Thursday, May 26, 2011

Economic Green Shoots, Exit Strategy, No QE3 Money Printing


It is not clear whether the American financial community has the ability to observe and conclude that the US Federal Reserve is adrift and relies upon deception as policy in revealing its directions. Its position is to hold steady, inflate to oblivion, support financial markets in heavy volume secretly, and lie about leaving its trapped policy corner. The USFed is a propaganda machine that deals with ruses as a substitute for transparent policy discussion in the public forum. Two years ago the ruse disseminated widely was the Green Shoots of an economic recovery that had no basis at all. 

The scorched earth showed more evidence of ruin than fresh business creation, at a time when the grotesque insolvency was spreading like a disease throughout the entire US financial system. On one hand the USFed was busy operating numerous credit and liquidity facilities in order to prevent systemic seizure, busily redeeming the Wall Street toxic bonds at the highest possible prices. On the other hand they were talking about Green Shoots, as insolvency spread across the big banks to the household equity. They lost their credibility in the process. They have lost it completely after two full years of 0% rates, the ultimate in central bank shame. The Jackass dismissed the Green Shoots ploy quickly, regularly, and correctly, as whatever little shoots were present probably the handiwork of ant colonies or termite hills, mistaking green insect feces, or even some toxic green runoff from a nearby financial office of a corporation.

One year ago the ruse disseminated widely was the Exit Strategy from the 0% monetary corner that had no basis at all. The USFed was well aware that 0% as an official rate was untenable, dangerous, and would produce different maladies. They promoted a phony story of a Jobless Recovery, an utter contradiction and bad joke played upon the American workers. To make the cost of money free encourages speculation in the most general systemic sense. The primary gold market fuel is the price of money being far below the current price inflation rate. Anyone who believes the CPI is actually 2% to 3% is braindead. Even USGovt statistics list the numerous categories with strong price increases, yet the overall CPI is lower than all components. Power to adjustments. My description has been that the USFed is stuck in the 0% policy corner. The corner has been described since the start of 2009 when it was instituted. If the USFed raises rates, they torpedo the housing market left as derelict adrift at sea, listing badly, taking on more water, weighed down by the inventory burden. Given that the USEconomy was so dependent upon housing for three or four years, and that dependence has turned to deep vulnerability, they cannot hike interest rates and exit the policy corner without sending home prices into a fast acceleration downward. They will bottom out 20% to 30% below construction costs.

Worse, a rate hike would trigger a credit derivative series of explosions from the Interest Rate Swaps. These queer devices hold down long-term rates far below the prevailing price inflation level. That is why the USFed Chairman Bernanke insists of an undying focus of the inflation expectations, the USTreasury Bond yields and TIPS yields (both of which they purchase in monetization operations). They control them using IRSwaps. If the USFed holds steady, as they must, they generate significant rising costs for everything from food to energy to metals to cotton. Even scraps (paper, metal, plastics) are rising in price. Even the toys sector must contend with fast rising prices in time for the Christmas season. See the Li & Fund effect, also called Foxconn in China. They also make i-Pods. The current path lifts the cost structure to such a level that both businesses and households are experiencing a pinch. The fast collapse of the Philly Fed index is testament to the pinch. Shelves at major retail chains are experiencing a slow decline in volume. It is called the profit squeeze. Business profit margins are shrinking, even as household discretionary spending funds are shrinking. The Jackass dismissed the Exit Strategy ploy quickly, regularly, and correctly, as the monetary policy corner was described consistently and clearly. It was a bluff, but a very bad one. It served as a litmus test to divide the financial analysts into two camps, the dumkopfs and the sage. The dumb analysts fell for it, based upon an idealistic belief that the 0% policy should end and the recovery was happening slowly. The savvy analysts did not fall for it, since the consequences of ending the 0% rate would be like suffocating your children in the middle of the night.

THE BIG RUSE & THE BIG BIND

The USFed is caught in a gigantic bind, cannot raise rates, and must endure the global price inflation problem that festers on the cost side of the equation. They busily deny their role in producing price inflation from debt monetization coupled with 0% rates. They lost more credibility in the process. They are the object of global anger and ridicule. They must hope that the eventual rate hike will keep the speculative juices from overflowing. Gold & Silver do not rest, as they brush aside such a plain ruse of a threatened rate hike. The sovereign bond situation in the entire Western World (with Japan adopted into the fold) is horrendous and worsening. The government deficits are out of control. Few analysts prefer to point out how the foundation for the global monetary system is supported by the gaggle of crippled sovereign bonds. To be sure, the Southern Europe debt is in a ruined state. But the debt of the United States is no better and the same for England, when viewed as annual debt ratio to total budget, when viewed as cumulative debt ratio to GDP (economic size). The graph below shows those two dimensions, and how the United States and United Kingdom are positioned among Spain, Ireland, and Greece, apart from the mass of nations. In the full year since this graph was produced, the US debt situation has grown worse. The reckless socialists seem prudent.

The extended PIIGS pen of nations, fully ruined and recognized widely as ruined, do not have the tools to prevent rising bond yields. They uniformly rise versus the German Bund benchmark. Their differentiation actually permits the Euro currency to trade more freely, even to rise. The Chinese were responsible for much of the Euro rise from 130 to 150, as they dumped USTBonds in favor of discounted PIGS debt, later to be converted into shopping malls, commercial buildings, and factories. Somehow, that factor did not appear on the US news networks. The USGovt has tools, wondrous electronic tools, which enable them at zero cost to fight off the barbarians at the gate. It is the Printing Pre$$. Unfortunately, its backfire is a powerful rising cost structure that has shown visibly in the high food & gasoline costs. So hardly at zero cost!! A year ago, the USFed folded like a cheap lawn chair. Instead of exiting their 0% corner, and implementing the advertised Exit Strategy, they went one step deeper down the rathole. That was exactly the Jackass forecast, QE to follow 0% stuck. They combined the ZIRP with the QE. They added the debt monetization scourge of Quantitative Easing to the already reckless no cost money of the Zero Interest Rate Policy. So they doused the national economy with gasoline only to see it lit into flames, while cutting the legs off the burning victim trying to escape.

PURE QE3 DECEPTION

The current ruse disseminated widely is the End of QE2 and no continuation of Quantitative Easing (aka debt monetization). The ruse has no basis at all in reality. The USFed would have to find buyers for the USTreasury Bonds. They have been buying 75% to 80% of USTBonds since the end of 2010. They have been supporting the US housing market by purchasing mortgage bonds. In other words, they have been preventing the more complete implosion of the mortgage market. It is one thing for the USTBond to go No Bid. The USFed has the direct responsibility to cover that up quickly and proclaim every USTreasury auction a rip-roaring success with great 2.3 bid to cover ratio. But it is another matter altogether to permit the mortgage rates to fly upward from lack of bids. If mortgage rates move to 7% or the adjustable ARM mortgages reset 3% to 4% higher suddenly, then housing prices will descend by another 10% to 15% quickly, as in with lightning speed. 

Of course the USFed will have a QE3. Of course the USFed will continue QE programs. Of course the USFed will keep the funny money flowing into every type of bond market except the Municipal Bonds. The munis are not part of Wall Street and the syndicate that sprawls to cover the USGovt itself. So as the states and municipalities go further into a ruinous condition, events work within their grand plan to consolidate power in New York City, whose satellite in WashingtonDC was captured on a somber September day in 2001. The agenda for munis is so simple. They wish to kill the worker pensions, so that government workers have none, just like the general population. No home equity, no upward labor mobility, no union power, no pensions, a perfect world for the elite domination. Of course the USFed will keep pumping money into the stock market. With all the flash trading, still over 70% of all NYSE trade volume, with all the hardly hidden activity to support stocks by the Working Group for Financial Markets (aka Plunge Protection Team), the vulnerable stock market would dive like a cement rock. Perhaps the USFed wants to see the S&P500 and Dow Industrial stock indexes take a frightening dive. That would produce buyers of USTBonds, a point that the financial networks consistently fail to notice as motive for withdrawal of liquidity funds. The USFed can generate a USTBond rally easily, simply by stopping the stock support that so often lifts the stock indexes in the nick of time for late afternoon rallies, and johnny on the spot before early morning setbacks render too much damage. 

Clearly, a sudden recognized slide in all things financial within the controlled US arenas would create perfect political cover for the USFed to announce QE3. The objections lodged from global creditors would be shouted down on the USCongress floors, on the New York Stock Exchange floor, in the big US bank board rooms, and the mutual fund chart rooms. The households would be torn in two opposite directions. They citizens want support for their stock accounts that include pension funds. But they do not want even higher costs for food, energy, and everything they purchase in retail centers. Strangely, perversely, the US stock market indexes are inversely correlated to the USDollar. The currency must resume its decline in order to lift the US stock market. Obviously, the S&P500 index rise is offset by lower US$ purchasing power, but the dynamic is ignored as much as possible. The correlation seems about minus 60% to 65% in a rough eye view.

The USFed will next spread fear from financial market powerful downdrafts. They will assure stock market declines. They will invite public response to lost mutual fund and pension funds (both managed and personal). They will work to shake the masses down to the point that the USCongress begs them to return to a strong powerful QE3. They will urge the USFed to make the QE3 even broader, to include Municipal Bonds. The big US banks will push the USFed to cover their mortgage bonds that are exposed to Put-Backs. The defrauded bond investors have won a skein of court cases. The story is so old that the US press does not cover court rulings against the devious MERS device. So the banks are losing from the bond table and losing from the foreclosure table. The US Federal Court in Texas found that MERS failed to address the issue of the legal effect of an assignment executed by unauthorized signers. The court also rebuked MERS, noting that the signing officer had no such authority, something that MERS should know. The court pointed out far more than mere negligence by MERS. Over 20,000 robo-signers were busy in the foreclosure process. They were not properly authorized. See the Naked Capitalism article (CLICK HERE). Home foreclosures are being reversed by the courts. Bonds are being ordered for putback to the Wall Street issuers. Exposure to the big US banks is huge, like well over $1 trillion. The USFed will be asked to lap up the toxic swill on court room floors.

GLOBAL QE

The very same factors that forced the emergency G-7 meeting to cap the Japanese Yen currency rise have returned. A high Yen exchange rate renders their vast supply industry as unprofitable, imposing great strain. Expect another emergency meeting, which in my view should be described as a Global Quantitative Easing (Global QE) since the major central banks will coordinate their actions to buy the vast tranches of USTreasury Bonds that Japan needs to sell. The large Japanese financial institutions must close their finance gaps and avoid price inflation. Doing so without asset sales would cause a pure unfiltered inflationary effect. They do not want additional woes in addition to what grotesque strain has already come. The exercise will be repeated, as the Jackass forecasted a month ago. My forecast is for a secret G-7 Meeting to agree to USTBond purchases to push down the Yen currency, but without any publicity, zero press coverage, all in total secrecy. It is a development factor far bigger than any QE conducted solely by the USFed. Since coordinated the world over, call it Global QE. Look for some distortion of purpose for any suddenly convened meeting of finance ministers. They might call it coordinated global monetary planning, or cooperation with emerging economies, or adjustments to global trade settlements, or some such deception. It is just another side to the Competing Currency Wars. The underlying force behind the rising Yen is their industrial slowdown, the arrival of a trade deficit, and the urgent need to finance reconstruction costs by foreign asset sales without causing price inflation. My analysis has called it the Global QE initiative, a factor far bigger than any QE conducted by the USFed.

Insurance companies will play a surprisingly large role. They face mammoth claims from damaged buildings and stalled factories. The large Japanese financial institutions must close their finance gaps and avoid price inflation from pure monetary inflation. Foreign asset sale is the key. Their deficit is growing, industry faltering, electricity supply spotty, supply chain unreliable, and US bond sales rising. The reconstruction is underway. The financial markets still need help. Their economy faces an unprecedented slowdown more accurately called a general coordinated breakdown. As the nation must pay for its reconstruction, expect big waves of bond sales to match big stimulus and monetization. Foreign asset sales will be the compromise made politically. Although palatable, they will cause the JapYen currency to rise further, enough to sound alarms and cause even more profit squeeze.

The Japanese Economy is enduring the biggest collapse in modern history. Let's see if its cities can avoid cracks and rising tides. Their trade deficits are assured, my forecast. However, this time around a paradox of trade deficits and reconstruction costs will conspire to LIFT the Japanese Yen currency. Their government wants to limit stimulus and associated deficits and bond issuance that would lift interest rates. Their ministry officials want more debt monetization to inflate the problem away. The Bank of Japan wants to hold the line with no more purchase of debt. The utilities are forcing rolling electrical blackouts in order to avoid higher prices for electricity. Their carmakers have registered staggering declines in output. Their industrial sector is reeling. The solution most politically appealing will turn out to be not the hyper inflation from debt monetization, BUT RATHER SALES OF FOREIGN ASSETS. The sale of USTreasury Bonds is most politically acceptable, with a national disaster offering strong cover for justification. Their sale will be brisk in heavy volume, all in time. The rising JapYen currency will force the Global QE, as purchase of USTBonds that Japan sells will join the USTBonds sold by the USDept Treasury. An extravaganza of debt monetization will go global. Why no analysts discuss this is beyond the reach of Jackass comprehension. Probably blind spots, corporate directives, preoccupation with the sovereign debts, attention to the USGovt debt limit, and a new foreign war every few months. To be sure, plenty of distraction out there. 

THREAT OF USGOVT DEBT DEFAULT

The cynic among us might have suspected that a mission directive for the Obama Admin was to force spending increases, to avoid entitlement benefit cuts, and to generally lead the nation into a worse insolvency condition so that the USDollar declines dangerously and a USGovt debt default is assured. The nation could start over. The elite plans could be implemented on a global level. To be sure, the Republicans object and block any and all new tax increases that would supposedly raise revenues. They would be counter-productive anyway, since higher tax rates result in lower tax revenues, something the legislators and economists have failed to comprehend for four decades. To be sure, the Democrats object and block any and all limitations to entitlement spending like Social Security, Medicare, and USGovt pensions. Any reductions would close the deficit a little, but more like a pittance. To be sure, the security agencies and bankers object and block any and all attempts to curtail the wars to seize crude oil and establish the vertical integration of contraband. Their purpose is considered sacred, while their costs are covered by taxpayers, but their profits are solely for the syndicate. The defense contractors are exemplary employers too, with high paying jobs but no trickle down effect on the product side. 

It seems all three camps are dedicated to a path that results in debt strain, creditor revolt, and eventual default. Recall the Jackass forecast in September 2008, of a USTreasury debt default in the next two to three years. The time has finally come to deal with such a threat. The argument that the USDept Treasury together with the US Federal Reserve could avoid such a default outcome is being tested. For almost a full year, the USFed has been monetizing mountains of USGovt debt and much of the USAgency Mortgage debt. The effects have been noticed palpably at a global level. The blame has been attributed by nations across the world, and directed squarely at the USFed and USGovt for profligate spending, enormous deficits, and a hyper inflation reaction. All parties involved in the budget deliberations, the debt limit discussions, and the protection of interests are willing to test the default button option. The denials go so far as to describe a less than onerous outcome where much of the interest payments would continue, and much of the agency functions would continue. Strangely, the soldiers pay checks might be scrubbed. If a default occurs, traps doors and greased chutes would open to lead the nation on a fast track to the Third World. To begin with, liquidity would be harmed to such an extent that the Saudis would probably not accept USDollars for crude oil.

David Stockman served as the Budget Director in the Reagan Admin. He had some choice words in summary. He said, "The real problem is the de-facto policy of both parties is default. When the Republicans say no tax increases, they are saying we want the US government to default. Because there is not enough political will in this country to solve the problem even halfway on spending cuts. When the Democrats say you cannot touch Social Security, when you have Obama sponsoring a war budget for defense that is even bigger than Bush, then I say the policy of the White House is default as well. That is the question that really needs to be understood better and appraised by the bond market. Both parties are advocating default even as they point the finger at each other."

NEW HAT TRICK LETTER REPORT

The Hat Trick Letter made a key change in the May reports. Since most every major systemic failure forecast recorded, explained, and repeated since 2004 has come true, and the USEconomy is in deterioration with a squeeze underway, and the US financial system is insolvent, and the US Housing market also suffers widespread negative equity (28.4% of homes), no great need or interest is served in delineating the home foreclosure statistics, the personal bankruptcies, bloated bank hidden inventory of unsold homes, the wrecked mortgage bond market, the jobless claims that cannot revive, or the banker games to conceal the reason why they lend little. Items do appear in the Introduction sections. Instead, the Macro Economic Report for the Hat Trick Letter has given way to the Global Money War Report for full discussion and analysis of the Competing Currency Wars, the debt soaked tattered sovereign bonds, the crumbling monetary system, the discredited central banks, and the acceptance of hyper monetary inflation as a solution. The Gold & Currency Report will continue, which covers the details at the ground level with many stories on investment demand, on exchange traded fund frauds (good and bad), on certain economic stories in beleaguered nations like Japan and Spain, like threats of default in nations like Greece, soon to be followed by other PIIGS nations, and details on the Chinese Economy. 

So the Hat Trick Letter has adapted with a higher level gold report to cover the monetary war in progress, and a lower level gold report to cover the global reaction geared toward survival. That survival is assured by investment in Gold & Silver. The ugly irony is that the major financial news networks comprehend little if anything about the motives and principal factors behind the powerful precious metals bull market. They only focus on inflation (which they deny as part of the propaganda machine) and geopolitical tensions (which are valid but secondary). They overlook that the global monetary system is in ruins and the central banks have morphed into hyper inflation nuclear reactors, with the cost of money at zero acting like a foot stuck on the accelerator. They do not properly assess the monetary system ruin, nor the bank insolvency ruin.

GLOBAL FACTORS

The global monetary war has mushroomed. Greece is set to default on its debt, the signs all loud & clear. Spain is ready to be bailed out, its economy sliding backwards fast. The impact of a default in Europe is magnificent and all horrendous. Banks will fail. The motive for continued band-aid bailouts that only buy time and fix nothing have been to enable banks to redeem their debt, just like in the United States. Bond holders have been protected. Dominique Strauss-Kahn urged Irish Govt bond holders to take a significant haircut loss, his final sin. The first sin was the promotion of the SDR from the Intl Monetary Fund, whose basket of currencies would be used in global bank reserves. His second sin was the introductory concept of an SDR-based debt instrument, as in a global bond. To supplant the USDollar and USTBond is cause for removal, with bond holder losses the icing on the prison cake. The European kettle is ready to boil over again, with nothing fixed. The wild card is the Credit Default Swaps, those curious devices that lurk within hidden banking systems. A Greek Govt default would set events in motion, and likely reveal the profound fraud and insolvency of European banks. The kicker could be the contagion to the British and American banks. The Western banks are all interwoven in a grand incest.

A recent twist is the higher wages paid to Chinese workers almost uniformly. They will become stronger consumers, but their corporate exporters will pass along higher prices to the US retail chains. Finally, after thirty years, the USEconomy will import price inflation from Asia. The new Shanghai silver futures contracts are most likely not welcome to the COMEX and its Wall Street overseers. The common practice of ambushing the Gold & Silver prices overnight or immediately after hours in the late afternoon might soon come to an end. The Shanghai hours are 8pm to 11am eastern US time zone. Sense the opposition. Given the strong Chinese consumer price inflation and corresponding citizen response in coin and bar purchase, the opposition is gaining strength. The Asians love gold as much as the Americans are ignorant of it.

The population has reacted with continued Gold & Silver coin purchase. The central banks outside the Western sphere of influence have reacted with Gold bullion accumulation in reserves, far more than publicly announced. Mexico not only purchased almost 100 metric tons of gold recently, but their CB governors voted unanimously to install silver as money itself. The investment community has reacted with legitimate exchange traded funds like the Sprott Fund. The contrast of a Sprott premium in price versus the negative premium in the GLD and SLV should highlight their absence of required metal in inventory in stark contrast to the ample inventory in the Sprott funds, but most analysts have yet to figure out the premium issue at all. The biggest and most tainted ETFunds are working toward their own climax, surely with cash redemption amidst lawsuits. They cannot offer their inventory and shares to the COMEX as part of the great game, without eventual consequence. When the premium on GLD and SLV hits minus 10%, perhaps some will awaken. Usually vault fees, insurance costs, security costs, transport costs, and management results in actual totals that must be covered within the price paid for the shares. But not with this pair of polluted funds joined to the cartel. 

ONLY CHANGE WITH SILVER IS PRICE

The silver speculation is just another deceptive story. The Open Interest fell gradually all through the Silver price rise toward the $50 level. After such a bone crushing silver ambush, the net positions for non-commercials, substracting shorts from longs, showed relative tranquility with no big decline at all in their positions, thus still a bullish commitment. They have fewer positions, but the game is still very much on. Hedge funds do show the lowest net long silver position since February 2010, but still a solid position. Evidence lies inside the Commitment of Traders Report, discussed in more detail in the May Hat Trick Letter. The Managed Money (like hedge funds, commodity trading accounts) still have a strong bullish position. They profited from the rise as they reduced positions, and were not wounded by the rise!! Then take the little guys. The Small Trader ledger item recorded the largest pure short position since August, with 18,605 contracts short silver on 26 April 2011, when silver had a $45.45 price. The smaller players were actually net short, and collected a hefty profit, a story not told by the lapdog US press. Conclude that many of the small guys, the good guys, were correctly positioned for the harsh smackdown on silver in the first week of May. The small speculators profited from decline!! They and the fund managers will be back, bigger than before, bolder than ever, motivated with fervor, with their ears taped back ready for more blood. It seems abundantly clear that the major driving force behind this current silver market has been actual demand for physical silver metal.

The beauty of the silver decline is that when it reverses, there is no technical resistance of significance back to the $50 level. However, due to the shock effect, the climb will be slower than a sudden technical mirror image reversal. The precious metals investors should hope for a slow steady relentless painful nasty stubborn awesome devastating rise in price that doles out excruciating pain to the cartel, permits once again for the less enlightened doubters to cover their wrong short positions in a chronic manner. The story in the Silver chart has four weeks and four different stories. The first week of May had the powerful decline, the result of hitting the Hunt nominal target, Soros putting out his deceptive story of selling that which he called a bubble for a full year, the COMEX raising the margin requirement five times in quick succession, the USFed putting out its deceptive story about ending debt monetization and maybe hiking rates (gotta be dumb as a post to believe), the USEconomy demanding less in commodities. The second week showed a strong clear Doji Star, which epitomizes a move to stability. The Silver price found its footing and stood still, encouraging many investors to re-enter the market. The third week was less clear except to technical chart readers. It featured a strong clear Bull Hammer identified by an open and close at the high for the week, with price movement lower during the week. The hint was given on Monday of this week for a rebound. The US$ DX index was rising a little, as the Euro currency was sliding lower, like over 100 basis points for the day. Gold & Silver ignored it. Gold rose a little, while Silver was even at $35. Today, Silver is pushing $38 per ounce, and Gold is rising too. No resistance ahead!!

Yet the Mississippi flood waters will crimp supply lines just when the US financial dons wish to push down the entire commodity price structure, including Gold & Silver. Neither precious metal is a commodity though, since they are money. Tell the central banks of the world and the major sovereign wealth funds that Gold & Silver are commodities when they are shifting reserve assets away from the US$-based bonds and toward Gold & Silver. They are money, and the USGovt with their Wall Street handlers wishes the world not to regard them as money. The experiment in paper fiat money since 1971 is coming to an end, a conclusion racked with toxic spew, great hardship, and threats to wealth.

One should constantly remember that no solution to the financial crisis has been installed, nothing fixed, no big banks liquidated, no end to monetary inflation, no end to outsized USGovt deficits, no end to secretive subterranean support of stocks and bonds, no revival of the housing market, no discharge of big bank home inventory, no return of US industry from Asia, no interruption to the endless costly wars, no end to money laundering of narco funds to Wall Street banks, no end to the propaganda obediently pumped out by the US press & media networks, and no change of Goldman Sachs running the USGovt finance ministry. Expect no change in anything that you believe in. Expect no change to the 0% policy (ZIRP) with no change to the heavy monetary inflation (QE), as the path to ruin is set, and the policy of Inflate to Infinity cannot be stopped. Gold will not stop until it surpasses at least $5000 to $7000 in price. Silver will not stop until it surpasses at least $150 to $200 in price. Such forecasts invite mockery, but in two years they will seem prescient. 

The ruin of money is the momentum play. The elite are fully invested in the current system, and are fully willing to put more money into reinforcements to preserve their wealth, power, and position. The global financial system is coming apart at the seams, and the financial guardians in charge from the syndicate cannot any longer hold it together. The Gold & Silver prices are the hint of lost control. Expect breathtaking grand upward moves in price in the next several months. It will be fun to watch the dim bulbs explain their positions after their wrong viewpoints have been so well covered by the financial rags. They will surely squirm, guys like Soros. Some will gloat, guys like Sprott. Few are aware, but the events in the first week of May are what a COMEX default looks like, in its preliminary phase!!! JPMorgan could not meet the schedule of May silver deliveries, that simple. In time, the distance between paper Gold & Silver and physical Gold & Silver will be great. Then the COMEX shuts down, unless they act as a Cash & Carry exchange. Doubtful!

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The Dollar's Impact on Stocks This Month

by Bespoke Investment Group

The US Dollar index is up about 4.5% this month, which is a big move for the currency. The move higher in the dollar has coincided with a move lower in stocks. The average stock in the S&P 500 had declined 2.6% this month through yesterday's close. 

Over the past few years, we have stressed how important it is to know what percentage of revenues a company receives from outside of the US versus inside the US because of how changes in the dollar can impact top-line numbers. When the dollar is declining, which is the way it has trended over the past decade, US companies that generate a large portion of their revenues outside of the US (the internationals) stand to benefit. When the dollar is rallying, it benefits US companies that do most or all of their business inside of the US (the domestics).

With the dollar up so much this month, you would expect the domestics to be outperforming the internationals, and we ran our decile analysis on the S&P 500 to see if this has been the case. To run the analysis, we broke the index into deciles (10 groups of 50 stocks) based on a stock's percentage of international revenues and then calculated the average performance of stocks in each decile so far this month. As shown in the chart below, the decile of stocks in the S&P 500 that generate the largest portion of their revenues outside of the US has averaged a decline of 4.60% so far this month, while the decile of stocks that generate the least amount of sales outside of the US has averaged a decline of just 1%. Basically decile performance this month gets better and better as international revenues decline.

Over at Bespoke Premium, yearly members have access to our International Revenues Database which shows foreign versus domestic sales for each stock in the Russell 1,000 and S&P 500. If you have an opinion on the future direction of the dollar and are wondering which stocks to play based on this, the International Revenues Database is quite handy. Become a yearly Bespoke Premium member today to receive access to the database.


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Energy Inventories Come in Greater Than Expected

by Bespoke Investment Group

This morning's weekly release of Energy inventories showed greater than expected builds across the board for crude oil, distillates, and gasoline. In the charts below, we show the weekly changes in crude oil and gasoline stockpiles so far in 2011 and compare those changes to the historical averages.

As shown in the charts below, crude oil stockpiles remain above average for this time of year. Additionally, this week's build in stockpiles contrasts to the average pattern where crude oil stockpiles typically begin to decline by this point of the year.

For gasoline, inventories rose but still remain below average for this time of year. Interestingly, gasoline has followed the pattern of the historical trend except that the magnitude of the moves this year has been greater. Earlier in the year, gasoline stockpiles were well above average, but then within a matter of weeks stockpiles quickly declined to below average levels.


Flight into Gold on Rampant Inflation and the Collapsing Dollar System


We believe that for the past 2-1/2 years the price of gold has been mainly driven by a flight to quality, as gold vied with the dollar for supremacy, as the world’s reserve currency. As we have witnessed gold has won that battle. The only way the dollar or any other world reserve currency can compete is by being backed 25% by gold. The elitist’s royalty of Wall Street and the City of London are quite upset with these developments, because they want all currencies to be fiat, so that they would not have to have a gold backed international monetary unit.

Over the last six months another historic factor has come into play in evaluating gold versus currencies, and that is the interconnectivity of gold’s relationship with inflation. In the late 1970s this was the underlying factor for the rise in the prices of both gold and silver. At that time they never had the luxury of strength also coming from recognition of being monetary units. We hear the manic claims that gold and silver are bubbles or are manias. That cannot be because gold is and always has been the only real money. Every time the major media makes these bogus claims they always fail to mention that both gold and silver have appreciated in value in excess of 20% annually versus nine major currencies. They refuse to point out gold and silvers’ 11 years track record having risen from $260.00 and $3.80 respectively to more than $1,500 and $50 per ounce. This shows you the massive deception by the major media, which is totally controlled by the elitists from behind the scenes.

When QE3, or something akin to it, is implemented during the summer, it will give the stock and bond markets one last boost. Most of the gains from a future QE3 have already been reflected in the market place. On the other hand such recognition by investors, not as yet discounted, will give a very large boost upward to gold and silver. As this takes place downward pressure will begin to appear in the stocks, bonds and the dollar. Those events will make it even more difficult to sell US Treasury and Agency bonds. Efforts will have to be added by the Fed to cover up the again ongoing losses of banks and brokerage houses – the financial sector – under the concept of too big to fail. The greater the effort needed to save these bankrupt institutions and the government the greater heights gold and silver will rise too. Adding fuel to the fire most other nations will have their own versions of QE3 compounding world inflationary problems. Even if a nation is not causing inflation they are forced to absorb foreign nation inflation whether they like it or not.

You have to look at the terrible fundamentals America is facing. The Fed has a balance sheet close to $3 trillion that could be $5 trillion in a year and one-half. If they purchase 80% of Treasuries and Agencies and bolster the declining economy. There is no end in sight for zero interest rates. Both the increases in money and credit and low interest rates will continue to send inflation into orbit. Monetization is the name of the game and the Fed and other central banks are playing it to the hilt. The ECB raises interest rates ½% and expects miracles. That could happen after they raise them 5% to 6%. Talk about misdirection as they continue to increase money and credit. They must think fellow Europeans and others are dumb and that is not the case. They knew as well as we do that what the Fed and ECB does causes monetization and inflation. Americans are used to inflation and heretofore they have been able to adjust for it. Other nations have not had that luxury in the past. Foreigners are far more sophisticated when it comes to propaganda and do not as easily fall for it as Americans do.

You would have to be stone dumb not to recognize the rampant inflation in the US, England and Europe. Gasoline and petroleum derivative products and food costs have gone up substantially. Not only in the regions but also worldwide. As a result inflation will be 14% in the UK and US by yearend and 8% on the Continent.
It is not only the federal government that is broke, but so are the states and municipalities in the US. Europe and England have the same problems. More than 40 states are struggling to balance their budgets. Most will, some will not and they’ll default on the interest payment on their bonds and probably have to pay vendors with IOU’s. There could be another federal bailout but we doubt it due to the battle over budget cuts in Washington. As these problems stand in the forefront the government’s debt dilemma is not going to go away anytime soon and over the next two years the US could experience a downgrade in its credit rating. Unfunded liabilities are $105 trillion and they are unfunded. Although stretched over years they still have to be paid unless benefits are adjusted.

We address the problems in Europe every week. Greece and its financial problems are still being negotiated. The discussion at hand only carries the shortfall in funding over the next year or two. The demand by banks for collateralization of debt by just about everything Greece owns has been rejected not only by the people, but by most of the politicians as well. Greece cannot pay its debt even over time and should default in part or in total. Again, the loans should have never been made and the bankers knew better. Similar conditions exist in Ireland and Portugal and Belgium, Spain and Italy could and probably will follow. One interest rate could never fit all. The euro zone is in deep trouble and the EU is starting to crumble at the edges. The sovereign lenders, German, France, the Netherlands, Austria and Finland, are very disturbed with the position they find themselves in. The Germans and the Finns have been quite vocal about the situation and recent elections in Germany made it quite clear that they do not want to fund any further loans. As we said a year ago $4 trillion will be needed to solve the problems and producing that kind of funding would certainly break the funding nations. As we said a year ago, the second half of 2011 will be full of dangerous problems. In the midst of all this we have the head of the IMF arrested and charged in what we see as an elitist power struggle with the US faction in the US entrapping a member of the European contingent to remove him from his position. It worked, but the fallout will be felt for many years to come. This intercene warfare is happening at a most unfortunate juncture in the midst of discussion involving Europe and the IMF and Greece and other debtor nations. These events have heightened the pressure on an already unstable situation.

As these events and problems unfold many nations, corporations and investors are reaching for gold and silver investments for safety, as they have many times in the past. The availability of physical metal is acute, as backwardation occurs in paper investments. That is spot markets are trading higher than outside months in a desire by former sellers to take delivery of gold and silver they previously sold. Those who are biding at spot are also offering those who want to take delivery a 25% to 30% bonus not to take delivery. That highlights how difficult it is to get delivery of silver. The same is true with gold, but delivery of physical is not quite as difficult. Control of the paper markets via frauds and manipulation is always present. Regulators, as appendages of the government, are in place to protect certain Wall Street insiders, harass the rest, allow the naked shorts to do as they please and try to put as many small brokers and firms as possible out of business, no matter what the cost. Then there are the frauds of front-running and flash crashes. The big question today is how do you stop fraud when it is institutionalized and Wall Street and banking are run by a crime syndicate in league with Washington? Just look at the trillions the Fed and the Treasury spread all over the US and Europe, which they were forced to divulge after their court appeal failed. The TARP funds episode was another example - $700 billion in free money for Wall Street’s Illuminist friends. That was one of the greatest frauds in history. A new movie is being released depicting Hank Paulson as having saved financial America, when in fact he and his friends were looting the American people.

As these events worsen the situation deterioration continues unabated, wars rage as distraction and for geopolitical positing. The costs of which are totally outrageous with the cost to the American taxpayer in the trillions of dollars.

The derivatives market is totally opaque and unregulated, Wall Street and the government want it that way so credit derivatives can be used to keep interest rates near zero and gold and silver and other items can be controlled by insiders.

We won’t hit the bottom of the residential housing market until 2013 or later. The end is still nowhere in sight, as Fannie Mae and Freddie Mac, Ginnie Mae and FHA make subprime and ALT-A loans. Commercial real estate is being held up and in place by the Fed, otherwise there would have already been a crash. These two shocks keep the economy headed downward with still yet no bottom in sight. Inventory for sale builds exponentially.

The flight from the dollar continues having entered its 3rd year of this credit crisis. Actually it is a continuation of 11 years of monetary policy, which has been centered on monetary expansion, which has been used to combat deflation and depression. The result has been ongoing continually rising inflation except for an interlude three years ago during a period of de-leveraging. The result of QE1 and stimulus 1 in 2011 will be 14% inflation. That will be followed by 25 to 30 percent as a result of QE2 in 2012 and in 2013 some 50 percent in 2014, the result of what will be known as QE3.

That is why countries, corporations and investors are moving to gold and silver. They want to dump depreciating US dollars and find safety for their assets. There is an enormous shift going on away from the fraudulent World Bank system and the massive debt accumulated by so many entities. The era of fiat money is coming to an end. Not far into the immediate future the whole world will be back on a gold standard because that is the only thing that works. BRIC countries, especially China, India and Russia and Iran want a gold backed currency. Many other nations are heading in that direction as well. This time the petro-dollar is not going to survive. The elitist’s forces in NYC and the City of London know this and they are trying to combat the dollar’s relegation as a non-world reserve currency. If they lose, and they most likely will, the US will be a big loser. The dollar no longer has the fundamentals and it hasn’t had them for many years, some 40 years. What is surprising to most professional observers is that it took so long for the system to approach collapse.

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CDS MARKET VS BOND YIELDS: REAL-TIME INEFFICIENT MARKET AT WORK

by Cullen Roche

We’re seeing one of those odd occurrences again where USA CDS are surging higher and bond yields are moving lower (thanks to Joe Weisenthal for pointing this out). Earlier this year I discussed the exact opposite phenomenon. What we were experiencing was a period of marginally higher inflation due to stronger economic growth and a flat line in USA CDS. At the time, many were talking about the stirring “bond vigilantes” and how they were about to bring their doom and gloom down upon the US economy. Of course, that didn’t happen and neither did the hyperinflation.

Today, it’s the US debt ceiling and our impending default that has investors worried for no reason other than their own lack of knowledge with regards to the real workings of a modern fiat monetary system. Interestingly, we’re seeing the exact opposite price action from earlier this year. USA 5 year CDS (priced in Euros) are rising and bond yields are falling. Markit provided a snapshot of the situation:
“The US, however, has seen its one-year spreads widen significantly in recent days and move well above the UK’s. The long-term fiscal challenges that the US faces are well-known but these are irrelevant for the short-end of the curve. Recent activity data from the DTCC shows that the number of trades referencing the US has gone up dramatically and was five times that of the UK last week. It appears to have been triggered by concerns over the US debt ceiling and the possibility of technical default. This seems far-fetched to European observers but is the subject of intense political debate in the US.”
But the 10 year US Treasury continues to decline. What in the world is going on here? Why aren’t yields pricing in default risk like the CDS market is? Well, it’s just another real-time view of the inefficient market at work.
The CDS market is concerned that there is some risk of a US technical insolvency so we see hedgers bidding up prices. The bond market, however, sees no risk of default. They see only lower inflation. Now, this is an obvious flaw in market dynamics for anyone who understands how our monetary system works. After all, there is no such thing as the USA being able to turn into Greece. There is no such thing as the USA being able to “run out” of the currency that only it can produce. It cannot become insolvent in the same manner that Greece can. As a sovereign monopoly supplier of currency in a floating exchange rate system with no foreign denominated debt it is entirely impossible for the USA to become insolvent in the traditional manner of not being able to make payments in the currency that only it can print (boy, that was a mouthful!).

The only form of insolvency that the US government could suffer would come in the form of hyperinflation. Regular readers are familiar with my research on this and know that I have believe hyperinflation has been a non-issue for many years now and still believe this today. So, if the USA was becoming insolvent yields should be surging as bond investors flee US Treasuries. Clearly, that’s not occurring. So, there’s a clear market inefficiency at work here. One of these markets is 100% wrong. And if you understand the workings of the modern monetary system it should be abundantly clear to you which market that is….

PREPARE FOR THE “FALSE GROWTH SCARE”

by Cullen Roche

Danske Bank has a nice piece of research out that provides the other side of the bearish view on all the recent economic data. They actually believe the data in the near-term will continue to be very weak. Specifically, they say the ISM data is likely to mean revert (something I wholeheartedly agree with). But they think it’s incorrect to get overly bearish because of this. In fact, they say it will result in a “false growth scare”:
“We believe that we are going to see more signs of weaker activity from different indicators in the coming months. For example, the US ISM manufacturing index is expected to decline in coming months as indicated by the Philadelphia Fed survey. Declines in PMI in other countries such as Euro Flash PMI for May point to a slowing global industrial cycle, which should become visible in the US as well.
Supporting the case for a stronger decline in the ISM manufacturing index is also that hard data have been much weaker than suggested by the ISM index. Firstly, GDP growth was actually below trend in Q1 rising 1.8% q/q annualised. Last time there was such a large divergence between GDP growth and ISM was in 2004 and subsequently we saw a quite fast decline in the ISM index (see chart on page 1). Secondly, industrial production has already slowed. The three-month annualised growth rate was only 1.8% in April, down from the strong levels in mid 2010 of 9.5%.
We believe this may contribute to another “false” growth scare as we have seen quite a few times, when ISM goes down fairly rapidly. At the same time, though, we look for US GDP growth to recover slowly already from Q2 and especially in H2 to a pace of 3.5-4% AR. This will very much mirror what we saw in early 2005 when ISM continued lower coming from a “too high” level relative to hard data while at the same time GDP growth stayed around 3% growth. The growth scare may be heightened by the ongoing budget discussions culminating in late July as we approach the deadline for a raise of the debt limit. This will put focus on the significant tightening of fiscal policy in 2012 and 2013.
As growth recovers and ISM stabilises during autumn, the growth scare should fade again, though, and we may see some relief that growth has not derailed after all.”
Ultimately, they see three primary factors continuing to power the economy higher – declining oil prices, improving jobs and improving credit trends:
“Three factors to support consumption in coming quarters However, the US households will benefit from three important factors:
1. Decline in oil prices: Since early May oil prices have fallen by app. USD15 to USD112 per barrel. We expect oil prices to stay lower and average USD116 for the rest of the year, which means that the PCE deflator is likely to fall back to around 2% by the end of the year giving a lift to real consumption growth of 2 percentage points. This means that more of the rise in nominal spending will feed into real consumption as less is absorbed by price increases.
2. Labour market improving: Another important factor that will underpin consumption growth is the rise in nominal income growth stemming from the improving labour market situation – see Flash Comment: US payrolls point to solid income gains. In April our income proxy derived from the US employment report rose to 5.5%. This income growth stems from a stronger rise in payrolls of 244k and a rise in average hours. Wage growth, though, is very subdued (around 2%) and is dampening overall income growth. In coming quarters we expect job growth to continue around 225-250k and we look for a further rise in average hours. Wage growth is expected to stay low, but in total this should keep nominal income growth in coming quarters around 5-6%.
3. Credit growth rising: The latest Senior Loan Officer Survey pointed to further improvement in credit standards for households and a stronger willingness to lend. Consumers’ demand for credit is also on the rise. This will increasingly underpin private consumption on top of the robust income picture.
In sum, the fundamentals for private consumption look fairly solid and we expect private consumption growth to climb steadily higher in coming quarters to 3.0% in Q2 and 4.0% in Q3 as the headwind from oil prices eases gradually and real income growth rises (there is normally a lag of 1-2 months from oil prices to the PCE deflator). The savings ratio is expected to be broadly flat around 5.5% – as has been the case over the past year after the sharp correction higher during the financial crisis.”
I think this is a pretty reasonable outlook for now. The near-term downside in the economic data will create a headwind for markets, however, I wouldn’t become overly scared about a double dip unless the European crisis gets out of hand, austerity hits the USA or China’s slowdown proves to be something closer to a hard landing.

Forecasts: What and How Do Business Economists Think?


The WSJ and Philadelphia Fed surveys of economists were released last week. It’s of interest to consider what they imply for the macro outlook, and additionally, how they believe inflation will evolve as a function of other variables.

The Macro Outlook
Because the WSJ and SPF forecast mean are essentially the same for GDP, I’ll focus on the WSJ forecasts. Figure 1 depicts the forecast mean, and trimmed high and low forecasts (where trimming is based on the five quarter growth rates).
wsji1 economy
Figure 1: GDP (blue), WSJ forecast mean (red), and trimmed high (Lavorgna/Deutsche Bank) and trimmed low (Leamer/UCLA) (gray), all in bn Ch.2005$, SAAR. Trimming removes top and bottom five respondents. NBER defined recession dates shaded gray. Source: BEA, 2011Q1 advance release, WSJ May 2011 survey, NBER, and author’s calculations.

Forecasters predict continued growth. However, there is some dispersion of forecasts. Moreover, while growth is predicted to continue, it will not be at such a pace to quickly close the output gap.
wsji2 economy
Figure 2: Log GDP (blue), WSJ forecast mean (red), and trimmed high (Lavorgna/Deutsche Bank) and trimmed low (Leamer/UCLA) (gray), and potential GDP (CBO January 2011), all in bn Ch.2005$, SAAR. Trimming removes top and bottom five respondents. NBER defined recession dates shaded gray. Source: BEA, 2011Q1 advance release, CBO, Budget and Economic Outlook (January 2011) data, WSJ May 2011 survey, NBER, and author’s calculations.

Figure 2 indicates that by 2012Q2, forecasters are projecting output at 3.8% below CBO projected potential GDP (in log terms). The trimmed high is 3% below, while the trimmed low is 4.5% below. Even a 3% output gap by mid 2012 is substantial, and suggests to me that policymakers need to be extremely circumspect about tightening policy over-rapidly.

The graph is useful in reminding us of the cost of the recession, which started in 2007Q4. As of 2011Q1, the cumulative output shortfall relative to potential GDP was 2.1 trillion Ch.2005$. Using the WSJ mean forecast, as of 2012Q2, the cumulative output shortfall will be 2.9 trillion Ch.2005$ — and the output gap will still be 3.8%!

These forecasts are conditional upon certain policy measures. One of those is monetary policy; here it is of interest to note what monetary policy is assumed to do.
wsji3 economy
Figure 3: Fed Funds (red), WSJ forecast mean (red squares), ten year constant maturity (blue), and ten year note yield (blue triangles), all in percentage points. NBER defined recession dates shaded gray. Source: St. Louis FREDII for interest rates, WSJ May 2011 survey, and NBER.

What is interesting to me is the fairly gradual upward trajectory for the ten year interest rate — and how those projected interest rates compare against those earlier in the decade.

I can understand how some people might ask how interest rates can be so low with such a large budget deficit. But in a loanable funds framework, saving and demand for total credit determines the price of bonds, and as long as private demand for credit is depressed (consistent with a 3% output gap), real rates should remain relatively low. Shocks to risk appetite could also induce flight to US Treasurys.

An alternative interpretation of these rising interest rates is that inflation is expected to rise, despite the fact that Treasury-TIPS spreads and other measures of expected inflation [0] exhibit muted pressures. The short to medium term inflation expectations are also muted in the WSJ survey:
wsji4 economy
Figure 4: Actual CPI y/y inflation (blue), WSJ forecast mean (red squares), and trimmed high (Riding,DeQuadros/RDQ) and trimmed low (Harris/UBS) (gray +), all in percentage points. NBER defined recession dates shaded gray. Source: St. Louis FREDII for interest rates, WSJ May 2011 survey, and NBER.

Inflation Dynamics

One interesting question, given the pervasive (among some circles) belief that hyperinflation is just around the corner, is what determines inflation. The Phillips curve posits current inflation is a function of expected inflation, the output gap, and input price shocks. 

π t = π et + f(yt-y*t) + Z t

Where π is inflation, the e superscript denotes expected, (yt-y*t) is the output gap, and Z is a function of the growth rate of input prices. For average inflation rates close to zero, the expected inflation term can be approximated by zero.

The WSJ survey does not contain an estimate of the output gap, but one can take a look at how forecasted inflation rate over the next year correlates against the forecasted growth rate of GDP:
wsji5 economy
Figure 5: Average forecasted y/y inflation versus average q/q annualized growth, all in percentage points, excluding James Smith/Parsec Financial Management, n=53. Nearest neighbor fit (bandwidth=0.3). Source: WSJ May 2011 survey, and author’s calculations.

Running a regression of average forecasted inflation against average forecasted growth, and the change in the average forecast oil price from $100 leads to the following estimates.

π t = 1.05 + 0.53 × Δ yt + 0.176 × ΔPoilt
Adj-R2 = 0.32, SER = 0.052, d.f. = 52.

Where Δ yt is the average q/q growth rate, and ΔPoilt is the change in the average price relative to $100, and bold coefficients are statistically significant at the 10% msl. In words, most business economists believe more rapid growth is associated with higher inflation. It’s possible that it’s monetary policy that is believed to drive both growth and inflation jointly (of course, that would be inconsistent with what has often been characterized as a Keynesian view of the world, but consistency and familiarity with data is not a strong point amongst those who are most worried about hyperinflation [1]).

Proxying the looseness of Fed policy by average Fed funds rate in 2011, one finds there is no link of looseness with higher inflation in 2011-2012. In fact, it is the reverse; in a OLS regression, higher average expected inflation in 2012 is associated with tighter policy in 2011, significant at the 5% msl (and with higher increase in oil prices). (The adj-R2 = 0.12.)
wsji6 economy
Figure 6: Average forecasted y/y inflation in 2012 versus average average Fed funds rate in 2011, all in percentage points, excluding James Smith/Parsec Financial Management, n=53. Nearest neighbor fit (bandwidth=0.3). Source: WSJ May 2011 survey, and author’s calculations.

In other words, expected inflation does not appear to be primarily a function of loose monetary policy. Rather, it appears to be driven by factors consistent with a Phillips curve relationship obtaining.

Views on Policy

Economists in the business sector tend to have a view of the world consistent with an expectations and supply augmented Phillips curve, and inconsistent with a strict monetarist/Quantity theory view (or a strict real business cycle view).

It’s of interest, then, to consider what their views on the policy outlook are. Figure 7 highlights the monetary policy outlook.
wsji7 economy
Figure 7: Quarter in which Fed begins raising the Fed funds rate (blue bars) and when the Fed begins exiting quantitative easing by allowing “mortgage-backed securities to mature without being reinvested.” Source: WSJ May 2011 survey.

The modal quarter for QE exit is 2011Q4, while that for Fed funds tightening in 2012Q1. I can see how these dates can be rationalized within the context of a sustained, albeit moderate, recovery in GDP. However, I worry about overly rapid tightening against a backdrop of ill-advised over rapid tightening of fiscal policy.

This is particularly important to recall, in this time of fears of debt accumulation, that much of the accumulation of debt as a share of GDP occurs because of Bush era fiscal policies and the economic downturn, as highlighted by the CBPP:
wsji8 economy
Source: CBPP.

One can see that a large chunk of the debt accumulation is attributable to the 2001 and 2003 tax cuts. The economic downturn is another key contributor.

As Aizenman and Pasricha observed, the fiscal stimulus merely offset the Contractionary effect emanating from the state and local government spending cuts and tax increases. The proposals to cut spending out of the next fiscal year’s budget, without addressing out-year spending and revenue, will merely increase the dark blue component (“economic downturn”) in the above graph.

The WSJ economists (not a notably liberal group, when it comes to economics) also do not appear to be strong adherents of the “expansionary fiscal contraction” view (see my views here and here). In the March survey, the response to the question “Will cutting the federal budget by an annualized $100 billion this year help or hurt economic growth over the next two years?”, was roughly 50-50. My favorite quote was “Claims that cuts are stimulative in the short run are nonsense.” I think we should take this comment to heart, as we wonder if oil prices and other shocks might push us below “stall speed”.

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Reuters/Jefferies CRB Index 1749-2011

By Barry Ritholtz

I love this CRB chart via Jim Bianco of Bianco Research:
>


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