Monday, May 31, 2010

The Consensus On Big Banks Shifts, But Not At Treasury

Must-read post at The Baseline Scenario.

See also at ZeroHedge:

The ECB Blasts Governmental Fear-Based Racketeering, Questions Keynesianism, Believes The Fed's Powers Are Overestimated

Meanwhile, here’s an excellent set of charts on the stock and commodity markets (this is research, not investment advice; you invest at your own risk, unlike the Wall Street banks, who also invest at your risk):

The Looming Financial Holocaust - Is Closer Than We Thought ...

The Obomba market.  The failure of appeasement.

Friday, May 28, 2010

The War is Making You Poor

Sign the petition from Rep. Alan Grayson!

Next year's budget allocates $159,000,000,000 to "contingency operations," to perpetuate the occupations of Afghanistan and Iraq. That’s enough money to eliminate federal income taxes for the first $35,000 of every American's income each year, and beyond that, leave over $15 billion that would cut the deficit.

So let's do that instead.

I support the 'War is Making You Poor' Act. This bill would eliminate the separate funding for the occupations of Iraq and Afghanistan, and eliminate federal income taxes for everyone's first $35,000 of income (or $70,000 for couples) each year. And it would help pay down our national debt.
I support it. No, actually, I love it. And I call on Congress to pass it.

Monday, May 24, 2010

Gulf of Tonkin redux?

The machine requires feeding?  The torpedo that allegedly sank the South Korean ship was available for sale internationally:


Torpedo fragments found on the seabed "perfectly match" the schematics of a North Korean-made torpedo Pyongyang has tried to sell abroad, chief investigator Yoon Duk-yong said. A serial number on one piece is consistent with markings from a North Korean torpedo that Seoul obtained years earlier, he said.

"The evidence points overwhelmingly to the conclusion that the torpedo was fired by a North Korean submarine," he said. "There is no other plausible explanation."

Pak, the North Korean military official, dismissed it as faked evidence.

"If there were indications that the sinking was our doing, then the whole thing is an act — theatrics by the South Koreans to implicate us," he said.

Why should I believe the North Koreans did this, when the miserable war of my youth was started on a false pretext that looked just like this?

Friday, May 21, 2010

How the rich do whine about their taxes

These last two graphics are linked from Barry Ritholtz’s Big Picture page at  They fit so well into my continuing themes I had to grab them. 

It’s funny how reluctant all the “outraged at the current situation” hedgies-who-blog are to talk about how low their marginal tax rates are, especially when you consider the “hedge fund exemption” that enables them to pay lower tax rates than their admins.

Ronnie sold the American people a bill of goods, that “you too can win the lottery,” and greed has reigned since Reagan.  I hope we’re approaching “the end of the age” from that point of view.

Thursday, May 20, 2010

US went on plastic with Ronnie

“Morning in America” my ass. 

Links 5/20/2010

1. Merkel to The Banks and Hedge Funds: Sprechen Sie Deutsche? Then Droppen Sie Dead - Jesse

Merkel says ban short sales and screw CDSs.

2. Should We Ban Naked CDSs?, by Brad DeLong

Brad says, “I say, narrowly, no--that if we can get proper clearing, transparency, and capital adequacy requirements in place banning naked CDOs would not do any good and would do a little bit of harm. But it is a close call….”  [Could you mince a little bit more, Professor?]

Could the lameness of the American economics mainstream be any more transparent?


3. Shadow inventory sales for years to come – 1.6 million distress sales in 2010, 1.6 million in 2011, and 1.5 million in 2012. By summer of 2011 REO pipeline will rise to 536,000. –

Remember that a huge wave of exotic mortgage rate resets hits in second half 2010 and first half 2011 (reference).  So even though the yield curve is not inverted and no “recession” is in sight over the next 12 months, growth can be expected to be very slow as the deflationary collapse gains momentum, the tipping point to come in about three years, by my best estimation, when there will be an epochal collapse of confidence in Western democratic systems.

Wednesday, May 19, 2010

A stark warning on the stock market

Via:  Business Insider  Warning:  this is research, not investment advice.  You invest at your own risk.

Dow Theorist Richard Russell: Sell Everything, You Won't Recognize America By The End Of The Year

Joe Weisenthal | May. 18, 2010, 8:57 AM


Richard Russell, the famous writer of the Dow Theory Letters, has a chilling line in today's note:

Do your friends a favor. Tell them to "batten down the hatches" because there's a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don't need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won't recognize the country. They'll retort, "How the dickens does Russell know -- who told him?" Tell them the stock market told him.

That's pretty intense!

Update: By popular demand, here's more on what he sees in the market. The gist is that the markets recent gyrations are telling him that the economy is in trouble:

And I ask myself, "Am I seeing things? The April 26 high for the Dow
was 11205.03. The Dow is selling as write at 10557 down 648 points
from its April high. If business is even better than expected, then
why is the Dow down over 600 points? And why, if there were 674 new
highs on the NYSE on April 26, were there only 20 new highs on Friday,
May 14? And if my PTI was 6133 on April 26, why is it down 17 points
since its April high?

The fact is that I've been seeing deterioration in the stock market
ever since early-April, and this in the face of improving business
. The D-J Industrial Average is composed of 30 internationally
known top-quality blue-chip stocks. These are 30 of "America's biggest
companies." If Barron's is so bullish on the future of America's
biggest companies, then why isn't the Dow advancing to new highs?
Clearly something is wrong. But what could it be? Much as I love
Barron's, I trust the stock market more. If I read the stock market
correctly, it's telling me that there is a surprise ahead. And that
surprise will be a reversal to the downside for the economy, plus a
collection of other troubles ahead

About Dow Theory -- First, we saw the recent April highs in the
Averages. Then we saw a plunge in both Averages to their May 7 lows --
Industrials to 10380.43, Transports to 4298.12, next a short rally. If
ahead, the two Averages turn down and violate their May 7 lows, that
would be the clincher. Such action would signal the certain resumption
of the primary bear market.

Just as for years I asked, cajoled, insisted, threatened, demanded,
that my subscribers buy gold, I am now insisting, demanding, begging
my subscribers to get OUT of stocks (including C and BYD, but not
including golds) and get into cash or gold (bullion if possible). If
the two Averages violate their May 7 lows, I see a major crash as the
outcome. Pul - leeze, get out of stocks now, and I don't give a damn
whether you have paper losses or paper profits!

Increase the top marginal tax rate!

The Effect of Tax Cuts and Tax Hikes on Economic

To answer Peter Schiff and all the other greedy persons who say increasing the top marginal tax rate would kill the recovery.

The Tea Party movement is in danger of entrenching the status quo in a state of neo-feudalism for generations to come by blaming the working class for the country’s ills, when in fact it is the ruling class who has rigged the game for their own advantage, from corporate governance (i.e., control fraud) through government (i.e., a Congress of bought and paid for shills for moneyed interests) to our facsimile of a President, a media image wholly without meaningful substance, a virtually seamless continuation of Bush II’s budget-busting appeasement of the military-industrial-financial complex at every turn.

With income and wealth inequality at multi-generational highs, and top marginal tax rates at multi-generational lows, it is time to raise taxes on the rich, including estate taxes.

Thursday, May 13, 2010

Obomba is Wall Street’s Sugar Daddy

Wow, this is the MSM now!  Can revolution be far behind?  Or will Congressional whores be true to their Johns?

Wednesday, May 12, 2010

The collapse of effective demand (cont.)

First quarter 2010 data on the components of nominal aggregate demand show only consumption and government spending above pre-recession levels.  Investment spending is at early 2003 levels in dollars and would be lower in real terms. 


The uptrend in consumption is not supported by “real” personal income growth as pointed out by in their May note—it’s mostly coming from government transfer payments.


Consumption out of disposable income is soaring again as consumers get tired of saving.


The picture of final sales to domestic purchasers shows domestic nominal demand at 2007 levels.


Employment/population has improved slightly, it is still at early 1980s levels, and the labor market continues to be very slack, with the unemployed experiencing extreme difficulties in finding a new job.


If the government experiences any trouble at all in floating its debt, the transfers to the lower income brackets will probably be diminished, causing a collapse of consumption spending.  The lifting of the “emergency” extensions of unemployment benefits would fall into this category.

The government could kill the economy more quickly in a number of ways, including requiring 1099s to be filed for all expenses over $600 paid by any business that would kill small business; by the imposition of a VAT that would kill small business; by a tax increase on any middle- or lower-income bracket.

The rich have conspired to suck a disproportionate amount of the income from corporate America to themselves, while keeping marginal tax rates on that income at historically low levels.  There is not organic personal income growth to support a recovery.  A “classic Keynesian” prescription would be for government to debt-finance a massive government investment injection to aggregate demand, but the bond market probably won’t like that.  Keynesianism as practiced by the mainstream has ignored debt/GDP, now at record levels. 

In the coming collapse of aggregate demand, the rich will have to answer the question, “Am I my brother’s keeper?”

Friday, May 7, 2010

‘Animal spirits’ update

The primary insight driving the business cycle forecasts on this web site is that recessions and depressions are primarily psychologically driven collapses of demand caused by conditions in the labor market as measured by the unemployment rate becoming worse than what people are accustomed to over the past four years. 

The increase in the unemployment rate caused mild downtick in the confidence of Americans, but “animal spirits” are still chugging upward toward the next cyclical high in about 2012-2013.  There is no recession in sight, although demand is fundamentally unbalanced by the extreme inequality in incomes and wealth, and will probably enter a sustained collapse in the next downturn due to debt deflation.


“Animal spirits” is given by A = – (U-UMEAN)/Sigma(U).  U is still above adaptation level, signifying that “animal spirits” are depressed.  Given my freehand forecast of unemployment, “animal spirits” should become marginally positive at just about the time of the next presidential election.  Although it is too far out to forecast with a high degree of confidence, the next recession should arrive in 2013-2014.  I expect this collapse to be a full-fledged depression.  This will begin the final stage of Strauss and Howe’s generational crisis; it will begin the long-wave winter’s coldest days.

Unemployment volatility will probably peak soon, and this will contribute to the rising good feelings over the next couple of years.  The stability will be short-lived, and garnered at the government’s expense.  It is well known that the government recently has been spending more on extended unemployment benefits than it has on federal salaries.  In the final crisis the government’s access to funds will dry up.  The markets will refuse to lend, and the rich will tell their Congress people they won’t pay any more taxes (although marginal tax rates are lower now than at when Ronald Reagan reigned).  Greed has triumphed and continue to do so.  The rich would rather let the system collapse, and try to take their money elsewhere, than prop up the government once it no longer serves their purposes.  IMHO.


The recession forecasting model featured on this web site has accurately made real-time calls of the past two cycles (2001 and 2007-2009, both the collapses and the recoveries).  There are many similar models using the yield curve; the innovation here is “animal spirits.”  The model shows no recession in sight over the next year.


The stock market continues to look like a very dangerous place to be.


The Coppock momentum oscillator, a bottom indicator, having sent a great buy signal in early 2009, is at elated levels, suggesting the market rally has some continuing momentum.  But the big picture looks like the market is approaching the crest of a B wave on its way down to a C big bottom.  Gold has been killing the stock for ten years and may continue to do so.