Debt ceiling fix could mean problems for states

Does this mean we can't have our cake and eat it too?

Headline: Debt ceiling fix could mean problems for states

The cost of the compromise needed to raise the federal debt ceiling will likely inflict more fiscal pain on states still struggling to recover from the recession and the end of federal stimulus spending.

While the details of the spending cuts to states remain unclear, lawmakers from both parties have discussed the need to cut or impose caps on so-called discretionary spending over the next decade.

That could mean wide-ranging cuts in federal aid to states, affecting everything from the Head Start school readiness program, Meals on Wheels and worker-training initiatives to funding for transit agencies and education grants that serve disabled children.

There also is concern among governors, state lawmakers and state agency heads that Congress will make deep reductions or changes in federal aid for health services for the needy, most notably through Medicaid. That could shift more of the costs onto states that already are having trouble balancing their budgets.

Source: finance.yahoo.com

The Definition of Safe Haven Will Change

Talking heads focus on short-term problems while capital discounts long-term, structural risks of a dollar-centric monetary system. The public's definition of safe haven will change dramatically today's anticipatory actions become reality over the next 4.3 years.

Bond market money flows continue to reflect a bearish setup into strength.

US Treasury Bond 20YR+ (TLT) And US Treasury Bond Diffusion Index (DI)


Headline: Mobius: US Dollar, Treasurys No Longer Safe Havens

The U.S. dollar and Treasurys, which proved to be safe havens during the global financial crisis, can no longer be viewed as such because of the on-going debt impasse, renowned investor Mark Mobius told CNBC on Friday.

Instead, Mobius, who oversees about $50 billion as executive chairman at Templeton Emerging Markets Group said emerging markets were now a much safer bet.

Mobius believes a shift is under way towards emerging market stocks and said that he was bullish on commodities and gold.

“Commodities are a very big part of our portfolio because we believe in dollar terms that commodity prices will continue to trend upwards,” Mobius said.

Despite the debt crisis and a pullback in purchasing managers indexes in the U.S., India and China, Mobius said investors shouldn't be worried about another global recession.

"The consumer is alive and well and kicking both in the U.S. and in emerging markets, so I'm not too frightened. The consumer has lots of cash to spend and they want to spend, because they don't want to hold currencies," Mobius said.

Source: cnbc.com

Repeat of 1939 in 2010

The proper comparison would be a repeat of 1939 in 2010.

1929-1944 & 2000-Present Comparison: S&P 500 to Gold ($/oz) Ratio

Most of the market weakness of recent days has been widely blamed on the trouble out of Washington. That's obvious enough. But I keep thinking, suppose the obvious is wrong. Supposing we are experiencing a repeat of the huge rally of 1929-1930, at a time when the economy fell apart even while the market was rallying strongly? That would be a shocker and a situation which nobody was ready for.

Source: Dow Theory Letters

The Real Problem Is Excessive Consumption and Debt

Don’t let the debt ceiling debt misdirect you from the structural concern of excessive debt within an unbalanced domestic and global economy. The US economy is driven by far too much consumption and centralized spending and little private investment and exportable production.

The US economy is driven by the consumption monster that dines nearly exclusively on imported goods and various forms of centralized stimulus.

Personal Consumption Expenditures (PCE) As A %GDP and Personal Consumption Expenditures As A %GDP Average from 1947


Government Consumption Expenditures and Gross Investment (GCEI) As A %GDP Average from 1947


Private domestic investment and exportable production side of the economy remains in shambles.

Gross Domestic Private Investment (GDPI) As A %GDP and Gross Domestic Private Investment (GDPI) As A %GDP Average from 1947


Net Exports (NETEX) As A %GDP and Net Exports (NETEX) As A %GDP Average from 1947


The debt ceiling debate, depending on your perspective, is bad or good short-term theater. Excessive debt within an unbalanced domestic and global economy, a structural concern, ensures the today's debt ceiling drama will be repeated in the future.

Headline: Economy slowed sharply in first half of year

The economy expanded at meager 1.3 percent annual rate in the spring after scarcely growing at all in the first three months of the year, the Commerce Department said Friday.

The combined growth for the first six months of the year was the weakest since the recession ended two years ago. The government revised the January-March figures to show just 0.4 percent growth -- down sharply from its previous estimate of 1.9 percent.

High gas prices and scant income gains have forced Americans to pull back sharply on spending. Consumer spending only increased 0.1 percent in the April-June quarter, the smallest gain in two years. Government spending fell for the third straight quarter.

Stocks dropped in early trading, then regained some lhttp://www.blogger.com/img/blank.gifost ground. The Dow Jones industrial average fell 58 points, and broader indexes also declined.

"These numbers are extremely bad," said Nigel Gault, an economist at IHS Global Insight. "The momentum in the economy is clearly very weak."

Source: finance.yahoo.com

A Freight Train Called The Secular Trend

The secular trend is comparable to a freight train barreling down the tracks at 50 mph. Individuals, groups, or institutions trying to oppose its direction will be smashed.

Headline: Brazil Real Weakens For 2nd Day On Government Derivatives Tax

The Brazilian real opened somewhat weaker on Thursday, still recoiling from new taxes on currency traders as the government sought to slow the Latin American currency's climb after reaching 12-year highs against the dollar.

The real opened at BRL1.5632, slightly weaker than its previous close at BRL1.5624, according to Tullet Prebon via Factset.

Source: online.wsj.com

Those Appalled Haven't Seen Anything Yet

Capital understands that headline adjectives are often layered. "Appalled" enough to seed the headlines with discontent? Yes. Appalled enough to sell Treasuries? Not yet.

Investors that believe bonds can't be sold faster than bad habits at finishing school are likely to be 'appalled' by their price action by 2016.

US Treasury Bond 20YR+ (TLT) And US Treasury Bond Diffusion Index (DI)


Headline: Chinese Officials ‘Appalled’ by U.S. Impasse: Roach

Senior Chinese officials are “appalled” by the impasse among U.S. politicians on raising the nation’s debt ceiling to avoid a default, said Stephen Roach, non-executive chairman of Morgan Stanley Asia Ltd.

“Coming so shortly on the heels of the subprime crisis, the debate over the debt ceiling and the budget deficit is the last straw” for China, New York-based Roach, 65, said in an e- mailed note today. He said his assessment was based on visits to Beijing, Shanghai, Chongqing and Hong Kong.

In another sign of concern within the nation that is the biggest foreign owner of Treasuries, the official China Securities Journal said today that the U.S. stand-off signals long-term dollar weakness that will push up commodity prices and pose inflation risks for the world. In Mumbai yesterday, a former central bank adviser, Yu Yongding, repeated his call for China to reduce its Treasury holdings, adding that a default would be “disastrous.”

Roach cited an unnamed Chinese policy maker as saying in mid-July that “we understand politics, but your government’s continued recklessness is astonishing.” In the past, the economist has met with officials including central bank Governor Zhou Xiaochuan.

Source: bloomberg.com

Gold Leads and The Gold Shares Follow

Gold leads and the gold shares follow. The yellow boxes illustrate this relationship.

Gold and Gold Stocks Side by Side Comparison


When gold’s rubber band of out performance relative to the gold shares approaches its breaking point, it tends to mark the onset of an equity side catch up. The rising correlation between gold and gold shares from 2009 (-0.14) to 2011 (0.66) illustrates yet another, still largely unrecognized, catch up phase. Investors have also enjoyed a slow and steady increase in dividends over this period. For example, Newmont Mining boosts its dividend by 50 percent recently.

2009


2010


2011

Hello Eric,

I would like to draw your attention to a comment made by John Williams of Shadowstats.com.

"Government Seizure of Privately Held Gold. A question commonly raised by subscribers is the potential for the federal government to seize privately held gold, today, as it did back in 1933, when President Franklin Roosevelt abandoned the domestic gold standard. While there is little the federal government might do that would be too surprising in the current environment, seizure of privately-held gold most likely would be tied to some reform of the monetary system, not just as an action aimed at punishing gold investors."

"Back in 1933, the use of gold continued for the settlement of international accounts between sovereign states, and the U.S. governmentÕs needs under that circumstance were used as an excuse for the seizure of publicÕs gold holdings. While there were some exceptions to the seizure, such as coin collections and jewelry, U.S. investors ended up shifting funds into gold stocks as surrogates for the precious metal."

"Private U.S. ownership of physical gold became legal, again, after President Richard Nixon closed the gold window on international settlements in 1971. The shift in private-gold-ownership policy, then, also was tied to the international monetary systemÕs backing, or lack of same, in gold."

"Meaningful reform of the global monetary system and creation of a new U.S. currency, of whatever form, most likely would be post-hyperinflation events."

Gold stocks did perform well after gold could legally be held by American citizens in 1971. An alternative to direct gold investment was not required for gold stocks to perform well but I still find myself uncertain due to John Williams comments. I'm not sure if gold stocks will be the darlings of the market and greatly outperform the price of gold or will be drawn down with the general stock market with nominal values increasing but true gold based values declining. I find myself wishing I had taken Jim Rogers advice and invested directly into the commodity. There is blood in streets from gold stock investors but unfortunately the blood I see is my own.

Sincerely,

Clay

More Signs of Economic Rollover

The economy under the weight of excessive debts and waning stimulus, is slowing at the margin. As long as key economic time series continue to rollover over, the pressure to initiate another quantitative easing (QE) program, either front or back door, will only increase.

Real Business Core Capital Spending: Real or CPI-Adjusted New Orders of Durable Goods ex. defense and aircraft (RBCCS) and YOY Change


Real or CPI-Adjusted Retail Sales (RRS) and YOY Change


Headline: Instant view: Durable goods orders fall on transportation

New orders for long-lasting U.S. manufactured goods fell unexpectedly in June, weighed down by weak receipts for transportation equipment, a government report showed on Wednesday.

COMMENTS:

JOSHUA SHAPIRO, CHIEF U.S. ECONOMIST, MARIA FIORINI RAMIREZ INC, NEW YORK

"The headline is generally not a meaningful number because defense capital goods can be very volatile. If you look at the underlying data for June, it could be pretty great...If you strip out to the volatile categories, it's kind of a soft month."

"You're seeing some of the effect of the slowdown in the manufacturing sector. The headline number for this report is not a meaningful number. This doesn't say a lot about what we might see in the future."
http://www.blogger.com/img/blank.gif
DAN DORROW, HEAD OF RESEARCH, FAROS TRADING, STAMFORD, CONNECTICUT

"I really focus on the core, which is the non-defense capital goods excluding aircraft. I don't like to interpret too much from one month of a volatile series, but the trend over the last couple of quarters suggests the business sector is intact in terms of gradual expansion. Our view is the United States is going to lag the rest of the world, as growth is going to be export- and investment-driven. This number says that basic trend is intact."

Source: reuters.com

Who's Buying the Treasury Auctions?

Direct and largely anonymous bids continue to take down an increasing percentage of the 5-, 10-, and 30-year auctions since 2009. Over the same period, the primary dealers, or Fed’s handlers, have steadily cut their participation rates. Participation rates within the debt game have changed enough to raise some eyebrows while the media slumbers away. Perhaps this is why Jim Rogers has often stated that “he wouldn’t lend money to the United States in US dollars for 30 years at three or four or five, or you name the interest rate.” The subtle change in participation rates suggests others are beginning to agree.

As always, follow the money.

5-Year Average Percentage of Total Accepted Bids Primary Dealers, Direct and Indirect Bidders since 2009


10-Year Average Percentage of Total Accepted Bids Primary Dealers, Direct and Indirect Bidders since 2009


30-Year Average Percentage of Total Accepted Bids Primary Dealers, Direct and Indirect Bidders since 2009


Video

Restructuring of State Debt Is Default

Any restructuring would be considered a default. Yet, the headlines continue to repeat all-is-well in muni bond land. The human tendency to stand with the crowd even when it faces obvious danger is strong.

Headline: Facing a Hit Over Debt in Alabama

In a move to avoid the largest municipal bankruptcy in U.S. history, holders of more than $3 billion in debt issued by Jefferson County, Ala., are working on a rescue that would leave them with steep losses.

The offer calls for bondholders to forgive about $1 billion of the $3.14 billion in sewer debt owed by Alabama's most populous county, which has about 665,000 residents, a person familiar with the matter said.

Banks, hedge funds and mom-and-pop investors that own the sewer bonds are scrambling to agree on concessions before a Thursday meeting, where officials in Jefferson County, which includes Birmingham, might decide to file for bankruptcy.

As of late Tuesday, the situation remained fluid, and it was possible the last-ditch offer would fall apart.

John S. Young, a court-appointed receiver who is participating in the talks, said bondholders still "have a way to go."

The deal being worked on also includes money that would be set aside to help struggling Jefferson County residents pay their sewer bills, a person familiar with the matter said.

Source: finance.yahoo.com

Follow The Money & Production

While the debt ceiling debate provides the daily noise, it redirects attention away from on-going secular shifts (trends) in employment, flow of capital, innovation, etc. Structural shifts in global production and innovation present challenges for the US that extend well beyond the sovereign debt crisis. Capital tends to follow the path of least resistance. The path of least resistance avoids excessive taxation. Follow the money. Follow the production. The message of the market is clear. Frank has recognized it.

Eric,

Headline: GE moving X-ray business to China

General Electric Co.’s health care unit, the world’s biggest maker of medical imaging machines, is moving the headquarters of its 115-year-old X-ray business to Beijing.

“A handful’’ of top managers will move to the Chinese capital and there won’t be any job cuts, said Anne LeGrand, general manager of X-ray for GE Healthcare. The headquarters will move from Wisconsin amid a broader plan to invest about $2 billion across China, including opening six “customer innovation’’ and development centers.

The division should have “double-digit’’ growth rates as the country converts from film and analog to digital X-ray technology, LeGrand said.

Source: articles.boston.com

Frank

Safe Haven Gold and Swiss Franc

Confidence in the Euro and Dollar are waning across the globe. As a result, money has been seeking refuge in the Swissie. The sharp up trend in swiss gold, however, illustrates the secular safe haven play since 2005.

Swiss Franc Gold


Headline: Dollar Drops to Record Versus Franc as U.S. Struggles With Debt Deadlock

The dollar fell against all of its most-traded counterparts as politicians struggled to agree on raising the U.S. debt ceiling and reducing its deficit.

The greenback slid below 78 yen for the first time since March and fell to a record versus the Swiss franc on concern America may default and face a reduction in its credit rating. The pound rallied to a one-month high against the dollar after the U.K.’s economic growth matched the forecasts of analysts. Sweden’s currency gained as producer prices increased.

“The dollar is selling off and will weaken every single day until we have some sort of resolution,” said Greg Salvaggio, senior vice president of capital markets in Washington at the currency-trading firm Tempus Consulting Inc. “The bigger issue is not necessarily the deal, it’s the scope of the deal. Without $3 trillion in cuts or deficit reductions, there’s a high probability S&P will downgrade U.S. debt, and then all bets are off.”

Source: bloomberg.com

No Real Estate Rebound Until 2034

While the housing market will see periods and ebb and flow, it won't rebound until 2034. By then, the Fed paper will be a distant memory of analysis that underestimated supply and credit damage.

Months Months Supply of New One-Family Houses for Sale And Change YOY

Jim Sinclair’s Commentary

This prediction is much too bullish.

Headline: No US home building rebound until 2014 – Fed paper

(Reuters) – U.S. home building likely won’t return to normal levels until 2014, and then only if housing prices rebound and foreclosures drop sharply, research from the San Francisco Federal Reserve Bank showed.

Continued weakness in the housing market is dragging on the U.S. economy, which is losing ground under the weight of 9.2 percent unemployment and declining consumer confidence.

A report on Friday is expected to show the U.S. economy expanded at a 1.8 percent clip in the April-to-June period, below the first quarter’s tepid 1.9 percent rate.

Research released Monday by William Hedberg, a San Francisco Fed research associate, and John Krainer, a senior economist there, indicate the drag from housing is likely to continue for years.

"Our analysis suggests that even an unusually strong period of real house price appreciation would not, on its own, lift starts to long-run average levels," the researchers wrote in the regional Fed bank’s latest Economic Letter. "A significant easing of the drag on housing stemming from the inventory of foreclosed homes is also needed."

Foreclosures would need to drop by 50,000 homes per quarter starting in 2012, the researchers found, and home prices would need to stop falling by 2013 and then begin to rise, for housing starts to return to pre-2004 levels by 2014.

Source: reuters.com

US In A State of On-Going Default For Decades

The United State's ability to service its debts in constant dollars was lost a long time ago. The use of currency devaluation (commonly known as inflation) as a means of servicing this debt have created a form of on-going default in the US since the early 70's. Try to remember that as the debt ceiling debate and economic solutions emerging from it reach frenzied levels this week.

Smart money, Jim Rogers included, has been shorting bonds into strength for months. The trick to shorting bonds is patience and short-side concentration. Late July will mark another round of it.

US Treasury Bond 20YR+ (TLT) And Bond Diffusion Index (DI)


Jim Rogers: The U.S. Already Has Lost AAA Rating

“Everyone already knows that the U.S. has lost its AAA status,” Rogers said. “Anyone who knows what is going on, already knows that the U.S. is now the biggest debtor nation in the history of the world. It’s only S&P and Moody’s that haven’t figured out what is going on. The investment world knows that the U.S. is not AAA.”

Rogers also called the current debt negotiations in Washington a political “charade.”

“I don’t expect them to have real spending cuts. They have been talking about this for 40 years, talking about how they are going to solve the problem of the deficit. Remember the Grace Commission? Remember the Gramm-Rudman act? The Gramm-Rudman act said we couldn’t have deficit spending 25 years ago. They forgot about that.”

Source: blogs.wsj.com

Food Costs Rising as Coke, Chipotle Pass on Commodity Gains

It's nothing that the CPI's statistical techniques (geometric smoothing, hedonics, or substitution) can't easily fix, right? Rising "foodstuffs" inflation is no transitory phenomenon.

People are starting to get squeezed.

CRBFoodstuffs And Year-over-Year (YOY) Change


While many experts are screaming top, they fail to notice that foodstuffs have plenty of room to catch up with commodities as a whole.

Gold and CRBFood to CRBSpot Ratio



Headline: Food Costs Rising as Coke, Chipotle Pass on Commodity Gains

Food prices in the U.S. may be rising faster than the government forecast as companies including Coca-Cola Co., Safeway Inc. and Chipotle Mexican Grill Inc. pass higher commodity costs on to consumers.

Rallies in meat, grain and dairy products since February may mean the increase in food costs will surpass the 3 percent to 4 percent that the U.S. Department of Agriculture predicts, said Christopher Hurt, an agricultural economist at Purdue University in West Lafayette, Indiana. The USDA today left its forecast for this year’s gains unchanged and said 2012 prices will increase 2.5 to 3.5 percent.

“Food inflation will continue to increase through this summer to this fall,” Hurt said July 19 in a speech in Washington. “We can’t replenish supplies until a new crop comes in, and that puts a lot of basic pressure on food prices.”

Source: bloomberg.com

CFNAI Confirms Equity Up Trend

Negative divergences in the Chicago Fed National Activity Index (CFNAI) relative to equity prices suggest a "tired" trend. Tired trends tend to break down quickly. The equity setup is bullish as long as CFNAI confirms the up trend. That's the message right now.

Chicago Fed National Activity Index (CFNAI) and S&P 500 Average

Crop, herd stress continues to mount

Large sections of the corn belt desperately need rain. Stimulus and quantitative easing programs can't stop weather cycles.

Headline: Crop, herd stress continues to mount

Though temperatures have finally slipped back into the double digits in much of the Corn Belt, it's still hot and dry. Farmers are starting to take stock of the damage their crops and livestock have incurred over the last couple of weeks and their prospects moving forward.

Farmers in the Corn Belt's bookend areas are reporting thhttp://www.blogger.com/img/blank.gife most dire conditions. Reports from eastern Kansas and Michigan, for example, show that while the central Corn Belt region may be in better shape, it's not like that all over.

"It's tough to say what corn yield will be like around here just yet. A nice rain could change things quickly but we are running out of time. If we don't get a rain very soon there wont be much to harvest," says Agriculture.com Marketing Talk member Blacksandfarmer, who farms in southern Michigan. "Corn is starting to stay curled during the night which is usually the beginning of the end."

Source: agriculture.com

Money Flows in Japan, Inc Illustrate Caution

The game of endless global bond issuance continues without interruption.

Armstrong's observation that we print bonds – not money is correct. What you should be asking is how long will markets allow central governments to print bonds? Japan plans to add $128 billion in reconstruction bonds to an already large debt burden. Bearish money flows in the Japanese Yen, also known as Japan, Inc, implies a negative response to this plan.

Smart traders await a negative technical trigger.

Japanese Yen (FXY) and Yen Diffusion Index (DI)

Headline: Japan plans $128 bln in reconstruction bonds: Nikkei

The Japanese government plans to issue 10 trillion yen ($128 billion) in reconstruction bonds and cut spending by 3 trillion yen to pay for more projects to rebuild the devastated northeast, the Nikkei business daily reported on Sunday.

Investors are counting on reconstruction spending to help the world's third-largest economy pull out from a slump caused by a massive earthquake and tsunami in March and to resume moderate growth in the third quarter.

A government source told Reuters last week it was planning additional spending of 13 trillion yen for reconstruction projects, on top of a combined 6 trillion yen already set aside in two extra budgets.

The source had said the government was considering issuing special bonds, scaling back other spending plans and selling national assets. The Ministry of Finance was planning on five-year bonds, with the government considering raising taxes to repay them, according to the source.

Source: reuters.com

Paper Operations Leave Distinctive Footprints

Money flow setups around important cycle dates reveal the differences between short-term trading noise and paper operations - i.e. pushes from the invisible hand. Money flow setups in gold and silver have yet to suggest the early stages of a paper operation.

Gold London P.M Fixed and Gold Diffusion Index (DI):


Silver London P.M Fixed and the Silver Diffusion Index (DI):


The extremely quiet bullish setup in the Euro confirms the potential for further upside in precious metals.

Euro (FXE) And Euro Diffusion Index (DI)

In response to Silver Is A Tough Game

Hear hear.

Next week being expiry week, I'm sure the PMs are going to get
flushed. Aside from 1300 yielding relatively easily in gold, every
other hundred dollar round number has taken at least 6-10 crossings on
the daily chart before giving way to the upside. I expect 1600 to put
up a similar fight... Here comes the conclusion of round 1!

Plus, I like how they pre-etched 1610 in the chart a few hours before
the big raid this week. It's like they were digging a trench behind
the front line before starting the battle. Man, they're good.

I didn't like the bombing news in Norway, though. The timing is too
perfect to take the heat off of the debt crises. If they get
desperate enough, maybe they could start a war to cause a rush to
liquidity. Maybe this is why everyone is holding cash right now...

Great work as usual.

Fred

No Coffee Break Yet

While coffee remains in technical consolidation, smart money continues to accumulate it on weakness.

Coffee - Continuous


Headline: Coffee prices to remain high, Euromonitor

A delay in global harvests will contribute to lingering high coffee prices as the market struggles to bounce back from soaring costs earlier this year, according to Euromonitor.

Brazil, the world's largest overall coffee producer, is expected to see the largest off-year crop on record in 2011, though the full effect on supply will likely not be felt until the 2012/13 harvest, said Euromonitor analyst Brian Morgan.

34-year highs

In early May 2011, Arabica coffee prices hit a 34-year high, due to several factors such as increased global demand, higher oil prices, and adverse weather patterns in various parts of the world which led to lower than average coffee yields.

Colombia, the world's larger producer of Arabica coffee, is still recovering from a 2009 crop year that saw the smallest harvest in over three decades, said Morgan.

According to the International Coffee Organization (ICO), the 2010/11 crop year began with coffee stocks at the lowest levels seen since ICO began taking records in 1965.

Total coffee prices began to fall around May and were down five per cent in June, but are still up from the same period in 2010 and are likely to remain well above US$1 per pound until depleted stocks are rebuilt, said the analyst.

Source: beveragedaily.com

Silver Is A Tough Game

The practice of "beating the grass to startle the snakes" works both ways. That is, headlines not only sell fear but also greed. The market is saying that the easier entry point as defined long-side statistical concentration within a secular bull market has passed – nothing more.

Silver is a tough game because it demands buying fear and selling/holding greed.

Silver London P.M Fixed and the Silver Diffusion Index (DI)


Headline: Silver May Rebound to Test $100 Level, Citigroup Says: Technical Analysis

Silver may more than double to $100 an ounce if the current bull market follows similar patterns seen between 1971 and 1980, according to technical analysis by Citigroup Global Markets Inc.

The attached chart shows spot silver had “two legs up” with an interim corrective move down in the last major bull market from November 1971 through January 1980, Citigroup analysts led by New York-based Tom Fitzpatrick wrote in a report. In the current uptrend that started in November 2001, the metal jumped 5.8 times through March 2008 before slipping 60 percent, they said. The price then rebounded and tested the 1980 high earlier this year, they said.

Source: bloomberg.com

Excellence Is Not An Act It's A Habit

Excellence is not an act it's a habit, Quincy Jones.

When I heard this one, I said to myself, "Quincy you're a dangerous competitor." Good habits require training of the mind, body, spirit, and the discipline to use it. Excellence is not a random act, it's a habit. Quincy Jones reminds a world increasing defined by flash and diarrhea of the mouth what it means to be a master.



Source: cnbc.com

Play of the day! Selfless young fan returns ball to upset boy

Perhaps Wall Street could learn something here.

There's hope for America's future yet!

In one of the most heartwarming scenes you'll ever see, a young Arizona Diamondbacks fan named Ian made Wednesday's play of the day at Chase Field after an even younger fan named Nicholas missed a ball thrown his way by Milwaukee Brewers second baseman Rickie Weeks(notes).

Though the dropped ball was instead handed to Ian by another person, he immediately recognized what he had to do after seeing Nicholas in a distraught state after botching an attempt at a souvenir. With an amazed audience looking on, Ian marched back down the stairs and graciously handed the baseball over to Nicholas, a Brewers fan, without any prodding from anyone else.

Source: sports.yahoo.com

Sean Boyd - Expect $2,200 to $2,400 Gold & $60 to $75 Silver

Gold leads, gold stocks follow with a dividend kicker.

Gold and Gold Stocks Side by Side Comparison

When asked about the mining shares specifically Boyd remarked, “I absolutely agree that the equities relative to gold are undervalued, I think that’s clear, that’s just a fact! If you look at where the equities are trading, they are at the low end of the historical range of values. We’ve had periods over the years where gold tends to lead, then the equities regain leadership. The equities have not regained that leadership over the last couple of years.

Source: kingworldnews.com

Debt And "Keep Digging" Solution

Debt dug the hole in which many from the private and public sector reside. Wait, it gets worse. The solution to the ‘debt hole’ is keep digging for far too many.

It's important to note that the "keep digging" debt solution may have hit a brick wall in America. Consumer and credit card loan growth have been contracting sharply since April 2011. This sharp about face suggests either improving economic conditions or capitulation in terms of using revolving debt keeping up with expenses. The message of the market will likely confirm the latter.

Consumer and Credit Card Loans Loans Year-over-Year Change For All Commercial Banks


Consumers in U.S. Relying on Credit as Inflation Erodes Incomes

Consumers in the U.S. are increasingly using credit cards to pay for basic necessities as income gains fail to keep pace with rising food and fuel prices.

The dollar volume of purchases charged grew 10.7 percent in June from a year ago, while the number of transactions rose 6.8 percent, according to First Data Corp.’s SpendTrend report issued this month. The difference probably represents the increasing cost of gasoline, said Silvio Tavares, senior vice president at First Data, the largest credit card processor.

Source: bloomberg.com

Controlled Steps

The loss of upward momentum in the stocks to gold stocks ratio suggests another down step is coming. Gold stocks will outperform equities once the power up trend breaks.

U.S. Large Cap Stocks Capital Appreciation Index (LCSCAI); S&P 500 to S&P Gold Ratio (GPM)*:
* S&P Gold from 1945, Barron's Gold Stock Index from 1939-1945, Homestake Mining

China urges U.S. to boost confidence in debt, dollar

Washington has already defaulted on its debt when it could no longer pay its bills in constant dollars in 1971. The debt ceiling debate is little more than headline drama at this point.

As Jim suggested yesterday, the vicious cycle that started in 2008 cannot be reversed by raising the debt ceiling. Debt cannot be both the cause and solution to the problem. Recent price action in the gold and silver suggests that capital understands this point.

China pressed the United States to take "responsible" measures to boost market confidence in the dollar and U.S. government debt on Wednesday, underscoring investor worries that Washington could default on its debt.

The urging from China's currency regulator came as U.S. leaders tried to hammer out an 11th-hour deal to raise a $14.3 trillion debt ceiling for the United States before it runs out of money to cover all its bills on August 2.

Source: reuters.com

Raising The Debt Ceiling Does Not Fix The Problem

If a hope over reality bounce materializes in the bond market, statistical concentration of money flows should setup yet another short entry.

Dear Friends,

The idea that an increase in the debt ceiling is a solution to anything is nonsense. The event would be simply a can kick forward for a very short period of time. Increasing debt is not a solution to a debt problem. It actually makes the problem worse It is an act of extending your Federal credit card borrowing line so you can use it to pay your mortgage.

Calling increasing the debt ceiling a solution to a debt problem is too stupid to be stupid. The unwind is deeply entrenched since the failure of OTC derivatives in 2008. There has been no meaningful intervention in this economic downward spiral at the level of the cause. The downward spiral therefore continues unabated.

All downward spirals go to zero unless an intervention takes place at the level of the cause of the problem in the first place. OTC derivatives are what turned a four year correction into the greatest economic accident in human history.

OTC derivatives only go one way in size and that is up. Changing the way nominal value is determined does not solve the problem. All that does is add camouflage to the problem. It does not solve it.

$1600 in gold is simply another round number which will create drama, but no opposition to the increasing price.

Nothing additional is required for a higher price of gold. The damage is done. The debt of the entire Western world is beyond out of hand. The so called solution, just like raising the debt ceiling, will be acts of kicking the can down the road.

We have come to the end of the road. The result of no financial discipline anywhere in the Western world is unfolding.

Gold will challenge $1764 where a hyperbolic price appreciation will start.

Respectfully,
Jim

How to make sense of the gold-to-silver ratio

The gold to silver ratio (GSR) measures the relative money flow between gold and silver. Specifically, GSR tracks acceleration/deceleration of liquidity entering the financial system. Mathematicians would call it the second derivative of the liquidity function. I know it as the balance between injection (euphoria) and hemorrhage (fear) phases.

Gold to Silver Ratio (GSR), Monthly Average Price:


Headline: How to make sense of the gold-to-silver ratio

“Some traders look at the gold-silver ratio as a way to determine if one commodity is over or undervalued relative to [the] other,” said Paul Simon, chief investment officer at Tactical Allocation Group.

“This can open up statistical-arbitrage opportunities, where a trader may try shorting the overvalued commodity and buying the undervalued commodity, with the hope of profiting from the reversion to the mean,” he said.

Source: marketwatch.com

Recognize And Follow

Recognize and follow the leader. While headlines tend to focus on large cap performance, they miss the fact that little brother small caps have been quiet leader of stocks since 2009. Historical trends clearly illustrate their out performance during periods of aggressive currency devaluation.

Small Cap Stocks Total Return Index (SCSTRI) and Z Scores of Secular Trends


Small caps leading since 2009.

U.S. Large Cap Stocks Total Return Index (LCSTRI) to U.S. Small Cap Total Return Index (SCSTRI) Ratio


Small caps lead during periods of currency devaluation.

Small Cap Total Return Index (SCSTRI) AND SCSTRI to Gold Ratio

What's the Warning? Follow the Money

Today's stock market's rally, a topic discussed numerous times, should provide a clue as to the nature of the warning suggested the spike in cash asset at commercial banks.

Spike In Cash Assets Screams Warning!

Don't let complexity of analysis obscure the simple messages. A break down of bank credit at commercial banks reflects lackluster business loan creation, a struggling real estate market, a slow decay in consumer spending, a surprising scramble to hold cash assets. The scramble to hold cash assets in excess of the 1980-1981 and 2008 crisis levels screams WARNING.

Break down of Bank Credit at Commercial Banks


Cash Assets 12-Month Change (CASH12LN) And Percentage of Total Bank Credit (%TBC)

Consumption Bubble Has Yet To Break

Pulled from comments below

"The old consumer economy is gone, and it's not coming back," writes Leonhardt.

My response is not quite. While the consumer bubble is showing signs of fundamental strain, it has yet to break. Personal consumption expenditures as a percentage of GDP rose to 71.1%. This is a historical high.

The central planners know that any reduction in personal consumption, which is only a matter of time during the Great Recession, will have serious economic consequences. Count the number of policies directed towards protecting consumption since 2001. The central planners are trying desperately trying to kick the can down the road, because they understand the consequences of not doing so.

Personal Consumption Expenditures (PCE) As A %GDP and Personal Consumption Expenditures As A %GDP Average from 1947


Except from Richard Russell's Dow Theory Letters

"The auto industry is on pace to sell 28% fewer new vehicles this year than it did 10 years ago -- and ten years ago was 2001, when the country was in recession. Sales of ovens and stoves are on pace to be at their lowest level since 1992. Home sales over the past year have fallen back to their lowest point since the crisis began. And big-ticket items are hardly the only problem"

Wait a moment. Doesn't this sound a lot like A. Gary Shilling? We're just "spent up." Too damn much debt and not enough savings. "The old consumer economy is gone, and it's not coming back," writes Leonhardt. In a series of graphs, Leonhardt shows the drop in spending on discretionary services. During previous recessions, discretionary services dropped between 0.9% and 3.4%. But from 2007 to the present, discretionary services (so far) have plunged 6.9%.

Writes Leonhardt, "Sure, house and car sales will eventually surpass their old highs, as the economy slowly recovers and population continues expanding. But consumer spending will not soon return to the growth rates of the 1980s and '90s. They depended on income people didn't have."

Welcome to the Great Recession (Jungle)

Welcome To The Jungle defined by excessive debt, endless quantitative easing, and lower standard of livings.

Civilian Unemployment Rate

Headline: Cisco to cut workforce by 11,500

Cisco Systems (CSCO.O) plans to cut its workforce by 11,500 employees as part of its plan to cut annual expenses by $1 billion and revive its business.

Cisco said on Monday that it would cut 6,500 employees. Of those, 2,100 employees will take early retirement.

The company also plans to sell its manufacturing facility in Juarez, Mexico, to Foxconn (2354.TW) and transfer 5,000 employees to the contract manufacturing company as part of the deal.

Source: reuters.com

Headline: Borders, unable to find white knight, to liquidate

Borders Group Inc (BGPIQ.PK), the second-largest U.S. bookstore chain, said it has canceled an upcoming bankruptcy auction and will close its doors for good.

The company said in a statement Monday it was unable to find a buyer willing to keep it in operation and will sell itself to a group of liquidators led by Hilco Merchant Resources.

Borders' roughly 400 remaining stores will close, and nearly 11,000 jobs will be lost, according to the company.

"We are saddened by this development," Borders President Mike Edwards said in the statement. "We were all working hard towards a different outcome, but the headwinds we have been facing for quite some time ... have brought us to where we are now."

Source: reuters.com

Source: dailyjobcuts

Mastering the Machine

The apprentice must learn from the masters in order to become one. Talking heads rehashing standardize rhetoric are irrelevant in this game. Major cycle dates are found between 2014 and 2015.

Rather than confronting these issues, Dalio, like all successful predators, is concentrating on the business at hand—the markets and the global economic outlook. This spring, he told me that economic growth in the United States and Europe was set to slow again. This was partly because some emergency policy measures, such as the Obama Administration’s stimulus package, would soon come to an end; partly because of the chronic indebtedness that continues to weigh on these regions; and partly because China and other developing countries would be forced to take drastic policy actions to bring down inflation. Now that the slowdown appears to have arrived, Dalio thinks it will be prolonged. “We are still in a deleveraging period,” he said. “We will be in a deleveraging period for ten years or more.”

Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said. The recent deal to avoid an immediate debt default by Greece didn’t alter his pessimistic view. “People concentrate on the particular thing of the moment, and they forget the larger underlying forces,” he said. “That’s what got us into the debt crisis. It’s just today, today.”

Dalio’s assessment sounded alarmingly plausible. But when one plays the global financial markets a thorough economic analysis is only the first stage of the game. At least as important is getting the timing right. I asked Dalio when all this would start to come together. “I think late 2012 or early 2013 is going to be another very difficult period,” he said.

Source: newyorker.com

Stating The Obvious

The obvious passing as news never ceases to amaze me.

Headline: Default 'Off the Table,' Debt Deal Will Be Struck: Geithner

Treasury Secretary Tim Geithner told CNBC Monday that he is certain that congressional leaders will strike a deal to raise the federal debt ceiling prior to the Aug. 2 deadline to avoid default.

"Each side has said definitively that default is not an option," he said, "They're not going to play around with this."

"If the United States of America were to default it would be catastrophic for the American economy, for the American financial system, for the average American people, it would be a substantial unfair tax on all Americans and it would bring the world economy ... to the edge of recession again," he said. "There's no alternative for Congress raising the debt limit and that's why you're seeing Republicans as well recognize that reality and take default off the table."

He added that while it's encouraging that congressional leaders are moving toward a debt agreement before the deadline, "of course it's not enough."

Source: finance.yahoo.com

Central Banks' First-Half Gold Buying Surpasses 2010 Total

Many within gold community assume that central banker hate gold. Their actions prove otherwise.

Central banks have bought more gold in the first half of this year than in all of 2010 as a long-anticipated reversal in so-called "official sector" sales gathers pace, a gold group reported on Thursday.

The World Gold Council provided no specific figures, but the rise will be little surprise after the so-called "official sector" became net buyers of bullion last year for the first time in two decades as a means to diversify their dollar holdings, a trend that has aided a long price rally.

Source: cnbc.com

The Size of Debt, Not Process, Creates Uncertainty

How does the statutory limit on government debt create uncertainty? Uncertainty arises from not because of the process but rather the level of debt creation. Debt creation hasn't slowed appreciably since the Carter Administration. The money spigot has been wide open for years across all parties.

This graph below says it all. The debt mountain is huge and growing quickly.

National Debt and Debt Ceiling


Headline: Thirty years of the debt ceiling in one graph

The one caveat to this graph is that the colors on the bar showing control of the House of Representatives look to be reversed. But that doesn’t distract from its main point: “Since 1980, the debt ceiling has been raised 39 times. It was raised 17 times under Ronald Reagan, four times under Bill Clinton and seven times under George W. Bush.”http://www.blogger.com/img/blank.gif

At any given time, the minority party likes to pretend that the debt is all the majority party’s fault. That’s the whole theory behind the McConnell plan. But every president and congress is paying for the decisions of every previous president and congress. This is, and always has been, a bipartisan affair.

Source: washingtonpost.com

Headline: Moody's suggests U.S. eliminate debt ceiling

Ratings agency Moody's on Monday suggested the United States should eliminate its statutory limit on government debt to reduce uncertainty among bond holders.

The United States is one of the few countries where Congress sets a ceiling on government debt, which creates "periodic uncertainty" over the government's ability to meet its obligations, Moody's said in a report.

"We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty," Moody's analyst Steven Hess wrote in the report.

The agency last week warned it would cut the United States' AAA credit rating if the government misses debt payments, increasing pressure on Republicans and the White House to come up with a budget agreement.

Source: finance.yahoo.com

Debt ceiling delay: Gun shot to the economy

The rhetoric over the debt ceiling debate, as Jim likes often characterizes aggressive MOPE, will approach spiritual levels. Ignore it. Watch money flows in the bond and stock market as headlines sell fear to the public. The hope over experience/“wonderful budget news” bond market rally is coming because centralize policy choices always seek the path of least resistance. Money knows it.

No one knows what will happen to the economy if lawmakers fail to reach a debt ceiling deal by Aug. 2.

Except this: It won't be good.

For starters, interest rates could shoot up and stock prices could plummet -- leaving Americans less well off and less willing to spend, to say nothing of having less economic confidence going forward. The same goes for business owners and investors.

On top of that, the federal government won't be able to pay http://www.blogger.com/img/blank.gif44% of its bills worth an estimated $134 billion, according to a Bipartisan Policy Center analysis.

On an annualized basis, that's like cutting spending by $1.6 trillion -- which is nearly all of discretionary spending, including defense. Looked at another way, it's like slashing $33.5 billion a week.

Technically, it wouldn't be a "cut" in spending so much as a postponement. That's because the bills the Treasury Department puts off will have to be paid once the debt ceiling is raised. It is, after all, money owed for goods and services already provided, government benefits already earned or agency funding already appropriated.

Source: finance.yahoo.com

Follow the Money In Gold, Silver and Equities

Remember the steady stream of headlines suggesting the stage was set for another big decline in silver and gold this spring? Let’s not forget that the headlines also repeated “sell in May and go away” trading heuristic for nervous equity investors over the same period. Watch the approaching cycle dates in September.

Gold, London P.M. Fixed (Gold) and Z Scores of Secular Trend


Silver, London P.M. Fixed (Silver) and Z Scores of Secular Trend


Large Cap Stocks Total Return Index (LCSTRI) and Z Scores of Secular Trends


Headline: Gold Rallies to Record in Best Run Since 1980

Gold rose to a record above $1,600 an ounce as debt concerns in Europe and the U.S. boosted demand for the metal as a protection of wealth. Bullion in euros and pounds rose to all-time highs and silver topped $40 an ounce.

President Barack Obama is pressing congressional leaders for a multitrillion-dollar agreement in deficit-cutting talks as negotiators near an Aug. 2 deadline for raising the debt limit. A default would cause more panic than the collapse of Lehman Brothers Holdings Inc. in 2008, former Treasury Secretary Larry Summers told CNN in an interview broadcast yesterday. The euro fell versus the dollar after European Central Bank President Jean-Claude Trichet reiterated his opposition to any restructuring of Greek debt.

Source: finance.yahoo.com

Most state school districts, for now, dodge layoffs, cuts

One time saving provide many school districts with a temporary fix. What happens next year? Money will anticipate and push another QE long before it becomes acceptable political discussion.

Milwaukee Public Schools laid off 519 employees after losing about $80 million in the state's new two-year budget - which dramatically reduces education spending statewide - but most other Wisconsin districts have avoided layoffs and massive cuts to programs.

School districts' ability under Gov. Scott Walker's budget-repair legislation to obtain greater contributions from employees toward health care and retirement costs, and to work outside of collective bargaining agreements, appears to have generated the necessary savings to balance most budgets.

Some districts are even hiring new teachers for the 2011-'12 academic year.

Critics say that a good financial picture now for schools will be short-lived, and that most districts will nose-dive next year because the recently acquired savings are a one-time fix.

Several school superintendents say that the cuts to education spending could not be completely recouped through greater employee benefit contributions, and that they made the numbers work this year by dipping into reserve funds or leftover stimulus money.

"You can save a heck of a lot of money by asking teachers to contribute more to their health care and pensions," said Tom Beebe, executive director of the Wisconsin Alliance for Excellent Schools. "But for a lot of districts, what they're doing is using federal jobs money they held over, as well as other one-time savings, to be OK in 2012. But what about 2013?"

Source: jsonline.com

Gold to Silver Ratio Remains In Consolidation

Denny,

The gold to silver ratio (GSR) remains in consolidation between 43 and 49. Consolidation could very well mean "chop" until its secular trend, circle blue in the chart below, turns lower.

Gold to Silver Ratio (GSR), Monthly Average Price And Secular Trend:

Looks to me like the metals are about to go up with silver going up faster. I think the ratio is headed for around 26 to 1 but I don't know when or how long it will take....maybe until April/May of next year...I am sort of looking for $2600 gold and $100 silver....some where in that neighborhood. It may take until Jan of 2013. These
markets just seem take a lot longer than people think to evolve. Maybe that is a good thing.

Gold to Silver Ratio:

Chart: stockcharts.com

I always follow what Sprott is doing in Canada because I think they are one of the best investment groups on the planet. Well, they are adding to the gold bullion in their gold bullion Fund....AND the other Sprott Funds themselves are buying $130 million of the new issue which totals about $266 million...so they are taking their big cash positions which are in Canadian TBills and turning them into gold bullion very shortly.

That tells me a lot. It will be interesting if they try to add to their physical silver fund, PHYS, in the days/weeks ahead as I know Sprott thinks silver is the leading investment for the next decade.

Denny

Is Gold Money?

Centralized mismanagement creates financial, economic, and social turmoil. These forms of turmoil, both realized and potential, are driving the price of gold higher today.

Gold has always been a rare and valuable commodity. Will gold as money prevent the next financial crisis? History clearly says no. Gold or gold backed currencies (i.e. the gold standard) cannot prevent excessive debt creation and loss of confidence that arises from centralized mismanagement.

Be realistic and prepared.

Bernanke to Paul - "Gold isn't money"

Fade The Wonderful Budget News Bond Rally

Rogers has an excellent feel for the markets. Money has already begun repositioning for the "wonderful budget news" bond rally. Smart money knows better and will be fading it.

US Treasury Bond 20YR+ (TLT) And US Treasury Bond Diffusion Index (DI)


Video: Rogers Holdings Chairman Jim Rogers discusses whether the U.S. will default on its debt and how to invest in this volatile market.

If there is some news on the budget, the bond market might rally, but it’s a false rally. 1:30

Source: jimrogers-investments

Exhale follows Inhale In Silver Market

Inhale (accumulation) turns to exhale (distribution) in the silver market. The durations of accumulation and distribution periods are not symmetrical. Open interest continues to increase after each accumulation phase. The process of matching increasing speculative demand with paper supply, i.e. controlling the trend, takes time. Distribution periods, therefore, tend to be longer.

Silver London P.M Fixed and the Silver Diffusion Index (DI)


Inhale (accumulation) turns to exhale (distribution) in the silver market. The durations of accumulation and distribution periods are not symmetrical. Open interest, the number of outstanding contracts (long and short) continues to increase after each up phase. The process of matching paper supply with demand, i.e. controlling the trend, takes time. Distribution periods, therefore, tend to be longer.

The steady rise in open interest from a statistically extreme reading reflects is characteristic of trend control within a distribution phase.

Silver London P.M Fixed and the COT Futures and Options Open Interest Stochastic Weighted Average

Short-Term Distribution Within Long-Term Accumulation Until Trend Signature Changes

Distribution and accumulation are difficult to judge within any trend. The force within and behind a trend is relative and cumulative. For example, the distribution as described by Richard Russell can look ominous, but it must be framed against not only against the short- but also long-term trend. What seems like a lot of distribution days over the short term could be comparable to a spectator of a knife fight obsessing harsh language.

What investors should be asking, does the short-term “distribution clusters” alter the energy signature behind the trend? REV(E), a measure of trend energy, answers this question. REV(E) reveals that the recent spate of distribution clusters have not altered the accumulation signature within the trend. In other words, as long as REV(E) leads and positively diverges with price, it suggests a continuation of the nominal bull market that started in 2009.

NYSE Composite Average and Trend Energy

From Richard Russell's Dow Theory Letters,

Stock Market -- Older subscribers may remember "Distribution days/". These are the days when the market declines on higher volume than the preceding day. Distribution days are usually described as days where the big money and institutional money is selling.

Distribution days are calculated in series of ten trading sessions. For the record, over the last two weeks we have had six distribution days on the NYSE, 5 for the S&P 500, and 3 for the NASDAQ. (Russell comment -- That's a lot of distribution days).

Bullish Concentration In Platinum, Coffee, Wheat, and Lumber

There’s strong inflows in platinum, coffee, wheat, and lumber. Money flows are extremely concentrated in platinum for the second week in a row. The table also shows persistent multiple week inflows into coffee, wheat, and lumber. Once money flows are concentrated, a technical trigger often sparks the rally.

COT Money Flow Table