Plus CA Change Plus C’est LA Meme Chose (The More Things Change the More they Remain the Same)

“Sometimes I wonder whether the world is being run by smart people who are putting us on….or by imbeciles who really mean it.” – Mark Twain

The United States of America is about as far from united as we’ve been since the Civil War. The two major parties agree on virtually no major issues. The only time they agree is when it involves tax rebates and pork projects. No politician is willing to tell the American people the blunt truth that we have an epic financial crisis that must be addressed. Our fiscal crisis is complex, multi-faceted and dangerous to our immediate and long-term future. The major issues that we need to confront include the current fiscal situation, the colossal amount of unfunded liabilities that our politicians have obligated us to pay, our dependence on foreign oil, our education system, and a complete dearth of leadership and political courage. These issues are intertwined and cannot be addressed individually. There are the 71 million voting age citizens who decided not to vote in the last presidential election. If they don’t care enough to vote in the presidential election, they certainly won’t care about present and fast growing future unfunded liabilities. Of the balance who do vote, most do so without indulging in open and serious political debate. How else can you explain a Congress that has an approval rating of only 8% while still re-electing 95% of all congressmen.

“The punishment of wise men who refuse to take part in the affairs of government is to live under the government of unwise men.” – Plato

The major obstacle, are the Great Deniers: They deny that there are any problems by ignoring the hard facts and spout nonsensical rhetoric, while each side vilifies the other: It is difficult to have a logical discussion with these shills. They are disciples of the Ben Stein (conservative) and the Grubman (socialist) Schools of ignoring facts and figures. They alternate between cheerleaders or critics of America depending on which party is in power, when what we need are wide eyed realists. Many of these people have secure well paying comfortable positions in our society and fear a change in their status quo.

The greatest challenge WE The People must overcome is the entrenched ruling elite that run this country: Which includes the crooked politicians, not only in Washington but throughout the country, the tenured socialist that control our schools, the lifetime bureaucrats who run the various governmental agencies, the paid lobbyists who write the laws, including loop-holes, for Congress, the media conglomerates, and the privileged Legal and Wall Street aristocracy. These privileged few are surrounded by leeches and parasites (media consultants, pollsters, spin artists, and PR agencies) that attack anyone who threatens their position of power. The only way to overturn their comfortable world is an uprising among the masses. An educated population would not allow them to herd us like the sheep they think we are: Congress consists of 100 Senators and 435 Representatives; there are 32 lobbyists for every member in Congress. They spend $5.3 million per member: $3 billion will be “donated” this year alone to our “public serving” political leaders on their way to becoming multi-millionaires as they wait to die from senility on the benches in congress. PACs and 527 Plans will spend hundreds of millions of dollars pushing their agendas. BUT Who is looking out for us the people? Certainly not their Congressmen or Senators. JP Morgan, General Electric and Fannie Mae et al, have lobbyists to fight for their rights. When our government has to use your tax dollars in the next few months to take over Fannie Mae and Freddie Mac, it should warm your heart knowing that these two private, publicly trading companies have spent $175 million in the last 10 years lobbying Congress. The end result is that Frat Buddies will we appointed to make the rules and monitor their other Frat Buddies, who pay out 100’s of millions to make sure that their bought and paid for politicians get elected and stay in line

 Will Rogers pegged politicians back in the 1920’s. “Ancient Rome declined because it had a Senate; now what's going to happen to us with both a Senate and House?”   ( to make matters worse, a president from the same party)  

 “It’s not hard to be a humorist when you have the whole government working for you."

Not much has really changed in the last hundred years.

While the rest of the world has tried socialism and is now attempting to move closer towards capitalism, we the USA, founded on the basis of FREE MARKET CAPITALISM are hell bent( by both party’s) on moving into socialism. WHY?

THERE IS AN ANSWER!  Term Limits, (Change the term to eight years, with 25% coming up for election each year) While Limiting their Term to  ONE TERM and one term ONLY. In this way not one cent would or could be raised by an aspiring politician while in office. Without the need to being re-elected, our politicians for the first time would be free to vote their conscience. It would also attract a much higher class of people whose desire would truly be “Public Service, more along the lines of our Warriors and the way our country was designed to function in the first place.(Email me if you want an in depth report on term limits)

Global picture gets gloomier. Most of the world's top economies Except maybe Canada, China and Brazil (but they too are soon to follow) are now almost certainly already in recession; a trend that will pressure multinational corporations and stock market investors, all over the world, who until recently thought the global marketplace had not only decoupled from the U.S. but would keep the US afloat. (While China India and Brazil were thought to be immune, their stock markets are down as much as 60%). The global economy has just started sputtering it will surly be caught up in a world wide Recession following along on the heels of the US Recession which could then turn into a Depression by the fourth quarter of  2009 or early 2010. I can list for you a litany of statistics, if you want to believe official statistics, such as the CPI jumping way higher than consensus. Core CPI wildly exceeded expectations; while Prices increased more than double economist consensus expectations, jobless claims, home Sales, etc. etc. which you have heard it all before, so I won’t bother, If you must know you can read almost anybody else’s letter if your interested in history. I on the other hand am only interested in what tomorrow will bring

The world is going to Hell In A Hand Basket:  Seven years of Trade Talks go down the drain, in the midst of a world wide credit and financial crisis, politicians all over the World continue on with business as usual: While attempting to shield their respective countries by setting up protectionist trading walls, which will instead result in turning recession into depression. Pelosi and Reid kind of remind me of NERO fiddling while Rome burns. The economy is in turmoil and we are in an energy crisis with the public clamoring for congress to do something so Congress takes a five a week Vacation after loading, what will be a disastrous, save your frat buddies bill, with so much pork in it, it can now rival Tyson Foods.  The speaker of the house must have received 10’s of thousands of emails and phone call for her to tentatively agree to consider Off Shore Drilling, but the house remains in recess.  I hate to sound like a broken record but “History Repeats” The similarities to 1928-29 are uncanny and I don’t know about you but I would be afraid, if I was not prepared, that the 2010’s might turn out to be like the 1930’s

WHAT HAPPENED TO GOLD?

One day about three weeks ago Right after the market closed, the dollar started to strengthen A lot. Then, suddenly, the floor dropped out of Gold, and the S&P 500 Futures spiked HARD, with over 2,000 contracts bought at the market. The next day it happened again. And at 4:30, once more! WHY, WHAT HAPPENED?

Simple, really (simple that is after the fact) There are - 8,000 hedge funds!  For 7,999 of them (up until the last few anyway) they have all been on one side of the same trades, more or less - short dollar, long energy, short financials Long Gold. Nice, as long as it works. With so much money all going the same way and all playing follow the leader, it was easy to manipulate the markets. Suddenly for what ever reason (probably they ran out of money and couldn’t borrow any more) those trades began unraveling at a frightening pace. The dollar had become so oversold and our erstwhile government decided to try and do something about the falling Dollar So as the Dollar got stronger it triggered a squeeze as everyone tried to get out of the same narrow door at the same time.  To make matters worse All these “Brains” are not just investing the money they got from rich people- but they are also borrowing, to the limit and then not investing but speculating as they continue to play follow the leader in an attempt to re-coupe their tremendous losses on their CDO’s  So when these bets started to go bad – BUSH says Drill Drill, oil falls, the dollar goes higher as does the rest of the "parameters" they've been relying on, they got the rug pulled out from under them, suddenly they have a huge problem, all at once, and they have a very bad hair day. That's exactly what happened, IN SPADES! It is also what precipitated the "Rally" (that I called for in my July 15 Special) You kick the shorts in the stomach and instead of doubling up, since they have no more money or credit left; they try to cover, then the lemmings rush in, once again listening to the bleating calls of "the bottom is in" from the Media that will stick a microphone under the nose of anyone that agrees with their perennial Bullish Consensus.

THE GOLD & STOCK MARKETS  and what to do now?

The XAU made a major low right on schedule, just as I had hoped for in my last letter. Were you all listening? OR had you lost confidence at the exact time when you should have been buying. With the weekly Commodity Channel index (CCI) dropping below -300 and weekly RSI near .30 and the Price Relative to Gold dropping below .17 -  all of which are at extremes last seen at the 2001 and 1999 lows: Anniversary dates of Major Highs and Lows often mark turning points in market. Last years low in the XAU came in on 8/16 and the market seems to have waited until then before bottoming out and moving higher. Extreme pessimism always runs the highest at major lows and you must train yourselves to recognize the signs in yourself so that you can overcome your fear and do what’s right. If you think you were scared, what about me? I have a maybe a million people watching and waiting for me to make a mistake. You just have to suck it up and do the right thing if you want to make real money. Having to put my thoughts in print at market extremes has made me more profitable than I have ever been. BACK TO WORK The price Relative to Gold ratio measures that pessimism and the current reading is as low as the 2000 bottom., the Next rally up may be explosive. The big jump in Volume on GDX may have been that “Selling Climax” that we all have been looking for.. Most “Selling Climax” days are tested and if tested on lighter volume would be a very bullish sign. I think at least 320 on the XAU is in the cards. 

TRADING RECOMMENDATIONS ARE RESERVED FOR SUBSCRIBERS

Last week was an anniversary of sorts.  Thirty-seven years ago, in 1971, President Nixon  a RINO and Keynesian himself, stunned the US by announcing the imposition of extensive wage and price controls, widely applauded by the public and most economists, in an effort to reverse rapidly rising inflation in the US. In retrospect it is pretty clear that the price and wage controls were unlikely to reverse several years of booming money and credit creation, and even the WIN buttons (“Whip Inflation Now”) distributed by his successor President Ford a few years later were certainly not enough to do the trick.  The 90 day freeze was unprecedented during peacetime: Inflation had been raging, exceeding 6% briefly in 1970 and persisting above 4% in 1971.  By the prevailing historical standards, such inflation rates were thought to be intolerable. The 90 day freeze turned into nearly 1,000 days of measures known as Phases One, Two, Three, and Four. While there were a few skeptics in 1971, most economists, socialists all (economists from the Ivey league Schools) thought "temporary" wage and price controls could cure inflation.  By 1974, this notion was thoroughly discredited as inflation hit a peak of 12.38% during the third quarter of 1974. After a period of some improvement over the next two years prices began another surge, which took inflation up during the four years of President Carter to a high of nearly 15% and economists attention gradually turned toward a monetary approach to inflation. In a complete reversal, the policy to curb inflation shifted to an increase in interest rates rather than an attempt to hold prices down. After which time the very sharp and brutal 2 year economic contraction engineered by Reagan and Paul Volcker, the Fed finally brought inflation back down to earth
 
That is almost exactly what happened in the US in the 1930s:  Following a period of rising inflation in the 1920s – and for many of the same reasons: a rapid expansion in the US money supply caused by massive expansion of credit in the 1920s – the overextended banking system was unable to survive the economic downturn, and a previously inflationary period was suddenly converted into a period of sharp deflation.  There was even a 2-year period at the end of the inflationary period (1927-29) in which the US was absolutely swamped with speculative inflows. 

It is possible for there to be no inflation because there is a sudden collapse in the money supply? How could that happen?  In a worst case scenario rising bankruptcies could put so much pressure on the banking system, so that they are forced to cut back on lending as  both banks and businesses begin to hoard liquidity.  This would result, in a sharp reduction in money supply (via a collapse in velocity and the reverse effects of the multiplier) which would then exchange the risk of inflation for the risk of deflation.

NOTE: The exact same scenario could and probably will apply to China as well as the USA. Regardless of what you hear and read The Laws of Supply and Demand always wills out and that my friends will apply to COMMUNIST China as well. 

THE ANTICIPATED RALLY Was JUST A TRADE

As the credit markets continued to deteriorate, world wide, the weaker hands get flushed out, reversing their short dollar trade, which spikes the DX. Which frightens someone else, who then covers a big futures short, which in turn panic out someone in the gold market, and and and … as they are forced to sell their only holdings that still have bids. And by the way, those very same Hedge funds are some of the same gang "guaranteeing" some of the credit on all those default swaps, which means as they go down, credit continues to shrink never mind the actual deterioration which is far worse than claimed because these so-called "guarantors" can't pay.

VOLUME throughout the rally has been lower than average even on 300+ point days, That is a sign of short covering as sellers pull back. That is NOT what a bottom and the start of a new bull market look like.

DEPRESSION  2009 – 2010

What you need to understand is that there is nothing that can be done to stop The coming depression: Not by the government, not Bernanke, and not Paulson, nobody. The Future is already backed into the cake by the actions of the past. The overly-leveraged  will get killed, one by one, until there is nobody left  What's worse is that some of our "big institutions", sensing this - that credit quality is deteriorating very, very rapidly, are looking for someone, anyone, to offload on. Over the last few months they've found a few people they can try to throw the bag at – Because those dummies in Saudi Arabia or Japan or .., are no smarter than our Dummies, besides it worked the last time.. The sheik got a super buy the last time he bailed out Citi. This time he will give back all his paper profits in spades. When they run out of suckers, the next move is to "sell" that debt to some private equity wise guy but carry back the financing (in some cases on a non-recourse basis!), which makes it look like they got 22 cents on the dollar when in reality they only got 5 cents. For the Hedgers or P/E guy that makes the bet, it's not too a bad deal - they have a long CALL Option that has only cost them 5%. The write-off that was taken is real but it's a great deal less than it should have been, with the rest just sitting out there in limbo, pending the truth being discovered and that "non-recourse" deal comes back like a boomerang to haunt them.

How many of those Geniuses will get killed, and what impact will it have on the credit markets in general?  I can't quantify it accurately - I don't think anyone can. But what is obvious from the magnitude of these "little tremors", and the rapidly increasing rate at which they are coming, is that:

• It's very bad.
• It's getting worse, at an alarming, increasing rate.
• A number of supposed "liquidity providers" have either been gamed (and this has not been recognized and reported to the public) or they're "buying" this debt with carried-back loans, making their actual risk of loss tiny compared to the nominal "value" transferred. In other words and to put it in terms "Joe Q Public" can understand, everyone is still lying!
• There is a "supercritical" point where all asset values will get hit at once, unless the process runs to exhaustion first, and I don't think there is a snowball's chance in Hell of that happening.

I may be wrong about the impending super danger, but if I'm not, it would be a good idea to be sure you are in safe places with your money. Equities and debt other than treasuries and Gold would be in the "not" column on the list of safe instruments, all other, and I do mean all, is not.  

COMERCIAL NY REAL ESTATE:  THE NEXT SHOE TO FALL

Some fear commercial property loans will be next stage in the downturn - NY Times  reports that as the value of home mortgages crumbles by the day, Wall Street has hoped that commercial real estate loans would stay clear of the storm. But bankers believe the headwinds may be shifting after a large apartment complex in Harlem warned that it might not be able to make good on a $225 mln mortgage payment. A default by the complex, the rent-regulated Riverton Apartments, would be New York's largest in the current housing crisis. For Wall Street banks, which hold about $100 billion of commercial mortgage-backed securities, the prospect has fanned new worries that a deterioration of the overall commercial property market could prompt more write-downs in the coming quarter, on top of losses already expected from their distressed mortgage securities holdings. "The fear is the next shoe to drop may be commercial real estate," said Jeffrey Harte, a banking analyst at Sandler O'Neil. 

And they call his is NEWS? When I began mentioning that in my opinion this was bound to happen, over a year ago, it was not my crystal ball speaking. It was just plain old fundamental economic analysis of the ongoing transitions that were bound to occur in the future based on what was transpiring in the present and recent past. That is what forecasting should be all about. So what do we do about it? How can we make some money out of this information?

TRADE SUGGESTIONS ARE RESERVED FOR SUBSCRIBERS

THE STOCK MARKET

There are two large patterns that have or will shortly be completed that suggest that there is good chance that the DJII is about to start a 2,000 +/- point decline with a target in the 9,700 area:

The first pattern is a large Head & Shoulders top.
The second pattern is a BIG Declining Wedge pattern which should be the most dramatic and final wave down to complete the down draft of the Head & Shoulders pattern, which is about ready to start now, if it hasn’t started already. Although Patterns can fail: It would be rare if they both failed. Also of particular interest is the large Rising Bearish Wedge pattern from July 15th through August 11th. The bottom boundary of that wedge had seven touches: Telling us that it was an important support boundary line. However once breached, support becomes resistance and we would then have solid evidence that Wave 3 down had started. That breach occurred August 18th. It is not unusual for prices to want to retest an important bottom boundary after such a breakdown, and in fact that is precisely what happened Friday with that huge Bernanke rally. However that very same trend-line that acted as strong support acted as resistance Friday, stopping the rally cold.

NOTE: Bull Markets never start on News especially not on lies or pipe dreams.

This is significant. If prices fail to rally significantly Monday and/or Tuesday, then we could see that dramatic decline that I have been anticipating.

MY TRADES are reserved for subscribers

August 23, 2008

GOOD LUCK AND GOD BLESS

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Aubie Baltin  CFA, CTA, CFP, PhD.
2078 Bonisle Circle
Palm Beach Gardens FL.  33418
[email protected]
561-840-9767