Today’s Call:Dow Jones Industrial Average to rise. Currently 12,004.
Rationale: Despite the fact that there is simply no good news or reason to buy stocks right now, the increases in the M2 Monetary base generally go into the stock market first. The only question is whether or not it will overwhelm the shorts. Our guess is that in 72 hours it will.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Rationale: News from the Eurozone, specifically Greece, is almost overwhelmingly negative. Anticipation of short covering on any good news out of the Eurozone. Conversely, there is upward pressure on the dollar that may seek short term relief via central bank intervention.
Result of Call for June 10, 2011:Dow Jones Industrial Average to rise. Was 11,952, Currently 11,897. Bad Call.
Calls to Date: Good Calls: 28, Bad Calls: 22, Batting .560
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
TheRose Festival has dominated the city’s waterfront park for the past two weeks. Carnival rides have been up since Memorial Day weekend and an assortment of ships from the US and Canadian Navy (affectionately known as the “Canavy”) arrived late last week. After no fewer than four parades, the annual Dragon Boat Races rounded out the festivities.
The Festival usually marks the beginning of summer, which is defined as the absence of rain for four delightful months, here in Portland. While the rain seems to have done its part, the weather remains colder than one would expect.
This year was the first year that anyone can remember the roses not being in full bloom during most of the festival. An uncharacteristically cold spring has caused many of the plants to hold back here from showing off their blooms. When they do finally bloom, it tends to happen quickly and spectacularly.
For some reason the plight of the roses has us worrying about inflation. We have been certain that inflation is on the horizon for some time now, and while there has been an uncomfortable rise in food and gasoline prices, it is hardly the degree of inflation that we had been anticipating.
Are we early or just plain wrong about inflation? The question is troubling. What is certain is that many of the things that we have speculated would happen are coming to pass. Most significantly, the US Government appears to be approaching a moment of truth regarding its dire finances. The simple question of whether or not to raise the debt ceiling has opened a Pandora’s box of questions about the nation’s spending priorities.
Now the 2012 election cycle is beginning and US lawmakers have rushed out the door to the campaign trail and have left Pandora’s box wide open on the Capitol floor with its questions racing about the room:
Should we cut entitlements?
Enact more economic stimulus?
Will the Government really go bankrupt on August 2nd?
Is the activity on Twitter accounts really open to the public?
With the national political circus about to go into full swing, any hope of a serious discussion about a realistic budget or debt ceiling is gone. What we are now left with are desperate pleas for action from none other than Ben Bernanke, the ace lobbyist for the nation’s largest banks.
Mr. Bernanke, in his classic, diplomatic style, told the Republican leadership in attendance that he appreciated what they were trying to do in trying to get the nation to live within its means, but that their use of the debt ceiling as a hostage was not an appropriate tool for the job. Instead, he advocates deficit reduction goals which trigger automatic cuts if they are not met.
Leading Lobbyist for the Banking Sector
The United States is one of the few countries with a congressionally mandated debt ceiling. Contrary to Mr. Bernanke’s belief (which we must say defies logic), the debt ceilingis the perfect tool to use if a lawmaker wants to put an end to out of control spending but doesn’t have the time to gain consensus for a reasonable budget plan. It is the ultimate way to “trigger automatic cuts.”
Perceptive readers will note that what Mr. Bernanke’s proposes is the same fiscal spending control model that has worked spectacularly in Europe. Just ask the Greeks!
Still, the question remains, where is the inflation? Our simple analysis led us to believe that under current circumstances the FED would print money to give both to its member banks and to the US Treasury until things either got better or the dollar was completely worthless in exchange for goods. Our money is on the latter passing before the former.
It now appears that the US government has temporarily thrown a wrench in those plans.
But this should come as no surprise. As Henry Hazlitt so eloquently explains in his book Economics in One Lesson, government intervention in the economy always fails to achieve its desired ends and almost uncannily brings about results contrary to those that the government intended.
Would it not make sense, then, that the current efforts to produce price inflation turn out to be dramatic failures as well?
Then, long after the government has abandoned its inflationary policies, a tidal wave of cash will appear quickly and spectacularly, not unlike the rose blooms in Portland this year.
This inflation will occur when the US Government, whether on its own or under compulsion from the bond markets, turns its clumsy machinations towards austerity. In other words, when it least wants or expects it.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Rationale: It appears that the march out of US Treasuries and into cash has begun. Big banks really have no choice. With the US political establishment in gridlock on the debt ceiling there is now growing principal risk in holding US Treasuries. Without the prospect of further debt expansion to mop up all of the excess cash in the system in the short term, the Fed is resorting to the tactic of deflationary propagandain a futile attempt to quell inflationary pressures.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Rationale: Nearly all asset classes are going to begin to cave in to a perceived deflationary spiral that is taking hold as inflation in food and energy costs begins to take its toll. This will temporarily bring Gold and other precious metals down with it. Government likely to announce new stimulus plans in the near future.
Result of Call for June 8, 2011: Yield on 10yr US Treasury bond to fall (price to rise). Was 2.962%, Currently 2.991%. Bad Call.
Calls to Date: Good Calls: 28, Bad Calls: 20, Batting .583
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Today’s Call: July Corn Price Per Bushel to rise. Currently $7.85-4.
Rationale:USDA Report released today revealed the expected corn surplus to be 23% less than already low expectations. This will cause tremendous price pressure up and down the food chain. Corn is to food production what oil is to manufacturing. As such, we have decided to add it to our Key indicators.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Today’s Call: Yield on 10yr US Treasury bond to fall (price to rise). Currently 2.962%. Rationale:China warned today that a US default would be very harmful to many nations of the world, most of all China. While we believe that the US will eventually default, in the short term this type of news should be traded against. Short term safe haven buying will overwhelm any selling on this news. Result of Call for June 3, 2011: Caterpillar (CAT) to fall. Was $101.10, Currently $97.91. Good Call. Calls to Date: Good Calls: 27, Bad Calls: 18, Batting .600
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Summer has arrived in Portland. We had hoped that it would arrive months ago but as with 41% of our predictions here at The Mint, we were early, which is a polite way to say that we were wrong.
In the financial markets, it continues to rain. The authorities have done everything in their power to stop the effects of the rain, hoping to simply ride it out. They are now exhausted and the ominous prospect of rising flood waters to accompany the constant drizzle adds to their misery.
The storm began innocently enough and that was the problem. Despite the dark clouds forming on the horizon, most people thought that they simply needed to stay indoors for a while, maybe move the patio furniture inside, and wait it out.
As it turns out, loading up the wagon and moving to higher ground is the only thing that can save them. In a practical sense, this means paying off debts and moving assets into precious metals or anything else real. It means cutting ties with any and all counter-parties because the probability of default is increasing and can strike without warning.
This financial storm did not necessarily require the divine insight afforded Noah in his day but to adequately prepare for it one needed to at least have in mind the possibility that this storm was no ordinary storm.
Yes, fellow taxpayer, the world economy is not in a recession or a depression (unless you are trying to describe a certain level of misery and not an economic phenomenon). The economy is in the process of being completely retooled. Bill Bonner at the Daily Reckoning calls it the “Great Correction.” We do not have a name for it here at The Mint but Mr. Bonner’s term seems a bit mild to us.
Now that the FED’s firepower and credibility are completely expended, the economy is set to experience something akin to random “rolling blackouts.” As the cash and credit that flowed steadily downstream for the past 50 plus years begins to dry up, a wall of water in the form of stimulus and monetary accommodation is barreling down the canyon and is literally destroying everything in its path and is PERMANENTLY changing the river’s channel.
Beyond the wall of water is a dry riverbed. This has been confirmed as the FED’s credibility is shot. Even if they could continue sending what water is left down the canyon it wouldn’t even come close to filling the new channel or be capable of forming anything that resembles the river that once was.
It is difficult to imagine a more desperate state of affairs. This is one of the miracles of central planning, that it always and in every sense is a failure for everyone. In some rare cases the planners benefit but for the most part, in the long run, even they are poorer for their efforts.
So what awaits the economy are unpredictable rolling blackouts as the lack of water causes random and unexpected defaults and quasi-defaults to occur until all participants learn to not trust each other. Oddly enough, only then will something resembling organic growth begin anew.
An interesting idea was brought to our attention yesterday. The idea is that the FED’s charter as America’s Central Bank is set to end on December 21, 2012, which nicely coincides with the final date on the Mayan Calendar. We then further investigated and saw that someone with the Youtube user name “Man of Truth” predicted that the FED would be bankrupt in December of 2012 back in 2009.
While back in 2009 the Man of Truth may have sounded like a lunatic, circa 2011 his prediction seems not only possible but highly likely. While the December 2012 date is arbitrary, all of this taken together with the fact that many people believe the Mayan Prophecy may be enough to disrupt life as we know it for an extended period of time.
Courtesy of http://bizarrocomics.com/
While we at the Mint do not personally believe in the Mayan Prophecy or the FED for that matter, we have a feeling that enough people do believe to warrant being prepared for an extended period of random rolling economic blackouts which will probably begin early in 2012, making the best time to prepare for them, well, now.
How to prepare? First and foremost, accept Jesus Christ as your personal savior. Then, not matter what happens, you have absolutely nothing to fear, not even death.
Second, financially act as if a flash flood is coming down the canyon and get whatever you think you may need to ride out the blackout period close at hand because the probability of obtaining it later is diminishing with each passing day.
Third, help others to do likewise. In the process of helping others, you will literally be laying the foundation for the bright future that awaits you.
Piece of cake, right?
Meanwhile, the security situation in Palestine the Middle East continue to deteriorate. Will it be enough to distract the West from its own perilous situation?
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Rationale: Stocks of Oil tanker transporters are turning slightly higher which generally leads to an increase in the spot price of oil. This, combined with the effects of Bernanke’s market soothing words today should push commodity prices more than stock prices. This is the new trend, fresh money is moving into higher commodity prices which will eventually erode stock prices on a relative basis.
Rationale: Banks, of which Bank of America, being the largest consumer bank, is an indicator, had some very bad press today as far at their prospects. While we believe that in the long run these stocks are nearly worthless, B of A is likely to rise in the face of such negative sentiment.
Result of Call for June 1, 2011:Greek 5-YR Sovereign Credit Default Swap to fall. Was 1608.50, Currently 1390.97. Good Call.
Calls to Date: Good Calls: 25, Bad Calls: 18, Batting .581
Rationale: Caterpillar has risen dramatically over the past year. The sudden downturn in economic indicators and commodity prices will mute demand for its products which will reflect in a share price that drifts quietly downwards through the summer months.
The US House or Representatives, Unable to Function, Waffles on Derivatives Rules and Libya Resolution
6/1/2011 Portland, Oregon – Pop in your mints…
The leadership of the United States finds itself publicly handcuffed to the interests of the banks and defense contractors and at this point appears effortless to free itself. Two glaring and pertinent examples have appeared in this week in what can only be described as an utter and complete failure to act on behalf of the people. This inability to govern, as a QE program is evidence of the failure of a currency regime, is evidence of the very failure of a government.
Both examples are from the US House of Representatives:
For the uninitiated we offer a humble and intentionally oversimplified explanation of what this means.
You may recall that In 2008, The United States gave a $700 Billion blank check to the financial services industry (commonly known as TARP) with few, if any, questions asked. When the inevitable, albeit insincere political backlash from the masses began to surface, the taxpayer was pacified with a piece of legislation called the Dodd-Frank Act.
The Dodd-Frank Act is a fictional attempt to regulate the financial markets. Its passage was meant to put to rest any doubts that the US Government knew what it was doing when it immediately and blindly ceded over 5% of GDP to the sharks of the financial industry.
Senators Chris Dodd and Barney Frank were going to make sure that the financial markets never put the US Government in the uncomfortable position of having to bail them out again.
The main culprit was identified as the OTC derivatives market, presented to the people as a clandestine exchange where financial companies freely traded promises that they couldn’t keep for money that their counter parties didn’t have. The whole thing was a fraud to begin with.
Unfortunately, passage of the Dodd-Frank Act has simply legitimized and encouraged this fraud. Now, nearly two years later, Congress is having trouble implementing rules with teeth to apply the fairy tale derivatives market which is now reportedly worth $600 Trillion dollars, or roughly 10 TIMES GLOBAL GDP.
The failure to write rules for this worthless piece of legislation simply underscores how far the money lenders have infiltrated the US Government.
In what is perhaps an even more shocking example of how far the defense contractors have infiltrated the US Government, we have this report of a House resolution being pulled for fear that it will pass. From the Associated Press:
“The GOP leadership had scheduled a vote Wednesday on the resolution by Rep. Dennis Kucinich, D-Ohio, that “directs the president to remove United States Armed Forces from Libya … not later than 15 days after the adoption” of the measure. The vote was delayed as the leadership and Obama administration realized frustrated lawmakers likely would support it.”
If this is to be believed, there is widespread support in congress for the US to immediately cease and desist all military activity in Libya. At The Mint, we had speculated that the US had no business intervening in Libya. It appears that the House of Representatives agrees.
But as appears to be the case with the Dodd-Frank Act, a mysterious force seems to be impeding the US Government from following the simple guidelines laid out for it in its own founding document, the long since forgotten Constitution of the United States of America.
With the government quickly running out of money and virtually impotent to do anything, let alone carry out its basic functions of protecting the life and property and its citizens, a time of “adjustment” (chaos in the financial markets) appears to be rapidly approaching on the horizon.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Today’s Call: Greek 5-YR Sovereign Credit Default Swap to fall. Currently 1608.50.
Rationale – Announcement of new bailout fund for Greece to occur shortly. Greece and any other sovereign nation will be bailed out in various fashions in a frantic attempt to avoid a default. A sovereign default would mean the beginning of the end of the currency regime and the regime will do everything in its power, no matter how illogical, to avoid it.
Result of Call for May 26, 2011: Dow Jones Industrial Average to fall. Was 12,402, Currently 12,290. Good Call.
Calls to Date: Good Calls: 23, Bad Calls: 17, Batting .575
Today the focus of the financial world is on events around the Mediterranean where the Greek and increasingly the Spanish people again find themselves at odds with their respective governments and their IMF / ECB / German debt collectors.
How did they get there? The Greeks and arguably the Spanish have been living in the social equivalent of a Club Med ever since they joined the Euro. The initial sting of higher prices was offset for most by lower borrowing costs. Life was good. The advent of the Euro along with a boom in tourism began to feed a property boom in Spain and a government spending boom in Greece.
Alas, as an economy slows, the government is usually the last to know.
Like the father whose family takes a vacation to Club Med, he is content to let the family splurge with little worry as to how he will cover the bill. “Just throw it on the credit card, we’ll take care of it later” becomes the mantra.
Unfortunately for the father (who represents the Greek, Spanish, and arguably the US governments in our parable), his bank decides to cut his credit line just before the vacation is over. The bill comes due and the man frantically negotiates with his bank (the ECB, IMF, and arguably the US FED) to extend his credit line enough to cover the bill.
Club Med – Paradise Lost!
To make matters worse, upon his return the man finds that the income from his job (the government’s tax receipts in our parable) has been cut due to “the economy*.” He now has no realistic prospect of repaying his extended credit line and instead must now consider a painful reduction in the family’s standard of living.
Naturally the family, who has developed some expensive habits while away at Club Med, rebels. The father is now in a no win situation. On the surface, he appears to have a choice between satisfying his family at the expense of his creditors or vice versa.
There is, of course, an easy way out. The man who is in this hopeless situation can declare bankruptcy. Problem solved, right? Not so fast. You see, because of “the economy*,” the bank cannot release the man from his debts and have enough money to make good on its own obligations.
At this point, the Central Banks of the world (which are represented by the bank in our parable) lack not only the credibility but also the practical tools to perform their make believe function as protectors of the value of their respective currencies.
Today we read a piece by Michael Pento of Euro Pacific Capital (run by Peter Schiff) which seems to give logical credence to what we have long suspected to be the case:
“In the end, any meaningful attempt to withdraw liquidity will not only bankrupt the institution (The FED) but also zero out their remaining credibility. That’s why they’ll never even make an honest attempt.”
The FED is helpless to remove the liquidity it has injected and will soon have to decide which of its member banks to sacrifice if the dollar is to continue as a functioning currency. Our money is on the dollar and all who rely on it as a store of value to be the sacrificial lambs.
Back to our parable. Both the man and the bank will continue to pretend to negotiate with each other, giving the illusion that what is now their mutual problem will supernaturally disappear. The family will continue to pretend to debate which expenditures to cut back on as if it will make a difference.
Unfortunately, the likelihood of the problem disappearing is equivalent to the likelihood of the family being able to go back in time to cancel their trip to Club Med prior to departure. Such is the nature of debt.
So the bank, the father, and the family find themselves clinging to a myth as they helplessly hurtle towards the unknown.
*Definition of “the economy”, circa 2011 – A term used to describe the large scale collapse of Central Banking and the Socialist / Communist economic model that it has created over the past 100 years. Generally used by politicians and others in authority to “explain” why they cannot pay their obligations. This explanation is presented to the masses as a failure of capitalism when quite the opposite is true. Thus, this simple two word phrase is used as an excuse to further the Socialist / Communist agenda and that of the police state that is forming all around the world.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
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