by Kimble Charting Solutions
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Wednesday, June 15, 2011
Gerald Celente writes: Everything is not all right. And things are going to get worse … much worse. The economy is on the threshold of calamity. Wars are spreading like wildfires. The world is on a razor’s edge.
Not so, say world leaders and mainstream media experts. Yes, there are problems, but the financiers and politicians are aware of them. Policies are already in place and measures are being taken to correct them.
Whether it’s failing economies, intractable old wars or raging new wars, the word from the top always maintains that steady progress is being made and comforts the populace with assurances that the brightest minds and the sharpest generals are in charge and on the case. On all fronts, success is certain and victory is at hand. Only “patience” is required … along with more men, more time and more money.
As far as these “leaders” and their media are concerned, the only opinions that count come from a stable of thoroughbred experts, official sources and political favorites. Only they have the credentials to speak with authority and provide trustworthy forecasts. That they are consistently, if not invariably, wrong apparently does nothing to diminish their credibility.
How can any thinking adult possibly imagine that the same central bankers, financiers and politicians responsible for creating the economic crisis are capable of resolving it? Within days of its announcement, we predicted that Bush’s TARP (Troubled Asset Relief Program) was destined to fail, and subsequently predicted the same for Obama’s stimulus package (The American Recovery and Reinvestment Act). They were no more than cover-ups; there would be no recovery.
Meet the New Plan, Same as the Old Plan
Democrat or Republican, it makes no difference. Despite the heated rhetoric, solving economic problems had less to do with the party in power and more to do with professional competence.Both sides had their turn in office. Both used their power to initiate policies that created the problems. Both sides had their shot at fixing the messes they were responsible for. Both sides failed, as we predicted. Given who they are and what they’ve done, we confidently predict an unbroken sequence of bipartisan failures in the future.
The Beltway Incompetents are in the driver’s seat. What person with a healthy instinct for self-preservation would believe the promises of politicians or trust the judgment of central bankers or Wall Street financiers whose only real interest is self interest?
Not “Business as Usual” In the 1920s, US President Calvin Coolidge declared, “The business of America is business.” Four score and 10 years later, the business of America has become war: The forty-year War on Drugs; The ten-year War on Terror; the Afghan War (longest in American history); the eight-years-and-no-end-in-sight Iraq War; the covert wars in Pakistan and Yemen; and most recently, the “time-limited, scope-limited kinetic military action” in Libya.
While the justifications for engaging in these wars were all different, all were murderous, immoral, interminable, ruinously expensive and abject failures. Why would anyone believe the optimistic battle communiqués issued by the “czars” in charge and the battlefield brass who keep reassuring the public that reapplying previously failed strategies would, this time, lead to success?
Yet even in the face of their proven failures and gross incompetence, anyone daring to challenge the party line or the conventional wisdom is dismissed as an “alarmist,” “fear monger,” or “gloom-and-doomer.” However unwelcome our forecasts may be – pessimism, optimism, like or dislike are all irrelevant – only their accuracy counts. We correctly forecast:
- Afghan and Iraq Wars would be debacles
- Bursting of the housing bubble
- The “Gold Bull Run"
- The “Panic of ’08"
- European Monetary Union crisis
- Failure of US bailout/stimulus packages to revive housing and create jobs
- Falling governments, spreading civil wars and social upheaval on a global scale
We also said that the Federal Reserve’s sighting of economic “green shoots” in March 2009 was a "mirage” and predicted that their much vaunted “recovery” was no more than a temporary solution, a quick-fix to be followed by “The Greatest Depression.” And now, in June 2011, with the Dow on a down trend and the economic data increasingly pointing in the direction of Depression, Washington and Wall Street remain in denial. The only debate among the “experts” is whether or not a “double dip” recession is likely.
However, for the man on the street – pummeled by falling wages, higher prices, intractable unemployment, rising taxes and punitive “austerity measures” – “Depression,” not “recession,” and certainly not “prosperity,” is just around the corner.
According to a June 8th CNN/Opinion Research Corporation poll, 48 percent of Americans believe that another Great Depression is likely to occur in the next year – the highest that figure has ever reached. The survey also indicates that just under half of the respondents live in a household where someone has lost a job or is worried that unemployment may hit them in the near future.
Suddenly, after years of obvious economic hardship experienced by tens of millions of Americans – only when the suffering and pain can no longer be cloaked in abstractions and cooked statistics – does an emboldened media dare utter the forbidden “D” word.
For Trends Journal readers, alerted to this emerging trend some three years ago, the prospect of Depression should come as no surprise. Neither should the idea that, when it hits and can no longer be denied, a long suffering public will take to the streets.
When I made this forecast back then it was written off by most of the major broadcast and print media. Now, however, when one of their own, belatedly and hesitantly, raises that possibility he is elevated to sage status and it becomes big news. In early June, Democratic strategist James “It’s the Economy, Stupid” Carville, having finally mastered the higher math of adding two plus two, warned that decaying economic conditions heightened the risk of civil unrest.
As I described it all those years ago: “When people lose everything, and have nothing left to lose, they lose it.”
Trend Forecast: The wars will proliferate and civil unrest will intensify. As we forecast, the youth-inspired revolts that first erupted in North Africa and the Middle East are now breaking out in Europe (See “Off With Their Heads,” Trends Journal, Autumn 2010)
Given the trends in play and the people in power, economic collapse at some level is inevitable. Governments and central banks will be unrelenting in their determination to wring every last dollar, pound or euro from the people through taxes while confiscating public assets (a.k.a. privatization) in order to cover bad bets made by banks and financiers.
When the people have been bled dry financially and have nothing left to give, blood will flow on the streets.
Trend Lesson: Learn from history. Do you remember when it first became apparent that the US economy was in deep trouble and heading toward the “Panic of 08”? Not many will. Most people were in a summer state of mind and in holiday mode. It was late July 2007 when the stock market suddenly plunged from its euphoric 14,000 high.
Though we had warned in our Summer 2007 Trends Journal (released that June) that “trends indicators point to a major crisis hitting the financial markets between July and November,” the diving Dow was downplayed as a mere “hiccup” … a time to pause between more mouthfuls of expansion.
Biggest mistake in a falling stock market
The huge swings in the Dow are giving investors pause. But taking your money out of the market now could be the gravest mistake of all.
NEW YORK — This past Thursday was the second worst day of the year for the Dow Jones Industrial Average. But remember, it was just a week ago today that the Dow closed above 14,000 for the first (and only) time
Fluctuations in the market shouldn't get to the 401(k) investor. Keep in mind your time horizon – most of us are going to be invested in the market until we retire, often decades from now. CNN 27 July 2007
Four years and trillions of dollars in stock and 401(k) losses later, that typical “take a deep breath, stay the course” advice looks tragically misguided. The Dow would eventually lose more than half its value and now, in June 2011, it’s fallen below 12,000.
The moral of this story is to not let your mind take a summer vacation. Conditions are rapidly deteriorating and it is imperative to remain on high alert. Another violent financial episode is looming. It may be triggered by economics (e.g., debt defaults and debt crisis contagion in Europe, a crashing US dollar, or commodity price spikes); it could be terror (false flag or real), a man-made disaster (another Fukushima) or one made by Mother Nature … or any combination of the above.
by Bespoke Investment Group
How bad of a month has June been? Well, so far there has not been a single day where the last hour of trading was positive. In the ten trading days we've seen this month, the S&P 500 has declined in the final hour by an average of 0.33%. Three o'clock close anyone?
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by Bespoke Investment Group
Today's Empire Manufacturing report was pretty much negative across the board. The headline index was weaker than expected (-7.79 vs. 12.00) and negative for the first time since November 2010. In addition to the week headline number, some of the sub-indices saw their largest monthly drops on record (Shipments and Average Workweek) going back to 2001. While those who are in the camp that the current weakness is temporary should not be surprised to see weak numbers, it is still unwelcome to say the least.
In this month's supplementary questions, one question asked respondents what are the most important factors restraining hiring plans? In the table below we highlight the responses. It comes as no surprise that expected slow sales growth (43.8%) and the desire to keep costs low (20.5%) top the list. What is surprising, however, is that the third most important factor was that employers cannot find enough skilled workers (19.2%). This highlights a growing dichotomy within the US labor market where skilled workers are having a much easier time finding work, while unskilled workers languish on the rolls of the unemployed.
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Weather extremes in North America have set the US cotton crop off to its worst start since at least the early 1990s, besides lookinng like forcing both American and Canadian wheat farmers to abandon "significant" stretches of land.
The US cotton crop was, in the first full national ratings for 2011, pegged 28% in "good" or "excellent" health, down from 62% a year before and the lowest rating since at least 1994, when readily-accessible records begin.
The previous early-June low was set in 2006, when 40% of the crop was rated in the top two bands, and production fell more than 2m bales year on year.
In Texas, the major US producing state, just 26% of cotton was in the top two bands, amid a drought which is estimated to have cost more than $3bn.
"Emerging corn and cotton were damaged in areas of the High Plains due to hot and windy conditions," US Department of Agriculture officials said.
'High levels of precipitation'
The data follow a 600,000-acre cut, to 10.2m acres, last week by the USDA to its estimate for the area of cotton that will be harvested, implying near-record rates of abandonment.
And they came as the USDA highlighted continued delays to domestic spring wheat sowings thanks to wet weather which has prevented fieldwork by heavy farm machinery, leaving 12% left to sow of a crop which is normally all in the ground by now.
"High levels of precipitation were reported again this week," USDA staff in Montana, America's second biggest spring wheat state, said.
Broker US Commodites said that it was "now believed that up to 10% of the spring wheat area in the US will not be planted", with 8% of Canadian planting plans lost too.
'Abandon significant acreage'
In Canada, sowings of spring crops - largely wheat an canola - have reached 86%, "well behind" the typical 96%, and forcing farmers for a second successive season to leave land idle, the Canadian Wheat Board said.
"Pockets of Saskatchewan and Manitoba made some good seeding progress, but many farmers are now being forced to abandon significant acreage due to excess moisture," the board said.
Viterra, the Canadian grain handler, warned last week that Western Canadian sowings might fall 10m acres below an initial forecast of 62m acres.
The board added that in northerly areas, "more rain is badly needed, with only light showers received last week".
The board will later on Tuesday give a more detailed updated on Canadian crop conditions.
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Government hopes for the US corn harvest are still too high, even after a 305m-bushel downgrade last week, Goldman Sachs said, in a report warning that official forecasts for soybeans and wheat look optimistic too.
Investors may be overplaying the risk to corn sowings from the delayed spring, given the better returns to be made even from lower-yielding late seedings of the grain than from switching to soybeans or taking insurance.
A change in insurance smallprint may also encourage farmers to sow late, in limiting payouts to the spring projected price, of $6.01 a bushel, and so not fully recompensing growers who may have sold ahead at higher prices since.
"New crop corn price strength offers exceptionally high returns, and we believe farmers have continued planting corn late rather than opting out," said Goldman.
However, the harvest would still be limited more than the US Department of Agriculture has expected by historically high abandonment rates and a potential hit to yields.
Goldman is one of the most influential commodities houses, with a downgrade to raw materials two months ago seen as a major factor behind a market sell-off.
Flooding by the Mississippi and Missouri rivers alone could cost up to 1m acres of corn, besides 500,000 acres of soybeans, the bank said, pitching total losses for the grain at 8.1m acres.
The corn yield was pegged at 158.0 bushels per acreage, below the USDA's 158.7 bushels per acre, to reflect the late planting of much of the crop.
Goldman forecast the US corn harvest, the world's biggest, at 13.13bn bushels, 70m bushels below last week's updated official estimate, and a figure which suggested that balances would "likely remain remarkably tight and prices elevated".
While standing by forecasts of Chicago's spot corn futures standing at $8.00 a bushel in three months' time, and $7.80 a bushel on both six-month and 12-month horizons, the bank flagged "upside risk" to its price forecasts thanks to its weakened production hopes.
"In particular, already critically-low old crop inventories suggest that if this supply materialises, corn prices will need to rally further to generate demand destruction."
'Range bound' wheat
For soybeans, expectations of outperformance in Chicago over corn futures had been put "at risk" by the tighter supplies of the grain, although Goldman retained a forecast that the oilseed would perform better than the market is pricing in.
"The strong incentive to plant corn over soybeans could translate into even higher corn acreage than we currently forecast, to the detriment of soybean acreage."
However, wheat prices would stay "range bound", despite a forecast that the US crop would reach 2.036bn bushels, 22m bushels short of USDA estimates.
"Near-term weather conditions remain critically important with elevated corn prices limiting the downside in wheat prices should weather conditions improve markedly," the bank added.
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Despite the markets showing their dismay when the manufacturing PMIs for May were published, the pace of expansion in the global economy has actually picked up!
The JPMorgan Global Composite PMI, which takes the manufacturing and non-manufacturing/services into account, rose to 52.6 from 51.8 in April (a number above 50 indicates expansion) as the turnaround of Japan since the twin disaster seems to be lending solid support.
Sources: ISM, Markit, CFLP, Plexus Asset Management.
|GDP-weighted/ Composite PMI||Direction || |
Rate of change
|Saudi Arabia*||62.6||62.7||Growing, robust||Slower|
|JPMorgan Global Composite*||52.6||51.8||Growing||Faster |
Sources: *Markit; **CFLP, Li & Fung, Plexus Asset Management; ***ISM, Plexus Asset Management; ****Markit, Plexus Asset Management.
The contraction in Japan has eased significantly, with the Markit composite PMI jumping to 46.2 from 35.0 in April. Growth in the US eased slightly with my ISM GDP-weighted composite PMI registering 54.3 compared to April’s 54.6. The manufacturing and non-manufacturing PMIs reversed roles – the non-manufacturing PMI jumped to 54.6 from 52.8 while the manufacturing PMI sank to 53.5 from a very robust 60.4.
Growth in the Eurozone’s economy at long last eased with my GDP-weighted PMI coming in at 55.2 compared to 57.1 in April. Although the pace of growth in both Germany and France has eased, these countries continue to find themselves growing at a rapid pace. Elsewhere the pace has eased somewhat in China, the UK, Hong Kong and India.
Except in the case of Japan, where the manufacturing sector expanded again after reeling in the face of the twin disaster, growth in the global manufacturing sector has eased significantly. My GDP-weighted manufacturing PMI for the major economies dropped by 2.4 points to 53.1 in May.
The USA’s manufacturing sector was hit the hardest, succumbing 6.9 index points, followed by Germany’s 4.3 and the Eurozone’s 3.4 index point declines. The manufacturing sectors in the Eurozone’s problem countries are struggling, though.
The contraction in Greece has deepened, Spain has moved into contraction while Ireland’s PMI fell heavily from 56.0 to 52.1. China’s CFLP manufacturing PMI was in line with my earlier expectations based on seasonal weakness. Brazil was the only economy that managed to eke out a faster rate of expansion.
Rate of Change
|Germany*||57.7||62.0||Growing, robust||Slowed significantly|
|Czech*||55.9||59.0||Growing, robust||Slowed significantly|
|Turkey*||50.6||52.7||Growing, weak||Slowed significantly|
Sources: Markit*; Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****.
Sources: Markit*; Li & Fung**; Plexus Asset Management****; ISM*****
The JPMorgan Global Services PMI for May jumped to 52.5 from 51.0 in April. The US ISM non-manufacturing PMI retraced 1.8 index points of the 4.5 index point drop in April.
Sources: ISM, Markit, CFLP, Plexus Asset Management.
|Non-manufacturing/ Services PMI|| |
Rate of Change
|JPMorgan Global Services|| |
Sources: Markit; CFLP*; ISM**; Plexus Asset Management.
The Eurozone PMI dropped by 1.3 index points to 55.4 from 56.7 in April, with the countries other than Germany and France taking the biggest knocks. Growth in Italy’s services sector has decelerated sharply, whereas Spain and Ireland continue to find themselves on the brink of contraction. Growth in the UK’s services sector eased slightly to 53.8 from 54.3 in May.
The pace of contraction in Japan has eased significantly by 8.8 index points to 43.8 in May from 35.0 in April. Australia’s services sector is contracting again.
China's hot but some like it hot.
Well the one good thing you can say about inflation in China, at least it did not come in a 6%. The Chinese consumer inflation number hit a sizzling 5.5% in May, far short of the whisper number up which seemed to be topping 6%. Still the Chinese government wasted no time in raising the reserve requirements on their banks by a half a point to show that they are less than pleased with the overall inflation direction. Some data coming out of China is showing some softening, especially a surprising report on China crude oil consumption that confirms some industrial demand slowdown in China may be taking its toll on oil demand. According to a report by the National Development and Reform Commission as reported by Bloomberg News, Chinese daily consumption of gasoline, diesel and kerosene dropped to 650,000 metric tons in May. Monthly consumption gained 5.2 percent from a year earlier to 20.19 million tons, with China using 5.82 million tons of gasoline, up 7.5 percent, and 12.84 million tons of diesels up 3.9 percent.
In yesterday's session, demand destruction fears permeated trading yet supplied fears of high quality crude coveted by European refineries blew out the Brent Crude and the West Texas Intermediate oil to an all time high. The strength in the Brent reflects the ongoing loss of high quality Libyan crude and fears of its recent replacement Nigerian bonny light. As reported by Reuters News, "Brent crude rose on Monday to its highest price in more than five weeks, pushing its premium to U.S. benchmark crude past $21 a barrel, a record, as a force majeure in Nigeria further strained a tight European market. Brent's premium to U.S. crude rose another $1.50 a barrel after hitting a series of record highs last week. Traders cited a host of bullish factors in Europe, from Libya's prolonged outage to limited supplies of North Sea benchmark Forties crude. A fresh catalyst emerged on Monday when Royal Dutch Shell declared force majeure on its Nigerian Bonny Light crude oil loadings for June and July. Shell blamed production cutbacks caused by leaks and fires on its Trans-Niger Pipeline. Brent crude for July delivery rose 85 cents to $119.63 a barrel by 11:54 a.m. EDT. .S. July crude fell 80 cents to $98.49 barrel, having slipped as low as $97.81." "The Shell force majeure explains some of the Brent strength and even though there is crude around, it's a question of quality," said Phil Flynn, analyst at PFGBest Research in Chicago. "U.S. crude supplies are ample and there are still concerns about the lack of Libyan (sweet) crude and Saudi intentions to raise output doesn't solve the problem for European refiners because the Saudi crude is sour," Flynn added. U.S. gasoline and heating oil futures were supported by the strength of the Brent contract, which has pushed domestic sweets like Light Louisiana Sweet to big differentials above the benchmark U.S. light sweet crude contract."
Still despite those fears both Brent Crude and WTI took a hit on more fears about Greece after the Standards and Poors. As reported by Bloomberg News, "Greece had its credit rating cut by three levels to CCC by Standard & Poor's and the rating company said the nation is "increasingly likely to restructure its debt." A restructuring would likely, "result in one or more defaults under our criteria," S&P said in a statement today. "Risks for the implementation of Greece's EU/IMF borrowing program are rising, given Greece's increased financing needs and ongoing internal political disagreements surrounding the policy conditions required by Greece's partners." The downgrade comes as the European Central Bank and Germany battle over how to bail out Greece and whether officials should push creditors to share some of the costs. ECB President Jean-Claude Trichet said today that his advice to European governments is to "avoid what would be a compulsory concept "and "avoid whatever would trigger" a default. The outlook on the rating is negative, S&P said. The rating company held its recovery rating at '4,' indicating it estimates bond holders would recover 30 percent to 50 percent of their investment. A "financing gap has emerged in part because Greece's access to market financing in 2012 and possibly beyond, as envisaged in the current official EU/IMF program, is unlikely to materialize," the report said.
It looks like crude oil is in a choppy downtrend to perhaps the mid eighties! Yes, you heard it here first! Forget all those Jonny come lately's!