What Does Bab el-Mandeb Have in Common with Strait of Hormuz?

The answer, of course, is the shipping lane for oil.  In strategic terms, you control Bab el-Mandeb; and you are will on you way to controlling the Red Sea.  Who would benefit the most by such control of this major shipping lane?  Think no further than Iran.  Iran has been promoting the Islamification of Egypt, which is now controlled by the Muslim Brotherhood, Ethiopia, and Yemen.  Iran already for all practical purposes controls the Persian Gulf and the Strait of Hormuz.  It is startling to see how just in the past eighteen months that Iran has put a straggle hold on this entire region.  And, what is the United States doing about all of this?  We are simply trying a diplomacy of "appeasement." Such a policy has major negative global ramifications.  You just might want to get out your world atlas and check out the location of Bab el-Mandeb and the Strait of Hormutz.

The Student Loan Bubble in "19" Simple Charts

College and university administrators better be aware of these charts.  The following chart indicates the lack of growth in median inflation-adjusted income for college graduates.

To see all the charts, click this link.

Do You Suffer from Nomophobia?

Nomophobia is a condition that means the fear of being out of cell phone contact.  Yes, this really is a real mental condition, which was coined by a British researcher in 2008.  A 2012 study has found that since 2008 the amount of individuals who fear being without a cell phone has grown from 53% to 66%.  And, guess what?  Since this is a mental condition, the next natural progression for those individuals who suffer from this disorder is to seek permanent disability from Uncle Sam. 

Federal Deficits: Spending is the Problem!

Sources of Federal Revenues

Who Really Pays Federal Income Taxes and How Much?

Entitlement Programs: 62% of Federal Spending

Mantra of the Preponderance of Americans

Why?  Because individuals really believe that what they don't know, they can not be held accountable nor responsible for not knowing whatever it is.  Sad but so very profound.  

United States Credit Rating Cut, Again!

Rating agency firm Egan-Jones cut its credit rating on the U.S. government, citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country's credit quality.  Further, in its downgrade announcement, the firm said that issuing more currency and depressing interest rates through purchasing mortgage-backed securities does little to raise the U.S.'s real GDP but reduces the value of the dollar.  It also stated that such action by the FED increases the cost of commodities, which will pressure the profitability of businesses and increase the costs of consumers thereby reducing consumer purchasing power.  Further, it stated that from 2006 to present, the US's debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8% of GDP.  In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5% of GDP.

Folks, we are fast becoming a "Banana Republic."  Our national debt exceeds $16 trillion, which is more than our GDP.  Our federal deficits have exceed $1 trillion for each of past several years.  We have a Federal Reserve System that purchases 77% of all newly issued Treasury securities.  This same FED, which by the way is not an agency of the federal government but actually owned by commercial banks, continues to expand its balance sheet in order to support those mal-investements made by those "Too Big To Fail" banks. 

QE Until Further Notice

Yesterday, Ben Bernanke announced the Fed's latest monetary plan to stimulate job growth, housing demand, and overall economic growth.  What's the plan?  Oh, more of the same failed monetary policies since 2008.  But, this time he assures us that it will definitely work.  He is simply asking us to trust him, since he has a Ph.D in Economics and is omnibenevolence.

Going forth into perpetuity, the Fed will commence with following actions:

1. Purchase $40 billion in mortgage-backed securities per month, which are nothing more than toxic assets.
2. Purchase $45 billion in long-term Treasury securities. (As a side-bar issue, the Fed has bought 77% of all newly issued Treasury debt over the past year.  That is, it simply purchased those securities by creating the dollars [reserves] out of thin air.)
3. Continuation of its zero interest rate policy (ZIRP) on short term debt through 2015.  

So, with this newly, revised QE going forward, the Fed's balance sheet will increase from $2.8 trillion to $4 trillion by the end of 2013.  That is, the Fed will pump an additional $1.2 trillion dollars of liquidity into the financial system.  Why?  Well, I firmly believe that the Fed is operating in a panic mode and simply has decided to "double-down" on its previous failed QE monetary policies of trying to revive the economy.  In other words, these QEs are bound to work eventually.  Right? 

When financial asset prices are no longer driven by fundamentals, such as positive cash flows, but by QEs, you should know that we are in "deep doo-doo."  That is why it is alright to use that four letter word, "Exit," as in getting out of all financial markets right now!

And the Winner of the 2012 Presidential Election is?

President Obama is likely to win in his re-election bid for the following two reasons:

1. Robert Prechter, who writes “The Elliott Wave Theorist,” has done extensive research on those factors that influence re-election outcomes of presidential races. His hypothesis is that changes in social mood simultaneously regulate significant changes in the stock market and people’s opinion about their political leader.  (Social mood is manifested in high stock market valuations, low dividend payouts, low interest rates, low mutual fund cash positions, and high favorability readings of the President.) Therefore, his research revealed that the stock market is an “excellent indicator” of re-election outcomes.  Also, the so-called wealth-effect of voters matters less than voters’ mood when it comes to re-election outcomes.  In addition, GDP had a moderately positive relationship to re-election results; and inflation and unemployment rates had “no” significant predictive value.  He tested stock-market performance 1, 2, 3, and 4 years prior to elections and found all of them to be significant.  However, the 3-year time horizon leading up to the re-election was the most significant.  So, we do stand based on the 3-year time horizon?  Given the 3-year time frame, the DJIA has gained 36%, which definitely bodes well for President Obama.  Even though the economy remains weak, the 3-year positive trend in how people feel, as measured by the performance of the DJIA, definitely gives the edge to President Obama.  
2. The following three-year S&P 500 chart depicts one of my long-standing indicators that I use to identify “market trends.”  When the 15-week Exponential Moving Average (EMA) exceeds the 40-week Exponential Moving Average (EMA), the “primary trend” is up.  Likewise, when the 15-week EMA < 40-week EMA, the “primary trend” is down.  As depicted, this indicator bodes well for the re-election of President Obama, unless the market tanks over the next two months.

 

Underlying social mood as manifested in the stock market remains positive going into the November election.  Therefore, the probability of President Obama being re-elected is high!

So, how can one use the above information against the backdrop that the next four years will usher in the largest economic/financial disaster known to man with the DJIA selling for 1,000?  (Yes, the coming economic downturn will be greater than the Great Depression of the 1930s.)  Given the scenario, I don’t consider who ever occupies the White House will win any popular contests.  Remember that over the next four years the expected social mood of this country will change from positive to very “bleak.”  Therefore, the man that occupies the Presidency will undoubtedly be highly despised.  In other words, the proverbial bottom-line is to vote for the candidate you like the least. 

History in the Making?

Robert Prechter, in his latest (September 2012) Elliott Wave Theorist, made the following statement: "Global markets and economies are mired in the early stages of the biggest disaster ever.  Most people think both areas are in the early stages of a prolonged recovery, but in fact they are on the cusp of the second downturn, which will be of epic proportion." I concur!

What are the Ramifications of all this Debt?

You decide what to do.  And, by not doing anything, you have made a decision by default.  Good luck with that!

Iron Ore: Update

On Friday, August 17, I posted the following comments on my blog, which was entitled, 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.)"

Well, August data is finally available.  (See the following chart.)  And, iron ore prices plummeted right through the critical support level of 122.74 to close at 107.80, or a 15.74% decline from July.  Year over year, the percentage decline in iron ore prices is 39.15%.  Therefore, the downside price projection is $49.  In addition, the $122.74 price penetration does signal the recession is at hand.  In other words, deflation should be the number one concern, not inflation.  Why?  Because falling prices are a direct consequence of deflation.  Just look at the current level of interest rates and real estate values for evidence of the deflating environment.

 

Government Motors (GM) Loses $49,000 in Each Volt Sold

The Volt is back in the headlines.  No, I have no new reports of exploding batteries and Volts catching on fire.  This time it is all about GM losing a significant chunk of change on each Volt sold.  To be exact, GM is losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts.  (Definitely business model that one would not want to replicate.  However, then again, I am talking about Government Motors.)  But, take heed because our military has come to its rescue.  The Pentagon is buying Chevrolet Volts to help “green up” the military.  No kidding, I just can not make stuff like this up.  As a matter of fact, the Department of Defense's goal is to purchase 1,500 such green vehicles.  

Now, GM has spent nearly $1.2 billion developing the Volt and is still working out kinks, such as the Volt’s tendency to electrocute firefighters and first responders to accidents.  However, the Department of Defense has been directly involved in assisting GM, helping to test the Volt’s battery safety and capabilities with the use of our military forces.  God bless and protect (out of harm's way) our military, which now takes on a whole new meaning. 

"iPhone 5" Sales Could Offer Big Boost to GDP

According to the Wall Street Journal, sales of the new iPhone could add between a quarter and half a percentage point to annualized economic growth in the fourth quarter to GDP.  So, there you have it.  To spur economic growth, all you have to do is go out and buy that new iPhone for $600, or should I say borrow the funds.  In so doing, you will be doing your patriotic duty by making sure the economy does not sink into another recession.  Think of it this way, the economy is going to be bailed out by Apple and you, not the Fed, nor Congress, nor the White House. 

More than Half Americans Take Out Loans to Buy iGadgets, such as iPhones & iPads

Zero Hedge reports that "a recent poll from CouponCodes4U found that 81% of consumers admitted they could not keep up with the latest and greatest from Apple - and worse still that 51% used credit to buy one of the must-have iGadgets, such as iPhone and iPad.  Wow!  Go into debt in order to have that gadget.  What have we become as a society?  Where is that time-tested philosophy that you buy something when you have the money to do so?  Then again, we can always count on  government entitlement programs, food stamps and unemployment compensation, to bail us out so that we can have those wonderful iGadgets. 

Presidential Endorsement

I will make my endorsement for President later this week.  My endorsement will not be based on any party affiliation, simply financial considerations for the coming "Eschaton."

June Food Stamp Recipients: Another Record!

June 2012 saw a new surge in those Americans living in poverty and thus eligible for food stamps, with 173,600 new entrants into the system.  The total is a new all time high of 46,670,000 individuals.  By the way,  that 173,600 increase in food stamp recipients was three times greater than Americans finding jobs (64,000, most of which part-time) according to the Bureau of Labor Statistics (BLS). 

Top Campaign Contributors

Do you really believe America is going to change simply by changing one party for another?  If you do, take a look at who really is running for President of the United States.  (Re-posted from Altheadlines.Com.)  By the way, of the Banks and Wall Street Contributors listed for Romney, those financial entities received $8.219 Trillion from the Federal Reserve System between December 2007 and June 2010, which amounted to nothing more than a financial bailout for Wall Street!

The Bulls Parapettio?

 

Parapettio is the moment in a Greek tragedy where the hero realizes that everything he or she knew was wrong.  Yes, the bulls will indeed experience their parapettio moment with great financial pain when they realize that Fed Chair Bernanke is not their financial savior but their ha'shatan.