as the housing market showed signs of stabilizing.

And you thought you were living in an "investment," lol, no, not quite. "We all live in a..."

Beattles – Yellow Submarine:

A Closer Look At the Transports

I'm a big fan of Dow Theory, which in a nutshell is:

A theory which says the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high, it is accompanied or followed by a similar advance in the other.


Basically, more than one average has to advance for the market to be in a rally. This makes basic economic sense. When the economy is expanding, businesses have to ship more and more stuff from point A to point B. The converse is also true; when the economy is slowing, businesses have to ship less and less stuff from point A to point B. That's why the following news items have caused me some concern:

United Parcel Service Inc (NYSE:UPS - News) warned on Monday that second-quarter earnings would be below expectations, blaming high fuel prices and a sluggish U.S. economy.

.....

UPS estimated earnings of 83 cents to 88 cents a share for the quarter, down from a prior view of 97 cents to $1.04 per share.

In a statement, UPS said U.S. package volume had been lower than expected, while demand for higher-priced air delivery services had seen a particular drop.

Keith Schoonmaker, an analyst at Morningstar, said the warning from UPS was hardly a surprise, given the monstrous head winds the industry faces.

"This just shows that in a challenging economic environment, with high fuel prices, that some customers are shifting to slower, cheaper shipping alternatives" within both UPS and its rivals, he said.


And add this to the mix:

FedEx(FDX - Cramer's Take - Stockpickr) says it will miss analysts' estimates for the current quarter and for fiscal 2009, as the continuing impact of high fuel prices and a weak economy drag on.

"We're pressured by serious economic difficulties," said CEO Fred Smith, on an earnings conference call. "Record high fuel prices and the weak U.S. economy dampened volume growth and substantially affected our bottom line."

Smith added that the "economic headwinds" the company is facing this year will continue into fiscal 2009. But he noted that results during this year and next "will be anomalies" that will "hopefully set the stage for fiscal year 2010."


That makes this an opportune time to take a look at the Transportation average.



On the 6-month chart, notice the average has been rallying since the first part of the year. There are two important trend lines. The first is from the extreme bottom in mid-January. While this is technically a place to draw a trend line from, I'm always reluctant to draw a line from a point this extreme on a chart. I think the more accurate line is the second line started just after the extreme point.

Using the first trend line (the one from the extreme point) notice the average broken trend in mid-May. Using the second line, notice prices are right at the trend line. Also note the broadening formation that formed in May, which is usually indicative of a market top.



On the SMA chart, notice the following:

-- Prices are above the 200 day SMA

-- The 10 and 20 SMA have moved lower

-- The 10 day SMA has crossed below the 50 day SMA

-- The 50 and 200 day SMA are still positive

-- Prices are SMAs are bunched in a close range

What does all of this tell us?

-- The short term trend is down as indicated by the declining 10 and 20 day SMA

-- The overall trend is still higher

-- Whenever prices and SMAs are bunched together in a tight range it indicates the market is looking for a direction about where to move.

Morning Update/ Market Thread 2/24

Good Morning,

Equity futures are up slightly this morning, below left is a 60 minute view of the DOW, you can see that we are resting on the bottom of the current channel, and on the right is a 5 minute version of the S&P 500 showing the overnight action:



Both the dollar and bonds are slightly lower, oil is flat and gold is down about $8 and ounce, now below the important $1,100 level again and coming up on support at $1,080. The HUI did have a very large move lower yesterday, the miners getting hit hard.

We will receive New Home Sales at 10 Eastern, meanwhile the still worthless MBA Purchase Applications Index moved lower another 7.3% last week which follows a 4% drop the week before. The only clue we truly have about history from this report is that the MBA now claims this reading is the lowest since 1997 – here’s Econoday:
Highlights
The purchase index fell a steep 7.3 percent in the Feb. 19 week to the lowest level since 1997 in what the Mortgage Bankers Association calls another indication that housing demand remains weak: "With home prices continuing to drift amid an abundant inventory of homes on the market, potential home buyers do not see any urgency to lock in purchases." The refinance index also fell, down 8.9 percent. (Note MBA does not provide index levels, only percentage changes.) New home sales for January will be posted at 10:00 a.m. today.
Yes, even at the lowest interest rates in history people cannot refinance anymore and homes are still overpriced even at these levels. Keep in mind that as taxpayers we have spent literally trillions buying these rates down. We are so saturated with debt that we are failing to even maintain with a Fed Funds Rate of Zero.

Efforts aimed at the banks were the largest mistake in history. They did absolutely nothing to cleanse and repair anyone’s balance sheets but the very largest firms. If we would have spent that money on the bottom up, the entire system would have been given more time. But in the end, it may be evolution at work as the debt backed money system that the private Federal Reserve manipulates is destined to fail. This mistake will make that failure come sooner and hopefully we will take the next step forward.

Speaking of making failure happen sooner than later, little Timmy Geithner is giving that his all:
Geithner May Give Regulators Leeway in Applying Volcker Rule

Feb. 24 (Bloomberg) -- The U.S. Treasury Department wants to give regulators discretion to define proprietary trading as the White House tries to revive its plan to bar banks from making hazardous bets that could cause another financial crisis.

One month after President Barack Obama said firms “will no longer be allowed” to trade for their own accounts, officials say they need flexibility to avoid impairing the $7.2 trillion Treasury securities market.
I guess it depends on how you define the word “incest.” Note, once again who these people really serve. They do not serve YOUR interests, they serve the private banks’ interests. This is why our system is failing and it is why the “Federal” Reserve system is going to fail. It is also why Freedom’s Vision is the next step forward in the progression of our country.

And remember all the lip service about pulling support?
Treasury to expand Supplementary Financing program

By Greg Robb

WASHINGTON (MarketWatch) -- The Treasury Department announced Tuesday that it is expanding its Supplementary Financing Program to help the Federal Reserve manage its enormous balance sheet. In a statement, Treasury said it will boost the SFA to $200 billion from its current level of $5 billion. The fund had been up to $200 billion but was scaled back when Congress delayed passage of an increase in the debt limit.

Now that an expansion of the debt limit has been signed into law, the department is able to resume the program. Starting on Wednesday, Treasury will conduct the first of eight weekly $25 billion 56-day SFP bills to restore the program. The department said it will then roll the bills over. "We are committed to work with the Fed to ensure they have the flexibility to manage their balance sheet," a Treasury official said.
They will simply steal as much money as you allow them. The government’s spending is in a parabolic blow-off phase and it is going to come to an end sooner rather than later. When the spending by the government subsides, the debt backed economy will be laid bare.

Speaking of revealing clothing, our government statistics are simply flat out LYING. They are so distorted and off the mark that very little can be taken at face value. This is a major part of the confidence problem. Did someone say confidence? Yesterday’s Citizen Confidence level for February plummeted nearly 18% from 56 all the way back to 46. Do they believe that retail sales are positive? No, and despite what your government says, retail sales are still down year over year. Proof? Again, we turn to sales tax data:
New York Sales Tax Receipts In Unprecedented Collapse

It's a good thing Wall Street bonuses rebounded in 2009 because otherwise the State of New York would be totally screwed.

Yesterday the Comptroller released its survey of the state's sales tax receipts -- a proxy for consumer spending that shows a trend opposite to Wall Street.

Here's the top-line view:

Counties across New York State, including New York City, saw one of the sharpest declines in sales tax collections on record, according to a report released by State Comptroller Thomas P. DiNapoli. The report, which compares 2009 to 2008 collections, found a 5.9 decrease in collections statewide. Only four counties saw an increase but these numbers were primarily due to administrative and technical adjustments, not better economic performance.

“This is yet another sign that the Great Recession
is having a continuing impact on our communities across New York,” said DiNapoli. “These numbers are sobering. Fortunately, many local governments have taken sometimes painful budgetary steps to stave off disaster. It’s a struggle, but all levels of government have to make every taxpayer dime count.”

Among the report’s findings:

* Fifty-three of New York’s 57 counties outside of New York City saw a sales tax decline and many of these counties share sales tax revenues with their municipalities;
* The largest decline occurred in the Lower Hudson Valley, at 8.4 percent;
* In state fiscal year 2009-10, the state’s sales tax base (value of all goods and services subject to the sales tax) shrank by 7.1 percent;
* Among New York’s counties, Westchester saw the steepest drop at 10.3 percent;
* The Mohawk Valley region saw the smallest downturn at 2.5 percent;
* Only Oneida, Chautauqua, Schuyler and Seneca counties saw increases, but this growth was mostly attributable to factors other than economic growth; and
* According to the New York State Association of Counties, most counties prudently budgeted little or no growth in their sales tax revenues for 2010.
Still predicating growth estimates on words and statistics coming from the government is a HUGE mistake. The “value of all goods and services subject to the sales tax shrank by 7.1%!” Good thing they had multi-billion dollar bonus payouts, what would this figure have been without? Of course those bonuses were not only not deserved, they are criminal and based solely upon marked to fantasy models – the regulators long since bought off and bowed to pressure.

Yesterday’s price action obviously satisfied the large movement forecast by last Friday’s small move in the McClelland Oscillator. Yesterday's 85% down day left all of the short term oscillators oversold, so a bounce of some type can be expected.

Despite mark-to-fantasy, the XLF is one of the POOREST performers of this recovery, retracing only a very small portion of their losses over the past couple years. Yesterday the XLF was hit hard, engulfing the prior days’ candle with volume coming up off of the pathetic ramp job, game playing, levels of the week prior:



The bond market bounced very strongly right off the support level I showed on Monday. That was the game, it was indeed time to make a choice. They can continue to hold down rates, but if they continue to pump all the markets simultaneously then they will have chosen a quick death to our monetary system. Of course it’s already dead, they can only decide how quickly the funeral services are held and which path they want to drive to get there. Dead man walking.



Yesterday’s move very likely was the beginning of wave 3 down but we need to see prices drop below the SPX 1,090 level to be sure. We are sitting right on the uptrend line of support now. There’s a possibility we could run higher, but really… are there any legitimate buyers left in the market? Only ones who don’t do math! While she may be able to make one last trip around the dance floor, I’m thinking we’re already witnessing Mary Jane’s last dance…

Tom Petty – Mary Jane’s Last Dance:

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