Tuesday, July 2, 2013

The Economy Is Quickly Headed South - QE 4 To Follow

Sure baby, mañana. It was always mañana. For the next few weeks that was all I heard––mañana a lovely word and one that probably means heaven.  - Sal Paradise, main voice in Jack Kerouac's  "On The Road"
That famous line from "On The Road" came to mind after I read a summary of the Fed's Bill Dudley's speech today in which he admitted that the Fed is often "too optimistic" in its economic forecasts but that he himself saw a stronger economy in 2014:  "Tomorrow and tomorrow and tomorrow...It's a tale told by an idiot, full of sound and fury, signifying nothing" (Macbeth).

For two days in a row now, the stock market - as represented by the S&P 500 - opened up with big moves higher, only to reverse course and close well off its highs of the day.  As I write this, the SPX has sold off into negative territory.   If the outlook is for a better economy, why this market action?  In fact, yesterday the Dow Jones homebuilder Index closed negative and over 2% off of its early-day highs.  This is the action of a market that wants to go lower and it wants to go lower because fundamentals are deteriorating.

I wrote an article last Friday published by Seeking Alpha in which I outline the real numbers beneath the headline facades reported by the media - the tales told by idiots.  You can see the true facts here:  Economy Is Headed Down The Tubes

Since that was published, some more statistics presented bullishly in the headlines further reinforce my thesis.  Yesterday was the Chicago Manufacturing PMI index, which registered a slight gain primarily because of the prices paid component (inflation) but the employment sub-index was not only lower, it hit a low not seen since September 2009.

And today's factory orders headline gain - although it missed expectations - was driven by defense orders (we borrow to pay for defense spending, by the way).  Technology and electronic orders both registered big drops and inventories were flat (per my article linked above, inventory-build represented 33% of Q1's lower-revised GDP number).

The economy is not in good shape, despite what "they" say.  The last gasp in the housing market is being fueled by homebuilders and mortgage brokers pushing 5-yr ARM mortgages (remember those in the last bubble?) and auto sales are being fueled by 0% financing from all auto manufacturers now.

If I don't post anything tomorrow, have a happy and healthy July 4th holiday.  With Greece, Italy and France imploding on derivatives, the fun begins on Monday and my forecast calls for much higher gold and silver prices by the end of July as my thesis on both housing and the economy proves accurate and the market begins to price in a new round of QE.  Ciao et buon fine settimana lungo.


  1. Dudley sounds like the Cubs fans.

  2. Fraud Confirmed: 100-Day Delay To Take Bullion Delivery In London

    As the rampant criminality in bullion markets becomes more and more apparent (even to outside observers); we get another anecdote from the Corporate Media illustrating the level of fraud/manipulation in unequivocal terms. We’re told that bullion-buyers in London must now wait more than 100 days to take delivery of the bullion for which they have already paid.

    The comedic drones at Bloomberg, and officials of the London Metal Exchange itself would have us believe this is due to “warehouse queues.” While precious metals bulls undoubtedly appreciate the imagery implied of a 100-day line-up of armored cars waiting to load their bullion – in the middle of this “bear market” – the implication is fallacious.

    In an era of just-in-time inventories; the notion that there can be a 100-day backlog to load bullion into armored cars with the metal already sitting in the warehouse is ludicrous. Clearly what the LME is really reporting here is a greater-than-three-month delay to refine the gold (or silver) being purchased here – and then ship it to their warehouse.

    In other words, the “bullion” which traders believe they are purchasing today is in fact merely ore which hasn’t even been dug out of the ground yet. While gold and silver miners have nearly eliminated the suicidal “hedging” which the banking cabal used to suppress the sector even further in previous years; the banksters are now effectively “forward-selling” the gold and silver of these mining companies – by selling “gold” and “silver” which doesn’t even exist yet.


  3. Que Eee Four?!!!!???!!!

    Stated as "new yoke Ceety???!!!???" from the salsa commercial.

    No one is gonna believe it but you're daggonit right Davey!

    1. LOL. Yo JR - don't blow your hand with cherry bombs on Thursday!

  4. Good article. You must have a thick-skin to put up with some of the comments. The crash coming is so obvious but, just like the last crash, there were people who refuse to accept it.

    1. Thanks for the feedback. Denial, in my view, is the strongest of the human defense mechanisms.

  5. Something to think about on July 4th:

    Ray McGovern: “Obama is Afraid of the C.I.A.”
    Posted on July 2, 2013

    Many people have speculated that Obama is a direct operator for the C.I.A., which explains the complete cronyism and deception in his every act as President. This wouldn’t surprise me. Others speculate that he is just an empty-suit political hack who was informed about “how things work” by the shadow government after he was sworn in. This wouldn’t surprise me either. More importantly, what we can all agree on now is that it is certainly one or the other. Retired C.I.A. analyst Ray McGovern has come out and given his opinion in a recent interview. His best line, and one that sums it up perfectly is:

    I think he’s just afraid and he shouldn’t have run for president if he was going to be this much of a wuss.


  6. Hi Dave, Do you put much stock in the thought of the COMEX and/or GLD running out of inventory? Thanks...and oh, by the way...

    E si dispone di un buon fine settimana.

    1. Grazie mille!

      I have always believed that "they" won't let the Comex default until right before they know they can't stop the system from collapsing. It's too obvious and they still have a big chunk of wealth to expropriate from the masses in the form of retirement funds. They won't stop until they've swept every crumb of middle class wealth off the table and into their own pockets.

  7. Dave how about crude oil at almost $100.00 and of course this story that the lame stream media would never dare report on. The link is attached. Have a wonderful 4th and thanks for all your hard work. Surf

    1. Crude oil will really fly once the dollar starts to shit the bed

  8. Much higher gold and silver prices? Well, Dave, I'm so confident as you are. I hope you were correct.

  9. Michael JacksonTuesday, 02 July, 2013

    "Consumer spending is the bedrock of the global economy, and consumer spending depends on expanding debt and leverage. Once that subsystem fails, consumerism and the global economy grind to a halt. The failure of any critical subsystem in an organism triggers a catastrophic, fatal decline. It doesn’t matter if the rest of the critical subsystems are functioning at optimum levels; the failure of even one essential “part” leads to death. The metaphor is easily extended to machines, where a perfectly sound engine will fail once the oil pump ceases functioning.

    The cliche is that a chain is only as strong as its weakest link. The conventional wisdom is that the U.S. economy is so large and diverse that the failure of any one part will have only limited consequences on the economy as a whole. But this belief was undermined by the financial crisis of 2008, in which the apparently “limited” implosion of subprime mortgage debt dominoed into a full-blown global financial crisis.

    Conventional wisdom confuses redundancy and complexity. The implicit foundation of the conventional view (that the U.S. economy is so large and diverse that the failure of any one subsystem will have limited negative effects) is a belief that the system’s complexity offers intrinsic redundancy: that is, if one part of the economy underperforms or even vanishes, it will quickly be replaced by the expansion or emergence of some other part.

    This view can be distilled down to a belief in a sort of “automated redundancy,” that capital and labor that is displaced by failure in one sector will naturally flow to a replacement sector. This belief system fails to grasp the critical roles of financialization and consumerism in the economy. The two are of course intrinsically bound together, two sides of a single coin: consumption depends on expanding credit, leverage and assets, and financialization depends on consumers’ expanding debt service and collateral.

    The central banks and Central States are attempting resuscitation by issuing credit that is freed from the constraints of collateral. The basic idea here is that if credit based on collateral has failed, then let’s replace it with credit backed by phantom assets, i.e. illusory collateral. In essence, the financialization system has shifted to the realm of fantasy, where we (taxpayers, people who took out student loans, homeowners continuing to make payments on underwater mortgages, etc.) are paying very real interest on illusory debt backed by nothing.

    Once this flimsy con unravels, the credibility of all institutions that participated in the con will be irrevocably destroyed. This includes the European Central Bank (ECB), the Federal Reserve, the E.U., “too big to fail” banks, and so on down the financialization line of dominoes. Once credit ceases to expand, asset bubbles pop and consumerism grinds to a halt. And since ever-expanding consumption is the bedrock of the global economy, the global economy will also grind to a halt.

    There is no magic redundancy in a complex economy that ultimately depends on the functioning of a single subsystem, financialization, i.e. the permanent (and thus eventually exponential) expansion of leverage and credit based on phantom assets and illusory limits on risk.

    Rather than accept losses, we prefer to place our faith in “leaders” who have painted radio dials on rocks and are busy declaring that they are now in contact with the gods of permanent prosperity, and that the gods will magically restore the broken machine. Alas, it’s all artifice, theater and stage tricks: the assets are still phantom, the collateral nonexistent, the guarantees empty and the power illusory."

    (from a saved notepad text dated august 18, 2012/source unknown)

    1. Aren't they trying to expand it with carbon credit derivatives and all the hybrids associated with derivatives on equities?

    2. Gold – Has the ‘Narrative’ Failed?

      So Mr. Ritholtz is completely unbiased about gold, but he considers any gold bulls that are still left 'yellow metal jihadists and other assorted suckers'. As a friend pointed out to us, this comes across as a racist and elitist in one fell swoop, almost a trifecta. In what way Mr. Ritholtz believes his analysis to be improved by making such insufferably arrogant comments we cannot say.

      We have by the way no quibble at all with the short term trading call he makes (it seems well founded on technical grounds) and we also have no problem with someone having a bearish opinion on gold. It is true that a number of gold-bearish fundamentals have been in place in recent months, and we cannot be certain when the longer term outlook will finally trump these medium term bearish fundamentals.

      However, what is the 'narrative' that Mr. Ritholtz believes to have failed? As he himself writes – we are not putting words into his mouth here – the 'narrative' as he understands it consisted of: “hyper-inflation, collapsing fiat currency and end of the world”. Since none of those things have come to pass (not yet, anyway), the secular gold bull market must be over.

      That's his analysis? That gold requires a narrative about 'hyperinflation, collapsing fiat currencies and the end of the world' to remain in a bull market? If he actually believes that, then he knows very little about gold and would do better by not opining about it in public.


    3. Meet the “Journalists Against Journalism” club!
      The clique of media figures outraged when news outlets challenge power has a new member: Washington Post higher-ups

      From David Gregory to Andrew Ross Sorkin to David Brooks, the ranks of Washington’s hottest new club continues to swell. Call it Journalists Against Journalism — a group of reporters and pundits who are outraged that whistle-blowers and news organizations are colluding to expose illegal government surveillance. To this club, the best journalism is not the kind that challenges power or even merely sheds light on the inner workings of government; it is about protecting power and keeping the lights off.

      Before today, this club could be seen as a collection of individuals. But not anymore, thanks to the hard-to-believe house editorial of the Washington Post titled “Plugging the Leaks in the Edward Snowden Case.” Inveighing against the disclosures of NSA contractor Edward Snowden, the paper wrote that “the first U.S. priority should be to prevent Mr. Snowden from leaking information” and then fretted that Snowden “is reported to have stolen many more documents, encrypted copies of which may have been given to allies such as the WikiLeaks organization.”

      What’s so utterly revealing about this editorial is not merely that it reads like hard-boiled talking points given to politicians by their surveillance-industry campaign donors. No, what sets this Washington Post editorial apart — what vaults it into the annals of history — is how it is essentially railing on the Washington Post’s own source and own journalism.


  10. Dave - Great analysis once again! Is there one favorite investment, other than precious metals or mining companies, that you would suggest to take advantage of the impending housing collapse?

    1. either long term puts on XHB or ITB or buy and hold SRS.

  11. Talking train window adverts tested by Sky Deutschland

    A German firm is proposing to transmit adverts via train windows so that the sound appears to "come from inside the user's head" when passengers lean against them.

    The idea would use bone conduction technology, a technique that transmits sound to the inner ear by passing vibrations through the skull.

    The concept has been developed by ad agency BBDO Germany on behalf of broadcaster Sky Deutschland.

    It is already proving controversial.

    Comments posted under a video showing off the concept include "This is a violation to a person's right to rest" and "I think I'd take a sledgehammer to the window."


  12. (Quinn in Littleton)

    Great article today Dave. As has been made all to clear over the last few weeks, rising interest rates will pummel the stock, bond, and housing markets. Many don't realize that it is precisely this phenomenon that could make the monetary metals explode higher. Imagine the demand for gold if only a very small portion of main street realizes that a 2008 redux is once again upon us... My belief is that we will soon see a full blown panic at the Fed, and when the Fed panics the money flies. So it goes, Q

  13. NSA/GCHQ – The New Praetorians and the New Cold War
    By Golem XIV on July 3, 2013 in latest

    In a democracy rule is by consent. In a dictatorship it is by control.

    Which do we have in the West? It seems to me, it is no longer clear. We certainly still have the rituals of rule by consent. But behind the elected front men and women is a shadow state. It’s people ritually swear allegiance to those we elect. They declare themselves there to serve and protect. But when it is us they spend their time spying on, whose interests are they protecting? Can you really serve those you do not trust?

    In 2008 we discovered that behind the banking system we knew about, there was a vast shadow banking system whose size most of us never suspected. In 2013 we have glimpsed not only the scale of the shadow state but the degree to which it, like the shadown banking system, is out of control and not working for us at all.

    Of course Mr Obama and the ‘security chiefs’, brought blinking into the unwelcome light, justify themselves by telling us that all those things they never saw fit to mention to us, or even to the people we spend so much time electing, have been saving us from un-named terrors. Are we to take such unverifiable assurances at face value from people who we know do not trust us and who make a profession of lying to us? I remember when Treasury Secretary Paulson told the US Congress that unless they stopped asking questions and simply handed him $600 billion to bail out the shadow banking system, there would be anarchy and tanks on the streets. Am I wrong to see a parallel?


  14. India's problem blacker than gold
    By Kunal Kumar Kundu

    NEW DELHI - A surprise improvement in India's balance of payments in the fourth quarter of the fiscal year that ended in March, with a rise in exports and decline in imports, was not enough to prevent the full-year current account deficit rising to a historic high compared with gross domestic product (GDP).

    The full-year current account deficit (CAD) to GDP ratio hit 4.8%, up from 4.2% in the year to March 2012, even after a near 6% rise in exports in the fourth quarter from a year earlier and a 1% fall in imports. That brought the Q4 CAD deficit to 3.6% of GDP, down from 6.7% in the previous quarter.

    The government singled out gold imports as the most important reason for the ballooning CAD, and there is a grain of truth in the assertion. Gold imports have risen since 2010-11. Yet this phenomenon can be attributed mostly to high inflation in India, resulting in the real rate of interest in India being negligible and even negative. It is therefore natural for domestic savers to turn to gold for succor.

    What is significant is the spurt in oil imports, which rose 10.11% during this period - even as India recorded its lowest GDP growth in a decade ...

    Another policy issue that hobbled India during 2012-13 was the virtual collapse of the mining sector, afflicted by widespread corruption, land and environment issues and virtual policy paralysis. Not surprisingly, iron ore exports fell 65% during 2012-13 to a mere US$1.6 billion, the lowest since 2003-04.

    In such circumstances, it is not a surprise to see deterioration in the current account deficit. For the government, shifting the blame to gold imports is a convenient way of deflecting scrutiny from its own inefficiency and economic mismanagement.


  15. Has Washington’s Arrogance Undone Its Empire?

    Paul Craig Roberts

    No one likes a bully, and Washington’s NATO puppets have been bullied for six decades. British prime ministers, German chancellors, and French presidents have to salute and say “yes sir.”

    They all hate it, but they love Washington’s money; so they prostitute themselves and their countries for Washington’s money. Even a person of Winston Churchill’s stature had to suck up to Washington in order to get his bills and his country’s bills paid.

    But what the bought European leaders are finding is that Washington doesn’t pay enough for the prostitution required. One year out of office Tony Blair was worth $35 million dollars. But that’s not enough to get Blair on the waiting list for $50 million 200 foot yachts, to have a chalet in Gstaad, $50 million penthouses in Paris and New York, and a private plane to fly between them, or to wear a $736,000 Franck Muller watch on his wrist, sign his name with a $700,000 Mont Blanc jewel-encrusted pen, and drink $10,000 “martinis on a rock” (gin or vodka poured over a diamond) at New York’s Algonquin Hotel.

    In a world in which every member of the Forbes Four Hundred is a billionaire plus or multi-billionaire, $35,000,000 just doesn’t cut it. In 2006 the manager of one hedge fund was paid $1,700,000,000 for one year’s thieving. Another 25 were paid $575,000,000 for their skills in front-running trades. $35 million is probably the annual budget for their household servants.

    The question that must be asked is: do any of these protests from politicians who are almost certain to be on Washington’s payroll mean anything, or are they just make-believe protests to quiet the domestic European populations who have been betrayed by their elected leaders? Why would the French president and the German justice minister think any reassurance from Washington meant anything? When in human memory has Washington told the truth about anything? When has Washington’s reassurance meant anything?


  16. Dave, Please take a gander at this interview:


    I tend to agree with one of his main points, that gold production has little to no effect on gold price, but gold price has major effect on production of gold. Regarding miners, would it not make sense that the ones with the least amount of cashflow (juniors) and largest amount of non-compliant/un-proven resources would suffer the most (due to cash issues and non-compliant ounces), but also rise the fastest as soon as the gold price turns around? It seems to me that if one thinks the price of gold is going to rise dramatically in the near future, buying long out of the money calls on companies with enough cash to sit back and weather this storm but also enough gold in the ground that they would attract investment to develop their project or attract a buyer would be the ones that fly sky high the fastest, much more than the majors?

    Thanks, JKA

  17. Dave, here is the correct link for my above comments:


    Thanks, JKA

  18. Dave, I have a newbie question. In my humble opinion, whatever the Fed says, the purpose of QE is to control treasury yields and finance Uncle Sam's deficit. Therefore, I feel puzzled why so many Fed officials are openly talking about tapering. They know that if the Fed really tapered, the government deficit would be financed by nobody. Treasury yields would soar.

  19. WASHINGTON — Leslie James Pickering noticed something odd in his mail last September: a handwritten card, apparently delivered by mistake, with instructions for postal workers to pay special attention to the letters and packages sent to his home.

    “Show all mail to supv” — supervisor — “for copying prior to going out on the street,” read the card. It included Mr. Pickering’s name, address and the type of mail that needed to be monitored. The word “confidential” was highlighted in green.

    “It was a bit of a shock to see it,” said Mr. Pickering, who with his wife owns a small bookstore in Buffalo. More than a decade ago, he was a spokesman for the Earth Liberation Front, a radical environmental group labeled eco-terrorists by the Federal Bureau of Investigation. Postal officials subsequently confirmed they were indeed tracking Mr. Pickering’s mail but told him nothing else.

    Mr. Pickering was targeted by a longtime surveillance system called mail covers, a forerunner of a vastly more expansive effort, the Mail Isolation Control and Tracking program, in which Postal Service computers photograph the exterior of every piece of paper mail that is processed in the United States — about 160 billion pieces last year. It is not known how long the government saves the images.
    Together, the two programs show that postal mail is subject to the same kind of scrutiny that the National Security Agency has given to telephone calls and e-mail.

    “In the past, mail covers were used when you had a reason to suspect someone of a crime,” said Mark D. Rasch, who started a computer crimes unit in the fraud section of the criminal division of the Justice Department and worked on several fraud cases using mail covers. “Now it seems to be, ‘Let’s record everyone’s mail so in the future we might go back and see who you were communicating with.’ Essentially you’ve added mail covers on millions of Americans.”


  20. Crony Capitalism & Collusion with Govt

    Max talks to Paul Sommerville of Sommerville Advisory Markets (sam.ie) about the story of Anglo Irish bank, the toxic hedge fund masquerading as a bank which was run by charlatans lending to just twenty or thirty toxic individuals. The Anglo Irish story is one of crony capitalism and collusion with government and regulators, one where the Chairman’s loans were bed and breakfasted and over which the burnt speculators are outing each other’s role in the crimes.


    sounds like real estate for past 20 years.....

  21. Twitter to allow advertisers to target your browsing history, email addresses; here's how to opt out

    Twitter announced today that it will now allow advertisers to tailor ads for you based on your activities off of Twitter (for instance, browsing third-party websites), and will also use personal information like email addresses to target the ads you see.

    "Users won’t see more ads on Twitter, but they may see better ones," wrote Twitter's Senior Director of Product and Revenue, Kevin Weil, touting the change as a way to make the service "more useful" to users.

    Privacy-minded folks won't be too happy.


  22. Ex-Marine Arrested for Wearing Wrong T-Shirt at Supreme Court!
    What happened to freedom of expression?July 4, 2013 |

    Police had probable cause to arrest a Marine Corps veteran in the Supreme Court building for wearing a jacket that said "Occupy Everywhere," a federal judge ruled.
    Fitzgerald Scott, a Marine Corps veteran, entered the Supreme Court building on Jan. 20, 2012, wearing a jacket painted with the words, "Occupy Everywhere." The Occupy movement had scheduled that day for an organized protest outside of the courthouse.
    While Scott was looking at the exhibits on display, Deputy Chief Timothy Dolan approached him and told Scott that he could not wear the jacket in the building because it was comparable to a sign or demonstration.