Wednesday, June 30, 2010

The Afghan Scam

Somebody sort these out for me. Something smells a little "fishy".

"Afghanistan produces over 90% of the world's illicit supply of opiates, the key ingredient of heroin, and has produced more than 6,000 tonnes of opium a year since 2006."

Source: Asia Times

"Afghanistan's untapped mineral wealth is worth at least $3 trillion — triple a U.S. estimate, according to the government's top mining official, who is going to Britain next week to attract investors to mine one of the world's largest iron ore deposits in the war-torn nation. Geologists have known for decades that Afghanistan has vast deposits of iron, copper, cobalt, gold and other prized minerals, but a U.S. Department of Defense briefing this week put a startling, nearly $1 trillion price tag on the reserves. Minister of Mines Wahidullah Shahrani said Thursday that he's seen geological assessments and industry estimates that the minerals are worth at least $3 trillion."
Source: Associated Press, June 17, 2010

"June 2010 is now the most deadly month of the nine-year Afghanistan war, with more than 100 NATO troops killed. The sobering number comes amid growing debate over strict rules of engagement for US soldiers."

Source: Christian Science Monitor, June 29. 2010

Aligned with the announcement that more soldiers are dead we miraculously make a huge mineral discovery?? We've been in Afghanistan for years, but the opium crop is booming. Hmmmmmmmm.

Mexican Politics Goes To The Next Level

It appears that Mexican politics has moved to the next level.
"Mexican gubernatorial candidate Rodolfo Torre Cantu, the leading PRI candidate in Tamaulipas state, was gunned down Monday by suspected drug cartel hitmen. President Felipe Calderon says the drug lords are interfering with Mexico's election process. The leading candidate for governor of the northern Mexican state of Tamaulipas, Rodolfo Torre Cantu, was gunned down Monday in one of the highest profile assassinations since a presidential candidate was murdered in 1994."
Source: Christian Science Monitor

"The weakest fall first with more to follow. The onion gets peeled back one layer of a time."
Random Roving, March 6, 2009 - "Peeling Back The Onion"

Don't forget.  It has happened here.

The First Rat Jumps Off The Ship

It was only a matter of time for the rats to start jumping off of the ship.  It only makes sense for the budget director to leap first.  Geitner and Rahm-bo will be next. 

"Peter Orszag, White House budget director, yesterday became the first high-profile official to step down from office in Barack Obama's administration.  Mr Orszag, 41, whom the US president dubbed a "propeller-head" in reference to his geeky character, helped shepherd through last year's $787bn fiscal stimulus and played a vital role in negotiating the almost $1,000bn healthcare bill that was passed in March."
Source: Financial Times
Entire article:

Tuesday, June 29, 2010

The Golden Cup And Handle

For you chart technicians, it appears that gold is providing another classic technical chart pattern.  This time it's the "cup and handle" formation that typically precedes a strong uptick.  Here's a comparison of the model to the gold ETF (GLD).  Gold should make another nice run in the short term.
GLD chart source:

Monday, June 28, 2010

Shadow Boxing The Facts

Shadow boxing is a technique that boxers use in training where they throw punches at the air. Its purpose is to increase muscle strength and to work on rhythm. Sometimes I wonder if the Fed isn't shadowboxing with the sheeple. is a website dedicated to providing accurate data related to publically released government data. Over recent years, many metrics such as the consumer price index (CPI) and unemployment have had there definitions and formulas changed. This presents a great challenge when analyzing data on a historical basis. It's no longer "apples to apples". Often we like to compare a current cycle with one in the past. For instance, in the past two years, many have made comparisons to the Great Depression. If these metrics are not calculated the same way, then the comparisons are worthless.

Below are two graphs created by Shadowstats. Note the difference between accuracy and what is reported by the government and the media.

Note that real unemployment is much worse than being reported.
Note that the CPI formula was changed during Clinton's term.

As I always say, do your own research.

Sunday, June 27, 2010

The Slope of Hope

"Even though the market is about to begin its greatest decline ever, the era of hope is not quite finished.  For as long as another year and a half, there will be rallies, fixes, hopes and reasons to believe in recovery.  Our name for this phase of the bear market is the 'Slope of Hope'."
Robert Prechter, June 2010

Saturday, June 26, 2010

Technology Giveth, Technology Taketh Away

"Every day technology takes us further and further into uncharted depths, pushing the boundaries of what’s possible. Little, it seems, is beyond our reach. With all that we’ve accomplished, however, there’s a feeling we’ve built a civilization—a way of life—that is unsustainable."
Cris Sheridan, June 25, 2010

The entire article:

Friday, June 25, 2010

Historical Relationships and 1/3, 2/3's

"This will in turn then put the market at great risk of a far more devastating decline than most anyone anticipates. The bottom line is that the Phase II decline is lurking and there is analysis and there are tools to help understand how the setup is unfolding. Just as I warned about the decline into 2002, the extended 4-year cycle into the 2007 top and even the 2008 top in commodities, few listened but later wished they had. You have been warned!"
Tim Wood, CPA - June 25, 2010

Source: Financial Sense Online, Tim Wood, CPA
Ever since the rally out of the March 2009 low began, I have maintained that it has been a bear market rally. All the while, the politicians think that their printing spree, bailout plans and stimulus packages have put a bottom in the economy. I continue to hear the talking heads on "CNBS" cheering on the public, and in their eyes all they can see is the so-called "double dip" recession. I’m sorry folks, but this is not a double dip recession. According to my analysis we have entered a global debt crisis in association with K-wave winter. Besides the purging of debt from the system, a by-product of K-wave winter is that we have also entered global bear markets in stocks and commodities. Based on my analysis, the rallies that began in early 2009 have not been associated with a recovery, but rather a reprieve of the ongoing deflationary forces of K-wave winter.

In accordance with Dow theory, bull and bear markets are divided into three phases with each of these phases separated by important counter-trend moves. The counter-trend moves separating these phases are very deceiving because people perceive them as being a resumption of the previously established longer term move rather than a counter-trend move within the newly established trend.

In the current case, most people perceive the 2009 low as THE bottom and the advance that has followed the March 2009 low as being a resumption of the advance that carried the markets into the 2007 highs. Based on the ongoing evidence associated with my analysis, this is not true. According to my analysis, 2007 marked the top of the 33 year longer-term bull market that ran between 1974 and 2007. Also according to my research the rally that has followed the 2009 low has been the deceitful counter-trend move that will ultimately prove to separate Phase I from Phase II of the much longer-term secular bear market. Historically, Phase II declines are the most devastating and I see no evidence that this time will be any different. I have discovered a very specific "DNA Marker" that has been associated with every major stock market top since the inception of the Dow Jones Industrial Average in 1896. When all of the pieces of this DNA Marker are in place, the market will be at great risk of the resumption of the ongoing secular bear market and the decline into the Phase II low. Virtually no one understands the destruction that will follow in the wake of the Phase II decline. It is the reckoning of the seriousness of the situation associated with Phase II declines that make them so devastating.

As was seen during the Phase I decline, everyone will again turn to the government to "fix" the problem. Funny thing is, the government was instrumental in causing the problem in the first place. Furthermore, the appearance that the government created the bottom in 2009 is an elusion. The government does not know any more about fixing the economy than they do about fixing the oil leak in the Gulf. All the government can do is spend more money and create more red tape. The best thing that could happen would be for the government to stand back and let the free markets do what they will eventually do anyway. Based on the historical relationships between long-term secular bull and bear markets, the bear markets tend to run about one third the duration of the preceding bull market. Thus, with us less than 3 years from the 2007 high, this secular bear market has much further to run. Based on the historical relationships a bottom is not likely due until late in the current decade. For more on historical bull and bear market relationships please refer to the April 30th Market Observation.

From a Dow theory perspective, the bullish primary trend change associated with the bear market rally still remains intact. According to Dow theory, confirmation of a primary trend change requires a joint move above or below a previous secondary high or low point. This has not yet occurred. But, when it does and if the DNA Marker that I have identified at every major top since 1896 is also confirmed, then at that time the DNA Marker will serve to validate Dow theory. This will in turn then put the market at great risk of a far more devastating decline than most anyone anticipates. The bottom line is that the Phase II decline is lurking and there is analysis and there are tools to help understand how the setup is unfolding. Just as I warned about the decline into 2002, the extended 4-year cycle into the 2007 top and even the 2008 top in commodities, few listened but later wished they had. You have been warned!

Wednesday, June 23, 2010

Tuesday, June 22, 2010

Drug Addict In Rehab

"Ambrose Evans Pritchard dedicated a piece yesterday to the collapse in M3 growth, something that hasn’t been seen in the US since the Great Depression. Monetarists the world around are frightened about this trend, and with good reason. US interest rates are already essentially zero. The massive monetary and fiscal stimulus has been epic in nature. And all this has still not prevented the actual textbook deflationary trend we now find ourselves in. "It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said. The major reason for this is that the banking system has severely curtailed its lending activities, which are largely (but not entirely) responsible for the growth in the money supply thanks to the money multiplier. One must ask how this is possible since essentially the banks have the Taxpayer Put in place where the US taxpayer is immediately hooked for any significant failure. For decades we have had an economy that relied on credit for its survival and now, like a drug addict in rehab, that credit is being limited. The result was fairly predictable. Given the massive debts in our system, there are two obvious choices. First, hyperinflate away the debt. However, that ultimately ends in the destruction of the currency and the end of the current fiat age. Secondly, we could default through deflation/devaluation, and try to, in effect, reset the system much like what happened in the 1930’s. The major difference between then and now is the relative financial position of both the nation and individuals. Both are considerably weakened as we approach this next phase in America’s existence. I’ve argued for the coordinated default/devaluation outcome for some time now. The collapse of M3 growth is one of the biggest factors on this side of the argument. The second is history. The US already has a rich experience in fiat money, dating back to before Lexington and Concord. We also have a rich history of defaults thanks to the over-issuance of fiat money. Granted, the defaults consisted of ceasing to redeem paper money for specie (Gold/Silver), but a default is a default. We are clearly out of control in terms of our debts, both internal and external, and don’t seem the least bit concerned about real generational or fiscal reform beyond traditional Washington lip service. The Fed has been largely ineffective at doing anything but fattening bank cash flows by squeezing savers and allowing banks to collect generous margins on the performing consumer loans they do have. The bailout money sits in bank coffers, withheld from an economy that now depends on loans for its very survival."

Monday, June 21, 2010

Broker Confidence

I found it interesting today when I read an email from my brokerage firm stating the following:
"We currently require a minimum of $10,000 in marginable securities or cash in order to maintain uncovered equity options positions in your account, and $25,000 in order to maintain uncovered index options positions. Effective June 23, 2010, we are lowering the minimum equity requirement for maintaining either position to $5,000."

The "cheap credit monster" just won't die!  "Please, please go more in debt!  Take more risk!"

Sunday, June 20, 2010

Strike Update

"Does the British Airways strike signal a 'change in trend'? The tea partiers probably think so. Stay tuned."
 Random Roving, March 27, 2010

Saturday, June 19, 2010

Same Old Black Gold Story

This week President Obama made a case for focusing on an energy policy. Jon Stewart's research team did an amazing job with this one.

The Daily Show With Jon StewartMon - Thurs 11p / 10c
An Energy-Independent Future
Daily Show Full EpisodesPolitical HumorTea Party

So we leave this video with how much confidence that our fearless leaders will solve the problem. It will take a major crisis much greater than this oil spill to "move this beast".

Friday, June 18, 2010

Woulda Coulda Gold Shoulda

The pre-blog "gold emails" from 2002/2003 are still looking mighty fine! I present these not to boast, but to say "it's still not too late!". When it hits $2000/ounce, you're going to say "Woulda Coulda Gold Shoulda!".

Emails from the pre-blog days.

Thursday, June 17, 2010

The Breakup Of The Two Dynasties?

As usual, I'll stray from the typical "known" perspective of a recent event.  We all know that the BP oil spill is a tragedy of epic proportions.  We know that BP's CEO will be jobhunting soon (not really; he'll get a tremendous parachute; next thing to be mad at).  We all know that the politicians are seizing the moment.  Jindall won't leave the beach.  Nungesser has elevated his political ambition.  Obama is the fall guy (you know he blew up the levees).  Palin is paralyzed with her "drill baby drill" speech.  But, I digress.

One of the most interesting developments is the intense anger at BP because it is a British company.  I've heard so many sheeple proclaim "why is a foreign oil company drilling in our waters?".  Now you ask?  Because they and many others have been doing it for years.  We need them to because we need their investment capital. 

Could this event be the beginning of a rift with our "next of kin"?  Our co-invasion buddies?  Xenophobia against our native homeland?  During the contraction we herd with those like us and move away from those that are different.  Remember, keep an eye on the European Union.  It will come to a catastrophic conclusion.  Mark my words.

A Plethora of Charts

For you chartists and techies, here's a really thorough look at some long term data:

Wednesday, June 16, 2010

Political Harikiri

It's too bad that these politicians won't recommend "harikiri" for themselves:
"'Mr. Stearns asked Mr. McKay to resign,' Cao said, referring to Rep. Cliff Stearns. 'Well, in the Asian culture we do things differently. During the Samurai days, we just give you a knife and ask you to commit harakiri.' Harikari is a Japanese ritual suicide performed by soldiers or others who have committed a serious offense or brought shame upon themselves. Cao, Vietnamese-American Republican, mentioned the anger among his constituents at BP's response to the Gulf oil disaster."
Source: NY Daily News

Vote For Andre'

Vote for Andre in her quest to have a talkshow on the Oprah network. She's a Millennial in touch with her generation.

Tuesday, June 15, 2010

The Triad

“The Americans get the toys, the Chinese get the Treasuries, and we get screwed.”
Unnamed European official

Monday, June 14, 2010

Mr. Cameron Is Right On Track

"The pain of cutting Britain's national deficit will be worse than previously feared and will affect everyone in the country, Prime Minister David Cameron said Monday. 'The overall scale of the problem is even worse than we thought ...,' said Cameron, who came to power last month at the head of Conservative-Liberal Democrat coalition."
Source: Fox News

"Initial reports both used the phrase 'worse than we thought'. I believe that this phrase will be used and over-used a lot in the coming years."
Random Roving, May 11, 2010

Thursday, June 10, 2010

The Straw And The Last Truck

I've made many references over the past few years to Nassim Taleb and "The Black Swan". I believe that watching this video is the best 12:21 minutes that you can spend today.

The best $11.16 that you can spend today:

Thanks JHD for the find!

Tuesday, June 8, 2010

A Pictoral of CDS's

These fancy, complex financial instruments called credit default swaps (CDS's) appear to be rearing their ugly head again.  Check out the graphs below of 5 year prices.

"Sovereign debt default risk as measured by 5-year CDS prices has spiked for Hungary and the countries surrounding it today, but default risk for this region still remains well below levels seen in late 2008 and early 2009."   Source: Bespoke

Entire article:

Saturday, June 5, 2010

The Loss of A Legend

The world lost legendary college basketball coach John Wooden yesterday.  His feats as a coach are truly extraordinary.  An incredible coach and gentlemen.  I've read many of his books and would put him in my "Top 5 people that I would have liked to have met" category.  He focused on "off the field" behavior as much as "on the court". His "Pyramid of Success" defined his approach.

The most impressive aspect about him was his deep love for his wife.  After she died, he would still write her love letters and leave them on her pillow at night.

Years ago, I listened to an interview that Tony Robbins did with him.  You get a real sense of the man after listening.

I look at coaching today and ask "where are the John Woodens?".  Tony Dungy comes to mind, but he is off doing more important work now.

Friday, June 4, 2010

Stuck Between A Rock And A Marketplace

In "The Last Great Exit" posted September, 2009 I made this statement:
"Here's a potential outcome (Dow peaking in the 10000-10500 range)."
That prediction appears to be holding up nice. The "slope of the sand pile"' in March and April was just too steep. A nice correction and some "flash crash" and here we are. We're at the fork in the road between the "V" and the "Tilted W". More on that later.

The Fed has done a great job of "keeping the patient alive", but at some point "Weekend at Bernanke's" has to come to a tragic ending.

"The Fed will only lengthen the correction."
Random Roving, September 30, 2008

Thursday, June 3, 2010

Buenos Días Amigo

It appears that Spain is the next crisis.  Are we ready amigos?

"Now, the tide has shifted. Keep an eye on the EU. As Greece, Spain, and others continue to feel 'the pain', their partners in the EU will continue to ask 'why are we being dragged down by them?'"
Random Roving, March 30, 2010

"Spain's Socialist government is seeing its political power erode as it struggles to chart a path out of deep financial trouble, failing so far to satisfy conflicting demands to cut its budget and stimulate job creation.  The coming months could bring far more problems as Prime Minister Jose Luis Rodriguez Zapatero reforms the country's labor market, risking national strikes and the loss of support from trade unions, a core source of his center-left party's strength.  Zapatero's minority government is already running into serious trouble, although there appears to be no immediate threat of it falling.  A package of austerity measures passed by only one vote in parliament's lower chamber Thursday and the Fitch Ratings agency downgraded Spanish debt on Friday. Opposition parties have called for new elections."
Source: Associated Press

"The focus of Europe’s problem is rapidly shifting from Greece to Spain, one of the world’s largest economies.”
Source: The New York Times

"Concern about Spain's medium-term growth prospects was the main factor behind a decision to downgrade the rating of the country's sovereign debt, Brian Coulton, Fitch Rating's head of Europe, Middle East and Africa ratings said on Tuesday."
Source: iMarket News

Keep an eye on the P.I.I.G.S. (Portugal, Ireland, Italy, Greece, Spain)

Wednesday, June 2, 2010

How Do You Like Dem Apples?

All I can say is "wow".  I had no idea that Apple's value had grown that much.  I guess that I better get that iPad and the iPhone 4G!

"Apple Inc., the computer maker turned mobile gadgeteer, overtook Microsoft Corp. to become the most valuable technology company on optimism it can keep adding customers for its iPhone, Macintosh computer and iPad.  By 4 p.m. New York time in Nasdaq Stock Market trading, Apple’s market value was at $222.1 billion, higher than Microsoft’s $219.2 billion. That made Apple the most valuable technology firm in the world. It’s also the second-largest U.S. stock by market value, behind oil company Exxon Mobil Corp., valued at $278.6 billion on the New York Stock Exchange."
Source: Bloomberg

Tuesday, June 1, 2010

You Yell Barracuda

When I watch the pundits and politicians on tv at night, I can't help but think of the mayor in the movie "Jaws".