Curried Wealth Building
Finding an Edge

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January 23, 2010
Issue 80  -  Stock Market Swoon


 
 Well, that was fun.  If you are in the stock market, this was not a good week.  I wanted to discuss some theories and realities about what might really be happening.  The headlines point to Obama's threat of banking reform as the reason for the fall.  This is probably untrue.  The headlines are typically old news, at least to insiders, so it rarely affects the markets.  Before I start, I want to show you a image from kitco showing the price of gold.  This is from GATA:
 
 
 
 
 Do you notice anything unusual?  Look closely.  The different colors represent different days and the price of gold at each time of day.  Look at the blue line and then the red line. Notice how they are almost mirror images.  This is over 24 hours!  What are the odds of that happening by chance?  Not very high.  This is clearly a computer algorithm controlling the price.  With derivatives, almost anything can be done to ANY price.  The market is now one giant intervention.  It's a rigged game.  
 
I believe the market is now about 80% computer trading.  Real people, like you and me, are very tiny fish in the pond.  That can be bad, but it can also be good.  I believe that the stock market was brought down on purpose as a threat to Obama.  Don't believe the stock market can be controlled?  Look at the above chart again.  I think Wall Street was sending a message to Obama (with the stock market attack) to back off or your popularity will sink even lower.
 
This threat by Obama, is probably all for show.  It would great to try and fix this thing, but he is probably reacting to the Massachusetts trouncing, but I'm all for putting the clamps on these crooks who have basically taken free money to save themselves and then cry uncle when any type of reforms are offered.  You only have to remember one rule of politics:  money rules.   Too bad reform is VERY unlikely to happen. 
 
How are the markets controlled?  One simple word:  derivatives.  Look at this chart:
 
 
This shows the total holdings of derivatives held for trading by the large banks.  Notice the values are in millions.  That means that the number shown is in TRILLIONS.  That's not a misprint, these guys have trillions of dollars in derivatives!  JPMorgan and Goldman Sachs, the longtime suspected agents of the Fed and the government hold combined, $113 trillion of derivatives.  This is beyond comprehension.  This is where things are controlled.  If someone argues that the stock market is too big to control, show them this number.  You don't need a large percentage of the market to control it and this shows the place where the money CAN control the market.  Give me trillions of dollars and I'll move the price of anything.  
 
As far as gold or silver, these markets are so small as to be meaningless in comparison.  Believe it or not there are over $100 billion in gold derivatives.  That would buy more gold than was mined in the whole last year.  Who would be doing derivatives in that quantity?  Why?  To what end?  I can only guess, but since miners have continuously reduced their hedges, it must be someone who doesn't produce gold.  Gold isn't used for many industrial purposes, so who would it be?  I think it's the government and the Fed in conjunction with these big banks. 
 
So what does it mean?  Here's my theory.  I believe Wall Street has been preparing for a large stock crash for some time, in fact, for nine months.  Why nine months?  (from Zero Hedge)
 
 

Insider Selling Outpaces Buying By 24 Times In Last Week

Submitted by Tyler Durden on 01/19/2010 19:24 -0500

What is there to say about the endless barrage of insider sales that hasn't been said for 9 straight months before. Insiders are selling into the neverending rally, as domestic mutual funds have no equity inflows, yet stocks somehow miraculously keep rising, providing yet more attractive exit price points for directors and insiders. In the past week insiders bought $18 million worth of stock and sold $419 million. There is no way to spin this data. There were no notable buyers, while Nelson Peltz was vacating HNZ shares with a vengeance, selling $30 million worth of the canned food maker. Ralph Lauren also apparently wasn't too hot on Polo's Spring/Summer collection.

-END-

 
Now insider sells are not necessarily a bad thing as there are many reasons to sell stock including buying a house, diversification, and putting kids through Harvard, but for it to go on 9 months straight is not good.  However, I think this fall is probably just a breather, a scare tactic to Obama, or more likely, a head fake to investors that this proposed reform of the banks is "bad".  I say the stock market continues higher.  I talked about CFOs expected improved earnings, so that will happen.  So I am staying in the stock market for NOW, but will have a quick trigger finger.  I expect the market to go higher over the next three months as the earnings are reported and then at some point, the true sell off to occur. 
 
I highly doubt that Obama is now going against big money, after all he is on board with this......
 

Democrats propose $1.9T increase in debt limit

By ANDREW TAYLOR, Associated Press Writer Andrew Taylor, Associated Press Writer Wed Jan 20, 6:39 pm ET

WASHINGTON – Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $1.9 trillion to pay its bills, a record increase that would permit the national debt to reach $14.3 trillion.

The unpopular legislation is needed to allow the federal government to issue bonds to fund programs and prevent a first-time default on obligations. It promises to be a challenging debate for Democrats, who, as the party in power, hold the responsibility for passing the legislation.

It's hardly the debate Democrats want or need in the wake of Sen.-elect Scott Brown's victory in Massachusetts. Arguing over the debt limit provides a forum for Republicans to blame Democrats for rising deficits and spiraling debt, even though responsibility for the government's financial straits can be shared by both political parties.

The measure came to the floor under rules requiring 60 votes to pass. That's an unprecedented step that could mean that every Democrat, no matter how politically endangered, may have to vote for it next week before Brown takes office and Democrats lose their 60-vote majority.

Democratic leaders are also worried that Sen. Evan Bayh, D-Ind., who opposed the debt limit increase approved last month, will vote against the measure.

The record increase in the so-called debt limit is required because the budget deficit has spiraled out of control in the wake of a recession that cut tax revenues, the Wall Street bailout, and increased spending by the Democratic-controlled Congress. Last year's deficit hit a phenomenal $1.4 trillion, and the current year's deficit promises to be as high or higher.

Congress has never failed to increase the borrowing limit…

-END-

  So again the "limit" is being raised.  More than last time too.  We are in big trouble.  This is not just my view, some crazy blogger in Virginia, this is a view held by former high level officials, people who have seen the real books.  How credible is a former budget office chief?  I'd say highly:
 
 

Forecast: Debt to dwarf GDP

Former budget office chiefs say 'something has to give'


Posted: January 18, 2010
10:14 pm Eastern

By Jerome R. Corsi
© 2010 WorldNetDaily


President Obama

A blue-ribbon panel that includes three former heads of the Congressional Budget Office is telling President Obama and the Democrat-controlled Congress that the federal deficit must be cut now or the national debt within about two generations will be 600 percent of the gross domestic product.

"The debt level of the United States is unsustainable, something has to give," said Rudolph Penner, former head of the CBO and co-chairman of a report issued last week by the National Research Council and the National Academy of Public Administration.

The report concludes federal deficit spending is so out of control that unless  Obama and Democrat leaders on the Hill make changes now, debt in 2080 will be six times what the nation produces.

The alarm is being sounded just as the Obama administration is preparing to push his nationalized health care plan through Congress. It comes from a bipartisan group of top economic policy experts, including three former heads of the CBO, who warned existing entitlement programs including Medicare, Medicaid and Social Security already are creating a fiscal crisis for the nation without the addition of government-funded universal health care.  The fundamental problem is that we have these three very large programs – Medicare, Medicaid and Social Security – that … are growing faster than tax revenues and faster than the economy," Penner told WND.

Look into the nation's financial future! Get Jerome Corsi's best-selling "AMERICA FOR SALE: Fighting the New World Order, Surviving a Global Depression, and Preserving USA Sovereignty."

The result is "an unsustainable federal budget deficit" that Penner described as "ever onward and upward."

With the recession and the huge stimulus package added to the beginning of the baby boomers retiring, United States debt is already at 50 percent of gross domestic product, or GDP, and is projected to grow to 80 percent of GDP by 2019, according to Congressional Budget Office estimates of the Obama administration budget plans as they currently stand.

Studying the growth in three major entitlement programs – Medicare, Medicaid, and Social Security – the report, "Choosing the Nation's Fiscal Future," said spending was far outpacing tax revenue such that "any efforts to rein in future deficits must entail either large increases in taxes to support these programs or major restraints on their growth – or some combination of the two."

Unless action is taken immediately, the study warned, the U.S. "faces the risk of a disruptive fiscal crisis."

In an alarming chart, the study projected that federal debt would be more than seven times the nation's GDP in 75 years if no action is taken to constrain or offset the growth of Social Security, Medicare and Medicaid and if tax rates stay near their current level.


The report predicted a frightening fiscal future for the U.S. should the Obama administration and Congress fail to act.

"If remedial action is postponed for even a few years, a large and increasing federal debt will inevitably limit the nation's future wealth by reducing the growth of capital stock and of the economy," the panel advised. "It will also increase the nation's liabilities to investors abroad, who currently hold about one-half of the federal government's debt."

Increasing debt to GDP levels also causes problems with increased interest payments for U.S. taxpayers in the future who will be obligated to pay ever-rising costs just to finance current budget deficits.

"Increasing debt also may contribute to a loss of international and domestic investor confidence in the nation's economy, which would, in turn, lead to even higher interest rates , lower domestic investment, and a falling dollar."

 
 
Look at that chart.  That is one scary chart.  Even if that chart is off by 100%, we are still finished.  Debt as a percentage of GDP has been used by many "experts" to say "things aren't that bad", but this forecast will destroy that argument.  I still think the whole notion of comparing debt to the GDP is nonsense.  It's a like a business comparing their debt to gross revenue.  That is irrelevant.  You want to compare debt to earnings.  That's what matters.  The government couldn't collect the whole GDP, so why is that used to justify how our country's debt is "not that bad." 
 
What about housing, because that is a key barometer in the health of the U.S. and a lot of people are claiming that things are getting better.  True?  Not so much.....
 

US homebuilder sentiment falls again in January

WASHINGTON, Jan 19 (Reuters) - U.S. home builder sentiment unexpectedly fell in January to the lowest level since June on concerns over the weak labor market and high foreclosure volume, according to a survey on Tuesday that pointed to a patchy recovery in the housing sector.

The National Association of Home Builders/Wells Fargo Housing Market Index for January slipped to 15 from 16 in December, below market expectations for a reading of 17. The survey blamed the setback in sentiment on the weak labor market, which has produced the highest unemployment rate in 26 years.

A reading below 50 indicates more builders view sales conditions as poor than good.

 
 This a reading of 15.....out of 100!  And things are getting better?  If things were truly getting better we wouldn't see the government having to do things like this:
 

Waiver OK'd on flipping houses


By LESLIE BERKMAN
The Press-Enterprise

In a move that could make foreclosed properties more attractive to investors and increase the number of homes available to first-time buyers, the federal government is temporarily lifting a prohibition against providing FHA mortgage insurance for homes that are resold within 90 days.

The Department of Housing and Urban Development designed the regulation to discourage the flipping of houses by investors that drove up prices during the housing market boom of a few years ago. But critics say its unintended effect has been to reduce the options of first-time buyers who already are competing for a shrunken supply of homes for sale.

Last year banks slowed the flow of properties headed to foreclosure, possibly in an effort to modify troubled mortgages to make them more affordable or to avoid posting losses when the homes are sold.

The waiver on the purchase of flipped houses with FHA mortgages, which begins Feb. 1 and is effective for one year, "will give FHA borrowers access to a broader array of recently foreclosed properties," HUD said Friday in announcing the change.

Conditions attached to the waiver are expected to prevent what HUD called "predatory practices" by investors. For instance, when a house is resold within 90 days of purchase at a price that is 20 percent higher, the seller would have to justify the increase, such as by showing how much was spent on repairs and renovation.

Some real estate experts complain that investors who come into the foreclosure market with cash have an unfair advantage over first-time buyers who are less attractive to the banks because they frequently can afford only minimum down payments.

Other experts argue that investors perform a community service by buying and fixing up the most distressed and vandalized foreclosed houses that otherwise would be uninhabitable and ineligible for FHA financing. But they add that in many cases investors have not been able to sell the refurbished houses to FHA buyers because they could not wait 90 days to recoup their purchase, rehabilitation and holding costs.

So instead of first-time buyers with FHA mortgages getting such houses, they often have been sold to investors who have converted them to rentals or to people who could afford the larger down payments required for conventional financing.

Rich Cosner, president of Prudential California Realty with nine offices in Orange, Riverside and San Bernardino counties, said because of the FHA restriction against insuring loans on houses bought from flippers, many first-time buyers "were locked out of some of the best houses."

Investor-owned houses that are "flipped" represent "a small but growing percentage of the resale market," said Andrew LePage, a spokesman for DataQuick Information Systems, which tracks housing sales and prices. LePage said absentee buyers, most of whom are investors, in December accounted for 24 percent of sales in Riverside County and 28 percent in San Bernardino County.

In November homes resold after being owned no more than 180 days represented 3 percent of sales in Riverside County and 4 percent in San Bernardino County, LePage said.

More investors

Nicholas Manfredi, president of the Corona-based Inland Empire Investors Forum, said HUD's waiver was greeted with joy by his investor colleagues.

"They were high-fiving me in the gym this morning," he said Monday.

Manfredi said he is certain the change will attract more investors who will buy houses in neighborhoods dominated by FHA buyers. He said previously some investors shied away from these lower-price neighborhoods, which he said had the effect of perpetuating community blight.

However, Manfredi said the future of the Inland foreclosure market is too murky for him to recommend that investors dive into flipping. His biggest worry, he said, is that the change in federal policy may mean that the government expects banks to start allowing their backlog of delinquent loans to rush to foreclosure. If that happens, he said, home prices will fall and harm anyone needing to quickly sell investment properties.

Several local real estate agents, including Joyce Aragon, a sales agent for All National Realty in Ontario and president of the Inland Valley Association of Realtors, say in recent weeks they have seen an uptick in the volume of repossessed homes coming to market.

Pete Nyiri, owner of Top Producers Realty in Corona, a major broker of repossessed houses, said the number of foreclosures that banks assigned to him last month increased 40 percent and many of those have yet to be listed.

Reach Leslie Berkman at 951-368-9423

 
 Didn't we learn anything over the last several years?  The government is now encouraging flipping?  I'm dumbfounded.  Things are obviously way worse then we are being told.  Nothing else makes sense here.  The housing market is going down over the next couple years, that's almost a sure thing.
 
Commercial real estate, real estate for businesses, is another area that you may have heard about as being in trouble.  What you NEVER (at least on any main stream media outlet) see is how bad it is.  This chart is, and I don't like being the gloom and doom guy, stunning: ( from Jesse's Cafe Americain)
 
 
 
 
The commercial market is down 42% from top!  It's almost completely corrected.  The good news is that commercial real estate probably won't fall very much further.  The bad news is that there are still billions and billions of loans on commercial real estate that are going to have to be refinanced.  As a matter of course, commercial real estate is usually funded with a five year loan, so looking at the chart you can see that EVERYONE refinancing at this time is trying to get a loan on a property that is worth less than when they first purchased it.  This is just getting started because the loans resetting this year are going to be WAY under water.  The economy has no chance of getting significantly better at this point.  We just have to keep working through this and wringing out the excesses.  All the hand waving and cash for clunkers nonsense is just not going to work.  After all, if you think about it, what that type of program is really about is to get people to borrow.  The government was saying, "We'll give you $4500 for a car if you take out a $25,000 loan."  Doesn't sound so "helpful" when looked at like that. 
 
Bottom line.....the stock market is probably not crashing now and the uptrend will restart.  Later this year, sometime after April or so, the real market swoon will start.  At least that's where my money is and remember I'm not a registered financial adviser so this is NOT investment advice, just what I'm doing.  Please do your own due diligence.  If you want to talk about anything, just let me know at currymagic@gmail.com or 703-791-6066.  


 And Now for Something Completely Different.......
 
As you may know, I believe that global warming is a scam.  It's a way to control and enrich those who set the new "rules".  Thankfully this scam is finally coming apart at the seams.  Here is an excerpt from the Gata website:
 

More Scandals Implicate IPCC Climate Scientists

By F. William Engdahl
22 January 2010

Only days after the failed Copenhagen Global Warming Summit, yet a new scandal over the scientific accuracy of the UN IPCC 2007 climate report has emerged. Following the major data-manipulation scandals from the UN-tied research center at Britain’s East Anglia University late 2009, the picture emerges of one of the most massive scientific frauds of recent history.

Senior members of the UN climate project, the Intergovernmental Panel on Climate Change (IPCC) have been forced to admit a major error in the 2007 IPCC UN report that triggered the recent global campaign for urgent measures to reduce “manmade emissions” of CO2. The IPCC’s 2007 report stated, “glaciers in the Himalayas are receding faster than in any other part of the world.” Given that this is the world’s highest mountain range and meltdown implies a massive flooding of India, China and the entire Asian region, it was a major scare “selling point” for the IPCC agenda. As well, the statement on the glacier melt in the 2007 IPCC report contains other serious errors such as the statement that “Its total area will likely shrink from the present 500,000 to 100,000 square kilometers by the year 2035." There are only 33,000 square kilometers of glaciers in the Himalayas. And a table in the report says that between 1845 and 1965, the Pindari Glacier shrank by 2,840 meters. Then comes a math mistake: It says that's a rate of 135.2 meters a year, when it really is only 23.5 meters a year. Now scientists around the world are scouring the entire IPCC report for indications of similar lack of scientific rigor.

It emerges that the basis of the stark IPCC glacier meltdown statement of 2007 was not even a scientific study of melting data. Rather it was a reference to a newspaper article cited by a pro-global warming ecological advocacy group, WWF.

The original source of the IPCC statement, it turns out, appeared in a 1999 report in the British magazine, New Scientist that was cited in passing by WWF. The New Scientist author, Fred Pierce, wrote then, “The inclusion of this statement has angered many glaciologists, who regard it as unjustified. Vijay Raina, a leading Indian glaciologist, wrote in a paper published by the Indian Government in November that there is no sign of "abnormal" retreat in Himalayan glaciers. India's environment minister, Jairam Ramesh, accused the IPCC of being "alarmist." The IPCC's chairman, Rajendra Pachauri, has hit back, denouncing the Indian government report as "voodoo science" lacking peer review. He adds that "we have a very clear idea of what is happening" in the Himalayas.” [1]

The same Pachauri, co-awardee of the Nobel Prize with Al Gore, has recently been under attack for huge conflicts of interest related to his business interests that profit from the CO2 global warming agenda he promotes.[2]

 
 In case you don't know, the IPCC is THE source for all things global warming and if they are in the cross hairs for dishonesty, then the global warming theory is in question.  These are the people Al Gore and his ilk use for substantiating their bogus claims.  I'd like to close this week with a video that is an outstanding critique of the global warming theory.  It's rather long (about 75 minutes) so if you only have time to watch ten or twenty minutes, I'd watch the first two parts.  (After part 1 ends, down at the bottom of the window you will see the other parts pop up for selection) Starting at about the 12 minute mark you will see the destruction of Al Gore's main evidence of global warming, that increased CO2 causes the earth to warm.  Total fraud, that guy, and has been for years.
 

 
The biggest problem with the global warming theory, other than it's completely unreliable science, is now the utter wide spread acceptance of it, especially in our schools.  They have all sorts of books and resources that base their work on this now, discredited, bogus theory.  It will take a LONG time to get this nonsense out of our schools.  Make sure you are educating your kids so they are not duped into this "science".  That also goes for the constitution and the real authority of the government.  If you don't do it, it's unlikely that anyone will.  Have a great week!