Economy

Thursday, December 3, 2009

Here’s a quick pair of articles that nicely illustrates the level of spin that we have to endure on a daily basis.  As we are all aware, consumer spending is the largest driver of the US economy.  By far.

Eyeballs everywhere are glued to this year’s holiday retail numbers, because if they are bad…well, then the stock market rally might be hard to sustain or explain.

It turns out that the November sales numbers came in far worse than expected: 

I’ve been asked quite a few times to share what I keep a close eye on in the markets.  In my framework, everything hinges on the dollar.  The thing I am most concerned about is an abrupt fall in the dollar.

So I keep a close eye on three things each day:  the dollar, interest rates, and gold.  By tracking these three things, I feel I am adequately prepared to know if a major event is occurring.  Should I see a pronounced break in all three of these items in concert, I will send out one of my very rare alerts.

For those new to the site, I will only send out an alert if I receive information that would personally cause me to take a specific action.  Those actions might be “retrieve my gold from the bank,” or “take out more cash,” or “go home” (if traveling), or “fuel up the cars,” and so forth.  Suffice it to say that there are a number of events that would cause me to shift from relative complacency to more vigorous action.

I consider these events to be rather unlikely, even improbable, but I cannot dismiss these concerns entirely.  So my approach is to develop a plan of action and keep a close eye on a few sentinel charts that reflect the views of millions of separate eyeballs.

I am truly amazed at what I am seeing out there in the markets these days.  I also understand and share the frustration of the many analysts who know what “should” be happening but is not.

What should be happening is massive, self-reinforcing deflation caused by debt destruction and resulting from the housing bust and retreat of consumer borrowing.

These are harrowing figures:

Since August, I’ve been tracking the liquidity flood in the markets, and while I’ve been marveling (and taking potshots) at it, I’ve also been challenging myself to remain open to the possibility that even heroic levels of liquidity might fail and the stock market could fall.

In this article I will explore that other side.

There was some important as well as aggravating housing news this week.  It is difficult to see how the US economy is going to truly pick up (I mean without the use of trillions in freshly printed government funny-money) without a recovery in housing.

The government and the Federal Reserve have been doing all they can to help housing, but, unfortunately, houses do not trade on a paper exchange, where prices are more readily subject to intervention and manipulation.

The Federal Reserve is on track to buy up $1,250,000,000,000 of mortgages and another $225,000,000,000 of agency debt from the GSEs (Fannie, Freddie, and the FHA).

The aggravating part of the news cycle was the admission that the FHA is about to run out of cash and become (yet another) drain on the US Treasury.  I say aggravating, because many months ago I was writing about the obvious fact that their new policy of allowing 3% down and ultra-low credit scores was a dead-certain recipe for disaster.

There was a huge amount of press and follow-up to the Guardian article of the leaks.  This theme is important enough to continue exploring.  Anybody who has seen the Crash Course does not need any more information about Peak Oil itself.

Instead, I am most fixated on when a tipping point in global awareness about Peak Oil might occur.  That’s why this revelation and all the press it has been getting has been extremely interesting to me.

The first article helps to provide some more context and backing for the ‘leaks,’ which turn out not to have been very original leaks, since others were told this same information as early as 2007.

There’s a new Martenson Report ready for you.  It’s quite germane to today’s market action. 

After digging around and sifting through the things both said and not said, I have come to the conclusion that what we are seeing are the likely effects of a rescue operation.

By this I mean a large injection of stabilizing cash to one or more parties, possibly related to the recent large bankruptcies.  Two of my friends, who have been actively trading for more than 20 years between them, threw in the towel this week, as their patterns and methods are no longer working.

Their conclusion is the same as mine; this market is not trading like it used to.  It is trading chaotically, counterintuitively, and as if there’s some sort of distorting influence involved.

First, we might just wonder if this isn’t the impact of a rogue firm with entirely too much power moving the market for its own benefit.