It Doesn’t Matter to Anyone Until it Matters to Everyone

Investors have a hard time getting over inflation, especially in the early stages of a deflating environment.  I guess since inflation has been the dominant factor influencing asset values for the past seventy-five years.  In other, some habits are just hard to break.  First, what is inflation?  Well, there are two types of inflation: (1) monetary inflation in an increase in the supply of money through the creation of debt, and (2) price inflation is a rise in the general price level of goods and services.  Second, what is deflation?  Well, deflation is simply the opposite of inflation.  Deflation would be a contraction in the supply of money and debt. 

Since the current and previous generations have lived in an environment of ever-increasing inflation, the natural tendency would be to simply extrapolate the past into the future.  Forecasts after forecasts by the so-called economic pundits have called for an economic recovery induced by more inflation.  However, this so-called recovery induced though inflationary measures are just not working. The only logical explanation is “Deflation.”  Deflation, not inflation, explains why after QE 1, QE 2, and Operation Twist, interest rates are the lowest in our history.  (One can get a fifteen-year, fixed mortgage at 3%.)  Deflation explains what is going on in Europe.  Deflation explains the deleveraging aspect of consumers.  (Consumers are trying to reduce debt, not take on more debt, which is deflationary.)  Deflation explains why real estate values are down 40% since 2007. 

Sooner or later, deflation will be obvious to all those lemmings out there.  That is the reason for the title of this post, “It Doesn’t Matter to Anyone Until it Matters to Everyone.”   

Wall Street is not Main Street!

Since 2007, the Federal Reserve System has monetized $2 trillion of debt, mostly toxic loans acquired from Wall Street; and the federal government has borrowed $7 trillion to cover its deficits.  What has all this credit given “Main Street?”  Absolutely nothing!  To make matters worse, real estate values have plummeted at least 40% in many areas of the country.  However, such credit has kept solvent those so-called “To Big To Fail Banks” on the backs of  “Main Street” folks.  That would be you, innocent savers and taxpayers.  (See the following table to determine if you are better off today than at the end of 2007.)

	December 2007	July 2012	% Change
Federal Gross Debt	$9.229 Trillion	$15.502 Trillion	+167%
Federal Reserve Credit	$871.633 Billion	$2.846 Trillion	+327%
Excess Reserves of Commercial Banks	$1.784 Trillion	$1,483.2 Trillion	+831%
Case-Shiller (20 City) Home Price Index	184.97	142.21	-23.1%
New One Family Houses Sold	619,000	372,000	-40%
All Employees, Total Non-Farm	138,873,000	132,868,000	-4.3%
S&P 500	1468.36	1411.13	-3.9%

Source: FRED (Federal Reserve Bank of St. Louis Economic Data)

Silver: Update on Short

Saturday's Humor from Pepper and Salt

Silver "Short" Update

$SLV closed the week at $29.75.  (Short position was entered at $28.275 with a stop at $30.125.)  Currently, $SLV is trading right at its "Bearish Resistance Line."  Both its "Full Stochastics and Wm%R" are extremely "overbought."  Downside price target remains at $19.

Short-term Market Direction

Short $SLV

Insanity of Detroit, Michigan

Despite having "No Horses," the Water and Sewerage Department for the city of Detroit, Michigan employs a horseshoer.  And, once again, I am not that creative to make this stuff up!  The city pays $29,245 in salary and about $27,000 in benefits for the horseshoer position.  The Detroit Water and Sewerage Department has a large debt, rising water prices and inefficient services that use almost twice the number of employees/gallon of water as other cities like Chicago.  And, guess what?  The local union president said it is "not possible" to eliminate the position.  The good people of Detroit should be outraged that this position still exists.  

And, to make matters worse, an independent consultant to the city of Detroit recommended that the city trim more than 80% of the Water and Sewerage Department’s workforce.  The consultant, who wrote the report, found 257 job descriptions, including the infamous horsehshoer be eliminated.  In response to the report, John Riehl, President of the American Federation of State, County and Municipal Employees Local 207, which represents many of these employees, said department needs more workers, not less.  This union is totally out of control!

The Bear Case is Based on This Signal

For the "Bear Case," it all comes down to the potential for the "Bullish Signal Reverse to Bearish Signal" at 1350.  (See above chart.)

Eschaton: "Fourteen Days of Global Cataclysm -- August 2012"

Please watch this video all the way to the end, especially the end.  You may want to forward it to people who have just not been listening to the world around them!  As a disclaimer, I do not know this group who put this video together, nor am I endorsing them. 

Iron Ore: So Much for Global Growth (Welcome Recession)

--> Probably no other commodity is tied to global growth, especially China’s growth, than the key steel-making ingredient that is Iron Ore.  The iron ore price continues to plunge.  In other words, so much for global growth!  (Interesting, this is the one commodity that is not a futures contract, cannot be manipulated by trading desks or by hedge funds.)  $122.74 is critical support for Iron Ore.  If this price level is penetrated, downside price projection is January 2009 level of $49. (I will definitely be monitoring Iron Ore on a monthly basis.)

Source: Index Mundi

Silver ($SLV)

In the above "Point & Figure Chart" going back to 2007, I have identified the various stages that $SLV has gone through:

1. From May 2005 to September 2011, $SLV was in the advancing, Stage 2, phase. (See chart).  
2. From September 2011 to January 2012, $SLV was in the distribution, Stage 3, phase.  
3. From January 2012, $SLV has entered the outright selling phase, or Stage 4.  Stage 4 occurred when the price penetrated the "Bullish Support Line" in January 2012, which was intact since December 2008. (See above chart for the Bullish Support Line.)
4.  The critical price support for $SLV remains at $26.  Since it is in Stage 4, selling phase, I still anticipate $26 to be penetrated with a downside price object of $19.

$INDU: Set-up for Perfect Storm

More Than a Million Individuals Work in the Tax Preparation Field

Up to 1.2 million tax preparers make a living navigating the U.S. tax code for taxpayers.  We have more professional tax preparers in the United States than law enforcement officers (765,000) and professional firefighters (310,400) combined.  Yet, I hear no intelligent debate or discussion about the "Fair Tax." 

Documentary: Life after An Electromagnetic Pulse (EMP) Attack

You just may want to watch this documentary on EMP, which is tied directly to my "Eschaton" theme for the blog.  Also, if you do not have sixty minutes to invest, then, please read the following article that is entitled, "Preventing Catastrophe: Time for a National EMP Awareness Day."

$SPX: Bullish Signal Reversed to Bearish at 1350

The "key" price level for the SPX is 1350.  If penetrated (1350), the SPX enters the declining (selling) Stage 4.

$INDU: Overbought and More Overbought

Negative divergence continues between declining volume and rising DJIA.  Look for a sell-off in the $INDU to take it back to its 50/200 Day EMA and/or its lower BB boundary, which is approximately 500 points lower from its current price level. (See the following chart.)

Over 100 Million Now Receiving Federal Welfare

The federal government administers nearly 80 different overlapping federal means-tested welfare programs.  Food stamps and Medicaid make up a large and growing chunk of the more than 100 million recipients.  The data for the following bar chart come from the U.S. Census’s Survey of Income and Program Participation.

You Know You Might Be in Trouble When CNN Sets the Record Straight

Household Data: A9 Selective Employment Data

I am so tired of all the half-truths about the employment situation since 2008.   These half-truths remind be what Joseph Goebbels said, “If you repeat a lie often enough, it becomes the truth.”  And, what Vladimir Lenin said, “A lie told often enough becomes the truth.”  Therefore, I am here put the record straight about our employment situation.  The following employment numbers “do not” include statistical seasonal adjustments nor birth/death adjustments, just real jobs!

The following table illustrates full-time employed individuals, who are at least 16 years of age and work more than 35 hours per week:

Time	Employment	Change
2008 Annual FT Employment	120,030,000	N/A
July 2012 FT Employment	116,131,000	-3,899,000

Therefore, since 2008, actual full-time jobs declined by over 3.8 million individuals.

The next table illustrates part-time employed individuals, who are at least 16 years of age and work less than 35 hours per week: (Keep-in-mind that these jobs do not provide benefits, such as health insurance nor 401-k plans.)

Time	Employment	Change
2008 Annual PT Employment	25,332,000	N/A
July 2012 PT Employment	26,995,000	+1,663,000

Since 2008, actual part-time employment increased over 1.6 million individuals.  Therefore, actual net employment, part- and full-time, declined by 2,236,000 individuals. 

Source: BLS

Dow Jones Industrial Average ($INDU)

Friday saw the INDU soar by over 200 points on the so-called 163,000 job creation number for July. (However, if you followed by post from yesterday, you know that those jobs were nothing but a statistical, pie-in-the-sky occurrence made up by the seasonal adjustment factor and one of the largest birth/death adjustments for the month of July.)

Bottom-line for the market is the simple fact that divergences have occurred among the "Full Stochastics, Volume, and Wm%R, which are all negative to the INDU. I am expecting a 500 decline back to the lower boundary of the BB.  (See the following chart.)

Employment to Population Ratio

The relationship between the actual number of people employed to the total population is the ratio that I watch closely every month.  Once again, why?  Well, the more people employed the more taxes the government gets to collect in order to make all those entitlement payments every month and, of course, to reduce the size of the federal deficit.  Therefore, you definitely want a large "employment to population ratio" to feed the beast.  For July, the ratio was 58.8%, down from 58.9% in June. 

NFP +163,000 Jobs for July

The Bureau of Lies and Shame (BLS) really did it this time.  Why, you may ask?  Well, of the 163,000 jobs add for July, 429,000 was based on purely statistical fudging.  That is, seasonal and birth/death adjustments, or phantom jobs.  The bottom line is when you subtract off those statistical made jobs, we actually lost 266,000 jobs.

Government Motors (GM) Profits Slip 41%

Say it ain't true!  Yes, I am afraid it is true.  Profits fell 41% in the second quarter of 2012 as troubles in Europe was a major drag on sales in North America for Government Motors.  If you have been reading my blog over the past two weeks, you would know why GM car sales have been robust here in the United States.  If not, I will succinctly repeat the two reasons: (1) car stuffing by GM, which simply means revenues are recorded when cars leave the  production line to the dealer but not yet sold by the dealer, and (2) FICO scores in the upper 500s to qualify to purchase a car, which is by all standards sub-prime at best.  In other words, welcome to the encore performance of 2008.