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Zulauf: We Are Marching Full Speed into Calamity

By Barry Ritholtz

Source:
Felix Zulauf: Marching Full Speed into Calamity
McAlvany Weekly Commentary 06 July 2011
http://mcalvanyweeklycommentary.com/07-06/

link for audio

Ferrari California - by Michael Mann

Ferrari 458 Italia - Gran Turismo

Incredible ...

If Central Banks Believe in Paper Money Why Are They Loading Up On Gold?

by Graham Summers

I’ve been warning for years that an inflationary storm was coming. I’ve recently tailored my forecast to allow for a resurgence in deflation based on QE 2 ending and the economy diving, but my long-term forecast remains the same: inflation WILL be exploding in the years to come.

Indeed, even the biggest proponents of paper money (central banks) have begun to realize that their grand experiment is coming to an end. Central banks officially became net buyers of Gold last year. And we now find that they have acquired the most Gold in over a decade.

The Financial Times reports:

Central banks have pulled 635 tonnes of gold from the Bank for International Settlements in the past year, the largest withdrawal in more than a decade.

The move, disclosed in the BIS’s annual report, marks a sharp reversal from the previous year, when central banks added to deposits of gold at the so-called “bank for central banks” rather than lending it directly to the private sector amid growing concerns over counterparty risk.

Let’s consider this. If you’re a central bank and you actually believe in the value of paper money and your ability to create wealth by printing it…why would you be loading up on Gold?

The answer is simple: you see the writing on the wall.

The central banks of the world are in a competition to devalue their respective currencies against each other. They will work together to suppress a particular currency if a carry-trade gets too out of control (see Japan earlier this year), but in general the ECB wants a cheap Euro, the Fed wants a cheap Dollar and so on and so forth.

These guys know that the financial system is broken. They’ve known it for over a decade (Greenspan even admitted that derivatives could “implode” the market in 1999). But they’re going to kick the paper money can down the road as long as they can… primarily because the entire financial system is banking on their ability to “fix” things.

The 2008 Crisis was the first taste of systemic risk. The central banks threw everything including the kitchen sink at the problem in an attempt to hold things up. And it’s worked temporarily in the sense that the financial world still believes central banks can handle the situation.

However, the fact remains that the central banks actually didn’t fix anything. After all, you can only fix a debt problem by paying the debt off or defaulting. Moving it around and issuing more debt to meet current payments does nothing.

In this sense, the world’s central banks literally “bet the farm” on themselves and the view that sovereign balance sheets can stomach this toxic waste. As we’re now discovering in Europe, the laws of the markets (oversaturation of debt, default and the like) apply to countries as well as private banks.

The central banks know this and are now acting accordingly. It is not coincidence that they became net buyers of Gold within two years of the 2008 Crisis. Nor is it coincidence that they are now loading up on Gold at the fastest pace in over a decade. They KNOW (not think) that systemic risk is still on the table in a big way and that they will be POWERLESS to address the next Crisis when it explodes.

You can already see this in their public statements. Bernanke himself even admitted the Fed has no idea why the economy isn’t recovering. If you extend the implications of this statement it becomes clear Bernanke and pals are realizing that printing money is not going to patch up the financial system… Hence the Gold purchases.

In plain terms, the REAL Crisis, the Crisis that was put off temporarily during the last two years, is coming. It will not be a Crisis of stocks or bonds. It will be a Crisis of the financial system itself. A Crisis in which entire countries default. And it will make 2008 look like a picnic.

Remember, every asset class is defined relative to sovereign bonds. So if sovereign bonds begin defaulting… KA-BOOM. Round One (2008) of the Financial Crisis wiped out over $11 trillion in household wealth. Round Two will wipe out…?

On that note, smart investors are already taking steps to prepare for what’s coming. I’m talking about bank holidays, food shortages, stock Crashes, debt defaults, civil unrest and more.

If you’ve yet to prepare yourself and your loved ones for these issues, I’ve recently published three key reports titled Protect Your Family, Protect Your Savings, and Protect Your Portfolio all in all 40+ pages of material devoted to showing individual investors how to prepare these areas of their lives in great detail.

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Unemployment: It’s More Than A “Soft Patch”

By Jeff Harding

The fear brought about by today’s employment report is almost palpable. Reports express “surprise,” ”shock,” and “disappointment” at the news that employers only added a net 18,000 jobs in June, the slowest pace in nine months, and that the unemployment rate increased to 9.2%, the highest level since December 2010.

This is not a surprise to Daily Capitalist readers as we have been beating the stagnation-inflation drum for quite a while now. Our conclusion is that this economic slowdown as measured by current data is not a “soft patch” but rather a systemic decline of economic activity due to fundamental weaknesses. We are surprised that others can’t see what we see.

But first, the numbers.

The private sector added only 57,000 jobs after a 73,000 advance in May. Offsetting the private gains were a loss of 39,000 government jobs (along with the gnashing of economists’ teeth). The April and May, 2011 report revisions were also negative, shaving off another 44,000 jobs from prior gains.

Here are the highlights from the BLS report:

Within professional and business services, employment in professional and technical services increased in June (+24,000). This industry has added 245,000 jobs since a recent low in March 2010. Employment in temporary help services changed little over the month and has shown little movement on net so far this year.

Health care employment continued to trend up in June (+14,000), with the largest gain in ambulatory health care services. Over the prior 12 months, health care had added an average of 24,000 jobs per month.

In June, employment in mining rose by 8,000, with most of the gain occurring in support activities for mining. Employment in mining has increased by 128,000 since a recent low in October 2009.

Employment in leisure and hospitality edged up (+34,000) in June and has grown by 279,000 since a recent low in January 2010. …

Manufacturing employment changed little in June. Following gains totaling 164,000 between November 2010 and April 2011, employment in this industry has been flat for the past 2 months. In June, job gains in fabricated metal products (+8,000) were partially offset by a loss in wood products (-5,000).

Construction employment was essentially unchanged in June. After having fallen sharply during the 2007-09 period, employment in construction has shown little movement on net since early 2010.

Wages and work week hours fell as well; especially disappointing was the manufacturing sector:

The average workweek for all employees on private nonfarm payrolls decreased by 0.1 hour to 34.3 hours in June. The manufacturing workweek for all employees decreased by 0.3 hour to 40.3 hours over the month; factory overtime edged down by 0.1 hour to 3.1 hours.
In June, average hourly earnings for all employees on private nonfarm payrolls decreased by 1 cent to $22.99. Over the past 12 months, average hourly earnings have increased by 1.9 percent.

There are 14.1 million Americans who can’t get a job. Part-time workers wanting full-time jobs was unchanged at 8.6 million. The number of discouraged worker was 982,000. Since March an additional 545,000 unemployed workers have been added. The number of long-term unemployed (those jobless for 27 weeks and over) was essentially unchanged over the month at 6.3 million, or 44.4 percent of the unemployed. I also noticed in the report that part-time employment has flattened out as well. This fits in with the National Federation of Independent Business’s reports on employer negativity. If there was any hiring it would be part-timers.

Here is the U-6 chart, the broadest index of unemployment:

Warren Buffet says we have nothing to worry about. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip.” It is interesting how Buffet has positioned himself as everyone’s favorite uncle, always urging us to not worry. Despite his soothing palliative, I see negative indicators, and I worry.

The further flattening-to-declining employment trend is consistent with our belief that we are in a stagflationary economy, where growth will be flat-to-negative until the real estate excesses and its related debt and credit issues have been resolved. 

It also tips the odds more in favor of another round of quantitative easing that we are projecting to occur well before the November, 2012 elections. As long as unemployment remains high and economic activity remains no better than flat there will be pressure on the Fed to meet its full employment mandate. QE is the only trick left in their bag. That will lead to further price inflation, a shot in the arm for the financial markets, but it will not lead to a boom in industrial activity and the estimated 250,000 new jobs a month that must be created over the next five years to create “full employment.”

See the original article >>

Comparing The 2007 Topping Pattern To Now

by Tyler Durden

From Tony Pallotta of MacroStory

Comparing The 2007 Topping Pattern To Now (Updated)

Remember one simple truth, 91.8% of ES Futures daily volume is attributed to day traders and computer algorithms. And since not one single person within that group uses macro data for their intraday trades then it is safe to say the market in the short term has little to do with pricing in macro economic data. Remember how the SPX peaked two months before the great recession actually began. That is not forward looking.

Market participants are already analyzing today's afternoon rally as a sign that this market is resilient, that the economy is still headed for a soft patch and that the bull is alive and well.

I beg to differ but instead would rather highlight two important aspects of this market I suspect is dictating price.
Shorts are scared and longs are delusional. Bernanke not only taught investors to buy every single dip he even has them convinced the removal of the Bernanke put (i.e. QE) has no downside risk to the market. The move the past two weeks was foreseen by no one and hurt a lot of shorts while making longs feel smart yet again. Even a lot of macro bears were capitulating on the economic data the past two weeks. That is until today.

The next and probably most important aspect of this market I suspect is psychology. It's not technicals even in the face of some bearish patterns created today like island reversals. Nor is it macro data although the transitory weakness argument just got a whole lot more difficult to defend.

A number of times I have compared the current topping pattern to that of the 2007 pattern. The reason I suspect they are similar is for psychology during such times does not change. Longs don't want to surrender their money making machines. Shorts are eager to price in economic weakness and the argument about soft landing or recession grow louder.

The magical Point E may now be in for the current market. The similarities are striking of the move to point E in both 07 and 11. A similar move also occurred in the treasury market as highlighted here. That wild move higher shakes a lot of shorts out of their position, pulls in the last remaining dollars from the longs before finally ripping lower leaving few on the train.

During these Point E's the macro data is confusing as well. For example the NFP reports (and ADP) right before the great recession showed a positive reversal in job growth. I am sure the debate of soft patch or recession were just as loud then as now.

So if in fact Point E is in (the current chart is not updated with today's price but trust me it was lower) expect a pullback, one last sucking sound of doubt move higher and then hell breaking loose. Which by the way would be a lovely set up for the Bernanke Put round 3.

Lastly I suspect one additional thing keeping a bid in the market is the hope of a debt ceiling deal possibly as early as this coming weekend. How that is bullish is beyond me for it will result in the government agreeing to reduce up to $4 trillion in fiscal stimulus from the economy and easily could put the US back into recession. Other than a bounce and removal of doubt as if there should be any on this matter there is nothing positive about a debt ceiling deal.

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The Real Unemployment Scandal?

by Leo Kolivakis

Via Pension Pulse.

Discussing the latest US jobs report, Greg Ip of The Economist comments on jobless agonistes:

Hopes had risen in the past week that America’s economic soft patch was ending. They have just been doused with a bucket of cold water. The job market showed further deterioration in June from May, the government reported today. The number of non-farm jobs rose a meager 18,000, lower even than May’s 25,000 number (itself revised down from the original estimate). The two months together mark a dramatic deceleration from the previous three when payroll growth averaged 215,000 per month.

The unemployment rate, meanwhile, rose for the fourth consecutive month to 9.2%, from 9.1% in May. It was 8.8% in March. The economic recovery celebrated (if you could call it that) its second anniversary on July 1st, and in that time the unemployment rate has moved a lot while ending up almost exactly where it began. America has made almost no progress closing the output gap opened up by the recession. The U-6 unemployment rate, which includes people who have given up looking for jobs and part timers who want full time work, shot up to 16.2% from 15.8% and the average duration of unemployment hit a new high of 39.9 weeks. More women than men lost jobs. Indeed, since the recovery began, women have fared worse than men, a reversal of the pattern during the recession, as a new Pew study documents. Still, the male unemployment rate rose more last month than the female rate.

Digging deeper, the details grow worse. Hourly wages failed to rise and the average work week shrank slightly—bad news for income and thus purchasing power. The survey of households, from which the unemployment rate is drawn, shows a much bigger plunge in employment, at 445,000, than the payroll survey. The household survey is less reliable but is still a useful check. It tells us the payroll report is not understating the strength of the job market.

There is no good news in this report; in the category of "could have been worse," private sector job growth was better than the overall total, at 57,000 last month. Public employment fell, for the eighth consecutive month, led by more layoffs by state and local governments.

The best explanation for the sharp slowdown in the jobs market is the confluence of bad luck that hit the economy this spring: a sharp increase in petrol prices, a series of natural disasters, and the Japanese tsunami and earthquake that interrupted supply chains in electronics, automobiles and other industries. Most of these temporary restraints have begun to lift. The weather is back to normal, petrol prices are down 10% (nearly 40 cents per gallon) from their peak, and Japan’s disruptions are ending. Automobile production schedules are ramping up and the Institute of Supply Management found that factory activity improved from May to June.

Manufacturing employment rose last month, albeit by only 6,000. Even Greece seems, yet again, to have muddled through its latest confidence crisis (but keep your eyes on much bigger Italy).

In all likelihood, the employment data will improve in coming months as consumer purchasing power and business spirits recover from the fuel price surge. Yet as we argue in an article in this week’s issue of The Economist, there is more to the disappointing trajectory of the recovery than these temporary restraints. America has only just begun to deleverage and a McKinsey study has found that comparable episodes in history have been accompanied by anemic growth and often a return to recession. While America probably won’t fall back into recession absent some new shock, its workers should get used to stop-start growth punctuated with disappointments and soft patches. Americans are not alone in this; Britain has experienced similar disappointments and Spain’s outlook is even more anemic. Both share America’s pre-existing condition of vastly overstretched household balance sheets and the opportunistic infection of exploding government debt.

While most of Europe is ahead of America in implementing plans to arrest the rise in government debt as a share of GDP, America is just beginning. In Washington, the mood surrounding negotiations over an increase in the statutory debt limit took a turn for the better this week as Republicans signaled flexibility on taxes and the Democrats did likewise on entitlements. This may be good news politically but it is ambiguous, and possibly bad, economically, if the final deal front-loads, rather than back-loads, the pain. The steady bleed of public sector jobs shows state and local government austerity is already weighing heavily. Federal fiscal policy is scheduled to tighten in January when a temporary investment tax credit and payroll tax cut expire. Layering on more austerity would pummel an economy still struggling to achieve a virtuous circle of jobs, income and spending. Mr Obama is reportedly pushing to extend the payroll tax cut for another year. That would be good, but that would not represent new stimulus, merely a softening of the fiscal restraint already in train.

And what about the Federal Reserve? Its second round of quantitative easing (QE) was completed at the end of June. The consensus is that it would have to see deflation looming to implement more. I think the bar is lower than that. Ben Bernanke, the Fed chairman, has always worried that rising unemployment could spark a pernicious cycle of declining confidence and spending. If its recent rise continues into the third quarter, expect to see Wall Street raise the odds on QE3. It’s too soon to write the recovery off, but not too soon for contingency planning.

I'd say the odds of another QE3 were slim prior to the latest jobs report and they now stand at 50-50. If employment growth doesn't pick up significantly over the next few months, QE3 is a done deal, and Wall Street will celebrate by bidding up risk assets.

The real structural problem in the US labor market is that there are really two economies since the early 80s: the financial economy made up of bankers, traders and money managers on Wall Street and the real economy made of manufacturers but mostly of small businesses. The latter are struggling while the former keep enjoying record bonuses. Nothing is trickling down, and even if it is, it's so minute that it doesn't make a difference. Even cash rich corporations are in no hurry to hire because they're producing more with less and they've got no confidence that this is a sustainable recovery. 

And as TomDispatch associate editor Andy Kroll points out, for all the verbiage about jobs that will be coming your way, there’s one part of the American jobs crisis deserving screaming headlines that the politicians won’t be talking about, the 60-year unemployment scandal:

Live in Washington long enough and you'll hear someone mention "east of the river." That's D.C.'s version of "the other side of the tracks," the place friends warn against visiting late at night or on your own. It's home to District Wards 7 and 8, neighborhoods with a long, rich history. Once known as Uniontown, Anacostia was one of the District's first suburbs; Frederick Douglass, nicknamed the "Sage of Anacostia," once lived there, as did the poet Ezra Pound and singer Marvin Gaye. Today the area's unemployment rate is officially nearly 20%. District-wide, it’s 9.8%, a figure that drops as low as 3.6% in the whiter, more affluent northwestern suburbs.

D.C.'s divide is America's writ large. Nationwide, the unemployment rate for black workers at 16.2% is almost double the 9.1% rate for the rest of the population. And it's twice the 8% white jobless rate.

The size of those numbers can, in part, be chalked up to the current jobs crisis in which black workers are being decimated. According to Duke University public policy expert William Darity, that means blacks are "the last to be hired in a good economy, and when there's a downturn, they're the first to be released."

That may account for the soaring numbers of unemployed African Americans, but not the yawning chasm between the black and white employment rates, which is no artifact of the present moment. It's a problem that spans generations, goes remarkably unnoticed, and condemns millions of black Americans to a life of scraping by. That unerring, unchanging gap between white and black employment figures goes back at least 60 years. It should be a scandal, but whether on Capitol Hill or in the media it gets remarkably little attention. Ever.

Indeed, nobody wants to talk about the shockingly high unemployment rate among black Americans because they've been largely written off. I'll tell you about another scandal that nobody talks about, the unemployment rate of disabled persons which is closer to 85%, and that's being generous.

I take the rights of disabled people very seriously partly because I have MS and it makes me extremely angry at how prejudiced employers are towards disabled persons. One trader recently sent me an email telling me the following:

no offense, but that MS will likely be the preventing factor to your being hired (large orgs fear large disability expense, small orgs can ill afford any absence) - I know two guys with health issues (a guy who is a cancer survivor with diabetes, another had a liver transplant) and group benefits/life-insurance are a factor in them staying in sub-optimal jobs....plus they save/invest like fiends since they are parents with abbreviated life/mortality expectations

I wasn't offended at all and told him he's right, most organizations -- private corporations, federally charted banks and even government Crown corporations and government departments -- will treat people with a serious preexisting condition as a liability (one day, I will expose these organizations and their discriminatory practices). This is why I decided to teach myself to be completely self-sufficient, focusing on trading stocks, consulting and business ventures where I control my own destiny. No more sucking up to anyone for a job! If you don't want to hire me because I have MS, that's your problem and I don't want to work for you!

Importantly, my MS doesn't control me; I am feeling better than ever and will beat this bloody disease because I'm the toughest SOB you'll ever meet. MS or no MS, I'll take on the world! But that's not the case of many who are much worse off than I am and can't fend for themselves. Many disabled are stuck collecting disability insurance, living in utter poverty, all because they are ostracized from a shallow society who only sees them as a liability. That's the real unemployment scandal and anyone who thinks otherwise is an utter fool who's never walked in their shoes and felt the stinging pain of blatant discrimination.

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The Employment Report, and the Need for Maintaining Stimulus

by Menzie Chinn

The Employment Report in Brief

The WSJ RTE post title says it pretty clearly: Economists React: Jobs Report an ‘Unmitigated Disaster’. My two observations are:

• Overall employment is being reduced by continuous reductions in government (primarily state and local) employment. Private sector employment growth was 57,000.
  
• Hours continue to rise faster than employment in the private sector.

Figure 1: Month on month change in government employment, ex.-Census (blue) and total private industry (red), in thousands, seasonally adjusted. Source: BLS via St. Louis Fed FREDII.

Figure 2: Log private sector employment (blue) and log aggregate weekly hours (red), both normalized to 2009M06, seasonally adjusted. Source: BLS via St. Louis Fed FREDII, and author’s calculations.

More from CR. With the economy clearly in a weak patch, one has to think very carefully about how a fiscal consolidation package is crafted.

Thinking Carefully about Fiscal Consolidation

Various international organizations have weighed in on the need for fiscal consolidation in the US, while at the same time arguing against an overly hasty withdrawal of stimulus (both fiscal and monetary). For instance, in its most recent concluding statement to the Article IV mission on the US (June 20), the IMF wrote:

… Fiscal policy consolidation needs to proceed as debt dynamics are unsustainable and losing fiscal credibility would be extremely damaging. However, the pace and composition of adjustment should be attuned to the cycle, within a politically-backed strategy that raises medium-term revenues and addresses long-term expenditure pressures. …

In fact, with government spending on goods and services shrinking, stimulus is already being withdrawn.

Figure 3: Real GDP growth (blue bar), spending growth attributable to total government (red bar), and to Federal government (green bar), all in percentage points, SAAR. NBER defined recession dates shaded gray. Source: BEA, 2011Q3 3rd release, and NBER.

Macroeconomic Advisers has just released their of what a fiscal consolidation along the lines of Simpson-Bowles would imply.

Assuming current fiscal policies remain in force, our economic model suggests
that interest rates will rise considerably over the next decade, with the yield on the
10-year Treasury note reaching nearly 9% by 2021.
. . .

We estimated the effects of a fiscal contraction that is patterned after the so-called
Bowles-Simpson plan and that averts this dire scenario.

• The plan would pare more than $4 trillion from the federal debt by 2021 relative to
  current policy.
  
• Roughly two thirds of this contraction is from spending cuts, the rest from tax
  increases.

For a given path of long-dated yields, the macroeconomic effects of the fiscal
contraction are sizable.

• “Fiscal drag” would reduce real GDP growth by 0.4 to 0.5 percentage point per year
  through 2015, leaving the unemployment rate a percentage point higher by then.
  
• Core inflation would remain well below a rate consistent with the FOMC’s
  interpretation of price stability, reaching only 1.4% by 2021.

The Macroeconomic Advisers simulations do not envisage a “expansionary fiscal contraction” — no surprise given the fact that the US is not near full employment, is not a relatively open economy, and interest rates are very low. [1] That is, aggregate demand is not sufficiently spurred by declining interest rates as Federal demand for credit declines relative to baseline.

Chart 4 from Macroeconomic Advisers (2011).

The paper concludes:

We agree it is vitally important to adopt a credible and sustainable fiscal policy before financial markets impose an even harsher discipline on the process. However, our analysis suggests the wisdom of waiting a few years until the economy is on firmer ground and the federal funds rate is well off the zero bound. Then, the FOMC could ease more aggressively into a fiscal contraction, or even ahead of it. Alternatively, if we are to proceed immediately, a more measured near-term fiscal contraction, one that the FOMC could and would accommodate, seems advisable. We believe markets, which already seemed priced to a “fiscal fix,” would forgive such delays, especially if that time was used to forge significant progress on reforming entitlements, the cost of which are, after all, the primary drivers of our long-term fiscal imbalance.

The employment report reminds us that the economy is in a fragile state, and macroeconomic analysis reminds us that we cannot hope for miraculous expansionary fiscal contraction to save the day. We need to maintain short term stimulus, while cutting the future trajectory of spending.

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The Case for the Future Direction of SPX Stock Market Index

By: J_W_Jones

A few weeks ago traders and market prognosticators were frantically trying to determine if the S&P 500 would hold the 200 period moving average. As it turns out, the 200 period moving was able to hold sellers in check. After a few days of grinding around, the S&P 500 pushed higher. The price action has been spectacular the past two weeks and the S&P 500 could potentially breakout to new 2011 highs. Only Mr. Market can push prices to the brink of disaster only to have them break to new highs in a matter of weeks.

Last week I was of the opinion that if a major descending trend line did not hold we would see the S&P 500 index push into a major resistance area around the SPX 1,340 – 1,350 area. I posited the following chart in my most recent article:

As it turns out, the descending trend line was taken out and price has jammed right into the major resistance area detailed in the chart above. In fact, yesterday the index was on the verge of pushing through the key resistance area and could likely test the 2011 highs in the near future.

Current price levels offer a multitude of outcomes depending on price action, news items, and economic reports. Predicting the future is a fool’s game, particularly in a marketplace full of government intervention. With that being said, I am going to use this article to point out a few key items that traders should be aware of in coming weeks.

Bullish Camp

For S&P 500 bulls, the price action as of late has been impressive and undeniably bullish. Bulls would point out that the U.S. Dollar Index futures have moved higher and equity indices were able to shrug it off which is generally an unusual set of circumstances considering the greenback’s recent strength.

Additionally the bulls will note the improving economic data points as well as last week’s strong manufacturing report. Another key area that many bulls are pointing out is that earnings forecasts for the 2nd quarter are not expected to be strong according to the analysts. The hidden potential for earnings expectations to be blown away is clearly present.

From a technical standpoint, nearly every major resistance level has been knifed through with ease. In fact, the past two weeks resistance levels have been nonexistent. If we look at the SPX Weekly chart we can clearly see a golden cross represented by the 50 period moving average pushing well above the 200 period moving average. The chart below illustrates the golden cross:

Generally speaking a golden cross on a weekly chart is viewed as bullish momentum. Speaking of momentum, based on recent price action the longer term momentum remains below historical long term levels over the past year. The following chart courtesy of Barcharts.com plots the number of stocks currently trading above the 200 period moving average:

Over the past year the current momentum to the upside in the longer term time frame reveals the potential for stocks to move considerably higher. It would take a huge move for equities to become overbought in this metric of study in the longer term time frames. Overall, conditions for higher prices are clearly present and traders and investors alike may see a major breakout in the near term over 2011 highs. If a breakout plays out readers can expect to see the S&P 500 rally to a resistance area that is shown below on the SPX daily chart:

Bearish Camp

The bears would point out that the present move higher in the S&P 500 has been parabolic. When price action goes parabolic in either direction the pending profit taking / correction is generally just as harsh. The S&P 500 has rallied 7 of the last 8 sessions and has moved over 7% higher since testing the 200 period moving average on the daily chart on June 16th. It is without question that in the short term the S&P 500 is severely overbought. The momentum chart below courtesy of Barcharts.com shows the number of stocks trading above their key 20 period moving averages:

In addition to the short term overbought nature of the S&P 500, the daily and weekly charts clearly illustrate a head and shoulders pattern. The head and shoulders pattern is a typical characteristic of a topping formation that is often found at several major historical tops. The daily chart below illustrates the head and shoulders pattern:

This particular head and shoulders pattern is not getting a lot of recognition in the media which lends it a bit more credence. If we start hearing about this pattern on CNBC or FOX Business I will expect the pattern to fail. Call me a contrarian, but in the past when major television personalities are constantly talking about chart patterns they almost always fail.

Besides just technical data points, continued worries stemming from the European sovereign debt crisis helps the bear’s case further. In the event of a major default in the Eurozone, the implications to the financial sector of the U.S. economy will come into focus. It is widely expected that a banking crisis in Europe could spread to some degree to the large money center banks in the United States. Clearly this would have negative implications on price action in domestic equity markets.

In addition to the European debt crisis, the United States government has a looming credit crisis of its own. With politicians currently arguing over whether to raise the debt ceiling, bears point out that if the United States defaulted on its debt (unlikely) the implications would be severe. However, many traders and economists point out that the end of QE II may have dramatic implications on price action as well. The current uncertainty around the world lends itself in favor of the bears.

As I am writing this the unemployment number just came out and it was far worse than the market expected based on Thursday’s strong ADP employment report. At this point in time we are getting heavy selling in the S&P 500. While this could be the beginning of a larger move, it might make sense that sellers are stepping in taking profits. The real question for traders and investors alike is what the future holds in coming weeks. Do we get a small correction from current prices before breaking out to new 2011 highs or are we putting in a dreadful double top that leads to the return of the bear?

Only time will tell . . .

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Gold Summer Trip and a Long-term Overview

By: Przemyslaw_Radomski

We've entered summer, a typically slow season for the metals, which is why they call it the summer doldrums. Gold closed June just 1.8% lower than it first started. Just for your information, the average summer drop over the last ten years was 8.6%, which at current levels would bring us to $1,407.53. It is also interesting to note that the summer lows have usually represented the bottom of the market for the remainder of the year, with one major exception, which was the difficult-to-forget year of 2008, which was when the summer decline was merely a harbinger of nasty things to come.

Summer is a good time to travel, so we invite you for a brief tour around the world to see what is happening with gold. We save the best for last. 

Central African Republic: This landlocked and sparsely populated country, ranked among the 10 poorest countries in the world, could well be one of the world's leading exporters of gold in the near future. While international mining companies hope to establish operations there soon, farmers are abandoning their fields and are flocking to the gold areas hoping for a lucky strike. We wish them luck. It would be nice to have the riches go to the hands of people in that area of the world instead of corrupt governments.

Greece: One of the first things any person facing insolvency does is to sell the family silver and pay back debts. Apparently, that does not hold true for governments. Greece holds an impressive 125 tons of gold in the vaults of the Greek National Bank, worth approximately 4 billion euros. If Athens were to sell that gold, its government would be able to meet at least part of the debt payments without any outside help. Portugal, another country teetering on the brink of crisis, holds an impressive 383 tons of gold with a market worth of about 13.3 billion euros. The Portuguese have just squeezed an 80-billion-euro aid package from the European Union. Of the 400 tons of gold allowed to be sold each year by central banks, according to the Central Bank Agreement, only 53 tons have been sold so far during the present accounting period. About 52 tons came from the reserves of the International Monetary Fund. If central banks want to sell within the framework of the agreement, they are free to do so until September 26, when sales quotas expire. However, central banks around the world are doing just the opposite –they are stockpiling gold rather than selling it. 

Iran: Iranians have a long history of buying gold coins for wedding gifts, or as a way to squirrel away savings. But recently, what was a steady demand has become a gold rush.

Instead of taking profits on the rise of gold prices, Iranians continued to buy them in ever larger numbers. The Iranian gold rush has been driven by fears about the domestic economy hit by sanctions against the country, lack of trust in the local paper currency and by fears about the global economy.

China: Silver demand in China is soaring. Silver imports have reached new highs, and analysts maintain that demand for this year will only continue to grow. The growth comes not only from industrial and jewelry demand, but also from the increased investments in silver as a hedge. Reports show that net silver imports to China have risen dramatically and will continue to do so going forward. In 2010, the net import of silver quadrupled, hitting a record of 3,500 tons. The pace of Chinese imports since the start of 2011 is still strong. Analysts see growing demand for silver in China, as well as India, rising by as much as 30% on the year. The increase in demand is also strong for Chinese silver ‘Panda’ coins, prompting the Peoples Bank of China to double the maximum issuance of coins for the year.

Great Britain: Britain's first gold dispensing vending machine made its debut this week in west London. The Gold To Go machine, predictably gold in color, is manufactured by a German company. A computer inside the machine updates the price of gold every 10 minutes to reflect fluctuations in the world market. It sells bars and coins in various sizes, including, a special souvenir 2.5g bar with the London skyline engraved on its reverse. Shoppers pay up to 25 per cent above the spot price for the convenience. We reported in the past about the world’s first gold vending machine that opened last year in Abu Dhabi' and about another such machine in Las Vegas, so, if you travel to any of those places, take a photo and send it to us.

California: A Northern California gold mine that has been a tourist attraction for years could go back to mining as high gold prices boost the promise of profits. Sutter Gold Mining Inc. has lined up $20 million in financing to restart operations. If all goes as planned, mining could start next summer. The mine opened in 1989 to host tour groups. The owners say gold prices, topping $1,500 an ounce, make mining economically attractive again. 

India: This is not an Indiana Jones summer blockbuster movie, but a true story. Precious stones, jewelry, gold and silver estimated to be worth several billion dollars have been found in the secret underground vaults of an ancient temple in southern India. An 18-foot-long necklace, 536 kilograms (1,179.2 pounds) of 18th century gold coins, diamond-studded plates, rubies and emeralds were found in the vaults of the Sri Padmanabhaswamy temple in Thiruvananthapuram, the capital of Kerala state. The vaults were opened for the first time in 135 years after the Supreme Court ordered the state government to take over the temple’s assets from a trust controlled by the royal family of Travancore. The temple, devoted to the Hindu god Vishnu, was built in the 16th century by the kings of Travancore. The descendants of the royal family had appealed to the Supreme Court against the petition for the takeover. Meanwhile the government has sent two dozen police officers to the previously unguarded shrine for round-the-clock security. India’s Supreme Court will decide what happens to the treasure. We’re waiting to see how this interesting story develops.

Our tour package covers the above-mentioned countries. So it’s time to wind up the trip. Before saying adieu, let’s have a look at the gold charts (charts courtesy by http://stockcharts.com).

The very long-term chart for gold shows continued attempts to move above the rising, long-term trend channel. So far the attempts have been unsuccessful and we consequently expect to see this index move lower in the near weeks. At this time, there is really no other information forthcoming from this week’s long-term chart. 

The same can be said about the precious metals stocks.

In the very long-term XAU gold and silver mining stocks index chart this week, once again we see the index level attempting to move above the 2008 intra-day highs. The monthly closing highs have been surpassed but the breakout is not confirmed without XAU taking out the intra-day highs. Consequently, with price below 2008 high, the situation remains medium-term bearish.

Summing up, recent market momentum has been quite positive for gold and mining stocks but not much changed from the long-term perspective and a mid-year correction still appears to be in the cards.

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LONG-TERM VIEW

By Carl Swenlin

Dealing with daily blogs tends to narrow our focus to the short-term and to the activity on the daily bar chart. Even if a person trades in the short-term, it is always beneficial to keep an eye on the longer-term, which is where we can see the dominant forces that are affecting all subordinate time frames.

In the last five trading days our mechanical models have generated a large number of buy signals on the major market and sector indexes we track. Also, our short-term indicators registered extremely high overbought readings, which we have interpreted as an initiation climax — an internal indication that a new rally has been initiated.

The new buy signals are still vulnerable to short-term price declines, but we are still in a bull market, so we anticipate bullish outcomes until we see evidence to the contrary. Let’s take a look at the weekly bar chart of the S&P 500 Index. One positive sign is the rising trend line drawn from the 2009 low, and that support held during the recent correction. Another positive is the fact that the PMO (Price Momentum Oscillator) is rising as a result of the recent rally.

The negatives are that volume has been contracting since 2008, and there is a line drawn across the 2010 and 2011 tops that forms a rising wedge pattern — a pattern that most often resolves downward. The top of the wedge may mark the limit of the rally (about 1400), but the internals may be strong enough to take pries to the top of the rising trend channel over the next few months. That would give us a target of about 1550, which is near the all-time highs.

Looking at the monthly bar chart below reveals a 10-year trading range with some serious long-term resistance around 1550. Many believe, I among them, that this trading range will persist for at least another 10 years.

Bottom Line: The current rally has had a strong internal initiation, strong enough to potentially rise about 300 points off the June low, unless it runs out of steam at the top of the wedge pattern around 1400. Assuming the best case, I think that 1550 will prove to be the limit of the rally, and probably the bull market.

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Rampant Unemployment = The Death Of The Middle Class - 40 Facts That Prove The Working Class Is Being Systematically Wiped Out

by The Economic Collapse

Without an abundance of good jobs, the middle class in the United States is going to shrivel up and die. Right now, rampant unemployment is absolutely killing communities all over America. Hopelessness and poverty are exploding and many are now wondering if we are actually witnessing the slow death of the middle class. There simply are not nearly enough "good jobs" to go around anymore, and even many in the mainstream media are referring to this as a "long-term structural problem" with the economy. The only thing that most working class Americans have to offer in the marketplace is their labor. If nobody will hire them they do not have any other ways to provide for their families. Well, there is a problem. Today wealth has become incredibly centralized. The big corporations and the big banks dominate everything. Thanks to incredible advances in technology and thanks to the globalization of our economic system, the people with all the money don't have to hire as many ordinary Americans anymore. They can hire all the labor they want on the other side of the globe for a fraction of the cost. So the rich don't really have that much use for the working class in America anymore. The only thing of value that the working class had to offer has now been tremendously devalued. The wealthy don't have to pay a lot for physical labor anymore. Thousands of our factories and millions of our jobs have been shipped overseas and they aren't coming back. The big corporations are thriving while tens of millions of ordinary Americans are deeply suffering. Almost all of the wealth being produced by our economy is going to a very centralized group of people at the very top of the food chain. The rich are getting richer and the working class is being systematically wiped out.

So the fact that we are facing rampant unemployment that never seems to go away should not be a surprise to anyone. Today, the "official" unemployment rate went up to 9.2 percent even though a whopping 272,000 Americans "dropped out of the labor force" in June. The government unemployment figure that includes "discouraged workers" went up from 15.8% to 16.2%. The mainstream media is proclaiming that this was "a horrific report" because most economists were expecting much better news.

Well, guess what?

Things are going to get a whole lot worse.

More job cuts are coming. One recently released report found that the number of job cuts being planned by U.S. employers increased by 11.6% in June.

It is also being projected that state and local governments across the U.S. will slash nearly half a million more jobs by the end of next year.

Needless to say, things don't look good.

Most people that still have jobs are desperately trying to hold on to them.

Employers know that most workers are easily replaceable these days, so wages are not moving up even though the cost of living is.

We are right in the middle of the worst employment downturn since World War 2. Jay-Z recently summed up the situation this way....

"Numbers don't lie. Unemployment is pretty high."

Jay-Z certainly has a way with words, eh?

If something is not done about the rampant unemployment in this nation, the death of the middle class will accelerate.

Most Americans just assume that the United States will always have a large middle class, but there is no guarantee that is going to happen. In fact, there is a whole lot of evidence that the middle class in America is rapidly shrinking.

Take a few moments to read over the facts compiled below. Taken together, they provide compelling evidence that the working class is being systematically wiped out....

#1 Right now, the U.S. government says that 14.1 million Americans are unemployed.

#2 There are fewer payroll jobs in the United States today than there were back in 2000 even though we have added 30 million people to the population since then.

#3 The number of Americans that are "not in the labor force" is at an all-time high.

#4 The United States has never had an employment downturn this deep and this prolonged since World War 2 ended.

#5 There are officially 6.3 million Americans that have been unemployed for more than 6 months. That number has risen by more than 3.5 million in just the past two years.

#6 It now takes the average unemployed worker in America about 40 weeks to find a new job. Just check out this chart....

#7 There are now about 7.25 million fewer jobs in America than when the recession began back in 2007.

#8 Back in 2000, the employment to population ratio was over 64 percent. Today, it is sitting at just 58.2%.

#9 Only 66.8% of American men had a job last year. That was the lowest level that has ever been recorded in all of U.S. history.

#10 During this economic downturn, employee compensation in the United States has been the lowest that it has been relative to gross domestic product in over 50 years.

#11 The number of "low income jobs" in the U.S. has risen steadily over the past 30 years and they now account for 41 percent of all jobs in the United States.

#12 Half of all American workers now earn $505 or less per week.

#13 According to a report released in February from the National Employment Law Project, higher wage industries are accounting for 40 percent of the job losses in America but only 14 percent of the job growth. Lower wage industries are accounting for just 23 percent of the job losses but 49 percent of the job growth.

#14 The United States has lost a staggering 32 percent of its manufacturing jobs since the year 2000.

#15 Between December 2000 and December 2010, 38 percent of the manufacturing jobs in Ohio were lost, 42 percent of the manufacturing jobs in North Carolina were lost and 48 percent of the manufacturing jobs in Michigan were lost.

#16 Back in 1970, 25 percent of all jobs in the United States were manufacturing jobs. Today, only 9 percent of the jobs in the United States are manufacturing jobs.

#17 Do you remember when the United States was the dominant manufacturer of automobiles and trucks on the globe? Well, in 2010 the U.S. ran a trade deficit in automobiles, trucks and parts of $110 billion.

#18 In 2010, South Korea exported 12 times as many automobiles, trucks and parts to us as we exported to them.

#19 The United States now spends more than 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.

#20 Since China entered the WTO in 2001, the U.S. trade deficit with China has grown by an average of 18% per year.

#21 The U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.

#22 The United States has lost an average of 50,000 manufacturing jobs per month since China joined the World Trade Organization in 2001.

#23 In 2002, the United States had a trade deficit in "advanced technology products" of $16 billion with the rest of the world. In 2010, that number skyrocketed to $82 billion.

#24 Manufacturing employment in the U.S. computer industry was actually lower in 2010 than it was in 1975.

#25 Since 2001, over 42,000 manufacturing facilities in the United States have been closed.

#26 There were more manufacturing jobs in the United States in 1950 than there are today.

#27 Since the year 2000, we have lost approximately 10% of our middle class jobs. In the year 2000 there were about 72 million middle class jobs in the United States but today there are only about 65 million middle class jobs. Meanwhile, our population has gotten significantly larger.

#28 When you adjust wages for inflation, middle class workers in the United States make less money today than they did back in 1971.

#29 One recent survey found that 9 out of 10 U.S. workers do not expect their wages to keep up with soaring food prices and soaring gas prices over the next 12 months.

#30 Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.

#31 One out of every six elderly Americans now lives below the federal poverty line.

#32 According to one recent study, approximately 21 percent of all children in the United States were living below the poverty line in 2010.

#33 Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every 6 Americans is on Medicaid.

#34 As 2007 began, there were 26 million Americans on food stamps. Today, there are more than 44 million Americans on food stamps, which is an all-time record.

#35 Today, one out of every four American children is on food stamps.

#36 59 percent of all Americans now receive money from the federal government in one form or another.

#37 The number of Americans that are going to food pantries and soup kitchens has increased by 46% since 2006.

#38 In the United States today, the richest one percent of all Americans have a greater net worth than the bottom 90 percent combined.

#39 According to Moody's Analytics, the wealthiest 5% of all households in the United States now account for approximately 37% of all consumer spending.

#40 The poorest 50% of all Americans collectively own just 2.5% of all the wealth in the United States.

The cold, hard reality of the matter is that the United States is experiencing a long-term economic decline.

Every single day, more American families fall out of the middle class and into poverty. There are millions of American families out there tonight that are just barely hanging on by their fingernails.

More Americans than ever are constantly borrowing more money just to stay afloat. Even as rampant unemployment plagues this nation and even as wages remain stagnant, middle class Americans are increasing their use of credit.

A CNBC article noted the increase in consumer borrowing that we have seen recently....

The Federal Reserve says consumer borrowing rose $5.1 billion following a revised gain of $5.7 billion in April. Borrowing in the category that covers credit cards increased, as did borrowing in the category for auto and student loans.

It is very hard to live "the American Dream" without going into huge amounts of debt these days.

But for an increasing number of Americans, "the American Dream" is just a distant memory.

Tonight, there are large numbers of people living in the tunnels under the city of Las Vegas. As the wealthy live the high life in the casinos and hotels above them, an increasing number of desperate "tunnel people" are attempting to carve out an existence in the 200 mile long labyrinth of tunnels that stretches beneath Vegas. It is a nightmarish environment, but it is all those people have left.

Don't look down on them, because you never know who might be next.

If you lost your current job, how long would you be able to survive?

Unfortunately, as bad as things are now, the reality is that this is just the beginning.

You ain't seen nothin' yet.

Do what you can to make sure that you and your family are not totally wiped out by the next wave of the economic collapse.

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