Hodar Report

That's more like it.

2012-01-19T18:27:00.004-05:00

It's safe to say the S&P 500 index has officially broken through the declining tops trend line.

In addition, the long-term market trend is completely bullish for the first time in 6 months.

The problem is that other indicators are quickly reverting to more optimistic values that are more typical of market tops than market bottoms, so this rally could be over not long after it's begun. Notice in particular how little volatility there's been in the past couple of weeks. No, I'm not going to jump into any bull market funds any time soon.

Breakout?

2012-01-07T08:25:00.004-05:00

The S&P 500 index has crossed above the multi-month declining tops trend line - albeit hesitantly:

I'll be more confident about this breakout if the S&P passes 1285, the highest mark in over five months.

As for the long-term forecast, nothing has changed. The stock market is highly over-priced by historical measures. The dividend yield of the S&P 500 is a paltry 2.1%, and it simply cannot and will not remain that low forever.

Like watching paint dry

2011-12-09T13:26:00.006-05:00

Nearly thirteen years ago on December 21, 1998, the S&P 500 index first crossed above 1200. Today it's hovering around 1250. Lately the S&P has been reluctant to pick even a medium-term direction - for the past 15 months it's been stuck between 1100 and 1350.

Trend lines blah blah blah 1175 yadda yadda 1250 whatever.

The President opposes Capitalism

2011-12-08T11:23:00.005-05:00

In between some token nods to innovation and hard work, the Teleprompter allowed the 44th President of the United States to boldly proclaim that free market Capitalism doesn't work and has never worked. I'll let readers draw their own conclusions.

Excerpt:

"The market will take care of everything", they tell us. "If we just cut more regulations and cut more taxes, especially for the wealthy, our economy will grow stronger. Sure," they say, "there will be winners and losers, but if the winners do really well, then jobs and prosperity will eventually trickle down to everybody else. And," they argue, "even if prosperity doesn't trickle down, well that's the price of liberty." ... We have to admit it's [a theory] that speaks to our rugged individualism and our healthy skepticism of too much government - that's in America's DNA. ... But here's the problem: It doesn't work. It has never worked.

Hiding cash

2011-11-29T10:17:00.006-05:00

A deflationary resolution to the global financial crisis may, in the best case, see banks limit the amount of money that account holders can withdraw. In the worst case, large banks will go bankrupt and debt-burdened governments won't be able to bail them out, and savings accounts will be decimated as a result. Either way it might make sense to keep actual cash on hand to pay for basic necessities when the collapse happens.

The trick with hoarding cash is that a thief can steal it, so if you're going to hoard it, hide it well. A two-part post by Jeffrey Strain, "Conversation with a Burglar" (part 1) (part 2) has some savvy advice about this, particularly regarding the places one should avoid hiding valuables. The key points are these:

Most of the places you think are good hiding spots are actually the first place a burglar will look.
Besides a bolted-down safe, the best defense is to leave a small fraction of your stash in obvious hiding places (in a drawer or the back of a closet for example) so that a thief will think he's found most of the money and then leave quickly.

The house of cards will collapse

2011-11-01T10:28:00.008-04:00

If Greece decides to default on its debt in an orderly fashion, or if it simply descends into chaos, it may be the spark that that finally collapses the global financial Ponzi scheme. Or Greece may ultimately agree to the EU's terms, thereby delaying and exacerbating the inevitable pain for a little longer. There are simply too many players involved and too many weak points in the system to know exactly when and where the triggering event will happen, or how the collapse will unfold, (inflation vs. deflation) but the collapse will happen one way or another.

I've made some preparations for both a deflationary spiral and hyperinflation, and beyond that I've resigned myself to the fact that I have little power to affect or predict the final outcome.

The correction isn't over yet

2011-10-31T09:46:00.003-04:00

Just one month ago the S&P 500 index stopped a few points short of a 20% drop, thereby avoiding official bear market territory. Since then it's rallied dramatically, but now there are a couple of resistance trend lines to overcome.

A closing price above about 1330 would officially end this 19% correction.

Tease, tease, tease

2011-10-04T16:38:00.005-04:00

A closing price below 1090 on the S&P 500 index would officially announce the birth of a bear market, but we're not there yet, despite the temporary dips below that key level. The sudden rally in the last ~30 minutes of trading today was highly suspicious - almost as if "someone" was working to prevent the official onset.

I'm really bored now

2011-10-01T12:39:00.004-04:00

After finally falling below 1250 in early August, the S&P 500 index has been rattling around between 1220 and 1120 ever since, seemingly going nowhere.

I'd like for the market to break out of this channel one way or another and start an invest-able trend. The mid-September bear market signal would suggest that the market will decline out of this pattern, but the overwhelming pessimism of investors suggests that most of the emotional selling has already happened. Thus I have nothing useful to say about which way the market will go from here.

Schiff to Congress: GET OUT OF THE WAY!

2011-09-16T09:57:00.004-04:00

Peter Schiff Kicks Butt.

Part 1:

Part 2:

Bear market indicated

2011-09-14T09:53:00.003-04:00

One of the methods I use to signal that stock prices have changed from a bull market to bear market has tripped, meaning it's now likely that the S&P 500 will fall well below the 20% loss threshold of 1090 before resuming any kind of rally. However I'm not going to invest in a bear fund yet - I'm waiting for a signal that the market has reached a medium-term top within the long-term decline.

The looming collapse explained in 5 minutes

2011-09-01T05:33:00.011-04:00

A better way to describe borrowing money from other countries is that we buy things from them with dollars, and then they turn around and use those dollars to buy our bonds. The net exchange is that other countries are making things for us in return for I.O.U.s.

No more hedging about HDGE

2011-08-18T18:17:00.009-04:00

On February 1st of this year I noticed a new bear market ETF and immediately christened it as my new top Armageddon fund. This move might have seemed premature to some given the short track record at the time, but the performance of the Active Bear ETF (HDGE) has now exceeded even my optimistic expectations. As of today's market close (August 18, 2011) HDGE has bagged a six-month gain of 19.6%, while the S&P 500 index has lost 15.1%.

So far HDGE has not only risen during a market decline (a basic requirement of any bear fund) but it has actually gained more than the S&P 500 has lost. It may be that the fund managers have simply picked more volatile stocks rather than the best candidates for short selling, but regardless of the reason, I'm pleased with the results. HDGE remains securely at the top of my list of Armageddon funds.

Correction update

2011-08-09T00:51:00.013-04:00

The decline of the S&P 500 index from its April 29 high is now 18% and counting, which is only 2% and 20 points away from triggering a bear market signal. This has wiped out the gains from the previous 12 months, and in the bigger picture yesterday's closing price of 1119 is a point below the closing price on April 2, 1998.

I'm very pleased to see the market decline like this, and I hope it continues. The stock market is still highly over-valued by historical standards, and even at these lower prices the dividend yield of the S&P 500 is barely above 2%. On a personal note it has been frustrating to sit on the sidelines in cash while the market continued to creep and occasionally surge upwards against all fundamental logic, so this is a psychological relief as well. My difficult choice to neutralize both bullish technical signals and bullish sentiment indicators with unprecedentedly bearish long-term economic fundamentals has, for the time being, been partly vindicated.

If this correction turns out to be the beginning of a bear market, then it was one of the stealthiest bear market onsets from the perspective of the technical methods that I use. The only analogous event I can think of is the market crash of May 1940 that came out of nowhere when Germany invaded France. Even the 1987 stock market crash sent a clearer precursor signal than the current decline. If the market turns around here against my wishes, it means ironically that the track record of my purely technical bear market prediction method will remain in good standing, so it will be a mixed bag for me either way.

Large correction & bear market watch

2011-08-08T12:40:00.005-04:00

The S&P 500 index is hovering around 1150 as I write this, which is a 15% drop from the high point in April. That qualifies as a large correction. An official bear market requires a 20% drop, which would occur at an S&P price level of 1090.

Back near 1250

2011-08-02T18:58:00.004-04:00

Here we are again. The S&P 500 index has closed at 1254, right at the floor of its 2011 range.

If it closes much lower than this in the following days, then the lower support level near 1250 will be officially breached.

However, stock market sentiment is solidly pessimistic right now, as you can see in much of the financial news this evening. This is the lowest closing price all year, and the market has fallen below the 200-day moving average, and that's apparently caused a slight panic. Neither of those stats means anything of course, but it sure makes for exciting, breathless news. Honestly, I wish this were the start of a bear market so that I could safely ensconce my money in some bear funds - but that's just another example of market pessimism.

Pessimism more often than not translates to increasing prices, so my guess is that the market is poised to bounce again. I'm staying in cash for a little longer at least. If the S&P closes below 1240 or so first, then I'll be proven wrong about the bounce, but that still won't be an official bear market signal.

In the more distant future, global financial collapse and/or hyperinflation still looms, particularly now that the U.S. government has decided to add trillions of dollars to our national debt. The timing and form of the collapse will be as much a political decision as an economic one, so it's impossible to predict what will happen and when.

Still not a rally

2011-07-27T18:17:00.008-04:00

Today the S&P 500 index closed at 1305, a level which has acted as a quasi-price floor for much of 2011, with the exception of the corrections in March and June.

The S&P has been in neutral for most of 2011, having yet to rise above the April 29 high of 1364, or to pass below the absolute floor of 1255. This is a narrower-than-average trading range for a seven-month period. Surprisingly, sentiment is also neutral right now despite the news of a potential government default, so I won't attempt a short-term stock market forecast.

I hope all good folks out there have made preparations for national/global financial turmoil. Even if Congress and the President reach a stopgap budget agreement by August 2, the long-term prospects for national solvency do not look good.

S&P stays above 1250, but is it a rally?

2011-06-30T11:11:00.004-04:00

As predicted from the extremely high pessimism in the market, the S&P 500 index hasn't yet crossed the 1250 threshold. In fact the index hasn't even closed below 1265 during this recent dip, and is now rising towards potential overhead resistance in the form of a declining tops trend line:
Sentiment is still very pessimistic, so my guess is that the S&P will rise through this trendline and officially start a new rally.

S&P 1250 is key

2011-06-07T13:19:00.005-04:00

The S&P 500 index has been declining towards two trend lines - one long term rising support line which goes back to the March 2009 low, and a short term support level at 1257.

Long term:
Short term:
These two trend lines have basically met at the same price level now, meaning that if the S&P declines through 1250, it will simultaneously violate two supports, leaving the door open to a large continuing decline. However, since sentiment is quite pessimistic right now, my guess is that the stock market will bounce off of these support lines and continue the rally. Time will tell.

Peter Schiff on the inevitable collapse

2011-05-20T10:06:00.006-04:00

He's spot on that raising the federal debt ceiling will just delay the collapse and make it worse to boot. Unfortunately few politicians want to be held personally responsible for firing federal employees and cutting payments to retirees and unemployed workers, so it's doubtful that there will be a controlled rollback. Schiff is predicting that the ultimate outcome will be hyperinflation - in other words, that the Federal Reserve Bank will keep printing money indefinitely.

Treasury Takes Pension Funds

2011-05-16T18:51:00.005-04:00

Sometimes I hate being right. The U.S. Treasury, which officially hits the legal "debt ceiling" this week, is now starting to borrow money from federal pension programs. The only thing that surprises me about this story is that *any* federal program still had an actual positive balance of funds that could be borrowed from in the first place. No matter - once these pension funds are completely replaced with I.O.U.'s like the Social Security Trust Fund has, we'll be one step closer to a similar raid on our private Roth IRAs and 401(k) retirement accounts.

Yes we can (lose everything).

Inflation, Deflation, and Speculation

2011-05-06T13:23:00.019-04:00

The most critical economic uncertainty over the next five to ten years is whether there will be hyper inflation, a deflationary spiral, or something in-between. Hyper inflation generally results from a government that creates ever-increasing amounts of currency, which causes the prices of all things to rise and the value of a fixed amount of money to correspondingly decline. A deflationary spiral has the opposite cause and effect; a shrinking supply of money causes prices to decline and the value of money to increase. In our economy a great deal of virtual money is dependent on regular payments to bond holders and mortgage lenders; when these payments are interrupted, retirement accounts are decimated by collapsing bond prices, and banks go bankrupt - money literally vanishes.

The centerpiece of the inflation/deflation question is the Federal Reserve Bank and its chairman Ben Bernanke. If the Fed continues to buy a trillion dollars worth of Treasury bills every year (i.e., printing money) then hyper-inflation is a very real possibility. On the other hand, if the Fed stops the "quantitative easing" programs altogether, then deflation is a risk as the federal government would have to choose between defaulting on Treasury bills (debt payments) or defaulting on promised payments to Social Security, Medicare, Medicaid, etc.

Congress has the power to affect the outcome on its own terms if it wishes, particularly in the timing of changes in the value of the dollar. In the unlikely event that Congress ever slashes the federal budget by 30% or more, the inflationary effect of spending government-sanctioned counterfeit money will vanish, and a deflationary spiral could begin almost immediately. Since Congress doesn't need to issue bonds when the budget is balanced, the Fed's power to create more money would be limited. However, if Congress continues down the path of ever-greater spending and ever-greater debt, then the inflation/deflation ball will be fully in the court of potential bond buyers, including the Federal Reserve Bank.

Individual investors like us can't predict what the Fed or Congress will do this year, next year, or five years from now, so there's no guaranteed way to protect our wealth. I've stashed away actual cash as insurance against a deflationary spiral, but many other investors have instead been betting on high inflation, as evidenced by recent rises in the prices of metals like gold and silver; these buyers are looking for something that will still have bartering value if the dollar collapses.

The price increases in gold and silver are mostly speculative right now because the actual rate of inflation has been remarkably low despite the recent printing spree by the Fed. Indeed, the core inflation rate in the U.S. is barely higher than 1% right now, and hasn't been over 2% since 2008. (Recent reports on the decline of the dollar are referencing the exchange rate between the dollar and other currencies like the euro and yen, rather than the actual domestic buying power.)Meanwhile the price of gold has doubled and the price of silver has more than quadrupled in the same time span. Anyone who bought gold and silver in 2008 now has the opportunity to cash out and make a tidy profit, regardless of the inflation/deflation question. Being a buyer today is rather risky though, particularly if we succumb to deflation instead of inflation. The recent 30% drop in the price of silver may be due to precisely these realizations by investors.

Interestingly, this correction appears to be returning silver to the long-term price trend that it used to share with gold up until 2008.

Given the tame inflation rate so far, the present lack of printing by the Fed, and the potential bubble in metal prices, I'm not going to make a bet on high inflation at this point. Conditions could change quickly due to political shifts in Congress and actions by the Fed chairman, so it pays to keep a finger to the wind.

S&P Delicately Downgrades our Debt. Duh!

2011-04-19T05:41:00.025-04:00

Yesterday Standard and Poor's changed the outlook on their rating of US sovereign debt from "stable" to "negative". This caused a spike in the number of visitors to my blog, so there seems to be some concern out there. Yes, bondholders should be worried about the government's long-term ability to keep its payment promises, but the move by S&P yesterday was a pathetically small gesture. In fact, Standard and Poor's have not downgraded America's top AAA credit rating; they're only saying that there's a one-in-three chance that they will downgrade us from AAA to AA+ some time in the next two years.

In addition to being only a possibility, the downgrade wouldn't mean much even if it happened. The following table from Wikipedia puts this possible downgrade in perspective:
As you can see, even if they downgraded us to AA+ there's still a long way to go before they start warning that economic conditions could threaten future bond payments.

There are two reasons to be skeptical of either a AAA or AA+ Treasury bond rating. First, unlike every other dollar borrower on the planet, the U.S. government has the power to create dollars out of thin air through the Federal Reserve Bank, which reduces the value of each dollar. In effect, the government can borrow money and then re-define what money is before paying it back. It's a lot like government-sanctioned counterfeiting. This may not fit the technical definition of defaulting, but it is effectively defaulting, and it's already happening. By this measure our credit rating should already be "D".

D: An obligor has failed to pay one or more of its financial obligations when it became due.

The second reason not to trust the bond ratings comes from recent history. The ratings agencies played a major role in the real estate bubble of the last decade and subsequent financial collapse. Back in the early 2000's, Freddie Mac and Fannie Mae were grouping together risky mortgages (sub-prime) into single investment packages known as mortgage-backed securities, and Standard and Poor's and Moody's were giving many of these securities AAA ratings. How far off were the ratings? According to Paul Krugman of the New York Times, 93% of these sub-prime AAA securities have defaulted as of 2010.

In other words, it's pointless for S&P to try to rate U.S. government debt on the same scale as private borrowers who can't print money, especially when a "AAA" rating still leaves open the possibility that a large category of bonds can default en masse.

That 70's Dow

2011-04-17T08:46:00.014-04:00

Over the past 14 years the S&P 500 index has twice risen from 800 to 1500 and then fallen back to 800.
Now the S&P is less than 200 points from completing a third 800-1500 climb. The question now is whether it will fall to 800 again, or finally break through 1500 for good. The pathetically low dividend yield of 1.85% suggests that a third fall is inevitable. Unless the Federal Reserve Bank prints us into high inflation (which seems increasingly likely) I foresee a repeat of the 19-year flat performance of the Dow Jones Industrial Average from 1963-1982:
So the choice is either high inflation or another 40%+ downward oscillation in a flat stock market. One way or another the fake wealth of our debt-dependent economy will find a way to disappear.

The Twilight Years of the 401(k) and Roth IRA

2011-03-29T22:31:00.006-04:00

I've suspected for a while that the federal government will eventually start taxing contributions to 401(k)s, withdrawals from Roth IRAs, and capital gains and dividends in both. In other words, there won't be any more tax benefits to our retirement accounts, and therefore there won't be any reason to have retirement accounts in the first place.

Today I no longer just suspect that 401(k)s and Roth IRAs are doomed - I'm convinced of it. I'm convinced because of the gradual implosion of underfunded pension programs that are leading to riots at state capitals. Sure, public employees will continue to fight against the budget cuts, but they are ultimately doomed because they can't fight the simple math that says there won't be any money left to pay for their retirement. When they eventually lose, they're going to turn their rage on those of us who never had pensions, but who have instead been building our nest eggs in retirement accounts. It doesn't matter that the public pensions rely on yearly payments from cash-strapped taxpayers while private retirement accounts are funded entirely by decades of saving - it will become an issue of "fairness", because "it's not fair that we have to lose our pensions while they get to keep their retirement accounts."

And that will be that.

It happens again

2011-03-24T16:35:00.004-04:00

It seems like every time I identify a trend it gets broken the next day. The S&P 500 index has now broken through the declining tops trendline.

This is could be the beginning of another rally.

Still a little too perfect

2011-03-23T10:26:00.003-04:00

The current correction in the S&P 500 index is forming another strangely precise pattern - this time a declining tops trend line.

If I were looking for a medium-term buy signal, I'd wait for the S&P to cross above this line.

It's not time to panic. Yet.

2011-03-16T07:54:00.005-04:00

So far there's no technical data to indicate that the current downturn in the market is anything more than a run-of-the-mill correction.Sentiment indicators are becoming more pessimistic as expected during a correction in a bull market. Of course stocks are still highly over-valued, and the world still owes more money in private and public debt payments than it can afford, but that doesn't mean this rally can't ultimately continue.

I'm curious to see, if and when the recovery occurs, whether or not the S&P 500 index will return to the oddly precise rising trend that it's been following for the past six months.

Looks like an artificial rally

2011-02-21T21:24:00.009-05:00

The S&P 500 index has been almost perfectly confined to an extremely narrow and straight rising channel pattern for the past six months.
Are we supposed to believe that this calm rally has continued through (1) a major shift in power in Congress, (2) an escalating series of collapsing governments in the Middle East, and (3) only the first of dozens of economic implosions at state capitals?

I don't buy it for a second.

Obviously stock prices did follow this pattern, but I don't think the collective action of mutual fund managers, day traders, hedge funds and individual investors could produce such a regular pattern for so long. I don't think the normal forces of supply and demand, buying and selling, or bidding and asking are at work here.

The good news is that, in the long run, it won't matter whether or not this overpriced rally was caused by illegal price manipulation or not. The higher the stock market goes into bubble territory, the harder it will eventually fall, and the more money I can make with a bear fund like HDGE when the time comes.

West/Christie 2012

2011-02-19T09:19:00.005-05:00

Foreign policy: Defend Western Civilization from those who would destroy it.

Domestic policy: Save our nation from bankruptcy.

Two cycles complete

2011-02-02T09:43:00.009-05:00

I began investing in the stock market in the late 1990's with very little idea of what I was doing. The 2000-2002 bear market then discouraged me so much that I stopped paying attention for several years. By 2005 the S&P 500 index had returned to my original investing starting point, and I started paying attention to stocks again, this time with the intention of learning how to time the market. Cycle 1 was complete.

By 2007 I'd learned enough to cash out (temporarily) at the precise market peak in October, and to switch to a bearish stance by January 2008. It was during the 2007-2009 bear market that I learned one of the most important lessons in market timing: stock valuations (P/E ratios) are meaningless. However, as I'm sure many people have done in previous bear markets, I found reasons to believe that "this time it's much worse than before", and could not get myself to take a bull market stance when prices turned around in 2009. The housing market was still tanking, the derivatives market was a house of cards, the federal government was $13 trillion in debt, unemployment was hovering around 10%, and our first socialist president had just been elected - I was surprised that enough people still had spare funds with which to buy stocks. (To be fair, I also had some career issues in 2009 and 2010 that contributed to my lack of attention to the market.) However, in the subsequent rally that's still going on, I've finally seen first-hand that the stock market is blind in both directions, and that a rally can occur despite obvious economic warning signs. The S&P 500 index is now back to the point where I originally started thinking about market timing. Cycle 2 is complete.

In hindsight, my biggest market-timing obsession - and my biggest obstacle to making a straightforward mathematical timing model - was to find a method that would turn bearish before a stock market crash like the one on October 19, 1987. I found a method alright, but it was difficult to integrate it with the schemes that worked better during the remaining 99% of the stock market's history. I think that finding such a method was more a point of pride than it was a way to improve returns, since such crashes are exceedingly rare, and because I already knew of signals that would at least tell me to cash out to a neutral position before that particular crash. I'm not worried any more about being bearish before the next 20%-in-one-day crash - I'll be happy to be in cash if it happens again.

My challenge today is to learn a new computer language and then re-write and modify my method-finding code in the new language. I'd been using IDL earlier, but it's too costly to buy personal IDL licenses ($2,500 a pop) and there are several free alternatives to choose from. For now I'm going to try the Scipy and Numpy packages for the Python language. My goal is to have a webpage that is automatically updated once per day showing the market stances (long, neutral, short) for several evolving market-timing strategies. That will free me up to explore other areas while investing with relatively little worry.

The New Armageddon Fund

2011-02-01T20:13:00.018-05:00

By an amazing coincidence, in the same week that I decided to resume my market timing analysis, a new type of bear market fund has emerged. AdvisorShares has created the first short ETF that actually sells stocks short: the Active Bear ETF (HDGE). I've been waiting for this ETF for more than three years, and it's almost the perfect bear fund.

As discussed in a previous post, my ideal Armageddon fund would (1) short a market index like the S&P 500 rather than a managed portfolio of selected stocks, (2) be easy to buy or sell in minutes without trading penalties, and (3) gain value in any bear market even if the derivatives market collapsed.

The following table shows how HDGE stacks up against other bear funds that I've used before:

	HDGE	SDS, SH, etc.	BEARX	GRZZX
Min. Invest	None	None	$2,000	$10,000
Min. IRA	None	None	$1,000	$1,000
Derivatives	No	Yes	Some	No
Expense	1.85%	0.95%	1.73%	2.86%
Trading penalty	None	None	1% (30 d)	2% (5 d)
Long stocks	No	No	Yes	No
Selection	Managed	Indexed	Managed	Managed

Although dozens of inverse/short ETFs like SDS and SH have become popular investment tools, they may be extremely risky in a serious bear market due to their use of derivatives in place of actually selling stocks short. Indeed, during the worst part of the bear market in 2008 some of these ETFs temporarily stopped trading. My wish to avoid derivatives led me to search for less popular but safer alternatives to these funds.

The Federated Prudent Bear mutual fund (BEARX) was the first bear fund I found that actually held short positions in some stocks, but since BEARX also has long positions in some stocks and uses derivatives, I later dropped it in favor of the Leuthold Grizzly Short fund (GRZZX) which strictly sells stocks short. Neither of these was a completely satisfactory replacement for the derivative ETFs however, because they aren't indexed to the S&P, and because mutual funds take more than one day to complete a buy or sell order and come with hefty short-term trading penalties.

The Active Bear ETF meets my requirements for simple instant trading and the safety of real short positions in stocks. It would be nice if it were an index fund instead of a managed fund, but so far its price movements are close enough to the inverse of the S&P 500 index that its a pretty safe bet it will gain some value in bear markets - and that's the most important property of any bear fund in my market timing strategy.

Fate of the Union Address.

2011-01-29T09:52:00.002-05:00

Great. Another stock market bubble.

2011-01-24T16:57:00.004-05:00

The S&P 500 index is only 10 points away from the 1300 level, and has erased the losses of late 2008.

Unfortunately there's little data to support the idea that stocks are worth what they're trading for today. The dividend yield of the S&P is only 1.85% right now; typically the yield has varied between 3% and 6%, so by historical standards the S&P is worth between 400 and 800 today.

On the technical side, optimism is at a multi-year high, so I expect at least a correction soon before this speculative rally continues much higher.

One month of winter down, two to go

2011-01-21T22:26:00.003-05:00

I suspect that this not-yet-fully-grown snowdrift at the end of my driveway will survive well into spring.

30 years ago today

2011-01-20T22:10:00.004-05:00

Ronald Reagan's prophetic first Inaugural Address:

Unfortunately the Democrats maintained the majority in the House of Representatives throughout his presidency ... so much for balancing the budget.

The "logic" of the Left

2011-01-11T07:51:00.002-05:00

On the Brink of Big Badness

2010-12-20T05:25:00.004-05:00

When CBS News is calling socialism "unsustainable", it means the jig is officially up. Most of the 50 states are bankrupt, and there's even talk of massive municipal bond defaults. In other words, neither the overvalued stock market nor the house-of-cards bond market will be safe havens. A big pile of fictional wealth is going to disappear one way or another.

Socialism Sucks, Part 3: Centralized Planning

2010-12-10T06:52:00.005-05:00

Article: Al Gore reverses view on ethanol.

Not so unintended after all: the whole point of Obamacare is to drive private insurance companies out of business, leaving us with one big socialized health-care system.

Fed charmain caught in a blatent lie

2010-12-08T16:44:00.005-05:00

If the Federal Reserve Bank thinks that printing money is good for the economy and ultimately helps the average citizen, then chairman Ben Bernanke should gladly admit that he's printing money and bask in our gratitude.

But when the Fed prints money and lies about it, it does not inspire confidence.

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Flat top?

2010-12-05T15:01:00.008-05:00

The S&P 500 index has been bouncing back and forth between ~1180 and 1225 for the past month or so. (The earlier rally stalled as predicted.)

Stock market sentiment is still quite optimistic, so I doubt that a new prolonged rally is coming any time soon. I think it's more likely that the S&P will dive below 1180 next, but lately I've been wrong as often as I've been right.

Uh-oh

2010-11-18T10:20:00.009-05:00

Municipal bond prices have been plummeting for the past couple of weeks.

Municipal bonds are the vehicles that states, counties and cities use to borrow money. When bond prices fall, it becomes more expensive for local governments to raise cash because they have to sell more bonds (and promise bigger future payments) to borrow the same fixed amount of money.

Market update: optimism threatens the rally

2010-11-12T10:47:00.003-05:00

Stock market sentiment is almost as optimistic as it was in late April of this year, meaning the current rally is nearly out of steam. Even if the market doesn't fall from here, it will probably have to at least stall for a while to let sentiment return to more neutral levels.

November 11

2010-11-11T14:23:00.006-05:00

Thank you, and Happy Veterans Day to all defenders of freedom out there.

Double Breakout

2010-11-05T10:32:00.004-04:00

The S&P 500 index continues to defy most of my short-term predictions, and has actually accelerated above the rising tops trend line that's been in place since August. At the same time it's passed above the 1217 closing price peak of last April.

These are both bullish signals.

Ways to celebrate Republicans taking back the House of Representatives

2010-11-03T12:17:00.002-04:00

#1. Buy a new red car.

A few reasons to oppose Obama and the Dems

2010-10-28T10:51:00.007-04:00

These are the final paragraphs of Hanson's column "The Great Divider":

A vast new health care monstrosity that will send private insurance rates through the ceiling. The Machiavellian way in which it was slammed through. Failed stimulus. Wasteful pork-barrel spending of hundreds of billions in borrowed money. Persistent near 10% unemployment. Three trillion dollars in new debt in just two years. Record levels of federal spending. The vast increase in the size of government and its share of GDP. Eight years of projected $1 trillion annual budget deficits. Record high foreclosures. Record high usage of food stamps. The Keynesian zeal of Romer/Summers/Orzag followed by their sudden resignations in the wake of failure. Constant talk of higher taxes on “them”— the promised new health care surcharge taxes, the promised return to the Clinton income tax rates, talk of a VAT, talk of lifting the caps on income subject to FICA taxes, new capital gains taxes, new inheritance taxes on the horizon.

The use of extra-cabinet czars to avoid confirmation and audit. The neglect of the law, from reversing the order of Chrysler creditors to announcing a BP $20 billion shakedown and punishments for health insurers who don’t toe the line. The ascendance of ACORN and SEIU. The months-long shutdown of Gulf drilling. The failure to encourage coal, nuclear, and oil and gas new production. The Black Panther voting intimidation mess. The bowing abroad. The apologies. The outreach to enemies, and the snubbing of allies. The unnecessary humiliation of Great Britain and Israel. The Iran serial “deadline” charade. The unnecessary announcement of Afghan troop withdrawal deadlines. “Overseas contingency operations” and “man-made disasters.” The proposed civilian trial of KSM. The Ground Zero mosque mess. The beer summit mess. NASA’s new main mission of Muslim outreach. Stopping the border fence. Suing Arizona and demonizing the state. The apologies to the Chinese over the Arizona law, which was trashed from the White House lawn by the president of Mexico, and sued by foreign governments to the apparent approval of the administration.

The constant “Bush did it” refrain. The gratuitous slurs against limb-lopping doctors. The thrashing of the “rich” going to the Super Bowl and Las Vegas. The artificial divide of them/us based on $250,000 of annual income. The racial divisiveness from a sad cast of characters that gave us “cowards,” “stupidly,” “wise Latina,” and whites polluting the ghetto. Unhinged appointees like Van Jones and Anita Dunn. The occasional unguarded admissions like “never waste a crisis” and “at some point I do think you’ve made enough money.” The wacky behavior from the whining of “like a dog” to the sudden junketing to Copenhagen to lobbying for the Chicago Olympics. The Orwellian cheap damning of the Bush anti-terrorism protocols only to accept or expand tribunals, renditions, Guantanamo, Predators, Iraq, and intercepts and wiretaps. The golf obsession and Costa del Sol while trashing the indulgent rich.

And that's not even a complete list. These last two years under Obama (not to mention four years under the Democrat-controlled Congress) have been disastrous.

Call Me Senator

2010-10-26T10:33:00.000-04:00

Up

2010-10-24T10:30:00.005-04:00

The stock market has been climbing for two months now, with the S&P 500 index forming a rising channel pattern.

There are reasons to hope for further gains: stock market sentiment has not yet reached optimistic levels, and there have been several occasions in the last century where long-term market rallies began in or near October of a mid-term election year.

On the negative side, price patters like the one the market is in now are typically violated by a price downturn, which could happen at any time. And of course the dividend yield of the S&P 500 - now down to 1.95% - is just getting worse as the index climbs.

Hanson body-slams NPR

2010-10-22T10:30:00.006-04:00

It's hard to choose highlights from a column in which every sentence is gold, but I'll give it a try:

NPR is in some part either publicly funded or relies on a public brand to earn cash. Its charter is to promote the free exchange of ideas. That did not happen.

...

Note how the NPR CEO Vivian Schiller herself slanders Williams by suggesting that he talk with “his psychiatrist”—and a subsequent brief apology cleans up her mess.

...

Supposedly intolerant hard-driving Fox News has no problem with liberal Williams working for NPR; supposedly soft-spoken, inclusive NPR has a lot of problems with Williams working for Fox.

...

Note how CAIR, the Islamic advocacy group, pressures NPR on Williams’s remarks, but gives a lifetime career achievement award to the anti-Semite Helen Thomas, who calls for the destruction of Israel...

...

Notice that ideologue and partisan George Soros just offered NPR nearly $2 million to hire 100 reporters—and NPR accepted the gift. Would it have accepted money from, say, a more soft-spoken. but conservative philanthropist such as Charles Koch who might target where NPR needed “help”? And, if it is a publicly-funded agency, why do zillionaires have the right to donate and determine hiring for their pet causes? Maybe Bill Gates can offer to hire some IRS auditors, or Warren Buffet can fund a new branch of the SEC?

Read the whole thing here.

NPR = Nothing but Propoganda Radio

2010-10-21T10:15:00.004-04:00

How biased is National Public Radio? Juan Williams, a mouthpiece for the Left on Fox News, is too far to the Right for NPR's tastes. That's right: Juan Williams has just been fired by NPR.

Sit back and contemplate that for a moment.

So much for the "short term top"

2010-10-12T17:27:00.006-04:00

The S&P 500 index has officially broken through the multi-month rising upper trend line.

It's now maneuvering in a narrow rising channel, which is usually broken by a decline through the bottom rather than an acceleration through the top. However, sentiment has actually been falling for the past week or so while the market has been rising, which means this rally could continue for a while.

On the fundamental side, the dividend yield of the S&P is now back below 2%, which only proves that the stock market today is a giant casino and not a real investment vehicle. Recall that the yield of the S&P 500 has spent many years above 5%, and has even touched 10% for brief periods; those yields correspond today to S&P 500 index levels of 468 and 234, respectively. For those who only speak "Dow," those high yield marks correspond to Dow 4400 and 2200, respectively.

Party does not always equal Ideology

2010-10-11T14:55:00.010-04:00

Here's an ad by a Tea-Party wacko ... oh wait, this is the Democratic nominee for the Senate seat of West Virginia:

Judging by his ad, this guy is more of a Conservative than most Republicans in the Northeast or West Coast. It turns out that his Republican opponent is still ahead by about 5% - too bad he can't run and win in a place like New York or California.

Why we're not Ottomans (or Muslims)

2010-10-07T09:52:00.010-04:00

Today is the anniversary of the Battle of Lepanto, a decisive naval engagement in 1571 between the main fleet of the Ottoman Empire and an allied fleet composed of ships from Spain, Venice, and other European states. The allied fleet lost only 17 ships in the battle, while the Ottomans lost nearly 200 galleys, 20,000 soldiers and sailors, and 10,000 liberated oar-pulling galley slaves.

Just as the Battles of Britain and Midway proved that Nazi Germany and Imperial Japan weren't invincible in 1940 and 1942, respectively, the lopsided outcome of the Battle of Lepanto was a stunning reversal for the superpower of that time, and marked the beginning of the end of the westward expansion of the Ottoman Empire in the Mediterranean Sea and southern Europe.

Evil or stupid? Socialism is both.

2010-10-05T23:46:00.009-04:00

This is Andrew Cuomo(D), then Secretary of Housing and Urban Development, bragging about forcing banks to loan money to poor people in 1998:

"They would not have qualified [for the loans] but for this affirmative action by the bank, which will be a higher risk. I'm sure there will be a higher default rate on those mortgages."

Another case of Government doing more harm than good.

Looks like a short-term top

2010-10-04T13:35:00.004-04:00

The S&P 500 index has been lingering around the rising upper trend line for a couple of weeks now without making a decisive breakout.

In the meantime, price sentiment has become moderately positive, which is a short-term bearish signal. If I had to wager I'd say the trend line will keep holding and that prices will head lower. I'm not going to bet my money on that, however, because I want to see a long-term bearish signal in the charts before investing in a bear mutual fund.

"No End in Sight"

2010-09-27T21:19:00.005-04:00

Every now and then there's an article that provides an honest glimpse into our financial future. Today in the Wall Street Journal: Banks Keep Failing, No End in Sight:

The largest number of bank failures in nearly 20 years has eliminated jobs, accelerated a drought in lending and left the industry's survivors with more power to squeeze customers.
...
The contraction represents an enduring threat to capital, lending and the economy. "When we step back and look at this financial disaster 10 years from now, the destruction of capital in our economy as a result of what we've endured will be the single greatest lasting impact on recovery and how the economy performs in the future."
...
The impact to the system has been "far more severe" than the savings-and-loan crisis. Not only were government rescue measures more sweeping and more global this time, the weakness in real estate continues to constrain economic growth. Since 2008, the industry's assets have shrunk by 4.5%.

And there's "no end in sight." As I've been saying for some time on the right sidebar, "a great deal of illusory capital is about to disappear."

Stock market update: Breakout?

2010-09-20T16:40:00.008-04:00

If intra-day lows and highs are considered, then the S&P 500 index has finally broken through the nearly-horizontal upper trend line that's been in place since May.

However, if we only look at closing prices, then the S&P 500 finished the day today smack dab on the rising upper trend line, signifying nothing.

Even if this turns out to be a breakout and a continuation of the rally that began in late August, it would only mean an even more over-priced and fundamentally shaky stock market in the long run. I don't plan to buy any stocks any time soon.

Democratic Party = Socialist Party

2010-09-20T14:36:00.004-04:00

For the record:

As goes Europe, so goes Blue State America

2010-09-17T09:24:00.012-04:00

Ironically, the most anti-religious places in America (the Bluest/most Liberal) are proving the be the most susceptible to Islamification. Of course, when you consider that Blue states model themselves after European socialists, and that Europe is gradually succumbing to Islam, it may not be so surprising after all.

The Ground Zero mosque in New York City, which has the support of our first Son of Islam, Barack Hussein Obama, may prove to be the opening round in the as yet non-violent national debate over Islam in the U.S. Last year I witnessed local Islamification in person when I happened upon a strange hidden weekend meeting about Islamic banking on the campus of Boston University. Now there's this eye-opening example of Wellesley students visiting Boston:

It's bad enough that Red and Blue states have developed irreconcilable differences of opinion about the power of government versus individual liberties, but given enough time Blue states will be agitating for nationalized Sharia Law with the religious fervor of Muslim warriors. I don't want to be around for that civil war.

How the Brits saved Western Civilization (again)

2010-09-15T08:57:00.016-04:00

Today is the 70th anniversary of the Battle of Britain Day, the date in 1940 when British Spitfire and Hurricane pilots officially turned the tide in the airborne defense of England against Nazi Germany's Luftwaffe. Although German fighters and bombers began their campaign in July, and would continue their attacks until the end of October, the downing of nearly 200 Germain airplanes by the Royal Air Force on September 15 marked the end of Hitler's plan to invade England.

Few today remember just how pivotal this battle was or how long the odds were for a British victory. The United States was still out of the war, and the United Kingdom was essentially fighting alone. Had Hitler defeated the RAF in 1940, it would have paved the way for a planned German invasion across the English Channel - D-Day in reverse. If the United Kingdom had fallen, it would have left America with no ally in North Africa, it would have left no staging area for an allied attack of Europe, and it would have allowed Hitler to mass more of his forces on the Eastern front when he later attacked Russia. All of Europe and much of Asia today would probably be part of either a Nazi or Soviet empire, and the world would be a much scarier place.

Never in the field of human conflict was so much owed by so many to so few.

-Winston Churchill, August 20, 1940

Even though large tracts of Europe and many old and famous States have fallen or may fall into the grip of the Gestapo and all the odious apparatus of Nazi rule, we shall not flag or fail. We shall go on to the end, we shall fight in France, we shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our Island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender...

-Winston Churchill, June 4, 1940

NH Primaries today

2010-09-14T09:21:00.002-04:00

Does Islam suck?

2010-09-11T12:13:00.000-04:00

Market update: whatever

2010-09-04T10:02:00.002-04:00

The S&P 500 index refuses to start an upward or downward trend. It closed at 1105 on Friday, which is 4 whole points away from where it was on November 16 of last year (1109). Meanwhile, stock market sentiment is perfectly neutral by my reckoning.

Long term forecast: still dismal

Short term forecast: whatever

Prayers for me, but not for thee

2010-09-03T23:15:00.006-04:00

Today 200,000 Muslims held prayers in a Jerusalem mosque.

In a related story, zero Jews held prayers in Mecca.

Discovery Channel bomber video rant

2010-09-03T06:28:00.004-04:00

Oh wait - my bad. It's just a Greenpeace ad:

Pathetic.

2010-09-02T22:17:00.000-04:00

You might be a liberal

2010-08-31T09:02:00.008-04:00

If you know gender is a social construct, but have no idea where electricity comes from,

you might be a liberal.

If you think the "evil" of Stalinist regimes is overstated and the tyranny of America is never stated enough,

you might be a liberal.

If you believe portraying Bush as the Joker is political satire, but portraying Obama as the Joker is racist,

you might be a liberal.

If you believe Glenn Beck is an extremist because Keith Olbermann told you so,

you might be a liberal.

If you believe that hurricanes are caused by people, and that crime is caused by the environment,

you might be a liberal.

If you think that treating all people equally, regardless of race, is racist,

you might be a liberal.

If you burn tons of carbon to attend a global warming conference that only sanctions the cleanest nations on Earth,

you might be a liberal.

If you think everyone would agree with you if they were open minded, and you refuse to listen to any other possibility,

you might be a liberal.

If you believe that a mosque should be built at Ground Zero, but Jews shouldn't build apartments in East Jerusalem,

you might be a liberal.

If all of your political arguments contain the phrase, "It's Bush's fault,"

you might be a liberal.

If you believe that Pro-Life violates the right to privacy, but you want to ban french fries,

you might be a liberal.

If you believe that immersing a crucifix in urine is fine art, but depicting the prophet Mohammed is insensitive,

you might be a liberal.

If you think the problem is that Obama is just too darn moderate,

you might be a liberal.

If you spend your day telling people that a border fence can't work, and then drive home to your gated community,

you might be a liberal.

If you think Sarah Palin was too inexperienced to be VP but that Obama had plenty of experience to be President,

you might be a liberal.

If you think the Right needs to be rounded up in camps to prevent them from acting like Nazis,

you might be a liberal.

If you think credit card companies are evil when they lend money, and mortgage companies are evil when they don't,

you might be a liberal.

If you think people have too many kids, and that those kids need to pay for your Social Security,

you might be a liberal.

If you think the Government should be obsessed with race, but no one else should ever mention it,

you might be a liberal.

If you think banks earning money on interest is wrong, but paying interest to China on the national debt is just peachy,

you might be a liberal.

If you think subsidies are an entitlement, tax cuts are a gift, and liberty is a controlled substance,

you might be a liberal.

If you totally hate haters, and wish those bastards would just die,

you might be a liberal.

Hat tip: Stormbringer.

Tolerance versus Suicide

2010-08-25T15:13:00.001-04:00

God bless the infidels

2010-08-24T21:36:00.002-04:00

Bored yet?

2010-08-24T07:51:00.007-04:00

There's still nothing interesting to report about the S&P 500 Index, which remains stuck in the channel between 1010 and 1130.

The recent second flirtation with the 1130 level makes that upper resistance line all the more significant - if the S&P 500 crosses above that threshold then a continuing rally is likely. On the other hand, a drop below the 1055 level would leave 1010 as the last line of defense from a free-fall.

Short term forecast

2010-08-10T19:34:00.005-04:00

The key stock market level appears to be about 1130 on the S&P 500 Index.

If the market can rise above that then a rally is likely to follow.

Bomb, baby, bomb

2010-08-09T06:00:00.000-04:00

August 6th and 9th are the 65th anniversaries of the atomic bombings of Hiroshima and Nagasaki that ended World War II in 1945. Today I give thanks that hundreds of thousands of Americans and millions of Japanese did not die in an American invasion of Japan.

Among the Americans who were spared from being cut down on the shores of the Japanese home islands was my maternal grandfather; he landed in Normandy on D-Day with the American Army, and probably would have been sent to the Pacific theater by 1946 had Japan not surrendered. My mother and five of her siblings, who were all born after he returned from the war, just might owe their very lives to the atomic bombs. I, for one, will never apologize for them.

The money's not here.

2010-08-06T22:51:00.010-04:00

If you think that your bank account is 100% safe and accounted for, then think again.

Today most Americans feel confident that their savings and checking accounts won't disappear because they're insured by the FDIC. That used to be a sure thing up until a couple of years ago, but due to all of the recent bank closings and rescues, the FDIC is now in debt $20 billion. If the U.S. Treasury had money to spare then this wouldn't be a catastrophe, but the federal government is in debt $13 trillion, and is adding another $1.5 trillion of debt this year. Were the economy to recover soon then increased tax revenues could at least allow the national budget to stabilize and limp along at its current debt level, but recent news is revealing the "Summer of Recovery" to be a mirage:

June job losses were larger than previously reported (220,000 lost instead of 125,000)
The total unemployment rate including part-time workers looking for full employment and people who have given up looking for jobs is now 16%.
The budget shortfalls of states and cities are getting worse nationwide.
A whole new round of residential and commercial foreclosures looms.

In other words, the financial system is not yet out of the woods and government needs more and more money to maintain the status quo, but taxpayers have less and less money to give.

The money's not here.

The next civil war ecapsulated in 3 minutes

2010-08-02T08:09:00.006-04:00

Nowhere fast

2010-07-30T23:55:00.004-04:00

The S&P 500 index has been in a holding pattern for more than two months now.

Sentiment is neutral, so I can't make a short-term forecast. The dividend yield of the S&P is still at 2%, and global financial Armageddon looms, so the long term forecast remains very bearish.

Uh-oh

2010-07-21T07:10:00.003-04:00

China - buyer of U.S. treasuries and manufacturer of cheap goods - is in the midst of a housing bubble that has begun to collapse. Whatever schadenfreude one might get from watching China stumble, an economic downturn there will put further strain on our own shaky economy.

Look at me

2010-07-18T21:42:00.009-04:00

Hat tip: Theo Spark

Downward trend; no politics please

2010-07-04T06:19:00.002-04:00

Despite the bump in mid-June, the S&P 500 index has been in a downward trend for the past several weeks.

Short-term sentiment had a pessimistic spike in late May, but it has become more neutral since then, which means anything could happen at this point. I realize that's not a very helpful forecast.

I've watched the same Independence Day parade in Cape Cod, Massachusetts for the past 30 years or so, and something unusual happened this year. All of the political campaigns were bunched together in the last half of the parade, and as they started marching by with their signs the spectators grew silent, then restless, and then they started to leave before the parade was even over. I felt bad for whomever was bringing up the rear, because they probably had few if any spectators to wave to. For some reason the parade watchers just weren't in the mood for politics this year.

New low

2010-06-29T16:23:00.003-04:00

Today's closing value for the S&P 500 index was 1041, which is a new low point for this large correction. The market is currently 15% below the late-April peak, and the S&P would have to drop to 975 to make it an official bear market.

No rally yet

2010-06-28T23:18:00.004-04:00

The S&P 500 index is still wallowing around in the price region that it fell into more than a month ago.

My best short-term guess is that this is still the bottom of a correction, and that a rally is in the future. This is unrelated to my long term prediction that another big bear market will inevitably see prices fall well below where they are today.

A breakout - sort of

2010-06-18T22:00:00.003-04:00

The S&P 500 index has broken above its short-term upper trend line, completing a textbook W-shaped double bottom pattern that usually signals the end of a correction.

The breakout hasn't been very decisive so far, so I'm going to wait a little longer before I guess whether this is the beginning of a rally or a head-fake before another decline.

Flat trend lines

2010-06-14T16:38:00.004-04:00

Here's the three-week chart of the S&P 500 index:

Obviously the next significant technical event will be when the index crosses one of these lines.

Ho hum

2010-06-11T20:42:00.003-04:00

Stock prices haven't really gone anywhere in the past three weeks.

Sentiment is still pessimistic, but not extremely so. If I had to bet one way or another, I'd say the next move will be at least a small rally, but since long-term fundamentals are as frightening as ever, and since I don't have to make a bet one way or another, I'm staying in cash.

War then and now

2010-06-06T19:28:00.004-04:00

On this, the 66th anniversary of D-Day, Iran has offered to escort the next blockade-running "aid" convoy to Gaza. That would probably spark the next regional war in the Middle East.

Now more than ever, we need to remember why the Normandy invasion was required in the first place. In the economic turmoil of the 1930's, the U.S. and other European powers allowed Hitler and Japanese militarists to arm their countries and to conquer and slaughter their neighbors without reprisals. Not until Japan had sunk most of our Pacific fleet and Hitler had conquered most of Europe did the U.S. finally jump into action, and World War II would be very nearly won by the Axis more than once before the tide turned. In all, approximately 55 million people died in the global war.

If the U.S., England and France had been better armed in the 1930's, and had attacked and defeated a not-yet-fully-armed Germany in the 1935-1938 time frame, then the remainder of the 20th century would have been unrecognizable. Eastern Europe wouldn't have been conquered by a vengeful Soviet army (at least not in the 1940's) and tens of millions of souls wouldn't have died.

The question today is how we're going to treat North Korea (torpedoing a S. Korean ship) Russia (annexing Georgian territory) and Iran (going nuclear and threatening Israel), and it comes down to whether our leaders are students of history or the type of Utopians that pinned their hopes on the League of Nations in the 1930's. Let's just say I'm not too optimistic right now.

What happened to the freedom movements?

2010-06-05T19:32:00.009-04:00

After the US started flexing its military muscles in Afghanistan and Iraq in 2001 and 2003 respectively, freedom and pro-democracy movements started springing up in and around the Middle East:

October 7, 2001: The U.S. begins strikes in Afghanistan.
Autumn 2002: George Bush is mocked and ridiculed for suggesting that democracy could be planted in the heart of the Middle East.
March 20, 2003: The U.S. and its allies begin the invasion of Iraq.

November 23, 2003: The Rose Revolution in Georgia forces President Shevardnadze to resign.
October 9, 2004: Afghanistan holds its first post-Taliban elections
January 20, 2005: Iraq holds its first post-Hussein elections.
January 23, 2005: The Orange Revolution leads to free and fair elections in Ukraine, elevating Yushchenko to office.
February 2005: The first local elections since the 1960's are held in Saudi Arabia.
April 4, 2005: The Tulip Revolution in Kyrgyzstan forces the corrupt Prime Minister to resign.
April 27, 2005: Syrian troops withdraw from Lebanon and the pro-Syrian government resigns, concluding the Cedar Revolution.
May 17, 2005: Women in Kuwait are given the right to vote for the first time.
May 2005: The Egyptian constitution is amended to allow for the popular election of the President every 6 years.

Those were heady times, and they appear all the more remarkable now that we have five more years of historical perspective within which to frame them, because freedom has been on the retreat lately.

June 2008: B. Hussein Obama wins the Democratic nomination, and promises to "restore our image" around the world, which is another way of saying that he wants to be more friendly with our enemies, and that he opposes military actions that are aimed at replacing dictatorships with democratic governments.
August 2008: Russia invades, occupies and annexes part of Georgia. No action is taken against Russia.
November 2008: Obama wins the Presidential election.
June 13, 2009: The first of many Iranian election protests begins, and although they continue off and on for many months in the face of torture and deaths at the hands of the government, neither the U.S. nor any other country offers any substantial help.
September 17, 2009: On the 70th anniversary of the Russian invasion of Poland, Obama cancels plans to deploy a missile shield in Poland and the Czech Republic.
November 8, 2009: Obama snubs the 20th anniversary celebrations of the fall of the Berlin Wall.
March 26, 2010: North Korea torpedoes a South Korean ship, killing 46.

Add to this the impending bankruptcy of the Western Powers and the increasing degree of cooperation between new and old enemies like Venezuela, Iran, North Korea, and Russia, and I fear that all of the revolutions of 2004-2005 could be reversed - and then some.

On the edge

2010-06-04T20:15:00.004-04:00

The S&P 500 index has broken through the latest ascending bottom trend line, but not decisively.

Sentiment has become a little less pessimistic over the last week or two, which leaves more room for prices to fall, particularly if there's a slow decline from here that doesn't raise the panic level too quickly. (Sentiment is a contrary indicator: optimistic markets fall more readily than pessimistic ones.)

Hindsight Humor

2010-06-01T22:45:00.011-04:00

Courtesy of the Teleprompter of the United States:

Context for future readers: the wars in Iraq and Afghanistan continue; Gitmo is still open; the unemployment rate has risen to 10%; the 2000-page health care bill that nobody read is going to raise medical expenses and bankrupt our health-care insurance companies; and the Gulf of Mexico is filling with oil.

Did you say DEflation?

2010-05-26T22:00:00.006-04:00

Read it and weep, folks: The U.S. money supply fell by $300 Billion in the first quarter of 2010. This happened despite the trillions of dollars borrowed and printed over the past couple of years which were supposed to turn the economy around and prevent a depression.

When the money supply goes down, it tends to accompany deflation, or a general drop in prices. It was a strange blogger named Alstry who first made me aware of the concept of a deflationary spiral as the ultimate outcome of our mounting debts, and today's news may be the first bit of evidence that his verbose rants have been right all along.

My limited understanding tells me that cash is a good thing to have during a deflationary spiral, because as money becomes more scarce, its value actually increases relative to everything else. That's why I've been hoarding cash for nearly a year now. Of course, if the Federal Reserve Bank turns around and prints $10 trillion dollars this year, then deflation will be fended off for a little longer. Government policymakers can be fickle, so it's impossible for a private citizen to know for sure how to weather the storm.

May 29 Postscript:
Remember that high inflation helps a debtor, whether we're talking about a homeowner or a nation, because the fixed amount of money owed becomes a smaller fraction of the total money available. Conversely, deflation is a disaster for the debtor for the opposite reason. A little bit of deflation will make our debt larger in proportion to the economy, thus drawing away a larger fraction of the money to make next month's payments, which leads to more deflation, etc.

Stock market update

2010-05-24T21:37:00.002-04:00

The S&P 500 index is flirting with the rising lower trendline.

Since market pessimism is approaching a multi-year high, this will probably be the low point for the short term at least. However, if the index eventually falls through the lower trendline, then that would be a key bearish signal.

Socialism Sucks, Part Deux: Nanny State

2010-05-22T20:44:00.019-04:00

I never thought I would see this day. An article in the New York Times has actually placed the blame for Europe's problems where it belongs: European Socialism. When the centerpiece publication of the American Left comes out against a core principle of the Left, you know times are a-changin'. I only wish I could have seen the confused looks on all of the NYT readers' faces this morning when they were informed - probably for the first time in their lives - that socialism is inherently self-destructive.

Some of the highlights in this article are particularly satisfying.

Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella.

Exactly right: America has been responsible for most of Europe's defense since WWII, and it was not military spending that bankrupted the continent. This topples one of the pillars of left-wing doctrine.

With low growth, low birthrates and longer life expectancies, Europe can no longer afford its comfortable lifestyle, at least not without a period of austerity and significant changes. The countries are trying to reassure investors by cutting salaries, raising legal retirement ages, increasing work hours and reducing health benefits and pensions.

Many on the Left are adamantly against large families, believing that they harm humanity and the planet, but it turns out that eco-friendly small families undermine the arithmetic of the cradle-to-grave safety net. Europe is also realizing (too late) that complete health coverage for all is unsustainable. It's too bad this didn't happen about a year ago, because it might have prevented the Obamacare catastrophe from coming to fruition in this country. Instead we're doomed to go through the same painful spasms ourselves.

A subtext here is that with Europe and America going bankrupt at nearly the same time, nobody will be able to step in and take over the military defense of Europe. Indeed, Victor Davis Hanson fears that an angry Germany, robbed of its retirement savings by defaulting Mediterranean nations, might rise up again in the power vacuum to come.

Hang on to your hats, folks.

Nothing to see here

2010-05-22T11:32:00.006-04:00

The Wall Street Journal reports that 10% of U.S. banks are now on the FDIC's "problem bank list."

By the way, that same Federal Deposit Insurance Corporation is supposed to have tens of billions of dollars of credit as insurance for our savings accounts when a bank goes under, but instead the fund is now $20 billion dollars in debt.

Not to worry though. Everything's going to be just fine. Really.

Mid-sized correction now

2010-05-20T16:15:00.010-04:00

Today the S&P 500 index closed at 1072, which is almost 12% below its current bull market high of 1217. I call this a medium correction at least.

Interpreting the market's behavior is a little more complicated than usual. On the one hand, today's closing value - also the lowest price of the day - is still a little higher than the bottom of that crazy crash-and-recover maneuver on May 6.

On the other hand, this is the lowest closing value since early February, which is a bearish signal.

Stock market sentiment has plummeted to levels not seen since late 2008, suggesting that the market is near a short- to medium-term bottom. However, seasonal factors remain neutral at best, and the low yield of the S&P 500 forecasts a significant drop in the long run. Fundamentally I remain more convinced than ever that the global economy is doomed to suffer a large downturn, but I can't predict how much longer our government will be both willing and able to prop it up at the expense of future generations.

The bottom line is that I can't make a confident short- or medium-term prediction at this time. It can be frustrating sitting on the sidelines while the market makes big moves, but there will always be opportunities to make money in both directions, and at least I'm not losing money right now.

Mortgage situation getting worse

2010-05-19T14:28:00.006-04:00

States can hide their debts for a while by selling bonds, and the Federal government can delay the inevitable for even longer by printing money, but private homeowners and small businesses don't have those options. So it should come as no surprise that another wave of mortgage foreclosures will lead the next economic downturn ... or the next round of nationalizations.

The fraction of home mortgages that are underwater (owe more than the falling price of the home) has risen to 23%.
More than 10% of mortgages are at least one payment past due.
A record 4.6% of homes are in foreclosure.
Approximately half of commercial real estate mortgages will be underwater by the end of 2010.

And these are the conditions with TARP, bailouts and buyouts.

The Federal government could simply decide to spend trillions each year from here to eternity to keep the economy propped up, but that would be mathematically unsustainable without printing money and hyperinflation. On the other hand, fiscal responsibility and balanced budgets would finally allow inflated prices to fall and insolvent banks to go bankrupt - but few politicians want to be held responsible for purposefully allowing that kind of pain to happen. Most prefer to give the impression of trying to help now, so that they can shrug their shoulders later when the whole system collapses more violently.

The debate is over: Socialism sucks.

2010-05-17T23:33:00.011-04:00

The track record of socialism is a dismal one. Socialism sapped the life out of Cuba and turned North Korea into a living nightmare. It kept China a poor country and is now gradually being replaced by free market capitalism there. It ravaged Communist Eastern Europe and brought down the mighty Soviet Union after just 70 years. Now the rest of Europe seems poised to fall despite the supposedly better and "softer" version of socialism that it adopted after World War II.

I'm afraid the U.S. isn't far behind, even without the race to become more socialist under Obama and the Dems. Since their inception 45 years ago, Medicare and Medicaid have grown to comprise more than 20% of the (pre-bailout era) Federal budget. Social Security, a tiny program when it was created 75 years ago, now takes up another 21% of the budget. If we add in Welfare, unemployment insurance and the administrative costs to oversee all of these programs, then wealth redistribution totals nearly 60% of the unsustainable Federal budget, and this figure doesn't even include interest payments on the debt.

The Utopian goal of letting everyone own a home has created an economic catastrophe that has yet to be fully realized. The implosion of Freddie Mac and Fannie Mae, the Troubled Asset Relief Program (TARP) and assorted bailouts and liquidity programs can all trace their origins to "compassionate" policies that both facilitated and required banks to lend money to people who normally wouldn't qualify for loans.

Let's just admit it finally here and now: Socialism drains the vigor out of cultures and kills nations.

Socialism sucks.

It's official: Dems declare war on the economy.

2010-05-17T21:07:00.006-04:00

I can no longer give the Democrats the benefit of a doubt. When the Speaker of the House overtly encourages economically productive people to quit their jobs and take up oil painting, she and her party are purposefully acting to harm the economy.

She makes a token mention of entrepreneurship here, but quitting a job and forcing other working taxpayers take care of you is the opposite of being an entrepreneur. It's the precise socialist attitude that's brought Greece (and soon the rest of Europe) to the brink of collapse.

A broader view of debt

2010-05-16T15:45:00.003-04:00

The U.S. Federal debt of $13 trillion and current annual deficit of $1.5 trillion are only part of the problem. State and local governments are collectively in debt to the tune of about $3 trillion and are adding $200 billion to that number this year. Mortgage, consumer and credit-card debts total another $16 trillion. All told, U.S. citizens are on the hook for $32 trillion of debt, or more than $100,000 per person on average.

If we were to enact Geek-like "austerity measures" to pay down Federal, state and local debts, it would involve some combination of drastically cutting programs (Medicare, Medicaid, Social Security, unemployment, welfare, military) and raising taxes. Needless to say, a combination of vastly reduced government payments and higher taxes would squash the take-home pay of the average citizen, making it far more difficult to pay off personal debts. Greece was able to convince several much larger economies (also in debt) to bail them out - I doubt we'd be able to find such saviors when we reach the brink.

Any way you slice it, it's looking less and less likely that all of these debts can be paid off in full. Printing money (and high inflation) may be the only way to prevent massive worldwide defaults.

Fun with numbers

2010-05-13T22:09:00.010-04:00

The Federal government is nearly $13,000,000,000,000 in debt, and is currently adding to the debt at rate of more than $1,500,000,000,000 per year. So naturally the IMF is using $100,000,000,000 of our money to help Europe with its $146,000,000,000 bailout of Greece. Or is it a $1,000,000,000,000 bailout?

Whatever. The bottom line is that indebted countries are lending money to other really indebted countries in order to delay the latter's bankruptcies and hasten the former's so that we can all reach bankruptcy at about the same time.

Got it?

Insolvency, Monetization, Nationalization: Part 2

2010-05-07T16:20:00.009-04:00

This is an eye-opening follow-up to my earlier post from two weeks ago. It turns out that the Federal Reserve Bank is not only the agent of wealth-diluting monetization, but it is also a key player in nationalizing insolvent corporations with the very money that it creates. There's a great deal of concentrated power there that does not want to be scrutinized. I disagree with many of Congressman Alan Grayson's domestic policies, but I agree with him that the Fed has become too powerful, meddlesome and secretive, and I back his campaign to audit it.

Forty six little Greece's

2010-05-07T12:08:00.005-04:00

All but four U.S. states this year are facing budget shortfalls which total nearly $200 Billion.

Like Greece, the states can't print their own money, meaning they have to choose between borrowing money or instituting unpopular spending cuts and/or tax increases. Greece's economic mess was created by continually borrowing too much, while the current civil unrest was sparked by switching to spending cuts and tax increases. If this sounds like a no-win situation, that's because it is.