We’ve now have just a little over 30 days until US breaches its debt ceiling.
We would have already done so, except Treasury Secretary Tim Geithner borrowed some $200 billion from emergency funds to buy a few weeks’ time (announcing that he’d be leaving his post before the actual ceiling was breached).

The “solutions” to the debt ceiling discussions range from outright insane ($1 trillion coins) to just staggeringly irresponsible (just get rid of any oversight and grow the debt without restriction).
Let us consider the facts.

The only reason the US is even having these discussions is because we’ve added $1+ trillion in debt to our balance sheet every year since 2008. The reason we were able to get away with this was because Congress hasn’t even implemented a budget since that time. Indeed, the last time a budget was even proposed (by President Obama in that case) it was rejected 97-0.

Let’s say a US family spent all of its savings and income and so began using credit cards to fund its purchases. Then, instead of implementing reforms and a budget, these folks decide to abandon any kind of tracking of their expenses and start spending even more. Eventually this family would begin to stop paying its bills.

What would you tell these folks if their proposed solution to this situation was to stop opening their mail?
At the core of this entire situation is a total lack of financial discipline. Indeed, at this point, the only thing the political class in the developed world seems to pay attention to is the bond markets: only when their bonds collapse and interest rates spike is there any sense of urgency to do anything (with massive debt loads, any increase in interest rates means hundreds of billions of dollars in more interest expenses).
On that note, the US 30-year Treasury appears to just have taken out its trendline:



Bear in mind, the US Federal Reserve has been the primary buyer of US debt. So if the US bond market begins to collapse at a time when the Fed is already buying this much, there isn’t a whole lot the Fed can do to fix the situation (other than just buy more… which inevitably leads to a debt implosion).
This situation has the potential to get very ugly. Remember the impact the failed debt ceiling talks had on the markets in July 2011?



At that time, the only thing that pulled the market back from the edge was the Fed’s announcement of QE 2. But the Fed has already just announced both QE 3 and QE 4. So this option wont be around to fix the fallout if the US breaches its debt ceiling again now.

Source HERE

Posted by Mr Thx Thursday, January 10, 2013 0 comments

With 2013 now under way, the Godfather of newsletter writers, Richard Russell, told his subscribers that after being in the business for 60 years, he has never seen anything like this (described below).  Russell also discussed the massive silver short position and gold’s eternal value.  Here is what Russell had to say: “Bull market or bear market?  Below we see a listing of the year-end cost of gold denominated in Federal Reserve Notes (these notes are now commonly called “dollars”).  From a market standpoint, we're looking at one of the greatest bull markets in history.  But ironically, referring to “dollars alone,” this is one of the worst bear markets I've ever seen.
 
Richard Russell continues:

“Bear market?  Sure, back in the year 2000, for only 273 dollars you could buy one ounce of gold.  But by 2012, you needed over 1600 dollars to buy the same one ounce of gold.  The eternal value of gold doesn't change.  It's the purchasing power of the Federal reserve note that has changed.


The price of gold in terms of “dollars” has now risen thirteen years in succession.  But what is even more remarkable is the fact that most Americans have totally ignored (even despised) this remarkable bull market.  Let a stock rise seven or eight years in a row, and it will be the talk of Wall Street and the talk of every social gathering in the nation.


Yet this amazing bull market in gold stands alone, sneered at and almost hated.  I've been in this business for over 60 years, and I've never seen anything quite like it.  However, I do think I know something about human nature.  What I've learned about human nature is that it doesn't change.  For instance, if a stock creeps up year after year, sooner or later the crowd will discover it -- and then they'll pounce on it, ultimately sending that undiscovered stock far above its reasonable price.


My belief is that somewhere ahead, the crowd will latch on to gold.  Then, as disinterested in gold as they are now, the crowd will pile into gold with the same frenzy that overtook the storied “49ers” when they packed their bags, kissed their wives and kids good bye, and headed West in search of gold.


Gold is the only item that elicits both greed and fear.  The greed factor is so well known that I don't have to explain it here.  But the fear factor only arises when men (and women) see the “value” of their money disappearing.  Nothing concentrates the mind as dramatically as seeing the purchasing power of one's hard-earned income and savings being ruthlessly destroyed.


As I write, Ben Bernanke's Federal Reserve is systematically shaving off the purchasing power of the dollar in the same way that you can peel the layers off an onion.  The US has been in the process of constructing the greatest credit bubble in history.  The world has never seen anything like it.


This enormous bubble is now being attacked by the worldwide forces of deflation.  Fed Chairman Bernanke is terrified by the mere thought of deflation.  Bernanke will not stand for deflation.  He has said as much.  And he will attack deflation and crumbling asset prices with all the inflationary power at his command.


As the ocean of new dollars pours out of the computers of the Federal Reserve, the purchasing power of the dollar erodes.  It erodes slowly at first, but as the river of dollars turn into an ocean, slowly-rising inflation segues into a monster.  Finally, the crowd recognizes what is happening to their money.


The loaf of bread that cost a dollar last year suddenly costs four dollars.  The cup of coffee that cost a dollar last week goes on special today for two fifty.  The college tuition that cost four thousand dollars now costs sixteen thousand and there's the extra for a dorm. You're suddenly paralyzed.  A light bulb in your head starts to glow.  And just as suddenly, the mad, frantic rush for gold is on.


Old timers shake their heads knowingly and repeat the old saw, “There's no fever like gold fever!”  And the rush for the yellow metal turns into a full frenzy.  Even as I write, the subtle but tell-tale signs of “gold-fever” are seen and heard.  New gold funds and new gold ETFs are started.


Full-page advertisements appear in the newspapers, drawing attention to the loss of purchasing power in the dollar, and lauding the advantages of owning gold and silver.  Gold vending machines appear at airports and in European and Asian department stores.  Pressure is rising to force lawmakers to elect gold as legal tender.


On March 29, 2011, the state of Utah passed a law stating that gold and silver will be legal tender in the state of Utah.  Imagine, just imagine -- gold being treated as real money!  That alone shows us how far and how completely insane the nation's attitude towards gold and silver has become.  Gold has been treated as money for 3,000 years.  “As good as gold” is a well-known expression.  Yet, today in the US, gold is not considered to be legal tender.


No fiat money has lasted for as long as a century.  The US has had prior experience with fiat money -- the Civil War Greenbacks, the “Bills of Credit” of the original American colonies, the ill-fated Continentals during the Civil War.  None of these have survived, and neither will the Federal Reserve notes that we now refer to as “dollars.”


I dislike falling back on the morality argument, but consider this.  I may work a lifetime for five million dollars.  Yet some academic working for the Federal Reserve can press some keys on a computer and create ten billion dollars instantly without working up a sweat.  Is the ten billion dollars he creates moral money?  Did anyone work for the money?  Did anyone take a risk for the money?  Did anyone drop a bead of sweat for it?  No, then I claim it is immoral and actually evil money, and as such it is doomed.


The only power evil has is the power to destroy itself.  I affirm that the Federal Reserve note is doomed.  When the Federal Reserve note goes down the drain, all fiat money in the world will go down with it.  Today information travels around the world with the speed of NOW.  People around the planet will see that fiat money is a fantasy and a counterfeit fraud foisted upon them by unconscionable and unscrupulous bankers.  It is then that the crowd will turn to gold, in much the way that people turned to gold back in 1978 to 1980.


Now this may be “far out.”  I'm reading a lot about silver and its huge short position.  I hear that the silver shorts are bigger than the amount of physical silver that is readily available.  The silver mining stocks have already surged.  And I wonder if silver starts to boom, whether that action wouldn't rub off on gold?  Hmmm, it's a thought.”

source here

Posted by Mr Thx Tuesday, January 8, 2013 0 comments

It is ironic that stocks are at five years highs going into what is probably going to be the biggest disappointment of an earning`s season since the 2008 financial crisis. We got a hint of 4th quarter results during the disaster which was the 3rd quarter earning`s season where most companies missed on the revenue side, and those that beat EPS guidance, did so barely, and most of that was created through stock buybacks and creative smoothing techniques.


Make no mistake when a public company sets earning`s guidance these are numbers that are very conservative, and they expect to blow these numbers away given a healthy business environment. When a company just barely hits or beats the EPS number, and misses on revenue you know they were buying back stock, and trying any possible financial trick to attain the EPS number. One of the oldest tricks on Wall street, besides giving easy guidance so that when it comes time for earning`s the stock shoots up because they “beat” expectations.

The fact that companies have to struggle so much just to meet expectations tells how bad things are from a corporate profit standpoint. They have cut their operations to the bone for the last three years, and built earnings up from the bottom, and that strategy has reached its point of exhaustion. No more to be squeezed out of that cost cutting strategy.

The Fiscal Cliff 

Moreover, with the continual uncertainty coming out of Washington from a policy perspective, code word the Fiscal Cliff, it`s unlikely that CEO`s committed much towards year end discretionary CAP EX purchases which would spur corporate growth during the fourth quarter. So expect to hear the term Fiscal Cliff during Earning`s season quite a lot as the primary excuse for business headwinds by the executive teams during conference calls.

Deja Vu

Last quarter stocks were at these same levels, and companies started missing and no one wanted to sell hoping that they would get better earning`s reports, but firms just kept missing, and getting taken down one by one while the market stayed afloat at elevated levels.
Then more and more firms were missing on the same days, the big boys started missing, and finally the shorts were going to take multiple firms stocks down on the same day, and Wall Street pumpers threw in the proverbial towel on an options expiration Friday of all days, and took prices down to the next level in most stocks.

In other words, they tried to ignore the bad earnings and keep the rally alive, but the shorts are going to punish bad earning`s regardless of bullish sentiment.

Expect the same pattern of behavior as most fund managers are sheep and too stupid to actually get out before earnings season starts, and buy after the inevitable selloff. They wait and hope and once one big player unloads they all run for the exits at the same time leaving quite a carnage in stocks along the way. One benefit is that short sellers can get some very cheap puts and establish some very attractive entry points for the inevitable ride back below 1400 in the S&P 500.

The Debt Fight

Moreover, with the upcoming fight over increasing the debt limit just around the corner expect quite a sizable selloff in markets which sends everybody back into the comforts of bonds teasing bond vigilantes once again, and reminding everyone including the fed that we really are still in a deflationary, deleveraging cycle that will not turn until true growth based upon sound financial principles are in place in Washington.
Washington is the biggest reason this economy has taken so long to recover from the financial crisis in 2008. And their ineptitude has caused the fed to overcompensate with an unprecedented and borderline extreme monetary solution which remains to be seen what the eventual unintended consequences are of said policy.
As this is new territory for the fed, and a grand experiment which economists will be analyzing for the next 50 years of academic study as to the ultimate costs & benefits to our society.

Cost cutting versus top-line growth

Corporations have had to watch costs the last three years, work their employees longer hours, control costs from an operational standpoint, i.e., operate more efficiency and take advantage of low financing and borrowing costs to manufacture earnings where they can through stock buybacks and creative use of capital.
But the one thing that hasn`t been present for corporations is an environment where the economy is robust and we are adding 500,000 jobs a month to the economy, and they can afford to hire and grow profits from the top line through new growth opportunities.

Expect to see the 4th quarter earning`s season reflective of squeezing all that can be had from the bottom line over the last three years, and the lack of true growth opportunities, which showed its ugly head during the 3rd quarter earnings results, make a pronounced appearance this earning`s season.

Fund Managers are slow learners

Stocks will get hit hard as shorts take down the earning`s misses one by one, until the fund managers get the hint, and start selling before the shorts eat into their profits, and start dumping everything mid-way through this earning`s season.

The excuses will be prevalent, all pointing to a lack of certainty out of Washington, but the real reason is that you can only cut your way to profits for so long before you need actual real growth in the economy, and apart from the slight uptick from the bottom in the housing market, the rest of the economy is just not robust enough to produce earning`s growth that is reflective of top line opportunities.
By EconMatters


source here

Posted by Mr Thx Monday, January 7, 2013 0 comments
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Sekapur Sirih Seulas Pinang

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