NO WAY OUT

This is a MUST READ, we came across this article yesterday and encourage anyone interested in the markets to take the time to read this.



By Doug Casey, Casey Research

I really dislike sounding inflammatory. Saying that things are going to go terribly wrong runs a risk of being classed with those who think the world will end in December 2012 because of something Nostradamus or the Bible says, or because that’s what the Mayan calendar predicts.


This is different. In the real world, cause has effect. Nobody has a crystal ball, but a good economist (there are some, though very few, in existence) can definitely pinpoint causes and estimate not only what their immediate and direct effects are likely to be (that’s not hard; a smart kid can usually do that) but the indirect and delayed effects.


In the first half of this year, people were looking at the U.S. economy and seeing that some things were better. Auto sales were up – because of the wasteful Cash for Clunkers program. Home sales were up – because of the $8,000 credit and distressed pricing. Employment was up – partly because of Census hiring, and partly because hundreds of billions have been thrown at the economy. The recovery impresses me as a charade.


Let’s get beyond what the popular media parrots are telling us and attempt to derive some reasonable assumptions about how things really are and where they’re headed.



A Brief Summary of Our Story So Far….


Before we get to where things stand at the moment, let’s briefly look at where we‘ve come from.


That a depression was in the cards has been foreseeable for decades. The distortions cranked into the system in the ‘60s – the era of “guns and butter” spending by the government – resulted in the tumult of the ‘70s. Things could, and one could argue should, have come unglued then. But they didn’t, for a number of reasons that have only become clear in retrospect:


    * Interest rates were allowed to rise to curative levels;
    * The markets were non-manipulated and so, as they became quite depressed, were left to send out real distress signals;
    * The U.S. was still running a trade surplus;
    * The dollar had only come off the gold standard in 1971 and was still relatively sound.


Then, starting with Reagan and Thatcher, the world’s governments started cutting taxes and deregulating. The USSR collapsed peaceably. China, then India, made a shift toward free markets. And on top of it all, the computer revolution got seriously underway. All told, a good formula for recovery and a sound foundation for a boom.


But sadly, taxes, government spending, and deficits soon started heading much higher. Despite the collapse of its only conceivable enemy, U.S. military spending continued to skyrocket. Monetary policy encouraged everyone to take on huge amounts of debt, much more than ever in the past, and everyone soon found they could live way above their means. The stock, real estate, and bond markets got pumped up to ridiculous levels. The main U.S. export became trillions of paper dollars. Worst of all, the U.S. devolved into just another country, undistinguished by anything other than a legacy of a high standard of living.         


The standard of living in the U.S. is now going down for these reasons, and others. But most disturbing to the average American is the falling position of the U.S. relative to the rest of the world. In brief, Americans won’t take kindly to the notion that they can’t continue earning, say, $10-40 an hour, for doing exactly the same thing a Chinese will do for $1-4 an hour.


What’s going to happen is that the Americans’ earnings are going to drop, while those of the Chinese are going to rise, meeting someplace in the middle. Especially when the Chinese works harder, longer, saves his money, and doesn’t burden his employer with all kinds of legacy benefits, topped off with lawsuits. This is a new threat, one that can’t be countered with B-2 bombers. It’s also something as big and as inevitable as a glacier coming down a valley during an Ice Age.


This, along with other problems presented by the business cycle have ushered in the Greater Depression.

READ ON HERE

Prechter: It's The End Of The World

Prechter: It's The End Of The World

Socially, What Happens During a Bear Market?

By Susan C. Walker Fri, 15 Jan 2010 14:15:00 ET	Email | Print | RSS | My Updates	BOOKMARK AND SHARE IT!

It's easy to see what a bear market looks like on a price chart -- a downward-trending line. But what does a grand-scale bear market -- the kind that Elliott Wave International predicts within this decade -- look like in everyday life? Reporters have asked Bob Prechter this question in many ways. And since his latest Elliott Wave Theorist explains when to expect the big downturn, this is a good time and place to gather together his answers.

Prechter's views go well beyond what will happen in the financial markets. They encompass his socionomic analysis of how a negative social mood will affect our daily lives, in terms of politics, personal relationships and social unrest. Here's a selection of what to expect, and remember that being prepared for what's to come will make it easier to deal with the social aspects of a severe bear market.

*****

Excerpt taken from Prechter's Perspective, originally published 2002, re-published 2004

Limits and Conservation

Question: What are the essential ways in which bear market moods differ from those of bull markets?

Bob Prechter: In bull markets, people focus on progress and production; in bear markets, they focus on limits and conservation. Bull markets result in increased harmony in every aspect of society, including the moral, religious, racial, national, regional, social, financial, political and otherwise. Bear markets bring polarization. With that realization, you can predict increasing cooperation in all those areas in bull markets, and increasing conflict in bear markets.

Q: What is it that people are unprepared for now?

Bob Prechter: The bear market will bring back nationalism, racial exclusion and perhaps even religious conflict. Thinking technically about events, that is, observing what they reveal about social psychology, prepares you for those changes, whereas trying to predict the future from the events themselves leads you to the opposite, and wrong, conclusion. It cannot be stressed enough, because life-or-death decisions can depend upon your assessment. Notice what marks the major bear market lows of just the last 200 years — the Revolutionary War, the Civil War and World War II. Those were buying opportunities.
The End of Two-Party Politics

Q: Back in 1989, when two-party politics appeared assured forever, you predicted a third party and a shake-up of the traditional parties.

Bob Prechter: Yes, because what normally happens in the type of period that is approaching is a polarization of opinion in all kinds of areas. It’s not just that the left takes over or the right takes over. During bull markets such as in the 1950s and the 1980s, most people are centrists. In bear markets, you see extreme polarization. You get leftists and rightists on one axis, and authoritarians and champions of individual liberty on the other, battling it out for power.
Q: Bear market politics seem more interesting.

Bob Prechter: Oh, yeah! That’s when people tend to vote for more radical candidates. When the next general decline in world stock markets takes place, the popularity of all incumbents will suffer. If the markets fall as far as cycles suggest in the next few years, most incumbents will not win re-election. But don’t confuse interesting politics with good fun. It’s usually scary.

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Are You Prepared for a Big Downturn and Runaway Deflation? In his January Elliott Wave Theorist, Bob Prechter outlines what will happen when the financial markets turn down and how to protect yourself from dire circumstances. Get his latest Theorist to read his forecast in detail. More information here.

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Women on the Rise

Q: Women appear to be rising in dominance, as they did in the 1970s and 1940s. Although now it’s not Rosie the Riveter but Sally the Senator.

Bob Prechter: That’s because we’re approaching a bear market. In every field, women gain dominance in bear market periods, and depending upon how the top is formed, the trend can begin a bit before or a bit after the price peak registered on the New York Stock Exchange.

Q: It seems to be something that appears late in the cycle. When Rome went into decline, for instance, there was a similar phenomenon. Some historians have even blamed Rome’s fall on the rise of women. These days some use it to say that Western civilization’s main problem is that it’s henpecked.

Bob Prechter: Well, I’m not saying that such things are causes. My position is different. The position you describe is one that implies it can be fixed. “If men would just change, or women would just change, then civilization would be saved.” But changes in sexual roles are not the cause of things. They are a result of, or at least part and parcel of, the social dynamic reflected by Elliott waves.

Q: Men can’t get together and say ‘Hey, let’s stop being henpecked’?

Bob Prechter: No. At some level, they want to be henpecked. Men’s role in this is just as important. In fact, one could argue that women rise in relative power because men abdicate it; they become docile and weak, so women fill the void. If men aren’t getting the job done, which they do really well in bull markets, women take up the slack by assuming responsibility in areas that men have abandoned. So calling for change is just not going to work.

Q: But is the timing right? It seems like this trend started long before this top. Didn’t it start back in the ’60s when Donna Reed, June Cleaver and Harriet Nelson went off the air?

Bob Prechter: Precisely! That’s when the Grand Supercycle peaked out as measured in constant dollars and when it was almost entirely a man’s world. You have to figure what the mix is in the overall picture. On a major trend basis, it’s becoming increasingly a women’s world. We had the feminist movement in the 1970s, more women heading into the work force and so on. I mean, maybe at the bottom we’ll see another Joan of Arc or something. Can you imagine how submissive the Frenchmen of the time had to have been to allow England to take them over, then sit by and do nothing, or cooperate like weasels, until a female came along and challenged the English? And the men and women just weren’t ready to be rescued yet. They both burned Joan for her trouble. Later on, men got socially recharged and took up the fight.

Smaller Social Units

Q: Let’s look deeper at the idea of inclusionism and exclusionism in bull and bear markets.

Bob Prechter: At the peak, there is a perceived brotherhood of men, nations, and indeed all living things, which is why there has been an environmental movement, in which trees are embraced as brothers. In bear markets, the trend changes, and the ultimate result is a psychology of “us vs. them.”

Q: So we will see a marked increase in factionalism during bear markets?

Bob Prechter: Yes, and the larger the bear market, the smaller the factional units. During the reduction process in the size of the social unit of allegiance, one’s “in group” becomes smaller and smaller, moving from the universe to the world to the nation to the ethnic, religious, regional or sexual group to the city or feudal estate to the family to the individual. The trend halts at some point along that line that depends on the extent of the economic and psychological decline.

Q: What’s the stopping point for a large-degree decline?

Bob Prechter: In the Dark Ages, the feudal estate was the largest unit of allegiance in Europe. In times of starvation, such as in parts of Africa in recent times, even the family unit can disintegrate as babies are left to die while individuals fend for themselves.

Q: Inclusionism is a sense of community and goodwill that gathers with a bull market, while exclusionism is the rise of factions and intolerance.

Bob Prechter: Right, at a peak, it’s all “we;” everyone is a potential friend. At a bottom, it’s all “they;” everyone is a potential enemy. When times are bad, intolerance for differences grows, and people build walls and fences to shut out those perceived to be different. When times are good, tolerance is greater and boundaries weaker.
Q: Where does this unrest and the rising exclusionism eventually take us?

Bob Prechter: Trends become radicalized. Environmentalism, for instance, will follow an exclusionary path, adopt an “us vs. them” mentality, and become more hell-bent on destroying humans than on hugging trees. At the same time, a severe reaction to the movement will set in. The same will be true regarding every social question: immigration, welfare, you name it. Exclusion will gain the upper hand. In countless ways, persecution will wax. This is the likely direction of trend for the next dozen years and on a larger scale for as much as a century.

BlackRock's Weinstein: Deflation Risks Not Over



By Min Zeng, Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Despite concerns that the massive amounts of stimulus provided to the U.S. economy will fuel inflation down the line, Brian Weinstein at Blackrock Inc. still sees deflation risks in the year ahead.

The consumer price index excluding energy and food, known as core CPI, is still running "very, very close to zero," the co-head of the Global Bond Portfolio Team within BlackRock's Fixed Income Portfolio Management Group said in an interview. "If you have another slide down in the economy, you could have negative CPI in the middle of the second quarter and into the third quarter."

Core CPI rose 0.2% in October from September and was up 1.7% from October 2008. The headline CPI was down 0.2% in October from a year earlier.

Weinstein's views reflect those of Federal Reserve officials, who have repeatedly said that given the slack in the economy, they see little risk that the extraordinary credit easing measures and asset purchase programs will boost prices.

Given the pretty tame inflation outlook near term, Weinstein said he wouldn't own Treasury inflation-protected securities due January and April 2011 because they don't provide much upside in prices. But long-term TIPS provide attractive value, especially in the 20-year sector, said Weinstein.

Weinstein noted that there is a "dichotomy" between inflation expectations, which have been rising this year, and data that show little inflation pressure.

One gauge of inflation expectations is the yield spread between a TIPS and similar-maturity plain-vanilla, or nominal, Treasury security, known as the breakeven rate. Prices of gold, another preferred asset to hedge against inflation, hit an all-time high of $1,171 an ounce Monday.

The 10-year breakeven rate traded little changed at 2.19 percentage points Monday, signaling investors expect an average annualized inflation rate of 2.19% within a decade. The rate dipped below zero late last year when deflation fears hit a peak. But this year, it has risen steadily as the economy has recovered.

Investors have flocked to TIPS this year amid concerns that the support provided by the Federal Reserve and the U.S. government, while helping to revive the economy, are undermining the dollar's value and will lead to inflation in the years ahead.

Rising inflation eats into the fixed returns on nominal bonds, making them less attractive for investors. TIPS provide protection against rising prices as both the principal and interest payments will be adjusted higher along with rise in consumer prices.

"Our clients are much more worried about inflation than before because of what the major central banks have done. They are worried about policy errors that could cause inflation," said Weinstein, who manages $1.7 billion BlackRock Inflation Protected Bond (BPRIX), the company's flagship TIPS fund. "This year, we had inflows from every part of the world. We had massive growth in our business."

Weinstein's fund saw net inflows of $1 billion through the end of September, already surpassing the net inflows of $340 million for the whole of 2008, according to data from BlackRock. The fund has handed investors a return of 17.63% over the 12 months ending Oct. 31, compared with 17.15% on its benchmark index, the Barclays' U.S. TIPS Index.

TIPS have handed investors a return of 12.9% this year through Friday, according to data from Barclays. In contrast, nominal Treasurys have lost 1.85% over the same period.

Weinstein said TIPS will continue to outperform nominal Treasurys in 2010, but the return is unlikely to match this year's strong performance.

He also said that TIPS provide better value compared with similar-type bonds in the euro zone, the U.K. and Japan. -0-

-By Min Zeng, Dow Jones Newswires; 212-416-2229; min.zeng@dowjones.com


(END) Dow Jones Newswires
11-23-090939ET
Copyright (c) 2009 Dow Jones & Company, Inc.

Robbed Blind By A Lipstick Wearing Pig

Submitted by Davos

Robbed Blind By A Lipstick Wearing Pig

"No one in this world, so far as I know - and I have searched the records for years, and employed agents to help me - has ever lost money by underestimating the intelligence of the great masses of the plain people."
~ H.L. Mencken

Each and everyday I'm amazed by the sad amount of truth held within this statement.

I've totally shunned TV, I have no cable, no dish, I've deleted every mainstream news source from my iGoogle RSS reader and I am now weeding out what I once considered to be the best 25 economic blogs.

Let’s visit the many ways that we are being robbed by the pig wearing lipstick.

Confusion and sexing up the ugly

Today, on a blog I used to hold in high esteem was an article entitled "Who's Afraid Of a Falling Dollar?"

Me.

That's who.

And it should scare you also!

First we need to take the lipstick off the falling dollar pig and understand what it means. If you have $100,000.00 in your account and the dollar falls in value that $100,000.00 might buy you only $25,000.00 worth of assets.

Would you put your money in a bank that offered you a falling balance? Open an account today with your life savings of $100,000.00 and tomorrow your balance will be $25,000.00.

The incredible part about the article is that it was written by a senior fellow at an institute that is trying to save Social Security.

Sorry Grandma, your $500.00 Social Security check that used to buy you a month's tuna caught by Japanese fishermen had a really bad fall and now you'll have to eat saltines all month long.

No more tuna for you.

"A lower dollar is good news for US exporters and foreign importers and bad news for foreign exporters and US importers."

Really?

Well bad news here. We import 2/3rds of our oil.

Sorry, when you fill up your SUV with your falling dollar you are now on the cusp of bankruptcy because that dollar had a bad fall and only buys 1/4 the amount of gas it used to. When you go to the store and purchase food that has been shipped a minimum of 1,500 miles and farmed in a petrochemically dependent fashion you’re going to be in the same line as Grandma buying saltines.

Bon appétit mon ami(e).

Confusion And Secing Up Inflation:

"The fear is that a falling dollar would be inflationary." Right here I am reassured that the author must a.) be Keysnian b.) have taught economics c.) has worked for the "Federal" (a very private bank) Reserve.

Or, d.) all of the above.

Inflation is defined as the size of the monetary supply. The Keynesian economists have convoluted this. The bottom line is if you have a trillion in 100's and you create another trillion bucks while you have 2 trillion the reality is that the 2 trillion has a value of 1 trillion. Your 100's are worth 50.

Your dollar fell.

Hard.

He then quotes two recent "Fed" papers. Well, I have short funny video for you…

Here is the Chairman of the Fed who got it 100% wrong.

Popout

"I don't buy your premise."

"We've never had a decline of houses in a nationwide basis."

Oh, I thought you studied the great depression?

Just what the heck happened from 1920 to 1945?

Confsion And Sexing Up Unemployment

"With US unemployment currently at 10 percent, there is no chance that inflation will rise in the near term."

Really?

First if you go to http://www.shadowstats.com/ and pay John Williams 89 bucks he will show you that unemployment is at 22%. He corrects the BLS's Birth Death Model, their Seasonal Adjustment and even is kind enough to count the U3 and the U6 numbers and add them up into one nice percentage.

Something the BLS seems challenged by.

And by what economic model is unemployment a factor in inflation? Zimbabwe had an unemployment rate north of 90% and here is a copy copy of a dinner receipt…

Dinner for one: 1.2 billion.

I suppose that isn't inflation even by a Keynesian perspective?

I could go on for hours.

"Articles" like these contribute to the success of the robberies committed on the American people each and every day. The give validity to Mencken's pathetic realization.

Worse, when good blogs publish bad articles smart readers get confused by qualifications and titles and prestigious think tank associations. Comments like: "Zimbabwe is a case of corruption so naked that it defies comparison. Even comparing it to the US is the height of silliness, since the US spent the last year with NEGATIVE YoY price changes."

Corruption so naked that it defies comparison?

Really?

Well maybe we should consider this. The unregulated derivative market is now 55 times the size of all the world's GDPs 600 trillion in total (audio link).

According to Table 3 OCC.pdf (from our Treasury) 200 trillion of this toxic mess reside here in US banks. Tyler, over at ZeroHedge, ran a piece pegging it at 1,600 trillion (1.6 quadrillion). The subprime mess was 1.5 trillion. It blew up the economy. We now have wave two of the Alt-A and Option Arms rolling to shore. Another 1.5 trillion. A lot of this consists of NINJA loans. Those are no income, no jobs, no documentation. I suppose putting down you make 100k when you don't have a job doesn't defy corruption?

Or maybe we want to discuss the stellar way these loans are given AAA ratings?

Naked Short Selling is another great topic while we are on the Bernie Madoff Zimbabwe discussion.

Or we could discuss how we hang those out to dry for uttering regulation and oversight.

Defies comparison?

Yeah.

The bottom line is that we have become numb to what "experts" and reporters tell us.

A recent piece in Bloomberg discussing raising the debt limit is proof. "Tactics such as tapping federal retirement funds would free up roughly $150 billion - about the same amount as the interest payments that come due on Dec. 31."

As one fellow blogger that I have the utmost respect for put it: "Did you catch the bit in boldface about 'tapping' federal retirement funds for short-term cash flow? Sounds so casual, so innocent, don't it? Think about it, though. Unlike private pension funds, whose trustees have a fiduciary duty under the ERISA Act to safeguard the interest of beneficiaries, fedgov pension funds are mere slush funds for politicians to grab at will. Under the sordid conflicts of interest which are tolerated within our imperial government, the managers of Social Security and federal retirement funds subserviently hand over their reserves to our insolvent government in ad hoc, 'we'll pay you back when we can afford to' transactions. In a private-sector pension fund, such malfeasance would land them straight in jail.

But then, government is all about granting itself the right to commit acts which are illegal for its subjects -- such as the Federal Reserve's 96-year-long currency counterfeiting operation. When the sovereign itself is dishonest, openly bilking its own pensioners, it is idle to talk of 'reform.' Organized crime is not amenable to reform. Either you end it, or you trust your security to the nebulous notion of 'honor among thieves.' Good luck with that!"

One of the foremost experts on structured finance and derivatives presents a holistic overview of not only the current economic fiasco, and in 10 brief minutes with Max Keiser she provides more succinct, unbiased and relevant information that most pundits are able to convey in years on and off TV, but also highlights the bigger problem of how the administration keeps treating the US public as a bunch of stupid infants, throwing paper blankets over raging systematic fires that are anything but doused. And yet, the administration's ploy so far is successful, unfortunately speaking volumes about the intellectual rigor of the average gullible American.

i am endorsing Mr. Keiser's glowing recommendation of Janet's book "Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street" a must read for anyone who wishes to get a deep understanding of the real severity of America's economic debacle (i receive absolutely no compensation for recommending this book).

‘Low Gear’

The labor market “may keep the recovery in low gear for a while,” said Yellen, 63, a former Fed governor and top economic adviser under President Bill Clinton. Unemployment, a slowdown in wage growth and workers’ insecurity will “undoubtedly” restrain consumer spending and may result in “sluggish spending growth,” she said.

Employers cut payrolls by 216,000 in August, the smallest drop in a year, after a 276,000 drop in July, according to a Labor Department report this month. The jobless rate, at 9.7 percent, is the highest since June 1983, when it registered 10.1 percent.

Yellen said potential losses on commercial real estate loans at small and mid-size banks represent a possible “financial contagion” that’s one of the biggest threats to economic recovery. “The likelihood of continuing losses by financial institutions will add new fuel to the credit crunch,” Yellen said.

The housing market is showing early signs of a rebound. A Commerce Department report due Sept. 17 will show builders broke ground on 600,000 new homes last month at an annual rate, a 3.3 percent gain and the fastest pace since November, according to the median forecast in a Bloomberg News survey.