Bill Cara's Blog for Jun 7, 2011 [See Post-Close report]

CTA Trading Desk Morning Report

[7:00am ET] Good morning.

Mainstream media has reached a new low – even as an entertainment vehicle. They are now asking corporate America for more advertising money because, well, things are not that bad.

Owned by over 1700 newspapers and 5000 radio and television broadcasters, Associated Press is reporting today that economic stress in the US economy is at a two-year low because the private sector is enjoying an “improved picture for jobs and bankruptcy filings”.

http://finance.yahoo.com/news/AP-analysis-Economic-stress-apf-438733342....

These stories ALWAYS hit the headlines and magazine covers right before the plunge.

Well timed, too, because this morning the US Dollar is being taken down by two “news” stories:
(i) China’s monetary authorities are worried about the value of America’s sovereign debt, http://tinyurl.com/6de2rxg
(ii) Eurozone authorities now believe their problems are under control. http://tinyurl.com/6xmmp8r

Of course, that bump for the Euro is helping lift the equity market and precious metals out of a multi-day funk. For how long only the Interventionists know because it’s up to them how long they want to continue this charade. At least they know that mainstream media stands right behind them, like good soldiers.

Now, of course, all their efforts will go for naught unless they can smash the price of oil and gas, which appears to be their game plan. All this just to make traders think that everything’s cool. NOT.

Their end game will only work in the broad capital markets, like what happened to the mortgage market in America, the governments end up owning it all. That too might be their strategic plan. At least then they could write off all the derivatives and we could get back to investing in real value.

Investing in the market today is a matter of ‘Do you feel lucky?’ Seriously.

Here is a 1-year Weekly data chart of the Dow Jones World Stock Index, which is closely correlated to the S&P 500:

Have a good day.

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Here are the 7:00am ET snapshots of the latest equity market trading results for Europe, and futures prices plus 5-minute charts of the futures for S&P 500, 30-year US Treasury Bond, US Dollar index, Gold and Crude Oil.

Symbol	Name	Last Trade	Change	Related Info
^ATX	ATX	2,731.70 5:36AM EDT	1.30 (0.05%)	Components, Chart, More
^BFX	BEL-20	2,617.31 6:59AM EDT	0.17 (0.01%)	Components, Chart, More
^FCHI	CAC 40	3,885.32 6:59AM EDT	21.92 (0.57%)	Components, Chart, More
^GDAXI	DAX	7,131.94 6:44AM EDT	47.37 (0.67%)	Components, Chart, More
^AEX	AEX General	339.96 6:44AM EDT	0.78 (0.23%)	Components, Chart, More
^OSEAX	OSE All Share	482.71 6:44AM EDT	0.50 (0.10%)	Components, Chart, More
^SMSI	Madrid General	N/A	0.00 (0.00%)	Chart, More
^OMXSPI	Stockholm General	361.46 6:43AM EDT	0.37 (0.10%)	Components, Chart, More
^SSMI	Swiss Market	6,363.10 6:44AM EDT	6.96 (0.11%)	Components, Chart, More
^FTSE	FTSE 100	5,874.68 6:44AM EDT	11.52 (0.20%)	Components, Chart, More

http://finviz.com/futures.ashx

http://finviz.com/fut_chart.ashx?p=m5&t=ES




http://finviz.com/fut_chart.ashx?p=m5&t=ZB




http://finviz.com/fut_chart.ashx?p=m5&t=DX




http://finviz.com/fut_chart.ashx?p=m5&t=GC




http://finviz.com/fut_chart.ashx?p=m5&t=SI




http://finviz.com/fut_chart.ashx?p=m5&t=CL




The team will check in during the day, reporting in the Discourse when there is a new entry.

Enjoy your day.

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Cara on Trends & Cycles

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Vad's Catch of the Day

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Kaimu's Sound Money


by Stephen Wellman

THE LAST DAY IN MAY

While Moodys is considering a “negative watch” rating on US DEBT at Aaa the S&P already has the US DEBT on negative at AAA. For most normal people who live in the real World where accounting and budgets must comply with the laws of gravity income needs to at least equal expenses, but preferably income needs to exceed expenses. That is how it works here at my household and business. I would say that 99% of companies listed on the ASX and TSX strive for that same accounting phenomenon known as “profit”! Most companies operate with the intent to avoid unpayable debt, so why is it that the US Treasury operates in the opposite manner?

Why is it that America can have an AAA or an Aaa yet income falls very short of expenses? In US Treasury terms tax revenue deposits fall short of outlays, even gross tax revenues fall short of outlays. If I use “net” tax revenues, which last year FY 2010, ran at $1.56TRIL net outlays were $4.33TRIL. As for the oft used reason these sovereign rating agencies can approve such distorted fiscal policy they claim the US Treasury can raise taxes at will and our economy and taxpayers are large enough to cover these revenue deficits. What I see is that the US Treasury would have to raise another $2.77TRIL to just break even with net outlays for FY 2010. That means all taxpayers would be faced with a nearly 300% tax increase. Is that really feasible? If you use gross outlays, including redemptions, then FY2010 was $11.5TRIL … Either way do the math! The “math” has not added up in decades. Perhaps Moody’s and S&P are more threatened by the US Military …

Current YTD outlays for FY2011 (May 31st), if the S&P and Moodys care to look, are on target to exceed outlays for FY2010. For May 31, 2011 the US Treasury shows gross outlays of $7.7TRIL USD, while in FY2011 gross outlays were $7.4TRIL. Where is the fiscal prudence? Every US Congressman must look up the word “austerity” in the dictionary; however they need never look up the word “hubris”. The same applies to rating agencies that still carry US DEBT with triple As … But of course these are the same rating agencies who rated SubPrime AAA.

Gross tax revenues show hardly any difference between FY2010 and FY2011. For FY 2010 gross tax revenues are $1.33 and for FY 2011 they are running $1.39. Not much help there…

H20 DATA

I saw this and I thought about how data can be like water as it flows in and around in many directions “seeking the path of least resistance”. The key headline is this “China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills”. The data is selective by dates. I will show you how I can write a similar article with this headline “CHINA INCREASES US TREASURY HOLDINGS BY 3000%”. Easy to show as that is the amount of US Treasuries China bought beginning in April 2003 when China only held $193MIL. Now in March 2011 China holds $5.697BIL.

Go here to see this listed under #9 on the table …
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/...

Here is the first paragraph of the article …

(CNSNews.com) - China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.

http://cnsnews.com/news/article/china-has-divested-97-percent-its-holdin

So what is up with China? Are they listening to Bill Gross? One thing the article fails to point out is if the short term debt duration is 4 week, 13 week, 26 week or 52 week? These days 52 weeks are not exactly “short”! All that “guessing” aside the Chinese merely converted to longer term “Notes” which pay a higher rate, so the cost of our PUBLIC DEBT just went up.

The article also misses the mark by reporting that the TOTAL US PUBLIC DEBT is $14.34TRIL.

“As of the close of business on Thursday, the total U.S. debt was $14.34 trillion, according to the Daily Treasury Statement.”

Untrue since they left off the part of that debt that is “not subject to limits” … Here they are:

Finally somebody else mentions the Daily Treasury Statement …

I have reported prior that the official US DEBT has been stuck at $14,293,975(Mil) for over a week now. It’s as if the US DEBT subject to limits has gone cryogenic! Why? Well the main reason is that Congress needs time to debate the “debt ceiling”, so why didn’t Congress start that debate last year? By Timothy Geithner’s own admission the US Treasury can hold out until August 2nd and that is all. Consider these covert red flags to add into the USD mix …

It seems Account 1611 is where the “unamortized discounts” on US Treasuries are recorded. This account relates to the various Trusts that the US Treasury “borrows” from such as Social Security Trust Fund. Certain of these Trusts are given discounts on issued debt, which is unamortized, but I think the problem arises with the accounting reporting method between accrual and cash basis. It looks like per Timothy Geithner’s own personal letter to Congress that he spilled the beans as to which “Trust” accounts these are NOT, as he has quit issuing debt to the following Trusts:

- Civil Service Retirement and Disability Fund
- Government Series Retirement Fund (G Fund)

Take a look at his letter here and the wording. He uses the word “invest” numerous times. Here is one …

“… by reason of the statutory debt limit, I will be unable to invest fully the portion of the Civil Service Retirement and Disability Fund.”

And here is another time …

“I will be unable to invest fully the Government Securities Investment Fund (“G Fund) …”

While China’s Sovereign Wealth Fund can “invest” in commodities and gold these US Funds cannot. Where is that “Home of the Free and the Brave thing” our Founding Fathers fought so hard for in 1776? I have to ask why is it that the US Treasury has been tasked to “invest” any thing on behalf of US citizens whether they are Federal Employees or not? Oh-h-h-h … now I see … Hey, Congress made it a law! Man oh man … I wonder how late at night and how hidden in tiny pencil font stuck behind the 424th page of a 1,500 page Bill Congress snuck that one in???? Lots of questions there, but I don’t have time to research that one!

Once again the US Treasury obfuscates OPM to keep the US Congress populated with the two party monopoly. How cozy that is. Now we see one of their “accounting magic” tactics in action using the “Unamortized Discount” to jack up the debt that is not subject to the limit. It’s this line here …

So the higher that number goes on the far left the less US PUBLIC DEBT has to be reported. Of course Geithner has to fiddle with the “non-marketable” debt issues and redemptions to maneuver the adjustment to a number that those Trust Funds can handle in terms of debt issuances and the associated discounts. The “non-marketable” debt issues are where all the Trust Funds are forced to reside. I see …how convenient. These Trusts and their discounted debt are non-marketable by law, so the US Congress has set up yet another Fannie Mae type monopoly whereby the US Treasury is the only market for this debt. The US Treasury accurately labels this debt “non-marketable”, because it literally has no market. You may use this example as yet another instance whereby government intervenes to stifle “free markets”.

More convenient maneuvering has taken place in a meeting on March 3, 2011. This is where the accounting issues between accrual and cash come into play so the US Treasury has decided to open five new accounts to cover this problem and what is it they have decided to call these accounts? No … it’s not Nick Leeson’s 88888 account … Its “Other”!

http://www.youtube.com/watch?v=7B8fGmKjNEM

Here they are …

This series of investment accounts will be used for all purchases of Treasury securities that do not recognize budgetary resources on an accrual basis.

USSGL account 1610, "Investments in U.S. Treasury Securities Issued by the Bureau of the Public Debt – Other"

USSGL account 1611, "Discount on U.S. Treasury Securities Issued by the Bureau of the Public Debt – Other"

USSGL account 1612, "Premium on U.S. Treasury Securities Issued by the Bureau of the Public Debt – Other"

USSGL account 1613, "Amortization of Discount and Premium on U.S. Treasury Securities Issued by the Bureau of the Public Debt – Other"

First off does not the word “investment” as in “investment accounts” suggest there are choices? These accounts are as “free” as citizens of the former Soviet Union were. Yet the Americans administering these accounts seem content to have a job, even if it is a corrupt one. Hello USSR!

Ahhh … look at this. It is not accrual or cash but it turns out it is GTAS! GTAS is the new Governmentwide Treasury Account Symbol Adjusted Trial Balance System. The new system fails to recognize certain symbols. USSGL account 1611 is where the “discounts” reside. So you see not only does the US FED offer discounts to private banks at their “discount window”, but the US Treasury offers discounts to taxpaying citizens whose retirement depends on tons of US Treasury IOUs. These are the same IOUs that Bill Gross no longer wants to hold. So next time you read a headline about China getting burned by US DEBT, think more in terms of Americans who are forced by law to pay into huge Trust Funds getting burned worse. Now who would you suggest will bail out the Trust Funds? We have already seen US taxpayers bail out US banks and US companies like AIG and GM; is it possible some day the US taxpayer will have to bail out the US taxpayer? The “Theater of the Absurd” lives on …

“The scenario contains a proposal for the creation of five new USSGL accounts. These new accounts are required to resolve reporting discrepancies that have been identified in the Governmentwide Treasury Account Symbol Adjusted Trial Balance System (GTAS), which is currently in development. The discrepancies occur when the current USSGL account 1611, “Discount on U.S. Treasury Securities Issued by the Bureau of the Public Debt,” is used to report the discount. USSGL account 1611 is currently associated with two different business lines, and the correct business line cannot be identified within GTAS.”

Oh my God … a flaw! So how many other flaws exist in accounting software at the US Treasury that we do not yet know about? Then again who checks the code and the logic? Here is a link to the US Treasury meeting minutes …

http://fms.treas.gov/ussgl/Board_IRC_Mtgs_Agenda_Handouts_Minutes_2009-/...

READ MY LIPS

Okay I will if you’ll take that mask off! From NFIB (National Federation of Independent Business) …

Once again NO NEW TAXES, but more costs … Hidden in the Patient Protection and Affordable Care Act is this new “Health Insurance Tax” (HIT). The irony is that all insured will pay more not less if this “affordable care act” is passed. I offer this as just another example of government largess and how once they infect an industry they seek and destroy any “value”. Remember that government is all about “value destruction”. Government has no value any more since their debt burden far exceeds any taxable assets.

Stop the HIT: Just the Facts

• The Health Insurance Tax (HIT), part of the Patient Protection and Affordable Care Act (PPACA) signed into law last year, is one of the largest tax increases, at $87 billion, included in the bill, and will fall directly on the small business community.
• This new tax officially starts in year 2014 at $8 billion and is on a sliding scale reaching $14.3 billion in year 2018. The HIT has no defined end date, and will fluctuate in price thereafter.
• Eighty-seven percent of the small-business community will be affected by the HIT, because they purchase full insurance. That's almost 2 million small businesses, 12 million employees and the self-employed who buy their own insurance, and 26 million employees covered by their employers --all left to pay this huge tax.
• Increased costs for small businesses, like the HIT, translate to restrictions on their ability to grow and create jobs.
• A recent study by former CBO Director Doug Holtz-Eakin shows that, on average, the HIT will cost each family about $5,000 in higher premiums over the decade.
• The HIT will raise, not lower, the cost of health insurance - the exact opposite of what Washington promised the small-business community from health care reform.
• A full repeal of this onerous and unnecessary tax will provide more certainty and affordability to the nation’s job creators.
• In a statement from the Joint Committee on taxation, Chief of Staff Thomas Barthold explains that eliminating this fee could decrease the average family premium in 2016 by up to $400.

POTTY TRAINING

I hope I am not divulging too much of my dysfunctional propensities with this analogy, but here goes! Way back in the 1960s when I was a little tike one of my Grandmothers used to pay my brother and me 25 cents to go poop. It seemed strange to us but heck 25 cents was good pay and our parents never paid us a dime to go poop! On summer visits to this Grandmother who lived in Texas we would make a fortune because we soon realized she would pay that quarter even if we didn’t poop. All we had to do was shut the door and flush the toilet then light a match and she would think we actually went poop and pay us a quarter even though we didn’t poop at all. As with any Ponzi scheme we over did it as she noticed we went poop a lot and she was running out of quarters faster, so she changed the rules where she had to inspect the toilet prior to the flush. Okay, I know it seems like a lot of crazy family stuff and a bit much toilet humor, but it does show Human Action in a way that we can relate to the State today and how it pays residents to perform the most benign tasks. One such homeless program in NYC does just that as it comes close to paying participants in this program money for pooping like my Grandmother used to. Here read this …

Regardless, the Bloomberg administration’s conclusion reflects a significant shift in its policy toward the homeless, which has followed the mayor’s centrist philosophy of mixing the social safety net with personal responsibility. In a similar vein, his administration began paying poor families for reaching certain goals, like going to the doctor for regular checkups and attending parent-teacher conferences, though programs that rewarded students with cellphones and $50 payments were abandoned because they did not significantly improve achievement.

http://www.nytimes.com/2011/06/01/nyregion/new-york-city-close-to-ending...

Here we have the State of New York paying parents to go to parent-teacher meetings and paying them to go to medical check-ups. I can only guess “pooping” is next! Actually nothing is next since the State is broke; so much for the premise that raising taxes will solve fiscal problems. This is how crazy the statist regime has gotten. This article speaks to Human Action where people voluntarily go homeless to take advantage of a subsidy the State offers. In essence the State of New York pays people to be homeless. Yet isn’t this the same sort of subsidy the unemployed get with their benefit checks as well as welfare mothers who get paid $1700 a month for each child they have? What you have to remember is that in order to pay for these programs the funds must be taken from those who are productive. That used to be the thinking even at the Mises Institute, but what I see at the US Treasury is that our Congress ran out of tax revenues long ago so now these programs are being funded by “debt” more than tax revenues. Of course “debt” is much easier because you do not have to raise tax levels and anger voters while some future generation will be stuck with the bill. Debt solves a lot of political fiscal “hot potatoes” that might cause the two party system to be abandoned by voters. Naturally both parties want to retain their power so both parties participate in the indebting of our youth.

The main feature of this homeless program called “Advantage” is that you get a $1000 rental voucher each month. The annual cost of the program is $140MIL USD with the Federal government covering $92MIL of that, probably through “earmarks”. Yet now the State faces tough budget cuts and so it cut back and lost the matching Federal funding. One of the programs participants speaks out about her situation …

One of those in limbo, Kasha Phillips-Lewis, 24, qualified last year for a $962 monthly voucher, spent another five months looking for an apartment, then finally moved out of a shelter in March to a $1,070-a-month apartment on Staten Island. She learned she might lose her subsidy a few weeks later.

“I was in a panic mode,” said Ms. Phillips-Lewis, who has a toddler daughter. “I am now working 25 hours a week but that still isn’t enough to cover a $1,070 apartment plus heat and gas and electricity and traveling money. That’s not including diapers and extra food.”

I see a disgruntled voter in the offing … Is it a good idea to base a program like this on “part time” employment? Then again where are the full time jobs for the unskilled workers?

Still the NYC authority says that if this program shuts down they will have to open another 70 homeless shelters in the city. I am sure there are plenty of empty foreclosed homes to declare using Eminent Domain; besides the banks never had any “skin” in the game any way. It’s the nature of fiat banking …

THE POWER OF WAR AND DEBT

After ten years there is no explanation needed here …

That’s how War works … The chart below shows how government debt works.

MISH SAYS

From “Hyperinflation Nonsense in Multiple Places” … Here Mish shows us the “deflation” of the Great Depression 2. Get your microscope out!

It seems down in the very bottom of this article Mish has decided to abandon his “deflation” theory for now as he admits his model now shows inflation to be in control. Once again “data” and methodology are key and we all have our “preferred” data that will enforce our belief system. I guarantee you government economists use their own version, as they are paid very well to create models that will enforce their belief system in centralized government. You have to hang your hat on something otherwise you have no beliefs and of what value is a person or government without beliefs?

“The Case-Shiller housing adjusted CPI (my preferred measure of the CPI) went brutally negative at one point. Even the standard CPI went negative for a while as shown in the following chart.”

There it is down there … Even Mish admits it was a small “dip” but one of the biggest dips since 1929! See it there?

“Prices did not stay negative long, but there is an unmistakable dip, the first dip since the Great Depression.”

Is this chart really true of “all items”? No …

So housing prices go negative and it’s the Great Depression 2. Even though the cost of living, the day-to-day cost like food, utilities and medical costs went up over that same time period.

So let’s look closer at the “official” CPI numbers by magnifying this chart so we can see more detail than Mish lets on. Maybe we can find some more Great Depressions! Never mind that the “official” CPI is running version ten as numbers are manipulated to create lower CPI data in order to pay out less on entitlements(COLA). Here is the same CPI chart going back to 1950 – 1960:

For some four years CPI flat lined and dipped, from 1952 to 1956; then again from 1958 to 1959. Yet nobody called that era a deflation.

Here we have the same chart from 2000 to 2008:

Wow, look at all those “deflationary dips”! I see virtually no dip shows up for the TECH CRASH, where asset prices (stocks) fell by 50%. Does that mean that deflations only occur with the real estate market? In Q4 2005 there is a noticeable dip, yet Mish was not calling 2005 deflationary. Any chart expert can draw a straight line of the CPI trend and see that what Mish speaks of as the Great Depression 2 is really just a correction back to normal rising CPI. While Mish argues about deflation vs inflation he neglects to mention the “embedded” inflation since 1971 when Nixon ended the gold standard. Yet even prior to that event CPI was rising but at a more measured and much slower pace.

Now let’s zoom in on the deflation era Mish speaks of from 2007 to 2011. A close look shows that the deflation was only from July 2008 to January 2009 (the major dip) then CPI kicks in and surpasses the 2008 CPI high in November 2010, before 2011.

Now Mish says this …

“Whether the measure is credit, credit marked-to-market, or prices we had deflation.”

Using the same chart logic of CPI lets look at those “prices” during that same “deflation dip” …

Here is the CPI for FOOD … Not much of a deflation dip there.

Next we will look at CPI for MEDICAL from 2006 to 2011 …

Wow … NO DIPS … no deflation! My HMSA (Hawaii healthcare) monthly bill looks like that! Finally a chart that matches my reality of day-to-day life!

Now we will visit OTHER GOODS AND SERVICES from 2006 to 2011 …

Not only is there NO DIP but there is a huge spike up at the same time Mish claims Great Depression 2.

Here we see MOTOR FUEL for 2006 to 2011 …

That’s more deflation than housing yet Mish never mentions this. Is it really truly Great Depression type deflation or is it margin calls at the NYMEX? Banks can’t margin call a mortgage.

What of HOUSING? Here we get the CPI for HOUSING from 2006 to 2011 …

Of course we all know this is skewed using “renter equivalents” … So what is RENT?

RENT did not go down, so no deflation there.

Here we see some of the costs of owning a house and renting an apartment … WATER and SEWER and TRASH.

No deflation there …

What about hotel costs? Here we see LODGING …

It’s obvious that if employment drops then so does the family vacation. How many unemployed are checking into Holiday Inn or flying to Hawaii? Then again maybe the CPI here only counts hotels on The Strip in Las Vegas! Still there is lots of deflation here, in fact way more than HOUSING CPI.

Mish says this …

“More tellingly, we had deflation based on numerous conditions that one would expect to see in deflation: falling asset prices, falling treasury yields, rising junk bond yields, a rising US dollar, falling commodity prices, reduced speculation, etc.”

Falling Treasury yields et al, ties more into a rising USD since capital was seeking a “safe haven”. Perceived or not that’s what it was then.

Mish claims we have reduced speculation, which we did. Not due to deflationary pricing but due to margin calls in stocks and futures. Banks did not lend to themselves so why would they extend “credit” to speculators? Is that true deflation or just regulation? I think there would be a complete opposite result had the US FED extended the discount window privileges to stock and commodity speculators and not just bank cartel members(also speculators). While this chart for COMMODITIES rang true …

This next chart did not and in fact went the opposite … If this truly was another Great Depression then household costs would have plunged along with speculation in commodities. So the end user never saw a bit of deflation. Most of my other US FED CPI charts I display above also point to little or no deflationary price pressures even while the real estate market crashed along with other credit driven speculation.

Mish asks …

“The question now is whether or not we will see deflation again, and if so how quickly.”

My reply all through this whole Great Depression 2 phenom was, “Wake me when prices get to 1970 prices!” I am still in that camp as it will take some really huge mega deflation and a “real” Great Depression 2 to wipe out these 40 years of embedded price inflation since 1971. I believe Mish underestimated the US Treasury’s monetary powers. The C WORD has to be invoked for a true Great Depression 2 scenario. Of course its all AC/DC …

The very next paragraph Mish says this …

“The US is certainly in a period of inflation now by my model. Home prices are making new lows and credit is in a funk, but most conditions appear inflationary at the moment.”

Now Mish sounds the “all clear” siren on deflation and we should plan for further inflation until further notice! Okay …

While Mish and Keen argue over inflation vs deflation in a tiny little two year bubble and debunk the hyperinflation scenario I would offer up this chart instead:

Whew … Now that’s some major DEFLATION!!! This chart beats the hell out of any chart Mish and Keen could dream up, even the Case-Shiller Housing Adjusted CPI.

From the year FDR confiscated the US citizens gold to now in 2011. Notice also that in 1971 the USD purchasing power really crumbled at an accelerate rate, although the beginning of the Vietnam War right around 1964 did not help matters at all for consumers. I would also like to ask where it is that Volcker, our most beloved and honest US FED Chairman saved the day for consumers? Judging from this chart it seems the true charter for the US FED and the US Congress is to destroy the USD. This keeps being reflected every day when I look at a US Treasury Statement, something neither Mish of Keen ever mentions.

Isn’t all this just “noise” for a monetary crisis? Let’s be clear. What exactly is a “crisis”? How is it defined?

I guess we could go to the dictionary and see …

cri·sis/ˈkrīsis/Noun
1. A time of intense difficulty, trouble, or danger.
2. A time when a difficult or important decision must be made: "a crisis point of history".

Okay … I see the dictionary does not provide an exact “time period” for a crisis, like weeks or months or years, but judging from the last chart on the USD purchasing power I’d say we have been in a monetary crisis since 1933 when FDR defaulted on the “gold dollar”. I mean, what else would you call it when the government declares gold illegal to own due to an EMERGENCY BANKING ACT whereby the “emergency” lasted until 1965? That’s a real long emergency in my book! This is how absurd government can get. Where is all this Freedom and Liberty that America is suppose to stand for? We are one of the only governments on the face of the Earth that felt the need to confiscate US citizens’ private property, their savings, in gold. What’s even sadder about that is that we were not even at War. At least Hitler could use the War excuse for taking Europe’s gold, but FDR simply needed to bail out the banks. Here we are again in 2007 and even now in 2011 still bailing out banks. We have been bailing out banks one way or another since FDR days, some 80 years now. Do you think its time to try something different yet? I think we can sum up the past 80 years with a very old saying … “MONEY TALKS …” You know the rest!

“Therefore nothing is more important today than to enlighten public opinion about the basic differences between genuine Liberalism, which advocates the free market economy, and the various interventionist parties which are advocating government interference” – Ludwig Von Mises, Economic Freedom and Interventionism, 1953

“In a state where corruption abounds, laws must be very numerous.” – Tacitus, 115AD

“Our country is now taking so steady a course as to show by what road it will pass to destruction, to wit: by consolidation of power first, and then corruption, its necessary consequence.” - Thomas Jefferson

“Only government can take perfectly good paper, cover it with perfectly good ink and make the combination worthless.“ - Milton Friedman

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CTA Trading Desk Mid-Day Report

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CTA Trading Desk Post-Close Report


Good evening. Patrick here.

For short-term traders, opening upside gaps in the midst of a swing down always cause their “alter ego” to demand attention. Seven percent corrections have been few and far between over the past two years so many of us are chomping at the bit to play the upside now that prices have finally pulled back. An impish little voice is whispering to us, urging us to act and act quickly, admonishing us to buy these “blue light specials” before prices get away from us.

Our alter ego naughty twin usually gets us in trouble; buying upside gaps during downtrends is normally the fast track to losses. The professional trader looks at these early morning pops as high probability fade, either liquidating longs or establishing short against prior support (now a resistance level).

Early this morning the S&P rallied back up towards the April low near 1295 a level one would look to unload inventory or establish shorts with a very tight stop. Although the market didn’t exactly tank from that level it clearly was a difficult area to overcome, and by late afternoon a half-hearted attempt to vault the zone imploded, leading to a violent downside rejection into the closing bell (S&P-0.10%).

It is always easy to spot picture-perfect chart set ups after the fact; we have all been bombarded with propaganda from countless market mavens touting their “uncanny ability” to predict and profit from impending market turns.

In real life it doesn’t work so neatly; not all trades are going to work out, and the sooner we embrace small losses as a price discovery mechanism rather than a fatal blow to our self esteem, the closer we will be to becoming consistently profitable traders.

Have a great evening.

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