Monday, October 20, 2014

Oct 24 Another person, Rickards, is warning that most people only hold paper IOU’s on gold, ETF’s, and stock IOUs (not the actual stocks). People have GLD (an ETF not the metal), or another ETF (a bank IOU indexed to an average of some selected stocks), or derivatives (paper certificates that monetize risky mortgages or other debt). It is quite probable that there many more paper backed promises than there are real assets. After all people who give lots of IOUs usually have to declare bankruptcy. Detroit is an example of a city that sold far more IOU debt than they ever seriously intended to pay back. And QE is a perfect example of the stupidity of Hedge Funds and other Asset Managers who are foolishly buying near worthless Obama national debt that gives virtually zero interest rate for virtually infinite probability of default.

 
Oct 22 
I think I now know how America’s current economic pyramid system works but it would take many pages to fully explain.  In one sentence: we now have a proxy ownership derivative pyramid system in which selling is inhibited and buying is leveraged so that sellers are punished until the system implodes.     Since there are so few who normally sell, the sellers are punished with losses and continually depleted.  You can only buy ETF’s, you cannot short them so you must either be confidently bullish on competence or confidently bullish on incompetence.  And in a market that moves in both directions, if you are a buy and hold  ETF investor the ETFs will with absolute certainty destroy you within one complete economic cycle.
When this bubble pops we will see some proxy systems like ETF’s collapse.  It could take down many hedge funds and brokers as well.  The economy appears to be tanking… but if you listen to the politicians and proxy market makers you may have acquired an impression that the American Economy has getting better.  Construction spending on commercial and rental property appears to have peaked.  Construction companies reported earnings peaking.  But look closely… it is only at the same level it was in 2004!   Imagine how stupid our government is to think we can’t find out the truth about our leftist Obama Government incompetence.  Obama continues to lie and say the Moslems are not responsible for Islamic terrorism.  And while Obama thinks Moslems in the USA should be allowed to practice Sharia law and beat their disobedient women and children, Obama says Catholic Hospitals should provide contraceptives and all American tax payers must pay for them because otherwise the Catholics are engaged in a war on women.  
 
And retail sales have been edging down since 2011 and are at the levels of 2008 before Obama. 
 
Housing permits and starts appear to be peaking at the level first seen when Clinton was president almost two decades ago.  That is horrible!
 
New home sales have drifted down 66% since Obama took office.  The reason for the big % gains they tell us all the time is because Obama took us down to about a third of what we had before the Democrats in Congress introduced Fannie and Freddie to facilitate their corrupt Liar Loans that were supposed to give home ownership to the poor.  Instead they tripled the number of Americans in poverty.  That is why Americans need to sweep them all out of office and sweep out all their corrupt wealthy contributors who do the work for this corrupt administration.
 
The Case-Shiller House Price Index has hesitated at a level still 14% below what it was when Obama was elected yet the pyramid champions say it is time to buy more.  On a national average housing prices are what they were nine years ago, three years before Obama’s inauguration to when leftist liar loans were given so “poor people” could own an Obama-Dodd-Frank home without the means to pay their mortgage.  That bankrupt leftist idea caused the longest recession since the Great Depression because crooks sold liar loan derivatives as investments.  Those same crooks contributed heavily to the leftist negative campaigns against and Gestapo-like investigations of decent Americans by the Attorney General, the IRS and other government agencies.  Every potential Republican presidential candidate is investigated by the Obama administration and smeared paid for with our taxes.
 
Labor productivity has dropped the most since 2008 near when we got the last major early warning bear market sell signal.
 
Oct 22  The quality of Yahoo stock graphics seems to have recently deteriorated, and the compare option with the DOW, SP, and Nasdaq is gone today.   Today it looks very much like it did October 2007.   Our proprietary Market Cash Flow index shows the head and shoulders sell signal is complete while the price confirmation of the second shoulder breakdown has to wait for the current price rally to end.  The current 10 year NYSE plot shows the last bull market ended around October 1, 2007 just after Obama was nominated just over seven years ago Yet most people say the economy tanked in 2008 the day after Obama was elected and hit bottom when Obama took office.  All that must be a coincidence.  The point is that the stock market became bearish in 2007 a full year before the banks went critical because the collapse in demand for stocks caused huge losses and margin calls just as is beginning now.  And in 2007, just as now, there were no cash rich bears to buy into the forced selling of the Bulls.  Again the point we are making is that the cash flow indicators have shown that the cash flow tide has just started to go out as it did in October of 2007   As the tide goes out a lot of dead fish and sea weed is left behind and the beach begins to reek with what looks like carnage.  But it took almost a year of stock carnage for the banks to begin to fail and for the credit markets to freeze up.
  
Oct 20   Is the housing market falling apart again?  The US housing market certainly remains sluggish, at least at the national level.   In terms of yearly comps, June 2014 is still behind June 2013, with inventory growing.  Confidence among U.S. home builders took a sharp downturn, reported CNBC's Diana Olick. Home builder sentiment in October is down five points.   While still in the positive range, builder sentiment fell 5 points (9%) to a level of 54 on the National Association of Home Builders/Wells Fargo Housing Market Index. Fifty is the line between positive and negative on the index. This reverses four straight months of gains.  There is now a ten months supply of unsold houses.  Houses that were vacant for five years due to bankruptcy now often take another two years to sell.  Houses in small towns put on the market in spring are often sold by winter but about 25% lower than their cost to the recent owner.  Boston however still sells well and has recovered all the Obama recession losses (but it is a lost 6 years).
Millions of homeowners are already seriously delinquent paying mortgages. “The average length of time that houses remain delinquent nationwide is 995 days,” Keith Jurow says. “The worst culprit is New York State. The average mortgage delinquency period there is four years.” 
 
World Economy
Oct 20  Four things to watch for in the Chinese economy.
http://blogs.ft.com/beyond-brics/2014/10/20/four-things-to-watch-for-in-chinas-economic-data/  
 
China’s growth for this year is now at best going to be about 4%.  Vast losses from a housing binge and widespread government corruption have yet to be settled.  An anti-corruption crackdown in China, spearheaded by President Xi Jinping, has prompted a rash of suicides amongst Party officials who will face disgrace and harsh prison work camps.
Bloomberg said,” When markets are buckling and volatility is signaling a crisis, you sell what you can, not what you want. “  That’s what happened last week on world markets, where slowing economic growth, Ebola angst, Islamic terrorist beheadings and rapes of abducted African children, and escalating hostility of ISIS and Russia caused a stock market reality check.   The market then recovered a little because Bloomberg concluded, “Loath to find out what their record holdings of corporate bonds and leveraged loans were worth as liquidity thinned and markets slid, professional traders turned to stocks and Treasuries to defuse risk.” 
 
American Economy
Oct 17 
Building Permits a sign of the future, Sep 1018K down 1% from the 1030K forecast.
Oct 22
MBA Mortgage Index 10/18 11.6% finally recovered to its 2013 level but closer to the 2013 level after declining this year.
CPI Sep 0.1% -up from -0.2%  due to lower oil prices dropping less
Core CPI Sep 0.1% up from 0.0%  core at about 0.1%
Oct 23
Initial Claims 10/18 283K up from 264K --
FHFA Housing Price Index Aug 0.5% up from 0.2% +
Oct 24
New Home Sales Sep 467K down from 504K-
 
The Markets
Oct 24   The S and P has the head and shoulder formation almost complete with the neckline descending indicating that it will likely give a sell signal soon with descending rallies.
 
Oct 23   The early warning sell signal is in place.  It  may drift down slowly a full year before the full rapid capitulation occurs.  One of the next signs will be in more of the  broader indices failing to set new highs as the NYSE  and our market cash flow MCF index failed this past time.  There is still the possibility that the signal could turn positive again if genuine economic growth started.  But the Obama “Great Stagnation” is still replacing full time jobs with part time jobs and turning colleges into baby sitting institutions to keep the young people from protesting the lack of real jobs.
 
Another market timer says only when the uptrend in New Highs-New Lows was broken, would a bear market risk become a realization. As of October 15, that trend was unambiguously broken.  The broken trend line is not a short-term concern. Indeed, such extremes in New Highs-Lows often come near short-term lows.   It can be a panic or a washout.  This time it was a panic.  But when this bear market ends there will be a capitulation.  But the concern has longer-term ramifications. In September 2001 and July 2007, this trend break preceded the two serious cyclical bear markets.  It could be a trigger mechanism but it must happen during a period of high levered risk taking as we have today.  He says that while the market is undoubtedly washed out here in the short-term and will likely form an intermediate-term low within days or weeks, the longer-term cyclical bull has now been dealt a staggering blow.  See:
 
Oct 22    We believe the year end rally will officially have started if we get indications of a future Republican House and Senate as we got with Bill Clinton, and if President Obama supports the welfare and tax reforms that will come like Clinton did for those introduced by Newt Gingrich and the Republican Congress in 2004.  But Obama is no Clinton, and the bear market will resume early next year until the market believes a new American free enterprise supporting US President will replace Islamic sympathizing socialists in government.  But if this November election produces more of the same type of representation we have today or if  Harry Reed is still running the Senate or even if Harry  is finished but Obama still does not immediately respond like Clinton did, we expect the bear market will continue next Spring.  The stock market currently predicts Obama will be no Clinton and a clean sweep of government will be needed in 2016 to right the American economy.
 
Oct 20   The bear market is still in place and small rallies can be expected.  All the major stock market indices have given sell signals as of Oct 15.   Early in the business cycle and a bull market a 10% decline is a harmless correction.  But later in the cycle the volume of new buying is small and the problem is that there is no underlying support.  Initially the more optimistic holders have the ability to use margin loans and leverage to buy more.  .  Leverage boosts profit margin so it is good while the prices are rising.  But they eventually lose the ability to buy more and at the end of the bull market many investors realize it is time to take the profits and wait and look for less risky investments.  Within a year of the start of a bear market the stock prices typically have fallen 50% to 60%.  3X Bullish ETF traders typically lose 90% or more if they hold on.  So basically it becomes a mad rush to the exit.   After that period of months is when the wise investors buy good company stock at bargain prices.
Our Market Cash Flow Index (MCF) gave a head and a lower second shoulder early warning bear market sell indication last month and a trend line breakdown sell signal Oct 9.   The was no capitulation upward spike sell signal at this past market top but a downward momentum cash flow sell signal occurred on Oct 15.  Some investors confused that momentum sell signal with a capitulation buy signal which we have not had yet.  The volumes on upward and downward capitulations are typically two to three times higher than what we experienced last week.  That downside higher volume last week was confirmation that the bear is now very much alive.  We expect some upward spikes on good news especially after election day when we expect to see a light at the end of this administration tunnel.  This bear market could end before November 2016 if it becomes evident that a competent President will be elected.
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