Bill Cara’s Blog for Aug 2, 2010 [See post-close report]

Good morning.

CHL - China Mobile downgraded to Hold from Buy at Deutsche Bank.

CHL - China Mobile initiated with a Neutral at JP Morgan.

EXC - Exelon downgraded to Neutral from Buy at UBS citing cash flow concerns and the ongoing rate case in Illinois. Target to $40 from $56.

KO - Coca-Cola upgraded to Overweight on valuation at JP Morgan due to valuation and expectations that developed market volume should improve. The firm raised its target price for shares to $66.

TXN - Texas Instruments downgraded to Neutral from Outperform at R W Baird.
Baird's checks indicate reduced Q3 back-end outlooks, lower visibility in the supply chain, and Tier-1 OEM component reductions. Target to $28 from $24.

ALOHA!!

I got this e-mail from an inmate who is now in jail serving time for promoting and trading in the only US Constitution approved money. This guy and others are risking jail time just for the act of wanting to own and exchange honest money, currency not backed by debt. If this were 1778 the jailers would be the jailed for the act of Treason.

Makes you wonder just what is this "legal tender" law and why do we continue to accept it? Where is the Freedom in America? What exactly did our Founding Fathers and now our troops in Iraq and Afghanistan fight and die for? Was it for Bernanke and Goldman Sachs? Our Freedom to be jailed for following the US Constitution ... I'm confused here. How much longer do we accept this Monetary Stockholm Syndrome and allow a private banking cartel and a political monopoly to rule our lives and the futures of our children? What HUBRIS our captors display daily, on national TV no less! I could understand HUBRIS if America was debt free and had full employment, but HUBRIS based on colossal failure and insolvency is just stupendous fraud. It boggles the mind to think these people are still in power. I mean 99.9% of them I wouldn't even hire to mow my lawn much less rule my life!

"Return America to value one dollar at a time ..."

I might also add "morality" ...

June 2010 email: (sent August 1, 2010) Bernard is Jailed - Part I Table of Contents: 1. Two Exciting Newscasts Regarding Money 2. Kevin the Beautiful 3. Liberty Dollar Site Is Closed Thank you for your inquiry… Bernard is Jailed - Part I First, please note the format changes to this email reply to your inquiry about the me and your property that was confiscated during the ongoing legal battles regarding the Liberty Dollar. It would appear that the once great First Amendment and the concept of innocent until proven guilty do not apply to anyone who is out on an Appearance Bond. Second, I apologize for this relayed email regarding June development and that now I can't write my usual monthly "Newsletter." While I have been late a few times with the chronicle of the Liberty Dollar since October 1998, I have never missed a month. I trust being in jail, defending the Liberty Dollar is a good reason. Third, I hereby confirm the rumors that I was jailed, but not re-arrested. I was incarcerated when I appeared to answer charges that I violated the terms of my Appearance Bond before Magistrate Judge Cayer, Federal District Court in Charlotte, North Carolina on Wednesday, July 14. There is much to disclose about that hearing and my next five plus days and five nights in Mecklenburg County and Catawba County Jails but I don't have the time right now. But stay tune. I promise to tell all in my next email for July. Contained in this email are links for two excellent video newscasts Part I and Part II that aired while I was in jail that features Dave Gillie and Jeff Kotchounian using a value based currency. Most importantly is the quote from the US Treasury website that merchants can use anything they want for money. And equally noteworthy is one of Kevin's letters that was recently posted on the mailfromjail.com site and forwarded to me. PLEASE read this letter and marvel at the exulted space that Kevin occupies while standing firm for the Liberty Dollar after 14 MONTHS behind bars. Like Kevin, we have an extremely strong, winnable case and the government is going to lose dearly for this shortsighted misadventure.

Item #1: Two Exciting Newscasts Regarding Money These two video newscasts speak for themselves. I neither indorse nor support these two brave American patriot's efforts. I fact, I was surprised when the URLs were sent to me. But I was not surprised by the US Treasury site that proves 'a private business, a person or an organization…are free to develop their own policies...' for money. In part the government site says: "There is, however, no Federal statute mandating that a private business, a person or an organization must accept [US] currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise." The complete quote for the very first question on the US Treasury's FAQ site is found here: http://www.ustreas.gov/education/faq/currency/lega... Now watch these two newscasts and decide who is going to win this case:

Part I: http://www.connectmidmichigan.com/news/story.aspx?...
Part II: http://www.connectmidmichigan.com/news/story.aspx?...

Item #2: Kevin the Beautiful I know you are busy and you may not even know Kevin but I hope you will take a moment to ravel in Kevin's amazing jailhouse consciousness and hopefully send him a note of support and/or a few dollars, as he can't eat the slop that passed as food in jail. And I know that all too well! From Kevin to a supporter - July 2010: I continue to consider my time here as an opportunity for some intense independent training so that I can be more effective at helping society when I get out, helps me redirect my thoughts. From all of the wonderful experiences I am missing out on by being here, back to the hear-and-now and my self-imposed tasks. "The Now" is truly all that I can experience "in Technicolor" - all else is just a hazy "black and white" dream. By being true to what I know to be right and honest I can more easily infuse the present with the enthusiasm and with the awareness that Gold is right here with me. Bliss, God and the Now are One. Standing firm in my convictions and my truth is fundamental to my evolving success, not only spiritually, but also in a worldly sense. In contrast, there is nowhere I can go for relief if I am in conflict with myself. Yes, this has already taken a very long time and I might only be part-way through it but thinking in terms of time only increases the suffering. When we are One with the timeless inner Self there is really nothing to fear. The more we can connect our light with that wonderful Light that is also in others, especially among those who remind us of this, like you and I, the more we can warm to each other's glowing. It is great to hear you are drawing loving people to you. How can they resist? Please write to Kevin: William K. Innes 2351 Morganton Blvd. SW Lenoir, NC 28645 Please send Money to Kevin: C/O Julia Gaunt 16 Norman Austin Dr. Asheville, NC 28804

Item #3: Liberty Dollar site is now closed due to court action. And last but not least, the Liberty Dollar site is now down. Hope you got a copy before all that great info was taken down or know how to find it. I will explain this regretful development in my email to you for July. Closing Remarks: That's it short and sweet. I promise to disclose all regarding my jail experiences and the latest on the Liberty Dollar Four in my next email for July. There are amazing develops with Liberty Dollar Four case, so please stay tune for all the details and an exciting trial! I remain convinced and dedicated to the ideals of the Liberty Dollar and that the only way for us to have a free society is by banding together and adopting a free and independent currency that provides us with "just weights and measures" to throw off the yoke of a manipulated monetary/tax system. Thank you for your inquiry and efforts to return America to value - one dollar at a time! Bernard von NotHaus Monetary Architect/Editor

Editor@LibertyDollar.org

Found this link on financialsense.com. I think this ties in nicely with Bill's plan of 33%-33%-33% investment in the WIR for those of us with a longer term view.

http://financialsense.com/sites/default/files/Volu...

watching the hourly MACD.

Average 10 day ATR for SPY is 1.933. Pre market is 1.7, almost a full day's action pre market. Not good for the bulls IMO.

FD:Net short

This article is from last year, but still worth reading, especially the bit about 'cost-push' inflation.

http://bit.ly/abTlPy

CVX - estimates were boosted through 2011 at UBS. Company raised its outlook, because of better downstream margins. Buy rating and $95 price target.

LLTC - downgraded at Banc of America/Merrill Lynch to Underperform from Buy. Banc of America/Merrill Lynch said it has a cautious stance on the industrial and auto segments, and that its analysis suggests a sizeable overshoot in shipments vs. true demand/consumption. Price target cut to $30 from $33.

TEF - Telefonica downgraded to Hold from Buy at Citigroup.

Notice once again that those who weren't able to trade futures got to participate in 5 points of this 19 point SPX rally. How generous of the big banks to let us in on some of the crumbs!

The first of the month new money comes into the market.

good point, Bear E. And we all know how "they" hate to give all that 401K money too good a deal.

And, if I had a dollar for every time the markets did something extreme (up or down), during the last few years, on a Canadian market holiday day, well ... I'd have about $10!

That's hitting the keyboard, can we just shorten it to The Wiz?

http://bit.ly/aUKmSU

Breaking of this 3rd trendline would prob coincide with a slippery sell off.

St Louis Fed President Jim Bullard outlines QE II with a rate increase to induce inflation in his new and highly publicized opinion. Strategy is to induce rate fear and thus spending. Jim Rickards interview over at King World News outlines this beautifully.

Some of Rickards' points:
Fed hates deflation even though it existed between 1870-1900, a major productive period in American history. Key reasons: Fed can't tax deflation and it increases value of the debt.

Bernanke, Bullard, et al., overlook volatility of money velocity as the tipping point that caught Weimar central bankers off guard and led to not a controlled inflation ... but hyperinflation. The Austrian school, Ron Paul, Martin Armstrong, et al., discuss this often.

Fed funds rate increase is designed to shake investors out of 0% bonds and the perception of negative inflation. Counter-intuitive to raise rates here but it could come by early next year or sooner.

This policy would generate a probable post-election rally in equities in the short term.

Interview is well worth a listen. This goes against a steep pullback in the equity markets after the midterm election with more money printing to infinity and rate fear shifting massive funds out of treasuries IF Drs. Bullard and Bernanke grand experiment go as planned. But the Fed policies have all failed miserably since its inception in 1911 so expect hyperinflation in our lifetimes.

kingworldnews.com

"Treasuries are least likely to be in default." - lessmore

Treasuries are the most likely to default if deflation takes hold and leads to QE II, III, IV until the money dies, my friend.

"Its not just counter-intuitive. Its not credible." - lessmore

It's credible if you are St Louis Fed President Jim Bullard. Who's going to stop the Fed if this is its chosen path?!

FUBAR!

Dr. Strangelove,

"It's credible if you are St Louis Fed President Jim Bullard. Who's going to stop the Fed if this is its chosen path?!"

Maybe I am missing something here. I do not find it credible that the Fed would voluntarily raise rates which would increase the Treasury's interest expense along with the deficit. The US Government is already under pressure to reduce the deficit.

Dr S. - Clearly the Fed can print money faster than bank credit can deflate, "it only requires the WILL to do so."

And, treasuries will not default, since the Fed can lend money to its friends, the banks, and they can and buy treasuries and collect the spread.

The dollar won't be happy, of course - but perhaps a lower dollar will fix everything?

I'm not saying it's a good policy, but its technically quite feasible. And the trade to be in for this is definitely NOT short treasuries, in my opinion. At that point, it seems like it should be either long gold, or short dollars. Or both.

Perhaps the dollar's steady move down from 89 to 81 is an indication of what the market thinks about QE 2? Note treasuries are at their highs, too.

Lessmore, Dr. Strangelove,

For the Fed to raise rates any time soon would be devastating to the economy, we know it and they know it.

Such talk, IMO, is just that — talk. Simply an attempt to rattle bond holders and pump the equities.

I will wait until there is an actual change.

In a way it would be encouraging in that it would show the Fed to be truly independent of politics. (Which would make be believe I must be dreaming;-)

WASHINGTON (MarketWatch) -- The U.S. government is expected to borrow $350 billion in the current quarter, the Treasury Department said Monday. The borrowing estimate is $26 billion less than previous estimates. The decrease in borrowing related to less spending and a higher-than-expected cash balance at the start of the quarter, the department said. The government borrowed $344 billion in the April-June quarter. Treasury assumes an end-of-September cash balance of $270. For the October-December quarter, Treasury said it expects to borrow $380 billion with a cash balance of $270 billion. The agency will announce on Wednesday the sizes and terms of its quarterly refunding auctions.

Check out Big Investors Fear Deflation, WSJ

http://online.wsj.com/article/SB100014240527487037...

"PIMCO's team predicts "core" U.S. inflation, which excludes volatile energy and food prices, might drop a tad below 0% in the next few years; it could rise as high as 2% if economic growth improves."

I tend to agree— but look for another inflation binge around the end of this decade, à la the '70s.

I'm open to prices continuing higher. I welcome that. in the near term i personally do not think that direction is sustainable with all the core fundamental issues with jobs, credit, politics, distrust, etc. The outflows by mom and pop has been epic with no u-turn in sight.

If Boeing can make a 1,000,000% profit jump next qtr but revenue falls, is that really good news? And if that profit is sustainable moving forward, is that also good news? that means those jobs are never coming back.

For me, i am not focused on profit. I would prefer to see sales growth. Net job growth. decrease in overall debt.

Expansion without debt might be the new requirement/obstacle. and that would be very scary for prices.

These are just my young opinions. I know many here are older and wiser and have seen a lot more. To put in perspective, I was 10 yrs old during the crash of '87.

"And, treasuries will not default, since the Fed can lend money to its friends, the banks, and they can and buy treasuries and collect the spread." - davefairtex

But the banks are not lending to the productive economy, the small businesses that make up 70% of GDP, my friend. How long can that last? Until the banks become solvent from the spread? Don't hold your breath. This is a formula for deflation and the Fed don't want no stinkin' deflation. Hence, the suggestion to increase the Fed Funds rate to break the treasury bubble.

http://en.wikipedia.org/wiki/File:Inflaci%C3%B3_ut...

In my view, short-term ^VIX movement says a lot about the current market momentum, but thats about it. To counter your comparison, we are also within a couple points of where the ^VIX level was in July 2009 - what does that really mean? I don't consider ^VIX a good long-term indicator or an accurate gauge of sentiment. We have stayed below 20 on the ^VIX for multiple years before 1991-97, 2003-2007.

As for the Fed, they weren't able to identify the financial crash of 2008 (or at least weren't willing to share with us) until the crisis was in full swing -- so I take all FedSpeak with a grain of salt. The contrarian in me thinks that, now that the economy is on more stable footing, the Fed may actually have good motive to express modest bearishness/doubt - it helps them to garner continued support for their 0% rate policies. You won't hear them talking much about how a prolonged period of low rates sows the seeds of inflation down the road and when it finally comes, I expect it will in full swing before they acknowledge it. The point is, the Fed has motives and they aren't necessarily to make us more informed citizens and investors.

I also have my takes on housing and consumer metrics, but to summarize - both are looking at the immediate past and not telling me much about what I see 3 years down the road.

I guess I will just agree to disagree on our market outlooks.......

davefairtex -

Yes, sorry, my Weimar dates are off.

I agree TBT is a buy but only when Bullard gets his way and the Fed Funds rate is increased. Get physical with gold and silver or CEF if you're lazy. Good luck with the redemption. Short dollars could backfire but long Swiss Franc (FXF) only goes up as the Euro/USD fight to the bottom continues. I like the Yuan (CYB) too as the Chinese officials are under pressure from central banks to follow through with its pledge to unpeg. Finally, you just know intuitively that oil should benefit from the growing instability caused by the Western fiat collapse.

"If Boeing can make a 1,000,000% profit jump next qtr but revenue falls, is that really good news? And if that profit is sustainable moving forward, is that also good news? that means those jobs are never coming back. "

That's not how I see it. If the profit is sustainable moving forward, it will be a reflection of positive/improving economic conditions. Boeing will use those sustainable profits to invest in improving parts of its business, creating new business, or acquiring other businesses that offer it growth opportunities. That is where the jobs come from!

I understand the idea that we would prefer to see growing revenues to profits. I also think that the volatility in forex has really skewed the results that we are seeing in the last quarter (revenues will look modestly disappointing to U.S. based companies when there was a short-term panic out of Euros and into USD as that which occured in Q2.)

When you refer to a "decrease in overall debt" I am not sure if you are referring to individuals, corporations, or government, so not sure what you mean...... Individuals and corporations have decreased overall debt, government has increased it.

DR.

"But the banks are not lending to the productive economy, the small businesses that make up 70% of GDP, my friend."

I have heard this is so. The question is why?

Is it because the banks need the reserve funds?

or...

Is it because the small businesses which are still solvent ("the productive economy")do not need the money due to the slowness of the economy?

Those who need it most are poor risks.

I continue to hear of friends and relatives who are being laid off.

Let me rephrase the question...

What is the quality of those profits?

Due to cutting the labor force? Running our inventory? "Extraordinary Items" in the notes? loss of competitors? (Like Circuit City/Best Buy)

WSJ: Kinross Gold has agreed to acquire the 91% of Red Back Mining it doesn't already own, valuing the company at $7.1 billion.

The deal comes as commodity prices remain strong. Kinross will add two "well-established" mines and give the combined company 10 operating mines and four projects in development.

http://online.wsj.com/article/SB100014240527487042...

Quality of Earnings

Corporations paying down debt and accumulating cash- positive

Lean mean labor force - positive

Continuing productivity gains from technology- positive

US wages stable or falling - positive

Tight inventory controls- positive

Falling dollar - positive and negative

Product downsizing -positive (stealth price increases)

Government policies- negative

The problem is that US jobs benefit little from this environment. Large US multinationals are making
plant and equipment investments offshore, including production and R&D facilities. Cat/Brazil, Deere/Russia,
Dow/ India, Ford/Mexico, and GM/China are just a few examples. I can buy 3 young hard working young Chinese engineers for the price of one American. I can pay a Mexican auto assembler $3 hr vs $18 in the US.

Corporate success/profits have disconnected from improvement of the US economy. The banking and corporate elite are the main beneficiaries while Americans wander around looking for jobs that are gone forever.

"Short dollars could backfire but long Swiss Franc (FXF) only goes up as the Euro/USD fight to the bottom continues." (Dr SL)

Yes, and what do you think about the action in the Swedish Krona (FXS) since July? It has outpaced FXF but both are up big since early June.

FD: I have no position since I just noticed FXF:FXS.

"I don't find the idea of improving earnings based on a downsized labor force or a loss of competitors as negatively as you insinuate. Those are factors that help businesses adopt stable long-term planning and gain market share."

I assume neither you nor anyone close to you has been affected by downsizing, right-sizing or job exporting. As for the loss of competitors, that makes it less likely customers will continue to see product or service improvements over the longer term.

If business is more important than the nation and you are comfortable with a "one-world" view and believe there has been nothing of value in the America we knew for the past century that other countries seem to covet, I know nothing I say will matter.

"Improved profitability over time will be what creates the new job growth and expansion."

This is what corporations by and large have been experiencing for several decades. However, the job growth has been in Mexico, China, South Africa, India — everywhere but here. Our jobs here have diminished both in income and benefits — except for the top managers who now make as much as 500 times as much as the remaining employees.

This has been at the expense of the middle class lifestyle which was the American Dream.

I've seen it develop over the past quarter century here in the Midwest and it's not a pretty sight.

Just remember as we see the labor force downsized — your taxes will go up to feed and cloth people who would rather have a decent paying job and support themselves.

Looks to me like a recipe for unrest and possible revolution. locally we have been seeing increased armed robberies (Friday in broad daylight.) home invasions and bank robberies. This is on what used to be "the right side of the tracks."

Where I used to work is not there anymore (industrial watertreatment plant). The factory is also gone a long with a lot of other factories. The problem as I see it is NOT the expansion and contraction of business the business cycle. For the last 30 years we have been giving are jobs away to foreign countries. This job problem is a structural problem ( factories are no longer here they have gone south or overseas). Look around your town and count the number of manufacturing factories gone.

Illini -

The FXS volume is anemic which makes me nervous. Better to have an Interactive Brokers account and exchange directly.

Cheers.

Agreed NYU - thanks to everyone willing to share their thoughts and observations.

The Liberty Dollar is Illegal due to the fact it is not issued by a Federal Reserve Bank, what a load of BS. The only thing the FED issues is debt.

So Bernard mints a silver coin .999 pure silver and the FED says it is not money because it is not backed by DEBT, issued by the FED.

NotHaus deserves a medal and financial support for the sacrifice he and his follower's will have to endure.

When John F Kennedy took over from the FED and the treasury started to issue money he got whacked, nothing has changed since.

Ron Paul discusses the latest in puppeteers plans unfolded right before his eyes, OK he doesn't call them puppeteers exactly:

http://dailypaul.com/node/141464

davefairtex -

"So what do I do with this big wooden Ark anyway?"

QE II, III, IV will lead to the centrally controlled sovereigns with all the oil reserves (far in excess of Exxon, Chevron, BP ...) to successfully transition the energy trade from U.S. dollars to an asset backed coinage. When, not if, that happens, the Fed's money printing will cease as debt purchasing game will be up, the dollar's status as the reserve currency will be over, and the U.S. will enter into a period of severe economic contraction and hopefully the start to reducing gov't largess. It will be interesting to see how WE THE PEOPLE react to such an austerity program. Only when the U.S. reserve currency status is gone could we see the potential for default on the debt. It's impossible to know the details but QE to infinity should make the Ark useful. Revolt? War? Hyperinflation? Deflation and Depression? Decades of stagflation? Just count me in on the group that wants to reinvigorate the U.S. Constitution and the Bill of Rights.

Cheers.

ably interviewed by Barry Ritholtz (audio, about 40 minutes)

http://www.ritholtz.com/blog/2010/08/the-big-pictu...

MOST impressive big-picture, macro insights re the next few years.

So Ross while I am tempted to believe that this transformation of our economy into a "post-industrial" economy was all due to some irresistible force, I just have to point at Germany to suggest that There May Be a Better Way.

They somehow manage to manufacture things, and make money at it, using relatively highly paid domestic labor. How is this possible if society is on its way to becoming post industrial?

I'm really asking here. I certainly haven't lived or worked in Germany, so I have no idea what its like, but it does seem like they have managed to do a little better in terms of "post-industrial management" than we have.

mntinhi,

Same here. I did work for nearly every manufacturing company in town over a forty five year period. Now virtually all are gone. The one remaining has merged and continues to dwindle. It used to be our biggest single employer with more than 3,000 people in aerospace, machine tools, pumps, foundry and all the support jobs. There were 6 factories — now three have been torn down and all but one are empty shells.

The CEO sold out (way below what my stock should have brought) and made a quick $25 million personally while lamenting to the press how difficult a decision it was. (He had armed guards until he had left town and the state.)

Dave,

I suspect Germany may not be paying their execs anything near what ours have been sucking out of the economy. I do remember when Roger Smith retired form GM that the former head of Sony commented on the vast difference in their retirement plans.

We can do better if we put the breaks on banking and big business "leaders".

November is the time to let congress know — that we know — what has been going on.

Ross,

This Wall Street Journal Article is relevant. It suggests that the Rich do not need the rest of America; that they make their money with cheap foreign labor and sell to consumers anywhere in the world. It also suggests that to an increasing extent they have established 2n, 3rd and 4th residences outside the US and have life styles that have less and less to do with the rest of the US. It also suggests that they are justified to resist paying American taxes to support US superstructure and social programs because they rely less and less on US soldiers and police for their safety.

http://tinyurl.com/26xpvy9

I believe that this is an accurate representation of the general attitude of the rich. Since the rich pay for the lobbyists and the votes of the members of the US Congress the destruction of US middle class jobs that the rich no longer value or want should be expected to continue. That is, it should be expected to continue until new forces that do value and want such jobs emerge to either balance out or overwhelm the forces that are currently in control.

Telestar3d

You can count on more fun the next time your Windows updates. Just sayin!