Friday, August 5, 2011

How The Debt Ceiling Will Work

Great flow chart in the link below from the New York Times that reviews and summarizes the week's first big news which seems like a lifetime ago.

The most important point: $21 billion cut in 2012 from our $3.7 trillion in annual spending.

This can be thought of visually as a tiny drop in the ocean.

Everything else is spread out into the "future" in cuts and tax increase that will never come.


For ean even better visual the graph below shows spending over the next ten years (red lines) against the proposed cuts (blue lines). 

The ECB Announces The Final QE

The most important piece of financial news in over 2 years was just released.

The European Central Bank (their version of the Federal Reserve) is prepared to buy Italian and Spanish bonds in the open market.  That means they will print money to purchase the toxic debt.

The headlines are vague at this point but there are discussions to increase the size of the European bail out fund (their version of TARP) to over $3.5 trillion in size!

The solvent European countries (Germany and France) do not have the ability to fund a bail out of that size, so the key piece to the puzzle was the European Central Bank which finally relented this afternoon.  The bail out can now be unlimited in size as long as the ECB is willing to continue to print money to purchase the debt.

We are now locked and loaded for the final end game.

The developed nations (Japan, the Eurozone, United States, and United Kingdom) which are all bankrupt and issuing subprime debt have their central banks ready and committed to purchase all toxic debt that enters the market.

The ECB was the last bastion of hope, and the worst case scenario which I have discussed for years is now assured.

As the global government debt is erased through the depreciation of the paper currencies of the bankrupt countries, the cost of living will continue to rise for the poor and middle class who will receive no benefit from the banking system's bail out.

Things will ultimately turn violent when the people finally understand how they have been robbed by an unimaginably corrupt global banking system which now has full control of government leadership with record setting campaign contributions every year.

Look for this afternoon's news to be the catalyst for gold's launch to $2,000 and beyond.

Thursday, August 4, 2011

DOW Falls 500 Points

4.31% cliff dive.

The bull climbs up the stairs, and the bear jumps out the window.

There is troubling news coming from Italy after hours, and we have the American jobs report tomorrow morning.

Buckle up.

Global Markets Plunge

The market fell over 400 points (3%) during the afternoon session today, and we still have 2 hours until the market closes. 

European markets went into freefall this morning after Spain announced the cancellation of a government bond auction and Italy priced in a terrible bond auction last night.

Oil closed down about 6% on the day and both gold and silver are taking a serious beating as well.

This is what occurs during panic selling when the market is highly leveraged (borrowing money to purchase stocks).  If it turns down then investors have to sell everything to cover margin calls.

With Japan, Switzerland, and Europe all providing a form of quantitative easing over the past 24 hours, the world now waits for the man known as helicopter to bring us his grand finale.

Wednesday, August 3, 2011

Recession Indicators Triggered

Things have changed in the markets over the past week.  While before it was far more difficult to see the rotting economy beneath the surface, the rotting smell is beginning to bubble up for the world to see.

The first major psychological turning point was the GDP number released last week, which I discussed in GDP Collapses: Future Effect.

On Sunday night the markets received word that the debt ceiling would be raised.  I summed up the charade and how it would end a few weeks back in The Fictional Debt Ceiling.

Enter scene Monday morning, fresh off of news that our leaders have saved us with the debt ceiling compromise, the stock market plunges 266 points. 

A major catalyst for this move was the ISM manufacturing report which came in at 50.9%, falling from 55% in June.  A print below 50 signals that the economy has begun to contract, and it is an excellent recession indicator which can be seen in the shaded areas below.

Another almost flawless indicator of recession is GDP growing at less than 2%.  We have just crossed over the magic line seen in the fantastic long term graph below.  Shaded areas again are periods of recession.

This is just the troubling news from our side of the shore.  The markets are also paying close attention to the European countries who are once again seeing their government debt falling into the abyss.  Italy, the death knell for the union and the the country that many predict will be the next Lehman, has over 400 billion euros ($560 billion) that need to be refinanced through 2012.  This is just rolling paper and does not include new debt needed to keep the oxygen running through the country.

This massive confluence of economic news led the market to fall 8 consecutive days and it was down over 150 points in early afternoon trading today.

Then we got the headline.

Newswires began streaming the quote from the Wall Street Journal who interviewed Federal Reserve president Donald Kohn this afternoon.....

He said he expects the central bank, which holds a policy meeting Aug. 9, to wait and see whether the recovery is really losing steam before taking any action. If that's the case--and inflation is coming down--then he would give "very serious consideration" to a new round of bond purchases.

Also known as QE3.  More money printing.

The markets have turned, for now.  We must wait for the official stamp of approval that the next round of monetary stimulus is on the way. 

Someone forgot to tell gold to wait.  Its rise has been relentless, screaming to new all time record highs every day.  As I'm typing this on Wednesday night, just moments ago, the Bank of Japan (their Federal Reserve) intervened in the currency markets to lower the value of their currency.

It is a race to the bottom.  The first to devalue the paper value of their unpayable debt burden wins.

This month marks the 3 year anniversary for this website.  In August 2008 I recommended loading up your portfolio with gold and silver and making sure you did not sell if the prices sold off in the short term.

Nothing has changed.  Stay the course.

Tuesday, August 2, 2011

Gross: US "Debt Man Walking"

Bill Gross, CEO of the world's largest bond fund PIMCO, spoke with CNN today calling the United States a "debt man walking."

Gross has recently pulled 100% of his trillion dollar bond fund out of United States government debt. 

He has done the math, understands the United States is no different than Greece, and moved his investor's money out of the way before the collapse.

Sunday, July 31, 2011

The Next Big Short

Excellent graphic below showing the government debt ratings around the world.

While America is currently bankrupt, with no possible way to pay back its debt other than with a printing press, it is currently rated AAA+; the highest possible rating.

This unique (and temporary) circumstance provides the greatest short opportunity since subprime housing (when the mortgage bonds were also rated AAA+, only to be downgraded to junk within a few months span) a few years ago.

Meaning get your money out of American stocks, bonds, and real estate, and if you have the patience and courage to ride it out then place your bets against America as well.

It will be important for a small group of Americans that can see what is coming to move themselves out of harms way in order to have capital remaining to begin to rebuild our country after it is destroyed.

(Click For Large Image:)