My OperaBear Market Resumes
Monday, May 26, 2008 5:42:29 AM
Introduction: Charts Show The Bear Market Has Starting Up Again
Corey Rosenbloom reports VIX Inflects Off Lows: fear has crept back into the markets replacing calm and confidence.
The Financial Ninja shows the S&P falling from an ascending wedge
Jesse shows S&P faling.
Renko shows the SPX to be bearish.
TraderZ relates the SPX is weak and headed lower.
Index Trading says of the SPX, "we've been warning"
Petie shows the S&P falling in a C Wave Down.
Lamdar says the SPYs 200 day SMA proved to be a pipe dream and it probably won’t turn upwards for a while now.
Permabear Trader Tim Knight relates The Bear Is Back and says in contrarian way "our national nightmare is over"
I. Investment bankers, banks and retailers fell taking the stock market lower.
Investment bankers, KCE, fell 7.1%, Banks, KBE, 5.5%, and Retail, XRT, 5.8%, turning the stock market lower this week: the Dow, DIA, fell 3.8%, the S&P, SPY, 3.5%, the Russell 2000, IWM, 2.3.
Lehman Brothers, LEH, fell 17% due to the continual prodding of hedge fund manager David Einhorn over Lehman's Erin Callan's purported transparency. Portfolio.com's Megan Barnett writing in An Einhorn in Her Side references Mr. Eihornr's discrepancies between what Ms. Callan announced to analysts during a conference call in March, and what was included in its quarterly filing several weeks later.
Sympathetic losses, over level three assets, caused Morgan Stanley, MS, to fall 11%, and Merrill Lynch, MER, 11%.
The derivative laden ones, fell sharply: Bank of America, BAC, 6.2%, Citigroup, C, 8.85, Goldman Sachs, GS, 7.7%, and JP Morgan Chase, JPM, 9.1%.
Natural resource stock prices fell even though oil and gold commodity prices rose, suggesting the end of profitable oil and gas stock investing as stocks are no longer capitalizing on strength in their underlying commodity. The Proshares 200% inverse of the oil and gas shares, DUG, increase 4.2% this week.
The continuing ascent of energy prices sent airline stocks into severe turbulence Wednesday as AMR, parent of American Airlines, said it would eliminate some flights to offset steep fuel costs. The carrier also said it would impose a $15 fee on the first piece of luggage checked by a traveler. The Dow Jones US Airlines Index, $DJUSAR, fell 19.8%. And 123Trader shows the airline stocks chart. "The airline industry is devastated. It can't survive $130-a-barrel oil," said industry analyst Ray Neidl at Calyon Securities in New York. Many analysts think that unless oil prices fall back to about $100 a barrel - where they were as recently as April - the industry will have to slash 20% of its routes, the equivalent of knocking two major airlines out of business, reports Peter G. Gosselin of the Los Angeles Times.
The Copper ETN, JJC, fell 2.4% this week as copper inventories monitored by the London Metal Exchange have surged 13-percent this month, reaching the highest level since March 17 and China imports of copper, fell 19-percent in the first quarter from a year earlier.
The S&P Large Cap Index, $SPX, manifested a dramatic reversal. First the daily chart shows that it hit resistance at hit resistane at 1420 and quickly boundce lower to clos at 1375; and secondly, its P&F pattern chart manifested a bearish reversal signal with an immediate price objective lower at 1310.
The S&P, the Dow, and the Nasdaq are being pulled down by both the banks, KBE, and the investment bankers, KCE. Banks have been falling for three weeks now; the confidence provided by the Federal Reserve's TAF, TSLF, and PDCF facilities has run its course; and speculative lending coming through the Yen Carry Trade, as seen in the EUR/JPY, has driven the Brics, EEB, back to their all time high: the bear market is now once again getting underway.
FAS 157 has enabled banks and investment bankers worldwide to classify highly leveraged and illiquid mortgage backed securities as level three assets. Thus, corporations avoid having to write the assets down to their real worth, and prevents the associated loss from showing on their income statement. This Alice in wonderland accounting as Mike Mish Sheldon calls it, has its benefits: it prevented a 1967 or worse type of crash.
II. Sectors and countries falling the most this week included the following.
TUR Turkey 7.9%
KCE Investment Banking 7.1%
IYG Financials 6.5%
AIG Insurance 6.1%
XRT Retail 5.8%
FXI China 5.7%
EWT Taiwan 5.5%
KBE Banking 100% 5.4%
XLY Consumer Discretionary 5.2%
IYR Real Estate 4.7%
SLX Steel 4.6%
XSD Semiconductor 4.5%
QTEC Nasdaq 100 4.5%
RWR REIT/Real Real Estate 4.5%
III. Increased risk aversion and stagflation were the factors turning the market lower.
Risk aversion came from an awareness:
1) that the homebuilders inventory of homes is now beyond a two year supply and growing, while prices are falling off the cliff, yet they keep building to pay their executives salaries,
2) that the bank's, and investment bankers, so called asset base of leveraged mortgage backed securities cannot be repaid, that this irredeemable debt, a great deal of which is not even recorded on the bank's books because it is kept of the balance sheets in VIEs, will have to eventually be liquidated,
3) that financial institutions can no longer generate income and earnings from securitization, that is financialization,
4) that the banks are going to have to raise borrowing rates and cut the amount of credit available to consumers by half,
5) that the the consumer's sentiment is sour terrifically limiting future retail and discretionary sales.
6) of the Case-Shiller home price index posted its largest drop in its 17 year history; with prices falling the fastest in California, Nevada, and Florida; once such dramatic contagion starts, there is nothing, absolutely nothing, that can be done to stop ongoing destruction.
7) of the BCA Research report which relates that the Ifo World Economic Climate Index has worsened further in the second quarter of 2008, the indicator having fallen to its lowest level in six years. Chart of World Economic Climate courtesy of Hans-Werner Sinn of the IFO Institute For Economic Research May 20, 2008
Stagflation which is seen in rising inflation, and falling real estate, employment and manufacturing production means both corporate earnings and stock values will be turning down.
David Fuller of Fullermoney said this week: "As the world's most important commodity by far, this surge in the oil price is bearish for the majority of stock markets. Consequently I would assume that rallies seen since March have either been capped or are unlikely to make much upward progress until investors see evidence that crude oil has commenced a medium-term correction."
Asha Bangalore of Northern Trust relates that wholesale prices seen in chart present a troubling issue: The Producer Price Index (PPI) for Finished Goods moved up 0.2% in April, following a 1.1% increase in the prior month. The steady reading for food and a 0.2% drop in the energy price index helped to tame the overall wholesale price index. On a year-to-year basis, the PPI for finished goods increased 6.5% in April versus a 6.2% increase in 2007. In the first four months of the year, the energy price index has risen at a seasonally adjusted annual rate of 18.0% and the food price measure has moved up 7.3% compared with a 17.8% gain in energy prices and a 7.6% increase in food prices in 2007."
The ratio of the overall stock markets relative to the banks, VTI:KBE, rose to an all time high, suggesting that unless banks rise next week, which is unlikely, the overall stock market, VTI, will be compelled sharply lower as the investment bankers and banks lead the way down again in the resumption of bear market; the chart of the overall stock market, VTI, shows a massive bearish engulfing candlestick.
The EUR/JPY, as seen in the daily chart of FXE:FXY, manifested a 'popping' lollipop hanging man candlestick at 1.648 and turned lower to close at 1.637; from which I expect to see a slow fall downward.
The weekly chart of FXE:FXY shows pops in July 2007, October 2007, November 2007, December 2007, and now; all of these coincide with stock market turns reflecting an unwinding of the yen carry trade. I expect that now with basic material, IYM, Nasdaq, QQQQ, energy, XLE, all turning lower, the EUR/JPY will gradually fall lower, reflecting disinvestment from even the emerging markets, including the hot ones like the Brics, EEB, and Brazil, EWZ. I expect the fall to be gradual as investors will still be using low cost Bank of Japan, BOJ, loans to go long commodities.
IV. The eight week long rally has failed, and the bear stock market started up again this week.
As the earnings reporting season is completed, the benefits of TAF, TSLF, PDCF facilities fully priced in, the Federal Reserve FOMC minutes showing there will be no further rate reductions meaning the stock market is on its own, sour consumer sentiment, and the downward trajectory of financial, housing, real estate, retail, and semiconductor stocks, I conclude that the eight week long rally, that began with the Federal Reserve assisted JP Morgan buyout of Bear Stearns, is over.
This rally had been accompanied by a 'speculative up burst' in the price of commodities, particularly, oil, and gold, that came via bank loans, as well as the use of Yen Carry Trade loans coming from the Bank of Japan, BOJ. The chart of commodities, $CRB, shows an all time high with a doji, suggesting a pause; Oil $WTIC, shows a rise to close at an all time high of $132.19; Gold, $GOLD, shows three consecutive weeks up; While the US Dollar, $USD, shows three black crows to close at $71.96 reflecting terrific debasement of the US currency by ongoing Federal Reserve initiatives, and the lowering of the central bank interest rate.
A hat tip to AmericanFuels blog site about Michael Masters gave testimony on commodity prices before the US Senate, as reported in mCADForums, that indeed speculation is driving commodity prices and provides this helpful chart of the Commodity Futures Markets Size.
"One particularly troubling aspect of Index Speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing. Rising prices attract more Index Speculators, whose tendency is to increase their allocation as prices rise. So their profit-motivated demand for futures is the inverse of what you would expect from price-sensitive consumer behavior.
"You can see from the Chart that prices have increased the most dramatically in the first quarter of 2008. We calculate that Index Speculators flooded the markets with $55 billion in just the first 52 trading days of this year.19 That's an increase in the dollar value of outstanding futures contracts of more than $1 billion per trading day. Doesn't it seem likely that an increase in demand of this magnitude in the commodities futures markets could go a long way in explaining the extraordinary commodities price increases in the beginning of 2008?
"There is a crucial distinction between Traditional Speculators and Index Speculators: Traditional Speculators provide liquidity by both buying and selling futures. Index Speculators buy futures and then roll their positions by buying calendar spreads. They never sell. Therefore, they consume liquidity and provide zero benefit to the futures markets.
"It is easy to see now that traditional policy measures will not work to correct the problem created by Index Speculators, whose allocation decisions are made with little regard for the supply and demand fundamentals in the physical commodity markets. If OPEC supplies the markets with more oil, it will have little affect on Index Speculator demand for oil futures. If Americans reduce their demand through conservation measures like carpooling and using public transportation, it will have little affect on Institutional Investor demand for commodities futures.
"Index Speculators' trading strategies amount to virtual hoarding via the commodities futures markets. Institutional Investors are buying up essential items that exist in limited quantities for the sole purpose of reaping speculative profits.
"Think about it this way: If Wall Street concocted a scheme whereby investors bought large amounts of pharmaceutical drugs and medical devices in order to profit from the resulting increase in prices, making these essential items unaffordable to sick and dying people, society would be justly outraged.
"Why is there not outrage over the fact that Americans must pay drastically more to feed their families, fuel their cars, and heat their homes?"
Elaine Meinel Supkis in her article Oil Speculators Kill Global Economies, Feed Global Inflation summarizes this week commodity news this way:
"High oil prices are tormenting all the oil importing nations. This, in turn, is causing tremendous global inflation. This has happened more than once in my life. We have to understand the nature of speculators, high oil prices and how this impacts all sectors of the economy. And the dark pools run by banking houses whereby they can trade alongside the pirates of the hedge funds, these are a big problem that also cause global inflation. And the bankers want to coordinate these dark pools so they can conspire to make this much, much worse. The bankrupt banks need some money stream they can tap and nothing is better than to use energy and food as that money making machine! Which kills all other business, of course.
"Global inflation is being made much, much worse thanks to the speculators. According to what I have read, these pirates get to buy futures with only $6 per barrel. The rest being LENT to them and they pay only when the contract is completed in the future. If the price drops and they can't sell this future oil for $134 a barrel and say, it goes for $120 a barrel, they have to pay the difference. Or go bankrupt. Usually, the get rich if they and their buddies can keep bidding up the oil. And if they fail, they go bankrupt and no one pays up.
"Another endless hole in our collective pockets. This game is destroying international trade and economics. Look at how bidding up the price of oil is shoving much of the planet into poverty and insurrections! As all the economic systems collapse, all the pirates want is their cut! This is why I call them 'pirates'. They have no social responsibilities."
Jessie in the article US Dollar Weekly chart, presents the chart of the US Dollar, $USD. The evidence is clear, cogent, and convincing that the US does not have a strong dollar policy; the Federal Reserves actions of lowering the interest rate, as it did in early December; and now through eight weeks of TAF, TSLF, and PDCF, serve to lower the value of the Dollar; in as much as gold trades inversely of the Dollar, gold rose both in late December 2007 and now again. This chart strong suggest that the direction of the Dollar is strongly downward; and the implication is that those who have a dollar denominated investment portfolio, like short sellers, are going to suffer an ongoing dilution of wealth relative to gold.
The Euro, FXE, rose to 158.17 causing 'currency torture' to Airbus SAS, the world's largest commercial aircraft maker which is now valued at ``less than zero'' after this year's 31 percent drop in the shares of parent European Aeronautic, Defence & Space Co., according to Lehman Brothers Holdings Inc. analyst Joe Campbell.
``The market is viewing Airbus as a liability, rather than an asset,'' said Campbell, 62, who is based in New York and has ranked among the top five aerospace analysts for six consecutive years in an Institutional Investor magazine poll reports Bloomberg's Andrea Rothman.
I reported recently on Canadian airplane manufacturer Bombardier; given the high cost of oil, look for the share price, BBD/A.TO, of 7.48 to fall rapidly.
Volatility, $VIX, is in breakout, and investors jumped to sell.
Bears successfully sold the US market as seen in the Google Finance chart of five Proshares 200% Bear Market ETFs, TWM, SKF, SRS, DXD, and QID:
TWM Russell 2000 up 5%
SKF Financials up 12%
SRS REIT/Real Real Estate up 10.5%
DXD Dow 30 up 8.1%
QID Nasdaq 100 up 7.2%
And bears successfully sold the market as is seen in the Google Finance chart of three Proshares 200% Foreign Bear Market ETFs, EEV, FXP And EMV:
EEV Emerging Markets up 8.8%
FXP China up 12.2%
EWV Japan up 4.2%
There is coming within weeks a financial emergency of epic proportions stemming from any number of causes, the emergency will require the provisions of the Security and Prosperity Partnership, the SPP, be enforced. The photo below is of President George Bush with Robert J Stevens of Lockheed Martin and other business leaders in a March 2006 Security and Prosperity Partnership "Progress Meeting" held at the Cancun Summit; it exemplifies how stakeholders have been meeting behind the scenes, in working groups, to oversee and manage future affairs of security and prosperity.
The soon coming sweeping economic, financial and political changes presents a greater investment risk than falling stock value, as the US dollar, $USD, is going to suffer a terrific fall in value; one will not want a dollar denominated portfolio of any type; this will be further complicated by the likelihood that one may not have immediate access to the full amount of one's investments in one's brokerage and money market accounts.
I recommend that one immediately disinvest from all stocks, ETFs, bonds and ETFs; and dollar cost average buy gold at Bullionvault.com
V. A review of history, provides insight into the value of gold.
A. The Federal Reserve System was created in 1913.
Bill Paatz relates that on December 22, 1913, with the prospect of the Christmas holiday pressuring the Congress into final action before the session closed, the House voted 298 to 60 in favor of the new Federal Reserve System, and the Senate passed it 43 to 25.
Perhaps without quite realizing it, the Congress had created a powerful engine of private central banking which was given the power to indulge the bankers' voracious appetite for boom-and-bust economics, confiscatory taxation, smothering national indebtedness, and the promotion of war on a worldwide scale. No one suspected that this power would be used to confiscate the people's gold, diminish their savings with inflation, erode the value of insurance policies and fixed incomes, destroy the stability of the dollar, and eventually engulf the nation in a miasma of foreign entanglements which would threaten the very existence of the United States as a nation of free and independent people.
In 1916, just three years after the Federal Reserve System went into operation, President Wilson seems to have suddenly realized what a virtually uncontrollable power monopoly had been vested in the nation's Federal Reserve System. He wrote: 'A great industrial nation is controlled by its system of credit. Our system of credit is concentrated [in the Federal Reserve System]. The growth of the nation, therefore, and all our activities are in the hands of a few men....We Have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world - no longer, a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of small groups of dominant men.' (Quoted in "National Economy and the Banking System," Senate Documents Co. 3, No. 23, Seventy-sixth Congress, First session, 1939).
President Wilson's protest against the 'duress' of a few dominant men is especially interesting in view of the dozens of articles he had written, as head of the political science department at Princeton, criticizing the thinking of the Founding Fathers and calling for stronger centralized power in Washington.
In fact, these men from whom President Wilson was feeling such duress and domination in 1916 were the very ones he had been praising a few years earlier.
It would seem that the superior wisdom of the Founding Fathers had become increasingly apparent, even to Wilson.
B. The real center of economic power is the Federal Reserve's Federal Open Market Committee, FOMC.
Mr. Paatz continues: When is comes to controlling the money supply, the interest rates, and the purchase or sale of securities, the real foot on the throttle and toe on the brake belong to the Open Market Committee. It makes all of the important decisions and meets in Washington, D.C. behind closed doors every three weeks.
The open Market Committee consists of the seven members of the Board of Governors and five of the board chairmen selected from the twelve district banks. One of these will always be the chairman of the New York Bank. The others rotate in turn. Although the chairman from all twelve districts may attend these meetings, only the five who serve on the committee can vote.
The Congress originally intended this powerful committee to be under the close supervision of the non-banking members of the Board of Governors, but it is recognized today that this is strictly a banking-fraternity committee operating completely outside the control of the President, the Secretary of the Treasury, the Comptroller, or the Congress. As of this writing (February 1982) the Open Market Committee operates just like any of the privately-owned central banks of Europe. Dr. Milton Friedman, a most astute student of the Federal Reserve, and also William Simon, former Secretary of the Treasury, consider this Open Market Committee a dangerous threat to the economic stability of the United States and recommend that it be terminated.
C. The World accepted Milton Friedman's principle of floating exchange rates.
Subroto Roy writing in Independent Indian states: In a pure gold standard, gold is money ~ interchangeable in the sense the central bank guarantees it will exchange gold for the paper it issues at an announced price. If that price changes up or down, there is devaluation or revaluation of the currency with respect to gold, depending on how you count it.
A gold exchange standard is similar except gold is not used as money and central banks of nations guarantee the announced prices of their paper moneys with respect to gold in transactions with one another. In the dollar exchange standard, or Bretton Woods system from 1944 to 1971, the US Government alone and uniquely undertook to guarantee the price of the dollar at $35 a troy oz of gold in transactions with all other central banks. That was the underpinning of the international financial system until Richard Nixon “closed the gold window” on 15 August 1971 because the US had largely financed the Vietnam War through money-creation, and other countries’ central banks, like France, had accumulated large dollar-balances. (The military industrial complex generated Vietnam war bankrupted the United States).
The “gold standard”, “gold exchange standard”, and “dollar exchange standard” are all examples of “fixed” exchange rate systems which came to end in 1971-1972. The price of gold at $35 an oz was obviously unrealistically low, and it shot up at once, and has even reached $1000 an oz recently.
Since 1972, the Western world has been on “floating exchange rates” where currencies find their own values and gold is merely one asset among many. (Floating exchange rates being held forth by Milton Friedman).
D. Milton Friedman received his training from the Rothschild's Alfred Marshall.
Arthur Topham of The Radical Press provides the Eustace Mullins the historical account of the training of Milton Friedman from The Rothschild's, The World Order, A Study in the Hegemony of Parasitims:
The career of Lord Alfred Milner (1854-1925) began when he was a protégé of Sir Evelyn Baring, the first Earl of Cromer, partner of Baring Bros., bankers, who had been appointed Director General of Accounts in Egypt. Baring was then the financial advisor of the Khedive of Egypt. Since 1864, Milner had been active in the Colonial Society, founded in London in that year. In 1868, it was renamed the Royal Colonial Institute, and was heavily financed by Barclays Bank, and by the Barings, Sassoons and Jardine Mathieson, all of whom were active in founding the Hong Kong Shanghai Bank, and who were heavily interested in the Asiatic drug traffic. The staff economist of the Royal Colonial Society was Alfred Marshall, founder of the monetarist theory which Milton Friedman now peddles under the aegis of the Hoover Institution and other supposedly “right wing” think-tanks. Marshall, through the Oxford Group, became the patron of Wesley Clair Mitchell, who then taught Burns and Friedman.
E. Neoliberalism And Neoconservatism have risen to control, the Federal Reserve
Milton Friedman, was a pioneer and leading proponent of laissez faire economic policies, and he gave approval to things such as tax cuts for the wealthy, trade deficits, and use of a voucher in the privatization of education as well as privatization of any national industries such as the postal service.
Milton Friedman was a Professor at the University of Chicago at the same time as Leo Strauss, who taught from 1949-67.
Friedman promoted the Chicago School of Free Market Economics; and Leo Strauss the Chicago School of Neocon Politics: these two developed neoliberalism and neoconservatism. Their students rose to become neoliberal leaders in banking, and neocon leaders in the White House, with the result that neoliberalism and neoconservatism are the economic and political principles governing US society and in numerous other countries of the world today, notably, Great Britain, Chile, Canada, and Australia.
President Reagan awarded him the Presidential Metal of Freedom.
Friedman visited Iceland in the autumn of 1984, met with prominent Icelanders and gave a lecture at the University of Iceland on the Tyranny of the Status Quo. He participated in a lively television debate on August 31, 1984 with leading socialist intellectuals, including President Ólafur Ragnar Grímsson. When they complained that a fee was charged for attending his lecture at the University and that hitherto lectures by visiting scholars had been free-of-charge, Friedman replied that previous lectures had not been free-of-charge in a meaningful sense: Lectures always have related costs. What mattered was whether attendees covered those costs, or those who did not attend. Friedman thought that it was fairer that only those who attended, paid.
Friedman's speech was impetus for the financialization of Iceland's economy: Friedman made a great impact on a group of young intellectuals in the Independence Party, including Davíð Oddsson who became Prime Minister in 1991 and began a radical program of monetary and fiscal stabilization, privatization, tax rate reduction (e.g., lowering the corporate income tax rate from 45% to 18%), definition of exclusive use rights in fisheries, abolition of various government funds for aiding unprofitable enterprises and liberalization of currency transfers and capital markets. In 1975, Iceland had the 53rd freest economy in the world, while in 2004, it had the 9th freest economy, according to the Economic Freedom of the World index designed by Canada’s Fraser Institute. According to the index designed by the Heritage Foundation, Iceland as of 2008 has the 5th freest economy in the world. Davíð Oddsson was Prime Minister for thirteen and a half years, to 2004. The present Prime Minister, Geir H. Haarde supports similar policies.
The super wealthy for decades have contributed to right wing think tanks and media, which further promulgate the principles of these two men; these include the Hoover Institution, the Cato Institute, the Fraser Institute, and media pundits such as radio station herald Bill Kristol, and Fox television commentator Karl Rove; and in turn thees shape the mind of the Sheeple, dumbing them down to sound economic, political, investment and wealth management principles.
The Federal Reserve is the dominant economic force governing the US economy. It has a companion in political rule coming through the Council On Foreign Relations, the CFR, which is a David Rockefeller sponsored organization.
In 1971, Murray Rothbard wrote a lengthy article for The Individualist which heavily criticized several of Friedman's viewpoints as totalitarian and statist. In particular, Rothbard criticized Friedman's viewpoint that the micro and macro spheres are entirely separate with the government needing to take an active role in the macro-sphere as false and dangerous, the view that it is beneficial for the government to control currency to maintain constant price levels as bogus and harmful, and the viewpoint that nonpaying benefiters positive externalities created by various services should be taxed to pay producers of that service as an absurd position that opens the door for the most ridiculous forms of totalitarianism. More generally, he criticizes Friedman's efforts to make the government more efficient as highly detrimental to individual liberty, and concludes that "And so, as we examine Milton Friedman’s credentials to be the leader of free-market economics, we arrive at the chilling conclusion that it is difficult to consider him a free-market economist at all", as originally published in 'Milton Friedman Unraveled', 1971 in The Individualist, which was reprinted in the Journal of Libertarian Studies, Fall 2002.
In Friedman's last emai interview in 2006, as reported by Tunku Varadarajan in the Wall Street Journal, when asked: "What is the biggest risk to the world economy: America's deficits? Energy insecurity? Environment? Terrorism? None of the above?", he responded "Islamofascism, with terrorism as its weapon".
F. The Federal Reserve actions have destroyed traditional investment opportunities.
The JPM Buyout Of BSC was the 911 of capitalism: a state corporate combine of government, and investment banking exists with JP Morgan as seignior.
Said another way investment banking and lending have been nationalized; and with the provision of TAF, TSLF, and PDCF, where AAA rated US Government bonds and CDOs, CLOs, illiquid debt of all kinds being transferred to the Treasury, the losses and of the banks and investment bankers has been socialized, that is, transferred to the tax paying public.
The failure of the eight week long rally means stocks and bonds going into the abyss; and gold, although it could easily fall lower somewhat, has arisen as the defacto means of garnering and accumulating wealth.
G. The investment demand for gold has risen yet again and is easily documented in ratios and in charts:
The investment demand for gold can be seen in the following two ratios:
the overall stock market, VTI, relative to gold, GLD, VTI:GLD and
the US Treasuries, TLT, relative to gold, TLT:GLD.
The chart of gold relative to the overall stock market is my all time favorite investment chart as it shows gold booming as the Federal Reserve started to reduce interest rates in 2007: the Federal Reserves actions have continually debased the US dollar and inflated the price of gold. The chart shows that the one on December 11, 2007 was the kindest cut of all.
The chart of gold relative to US Government treasury bonds is of late particularly strong. When I look at the chart of the zero coupon Mutual Bond Fund BTTRX, and see the island reversal candlestick, I am convinced that a run on the US Treasury Bonds is underway. Additional confirmation comes from the rate of interest on the 30 Year bond, $TYX, rising from a double spiked bottom, the second being the very day that the Federal Reserve acted to provide a $30 backstop for the Bear Stearns buyout. The bond marketplace independent of Federal Reserve action has called interest rates higher, and the value of bonds lower lower: the chart shows that interest rates have risen to the 200 day average, and is poised to spring high to destroy investment wealth. The Proshares 200% Bear Bond ETF, TBT, lost 0.2%, this week; in weeks to come it will be a strong gainer. Higher interest rates are going to be a bond killer and a gold thriller.
The investment demand for gold can also be seen in gold's long term 5 x 3 chart which is provided courtesy of The Privateer.
VI. My concluding thoughts today have to do with freedom.
I ask a number of questions like: Is one "free to choose"?, and "Am I more or less free", since I got emancipated from high school in 1969?, and "Is freedom desirable"?
And I ask where are we headed? We are headed into state corporate rule, where the global governance principles of security and prosperity, will be enforced by the North American Competitiveness Council, the NACC, the three leaders of the North American, and their appointed stakeholders to oversee the natural resources of the continent, as well as the institutions of finance, commerce, investment, and trade.
The Federal Reserves' initiatives as well as similar initiatives by Freddie Mac have brought us to the precipice of disaster: society is going to become all the more pyramid in shape, with a wealthy elite and a broad base of pauperized at the bottom.
I do not have any right to do anything about the coming catastrophe; as Jan Allen writes, I choose to exercise 'the only right there is' -- the right to manifest as a child of God.
The Milton Friedman question is: Am I 'free to choose'?
The people of Iceland, choose: they sold their country, their way of life, their fishing rights, and even themselves to become the worlds' bank, now paying 6% interest. And for what? They pay a seigniorage levy, that is a top-dog excise tax, to the currency traders for their baseless deeds in yielding to usurper Milton Friedman.
The way I see it, God choose me, and purposed me from before the foundation to be in Him, so therefore, I walk in the good works he planned for me from eternity past. I don't want freedom, it doesn't do me any good, it can't do me good: I am a love slave of Jesus Christ.
Keywords
systemic risk event, system wide financial collapse,
Corey Rosenbloom reports VIX Inflects Off Lows: fear has crept back into the markets replacing calm and confidence.
The Financial Ninja shows the S&P falling from an ascending wedge
Jesse shows S&P faling.
Renko shows the SPX to be bearish.
TraderZ relates the SPX is weak and headed lower.
Index Trading says of the SPX, "we've been warning"
Petie shows the S&P falling in a C Wave Down.
Lamdar says the SPYs 200 day SMA proved to be a pipe dream and it probably won’t turn upwards for a while now.
Permabear Trader Tim Knight relates The Bear Is Back and says in contrarian way "our national nightmare is over"
I. Investment bankers, banks and retailers fell taking the stock market lower.
Investment bankers, KCE, fell 7.1%, Banks, KBE, 5.5%, and Retail, XRT, 5.8%, turning the stock market lower this week: the Dow, DIA, fell 3.8%, the S&P, SPY, 3.5%, the Russell 2000, IWM, 2.3.
Lehman Brothers, LEH, fell 17% due to the continual prodding of hedge fund manager David Einhorn over Lehman's Erin Callan's purported transparency. Portfolio.com's Megan Barnett writing in An Einhorn in Her Side references Mr. Eihornr's discrepancies between what Ms. Callan announced to analysts during a conference call in March, and what was included in its quarterly filing several weeks later.
Sympathetic losses, over level three assets, caused Morgan Stanley, MS, to fall 11%, and Merrill Lynch, MER, 11%.
The derivative laden ones, fell sharply: Bank of America, BAC, 6.2%, Citigroup, C, 8.85, Goldman Sachs, GS, 7.7%, and JP Morgan Chase, JPM, 9.1%.
Natural resource stock prices fell even though oil and gold commodity prices rose, suggesting the end of profitable oil and gas stock investing as stocks are no longer capitalizing on strength in their underlying commodity. The Proshares 200% inverse of the oil and gas shares, DUG, increase 4.2% this week.
The continuing ascent of energy prices sent airline stocks into severe turbulence Wednesday as AMR, parent of American Airlines, said it would eliminate some flights to offset steep fuel costs. The carrier also said it would impose a $15 fee on the first piece of luggage checked by a traveler. The Dow Jones US Airlines Index, $DJUSAR, fell 19.8%. And 123Trader shows the airline stocks chart. "The airline industry is devastated. It can't survive $130-a-barrel oil," said industry analyst Ray Neidl at Calyon Securities in New York. Many analysts think that unless oil prices fall back to about $100 a barrel - where they were as recently as April - the industry will have to slash 20% of its routes, the equivalent of knocking two major airlines out of business, reports Peter G. Gosselin of the Los Angeles Times.
The Copper ETN, JJC, fell 2.4% this week as copper inventories monitored by the London Metal Exchange have surged 13-percent this month, reaching the highest level since March 17 and China imports of copper, fell 19-percent in the first quarter from a year earlier.
The S&P Large Cap Index, $SPX, manifested a dramatic reversal. First the daily chart shows that it hit resistance at hit resistane at 1420 and quickly boundce lower to clos at 1375; and secondly, its P&F pattern chart manifested a bearish reversal signal with an immediate price objective lower at 1310.
The S&P, the Dow, and the Nasdaq are being pulled down by both the banks, KBE, and the investment bankers, KCE. Banks have been falling for three weeks now; the confidence provided by the Federal Reserve's TAF, TSLF, and PDCF facilities has run its course; and speculative lending coming through the Yen Carry Trade, as seen in the EUR/JPY, has driven the Brics, EEB, back to their all time high: the bear market is now once again getting underway.
FAS 157 has enabled banks and investment bankers worldwide to classify highly leveraged and illiquid mortgage backed securities as level three assets. Thus, corporations avoid having to write the assets down to their real worth, and prevents the associated loss from showing on their income statement. This Alice in wonderland accounting as Mike Mish Sheldon calls it, has its benefits: it prevented a 1967 or worse type of crash.
II. Sectors and countries falling the most this week included the following.
TUR Turkey 7.9%
KCE Investment Banking 7.1%
IYG Financials 6.5%
AIG Insurance 6.1%
XRT Retail 5.8%
FXI China 5.7%
EWT Taiwan 5.5%
KBE Banking 100% 5.4%
XLY Consumer Discretionary 5.2%
IYR Real Estate 4.7%
SLX Steel 4.6%
XSD Semiconductor 4.5%
QTEC Nasdaq 100 4.5%
RWR REIT/Real Real Estate 4.5%
III. Increased risk aversion and stagflation were the factors turning the market lower.
Risk aversion came from an awareness:
1) that the homebuilders inventory of homes is now beyond a two year supply and growing, while prices are falling off the cliff, yet they keep building to pay their executives salaries,
2) that the bank's, and investment bankers, so called asset base of leveraged mortgage backed securities cannot be repaid, that this irredeemable debt, a great deal of which is not even recorded on the bank's books because it is kept of the balance sheets in VIEs, will have to eventually be liquidated,
3) that financial institutions can no longer generate income and earnings from securitization, that is financialization,
4) that the banks are going to have to raise borrowing rates and cut the amount of credit available to consumers by half,
5) that the the consumer's sentiment is sour terrifically limiting future retail and discretionary sales.
6) of the Case-Shiller home price index posted its largest drop in its 17 year history; with prices falling the fastest in California, Nevada, and Florida; once such dramatic contagion starts, there is nothing, absolutely nothing, that can be done to stop ongoing destruction.
7) of the BCA Research report which relates that the Ifo World Economic Climate Index has worsened further in the second quarter of 2008, the indicator having fallen to its lowest level in six years. Chart of World Economic Climate courtesy of Hans-Werner Sinn of the IFO Institute For Economic Research May 20, 2008
Stagflation which is seen in rising inflation, and falling real estate, employment and manufacturing production means both corporate earnings and stock values will be turning down.
David Fuller of Fullermoney said this week: "As the world's most important commodity by far, this surge in the oil price is bearish for the majority of stock markets. Consequently I would assume that rallies seen since March have either been capped or are unlikely to make much upward progress until investors see evidence that crude oil has commenced a medium-term correction."
Asha Bangalore of Northern Trust relates that wholesale prices seen in chart present a troubling issue: The Producer Price Index (PPI) for Finished Goods moved up 0.2% in April, following a 1.1% increase in the prior month. The steady reading for food and a 0.2% drop in the energy price index helped to tame the overall wholesale price index. On a year-to-year basis, the PPI for finished goods increased 6.5% in April versus a 6.2% increase in 2007. In the first four months of the year, the energy price index has risen at a seasonally adjusted annual rate of 18.0% and the food price measure has moved up 7.3% compared with a 17.8% gain in energy prices and a 7.6% increase in food prices in 2007."
The ratio of the overall stock markets relative to the banks, VTI:KBE, rose to an all time high, suggesting that unless banks rise next week, which is unlikely, the overall stock market, VTI, will be compelled sharply lower as the investment bankers and banks lead the way down again in the resumption of bear market; the chart of the overall stock market, VTI, shows a massive bearish engulfing candlestick.
The EUR/JPY, as seen in the daily chart of FXE:FXY, manifested a 'popping' lollipop hanging man candlestick at 1.648 and turned lower to close at 1.637; from which I expect to see a slow fall downward.
The weekly chart of FXE:FXY shows pops in July 2007, October 2007, November 2007, December 2007, and now; all of these coincide with stock market turns reflecting an unwinding of the yen carry trade. I expect that now with basic material, IYM, Nasdaq, QQQQ, energy, XLE, all turning lower, the EUR/JPY will gradually fall lower, reflecting disinvestment from even the emerging markets, including the hot ones like the Brics, EEB, and Brazil, EWZ. I expect the fall to be gradual as investors will still be using low cost Bank of Japan, BOJ, loans to go long commodities.
IV. The eight week long rally has failed, and the bear stock market started up again this week.
As the earnings reporting season is completed, the benefits of TAF, TSLF, PDCF facilities fully priced in, the Federal Reserve FOMC minutes showing there will be no further rate reductions meaning the stock market is on its own, sour consumer sentiment, and the downward trajectory of financial, housing, real estate, retail, and semiconductor stocks, I conclude that the eight week long rally, that began with the Federal Reserve assisted JP Morgan buyout of Bear Stearns, is over.
This rally had been accompanied by a 'speculative up burst' in the price of commodities, particularly, oil, and gold, that came via bank loans, as well as the use of Yen Carry Trade loans coming from the Bank of Japan, BOJ. The chart of commodities, $CRB, shows an all time high with a doji, suggesting a pause; Oil $WTIC, shows a rise to close at an all time high of $132.19; Gold, $GOLD, shows three consecutive weeks up; While the US Dollar, $USD, shows three black crows to close at $71.96 reflecting terrific debasement of the US currency by ongoing Federal Reserve initiatives, and the lowering of the central bank interest rate.
A hat tip to AmericanFuels blog site about Michael Masters gave testimony on commodity prices before the US Senate, as reported in mCADForums, that indeed speculation is driving commodity prices and provides this helpful chart of the Commodity Futures Markets Size.
"One particularly troubling aspect of Index Speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing. Rising prices attract more Index Speculators, whose tendency is to increase their allocation as prices rise. So their profit-motivated demand for futures is the inverse of what you would expect from price-sensitive consumer behavior.
"You can see from the Chart that prices have increased the most dramatically in the first quarter of 2008. We calculate that Index Speculators flooded the markets with $55 billion in just the first 52 trading days of this year.19 That's an increase in the dollar value of outstanding futures contracts of more than $1 billion per trading day. Doesn't it seem likely that an increase in demand of this magnitude in the commodities futures markets could go a long way in explaining the extraordinary commodities price increases in the beginning of 2008?
"There is a crucial distinction between Traditional Speculators and Index Speculators: Traditional Speculators provide liquidity by both buying and selling futures. Index Speculators buy futures and then roll their positions by buying calendar spreads. They never sell. Therefore, they consume liquidity and provide zero benefit to the futures markets.
"It is easy to see now that traditional policy measures will not work to correct the problem created by Index Speculators, whose allocation decisions are made with little regard for the supply and demand fundamentals in the physical commodity markets. If OPEC supplies the markets with more oil, it will have little affect on Index Speculator demand for oil futures. If Americans reduce their demand through conservation measures like carpooling and using public transportation, it will have little affect on Institutional Investor demand for commodities futures.
"Index Speculators' trading strategies amount to virtual hoarding via the commodities futures markets. Institutional Investors are buying up essential items that exist in limited quantities for the sole purpose of reaping speculative profits.
"Think about it this way: If Wall Street concocted a scheme whereby investors bought large amounts of pharmaceutical drugs and medical devices in order to profit from the resulting increase in prices, making these essential items unaffordable to sick and dying people, society would be justly outraged.
"Why is there not outrage over the fact that Americans must pay drastically more to feed their families, fuel their cars, and heat their homes?"
Elaine Meinel Supkis in her article Oil Speculators Kill Global Economies, Feed Global Inflation summarizes this week commodity news this way:
"High oil prices are tormenting all the oil importing nations. This, in turn, is causing tremendous global inflation. This has happened more than once in my life. We have to understand the nature of speculators, high oil prices and how this impacts all sectors of the economy. And the dark pools run by banking houses whereby they can trade alongside the pirates of the hedge funds, these are a big problem that also cause global inflation. And the bankers want to coordinate these dark pools so they can conspire to make this much, much worse. The bankrupt banks need some money stream they can tap and nothing is better than to use energy and food as that money making machine! Which kills all other business, of course.
"Global inflation is being made much, much worse thanks to the speculators. According to what I have read, these pirates get to buy futures with only $6 per barrel. The rest being LENT to them and they pay only when the contract is completed in the future. If the price drops and they can't sell this future oil for $134 a barrel and say, it goes for $120 a barrel, they have to pay the difference. Or go bankrupt. Usually, the get rich if they and their buddies can keep bidding up the oil. And if they fail, they go bankrupt and no one pays up.
"Another endless hole in our collective pockets. This game is destroying international trade and economics. Look at how bidding up the price of oil is shoving much of the planet into poverty and insurrections! As all the economic systems collapse, all the pirates want is their cut! This is why I call them 'pirates'. They have no social responsibilities."
Jessie in the article US Dollar Weekly chart, presents the chart of the US Dollar, $USD. The evidence is clear, cogent, and convincing that the US does not have a strong dollar policy; the Federal Reserves actions of lowering the interest rate, as it did in early December; and now through eight weeks of TAF, TSLF, and PDCF, serve to lower the value of the Dollar; in as much as gold trades inversely of the Dollar, gold rose both in late December 2007 and now again. This chart strong suggest that the direction of the Dollar is strongly downward; and the implication is that those who have a dollar denominated investment portfolio, like short sellers, are going to suffer an ongoing dilution of wealth relative to gold.
The Euro, FXE, rose to 158.17 causing 'currency torture' to Airbus SAS, the world's largest commercial aircraft maker which is now valued at ``less than zero'' after this year's 31 percent drop in the shares of parent European Aeronautic, Defence & Space Co., according to Lehman Brothers Holdings Inc. analyst Joe Campbell.
``The market is viewing Airbus as a liability, rather than an asset,'' said Campbell, 62, who is based in New York and has ranked among the top five aerospace analysts for six consecutive years in an Institutional Investor magazine poll reports Bloomberg's Andrea Rothman.
I reported recently on Canadian airplane manufacturer Bombardier; given the high cost of oil, look for the share price, BBD/A.TO, of 7.48 to fall rapidly.
Volatility, $VIX, is in breakout, and investors jumped to sell.
Bears successfully sold the US market as seen in the Google Finance chart of five Proshares 200% Bear Market ETFs, TWM, SKF, SRS, DXD, and QID:
TWM Russell 2000 up 5%
SKF Financials up 12%
SRS REIT/Real Real Estate up 10.5%
DXD Dow 30 up 8.1%
QID Nasdaq 100 up 7.2%
And bears successfully sold the market as is seen in the Google Finance chart of three Proshares 200% Foreign Bear Market ETFs, EEV, FXP And EMV:
EEV Emerging Markets up 8.8%
FXP China up 12.2%
EWV Japan up 4.2%
There is coming within weeks a financial emergency of epic proportions stemming from any number of causes, the emergency will require the provisions of the Security and Prosperity Partnership, the SPP, be enforced. The photo below is of President George Bush with Robert J Stevens of Lockheed Martin and other business leaders in a March 2006 Security and Prosperity Partnership "Progress Meeting" held at the Cancun Summit; it exemplifies how stakeholders have been meeting behind the scenes, in working groups, to oversee and manage future affairs of security and prosperity.
The soon coming sweeping economic, financial and political changes presents a greater investment risk than falling stock value, as the US dollar, $USD, is going to suffer a terrific fall in value; one will not want a dollar denominated portfolio of any type; this will be further complicated by the likelihood that one may not have immediate access to the full amount of one's investments in one's brokerage and money market accounts.
I recommend that one immediately disinvest from all stocks, ETFs, bonds and ETFs; and dollar cost average buy gold at Bullionvault.com
V. A review of history, provides insight into the value of gold.
A. The Federal Reserve System was created in 1913.
Bill Paatz relates that on December 22, 1913, with the prospect of the Christmas holiday pressuring the Congress into final action before the session closed, the House voted 298 to 60 in favor of the new Federal Reserve System, and the Senate passed it 43 to 25.
Perhaps without quite realizing it, the Congress had created a powerful engine of private central banking which was given the power to indulge the bankers' voracious appetite for boom-and-bust economics, confiscatory taxation, smothering national indebtedness, and the promotion of war on a worldwide scale. No one suspected that this power would be used to confiscate the people's gold, diminish their savings with inflation, erode the value of insurance policies and fixed incomes, destroy the stability of the dollar, and eventually engulf the nation in a miasma of foreign entanglements which would threaten the very existence of the United States as a nation of free and independent people.
In 1916, just three years after the Federal Reserve System went into operation, President Wilson seems to have suddenly realized what a virtually uncontrollable power monopoly had been vested in the nation's Federal Reserve System. He wrote: 'A great industrial nation is controlled by its system of credit. Our system of credit is concentrated [in the Federal Reserve System]. The growth of the nation, therefore, and all our activities are in the hands of a few men....We Have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world - no longer, a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of small groups of dominant men.' (Quoted in "National Economy and the Banking System," Senate Documents Co. 3, No. 23, Seventy-sixth Congress, First session, 1939).
President Wilson's protest against the 'duress' of a few dominant men is especially interesting in view of the dozens of articles he had written, as head of the political science department at Princeton, criticizing the thinking of the Founding Fathers and calling for stronger centralized power in Washington.
In fact, these men from whom President Wilson was feeling such duress and domination in 1916 were the very ones he had been praising a few years earlier.
It would seem that the superior wisdom of the Founding Fathers had become increasingly apparent, even to Wilson.
B. The real center of economic power is the Federal Reserve's Federal Open Market Committee, FOMC.
Mr. Paatz continues: When is comes to controlling the money supply, the interest rates, and the purchase or sale of securities, the real foot on the throttle and toe on the brake belong to the Open Market Committee. It makes all of the important decisions and meets in Washington, D.C. behind closed doors every three weeks.
The open Market Committee consists of the seven members of the Board of Governors and five of the board chairmen selected from the twelve district banks. One of these will always be the chairman of the New York Bank. The others rotate in turn. Although the chairman from all twelve districts may attend these meetings, only the five who serve on the committee can vote.
The Congress originally intended this powerful committee to be under the close supervision of the non-banking members of the Board of Governors, but it is recognized today that this is strictly a banking-fraternity committee operating completely outside the control of the President, the Secretary of the Treasury, the Comptroller, or the Congress. As of this writing (February 1982) the Open Market Committee operates just like any of the privately-owned central banks of Europe. Dr. Milton Friedman, a most astute student of the Federal Reserve, and also William Simon, former Secretary of the Treasury, consider this Open Market Committee a dangerous threat to the economic stability of the United States and recommend that it be terminated.
C. The World accepted Milton Friedman's principle of floating exchange rates.
Subroto Roy writing in Independent Indian states: In a pure gold standard, gold is money ~ interchangeable in the sense the central bank guarantees it will exchange gold for the paper it issues at an announced price. If that price changes up or down, there is devaluation or revaluation of the currency with respect to gold, depending on how you count it.
A gold exchange standard is similar except gold is not used as money and central banks of nations guarantee the announced prices of their paper moneys with respect to gold in transactions with one another. In the dollar exchange standard, or Bretton Woods system from 1944 to 1971, the US Government alone and uniquely undertook to guarantee the price of the dollar at $35 a troy oz of gold in transactions with all other central banks. That was the underpinning of the international financial system until Richard Nixon “closed the gold window” on 15 August 1971 because the US had largely financed the Vietnam War through money-creation, and other countries’ central banks, like France, had accumulated large dollar-balances. (The military industrial complex generated Vietnam war bankrupted the United States).
The “gold standard”, “gold exchange standard”, and “dollar exchange standard” are all examples of “fixed” exchange rate systems which came to end in 1971-1972. The price of gold at $35 an oz was obviously unrealistically low, and it shot up at once, and has even reached $1000 an oz recently.
Since 1972, the Western world has been on “floating exchange rates” where currencies find their own values and gold is merely one asset among many. (Floating exchange rates being held forth by Milton Friedman).
D. Milton Friedman received his training from the Rothschild's Alfred Marshall.
Arthur Topham of The Radical Press provides the Eustace Mullins the historical account of the training of Milton Friedman from The Rothschild's, The World Order, A Study in the Hegemony of Parasitims:
The career of Lord Alfred Milner (1854-1925) began when he was a protégé of Sir Evelyn Baring, the first Earl of Cromer, partner of Baring Bros., bankers, who had been appointed Director General of Accounts in Egypt. Baring was then the financial advisor of the Khedive of Egypt. Since 1864, Milner had been active in the Colonial Society, founded in London in that year. In 1868, it was renamed the Royal Colonial Institute, and was heavily financed by Barclays Bank, and by the Barings, Sassoons and Jardine Mathieson, all of whom were active in founding the Hong Kong Shanghai Bank, and who were heavily interested in the Asiatic drug traffic. The staff economist of the Royal Colonial Society was Alfred Marshall, founder of the monetarist theory which Milton Friedman now peddles under the aegis of the Hoover Institution and other supposedly “right wing” think-tanks. Marshall, through the Oxford Group, became the patron of Wesley Clair Mitchell, who then taught Burns and Friedman.
E. Neoliberalism And Neoconservatism have risen to control, the Federal Reserve
Milton Friedman, was a pioneer and leading proponent of laissez faire economic policies, and he gave approval to things such as tax cuts for the wealthy, trade deficits, and use of a voucher in the privatization of education as well as privatization of any national industries such as the postal service.
Milton Friedman was a Professor at the University of Chicago at the same time as Leo Strauss, who taught from 1949-67.
Friedman promoted the Chicago School of Free Market Economics; and Leo Strauss the Chicago School of Neocon Politics: these two developed neoliberalism and neoconservatism. Their students rose to become neoliberal leaders in banking, and neocon leaders in the White House, with the result that neoliberalism and neoconservatism are the economic and political principles governing US society and in numerous other countries of the world today, notably, Great Britain, Chile, Canada, and Australia.
President Reagan awarded him the Presidential Metal of Freedom.
Friedman visited Iceland in the autumn of 1984, met with prominent Icelanders and gave a lecture at the University of Iceland on the Tyranny of the Status Quo. He participated in a lively television debate on August 31, 1984 with leading socialist intellectuals, including President Ólafur Ragnar Grímsson. When they complained that a fee was charged for attending his lecture at the University and that hitherto lectures by visiting scholars had been free-of-charge, Friedman replied that previous lectures had not been free-of-charge in a meaningful sense: Lectures always have related costs. What mattered was whether attendees covered those costs, or those who did not attend. Friedman thought that it was fairer that only those who attended, paid.
Friedman's speech was impetus for the financialization of Iceland's economy: Friedman made a great impact on a group of young intellectuals in the Independence Party, including Davíð Oddsson who became Prime Minister in 1991 and began a radical program of monetary and fiscal stabilization, privatization, tax rate reduction (e.g., lowering the corporate income tax rate from 45% to 18%), definition of exclusive use rights in fisheries, abolition of various government funds for aiding unprofitable enterprises and liberalization of currency transfers and capital markets. In 1975, Iceland had the 53rd freest economy in the world, while in 2004, it had the 9th freest economy, according to the Economic Freedom of the World index designed by Canada’s Fraser Institute. According to the index designed by the Heritage Foundation, Iceland as of 2008 has the 5th freest economy in the world. Davíð Oddsson was Prime Minister for thirteen and a half years, to 2004. The present Prime Minister, Geir H. Haarde supports similar policies.
The super wealthy for decades have contributed to right wing think tanks and media, which further promulgate the principles of these two men; these include the Hoover Institution, the Cato Institute, the Fraser Institute, and media pundits such as radio station herald Bill Kristol, and Fox television commentator Karl Rove; and in turn thees shape the mind of the Sheeple, dumbing them down to sound economic, political, investment and wealth management principles.
The Federal Reserve is the dominant economic force governing the US economy. It has a companion in political rule coming through the Council On Foreign Relations, the CFR, which is a David Rockefeller sponsored organization.
In 1971, Murray Rothbard wrote a lengthy article for The Individualist which heavily criticized several of Friedman's viewpoints as totalitarian and statist. In particular, Rothbard criticized Friedman's viewpoint that the micro and macro spheres are entirely separate with the government needing to take an active role in the macro-sphere as false and dangerous, the view that it is beneficial for the government to control currency to maintain constant price levels as bogus and harmful, and the viewpoint that nonpaying benefiters positive externalities created by various services should be taxed to pay producers of that service as an absurd position that opens the door for the most ridiculous forms of totalitarianism. More generally, he criticizes Friedman's efforts to make the government more efficient as highly detrimental to individual liberty, and concludes that "And so, as we examine Milton Friedman’s credentials to be the leader of free-market economics, we arrive at the chilling conclusion that it is difficult to consider him a free-market economist at all", as originally published in 'Milton Friedman Unraveled', 1971 in The Individualist, which was reprinted in the Journal of Libertarian Studies, Fall 2002.
In Friedman's last emai interview in 2006, as reported by Tunku Varadarajan in the Wall Street Journal, when asked: "What is the biggest risk to the world economy: America's deficits? Energy insecurity? Environment? Terrorism? None of the above?", he responded "Islamofascism, with terrorism as its weapon".
F. The Federal Reserve actions have destroyed traditional investment opportunities.
The JPM Buyout Of BSC was the 911 of capitalism: a state corporate combine of government, and investment banking exists with JP Morgan as seignior.
Said another way investment banking and lending have been nationalized; and with the provision of TAF, TSLF, and PDCF, where AAA rated US Government bonds and CDOs, CLOs, illiquid debt of all kinds being transferred to the Treasury, the losses and of the banks and investment bankers has been socialized, that is, transferred to the tax paying public.
The failure of the eight week long rally means stocks and bonds going into the abyss; and gold, although it could easily fall lower somewhat, has arisen as the defacto means of garnering and accumulating wealth.
G. The investment demand for gold has risen yet again and is easily documented in ratios and in charts:
The investment demand for gold can be seen in the following two ratios:
the overall stock market, VTI, relative to gold, GLD, VTI:GLD and
the US Treasuries, TLT, relative to gold, TLT:GLD.
The chart of gold relative to the overall stock market is my all time favorite investment chart as it shows gold booming as the Federal Reserve started to reduce interest rates in 2007: the Federal Reserves actions have continually debased the US dollar and inflated the price of gold. The chart shows that the one on December 11, 2007 was the kindest cut of all.
The chart of gold relative to US Government treasury bonds is of late particularly strong. When I look at the chart of the zero coupon Mutual Bond Fund BTTRX, and see the island reversal candlestick, I am convinced that a run on the US Treasury Bonds is underway. Additional confirmation comes from the rate of interest on the 30 Year bond, $TYX, rising from a double spiked bottom, the second being the very day that the Federal Reserve acted to provide a $30 backstop for the Bear Stearns buyout. The bond marketplace independent of Federal Reserve action has called interest rates higher, and the value of bonds lower lower: the chart shows that interest rates have risen to the 200 day average, and is poised to spring high to destroy investment wealth. The Proshares 200% Bear Bond ETF, TBT, lost 0.2%, this week; in weeks to come it will be a strong gainer. Higher interest rates are going to be a bond killer and a gold thriller.
The investment demand for gold can also be seen in gold's long term 5 x 3 chart which is provided courtesy of The Privateer.
VI. My concluding thoughts today have to do with freedom.
I ask a number of questions like: Is one "free to choose"?, and "Am I more or less free", since I got emancipated from high school in 1969?, and "Is freedom desirable"?
And I ask where are we headed? We are headed into state corporate rule, where the global governance principles of security and prosperity, will be enforced by the North American Competitiveness Council, the NACC, the three leaders of the North American, and their appointed stakeholders to oversee the natural resources of the continent, as well as the institutions of finance, commerce, investment, and trade.
The Federal Reserves' initiatives as well as similar initiatives by Freddie Mac have brought us to the precipice of disaster: society is going to become all the more pyramid in shape, with a wealthy elite and a broad base of pauperized at the bottom.
I do not have any right to do anything about the coming catastrophe; as Jan Allen writes, I choose to exercise 'the only right there is' -- the right to manifest as a child of God.
The Milton Friedman question is: Am I 'free to choose'?
The people of Iceland, choose: they sold their country, their way of life, their fishing rights, and even themselves to become the worlds' bank, now paying 6% interest. And for what? They pay a seigniorage levy, that is a top-dog excise tax, to the currency traders for their baseless deeds in yielding to usurper Milton Friedman.
The way I see it, God choose me, and purposed me from before the foundation to be in Him, so therefore, I walk in the good works he planned for me from eternity past. I don't want freedom, it doesn't do me any good, it can't do me good: I am a love slave of Jesus Christ.
Keywords
systemic risk event, system wide financial collapse,
