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Speaking of "Manic Swings" for CW Radio

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Speaking of "Manic Swings" for CW Radio

Is a new Deflationary Swing starting ?

==========================================

 

I have done a 25 minute interview with Dominic Frisby today for CW Radio, and I will be putting some charts up here to go with that interview

 

CWR Interview: http://commoditywatch.podbean.com/2009/09/...i-polar-swings/

 

I have four different "Manic Swing indices", three which rise with Inflation, and one that rises with deflation.

 

They all look as if they have reached important "lines in the sand" and are ready to turn.

 

MSI#1: WTI-to-USD Ratio ... http://tinyurl.com/MSI1-d3y

aa1p.gif

 

MSI#2: Copper-to-Libor Ratio ... http://tinyurl.com/MSI2-d3y

aa1d.gif

 

MSI#3: WTI-to-Libor Ratio ... http://tinyurl.com/MSI3-d3y

xx

 

...and then the one that rises with deflation:

 

MSI#4 : US Dollar-to-XED ... http://tinyurl.com/MSI4-d3y

aa1x.gif

 

The Guillotine and the Sandpaper

cu2r.png

Japan's Nikkei

aa1t.gif

 

More "Lines in the Sand"

 

WTI Crude / WTIC ... update

wti.png

 

Hong Kong's Hang Seng Index ... update

aa2.gif

 

Copper ... update

55116118.png

 

Comments follow

============

 

Not only above, but various other indicators suggest that Inflation is reaching natural limits, and

the next DEFLATIONARY SWING is just about to begin.

 

If true,

The following will rise: the US Dollar, Libor rates

 

And these will fall: Stocks, commodities, property

 

The downswing may last 6-18 months, I am guessing. But that expected timeframe can shrink or expand,

depending on the speed of fall, and how investor sentiment behaves

 

== ==

 

Combust this weekend, says Larry P: http://tfnn.s3.amazonaws.com/LarryPesavento091809.mp3

(possible major turn in markets)

 

Manic Swings on FS :: http://TinyUrl.com/ManicXfs

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THE FED HAS BEEN CONSERVATIVE - Prechter is right

 

Bob Prechter's interview: http://www.netcastdaily.com/broadcast/fsn2009-0905-3a.mp3

 

== ==

 

Fed Repairing Its Balance Sheet: Not Inflationary

A lot of pundits expect inflation due to the Fed's moves to provide liquidity. Since banks aren't lending, this potential high-power money does not come into the money supply. In addition, velocity of money has been slowing. No surprise that we have been in a deflationary environment for a year.

 

aabitas8.jpg

 

Today the Fed released data on what reserves they hold. As you can see, the overall level of reserves has been flat for a year. Bernanke applied the Bagehot Remedy a year ago to stem the crisis, and in the process swapped solid reserves (Treasuries mostly) for all sorts of questionable paper held in the Maiden Lane structure. Since QE was announced, the Fed has been swapping out of those poor reserves and back into solid reserves (Treasuries again and govt-backed mortgages and agency paper). This chart shows how substantial the reduction has been in the Maiden Lane stuff. But the Monetary Base has remained flat for a year, and you can check out M1 and other money indexes as well. Not inflationary.

 

Rather than being inflationary, this should have the impact of solidifying the quality of the reserves and therefore (eventually) the USD. The DX has bounced for the past two days on increasing volume, which might mark the Dollar Bottom, but it is too soon to confirm that.

 

Providing liquidity after the secondary crisis after a credit bubble ("secondary" means not the stock market crash, but the inevitable banking crisis which comes after, which came in 2008 after the 2007 peak, and in 1931 after the late 1929 peak) is not inflationary; it is necessary to ameliorate the damage of the credit collapse.

 

/YELNICK; http://yelnick.typepad.com/yelnick/2009/09...flationary.html

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WARNING: Deflationary Collapse Dead Ahead

Karl Denninger

 

EXCERPT

Geithner, Paulson, Bernanke, Bush, Obama: all have emphasized that "we must get more credit to consumers and businesses" as their primary mantra ever since this crisis began.

 

They are pressing this position because if we do not expand credit further the existing banks and other institutions that have bad debt on their books will collapse - and they know it.

 

The correct action to take in 2000 was to force the bad credit from the system and accept the impact on GDP. It would have caused about a 10% contraction in GDP at that time - a mild Depression (or a really nasty recession, depending on how you count it.)

 

Now, having instead blown another credit bubble, we essentially doubled the debt in the system over the last ten years, while GDP grew by about 40%.

 

The result of this was a horrible stock market crash, 6.7 million jobs lost (and underreported), personal income tax receipts are down 21%, corporate tax receipts are down 58%, the deficit is tracking at $1.8 trillion this year alone (and $9 trillion more predicted over the next decade), government is now spending nearly 200% of taxes taken in, 13% of mortgages are either delinquent or in foreclosure, more than 20% of all FHA loans are delinquent or in foreclosure, home prices have fallen by half in many places and are not done declining and the rest of the world is wondering if we're going to try to hyperinflate and destroy our currency.

 

If we try to double our debt once again over the next ten years we won't make it there. The available free cash flow cannot support the interest payments now, and won't be able to if we add more debt to the system.

 

I understand the political difficulty of closing all the major banks in the United States, selling off their assets and making good on their deposits when required. I recognize the damage this will do to pension funds and bond investors. I am fully cognizant of the fact that this means taking an intentional depression here and now.

 

But if we don't it will in fact be worse later.

 

Not "might" be worse.

 

WILL be worse.

 

/MORE: http://www.321gold.com/editorials/denninge...nger091709.html

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THE FED HAS BEEN CONSERVATIVE - Prechter is right

...

They could be it, because the 'green $h1tes' have been flying big time. What when the next implosions come - with Alt-A, commercial mortgages? Do we really believe that Citi is fixed? Do we believe that the Treasuries market is doing alright?

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FUNDAMENTALISTS see trouble ahead...

 

VALUE LINE HASN’T BEEN THIS BEARISH SINCE 2000

22 August 2009

 

Value Line, the well known stock picking digest, has turned more bearish on U.S. equities than at any point in the last 10 years. The company is telling subscribers to pare back equity exposure to just 60%-70%. That’s a low figure for most Wall Street research firms. MarketWatch reports:

 

“according to one top-performing newsletter, there’s been too much of a good thing in the stock market since this rally began last March.The newsletter is the Value Line Investment Survey, which is in a tie for first place for risk-adjusted performance over the three decades the Hulbert Financial Digest has been monitoring the investment newsletter industry.

 

In its Aug. 21 issue, which was emailed to subscribers early Monday, Value Line reduced its recommended equity allocation to the range of 60% to 70%.

 

This reflects a cautious to outright bearish posture on Value Line’s part, since the firm has never lowered its recommended allocation to below 50%. The last time it was lower than it is now was October 2000.

 

/more: http://pragcap.com/value-line-hasnt-been-t...rish-since-2000

 

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WARNING: Deflationary Collapse Dead Ahead

...

That's exactly why the next major Fed balance sheet explosion is dead ahead.

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...

Value Line, the well known stock picking digest, has turned more bearish on U.S. equities than at any point in the last 10 years. The company is telling subscribers to pare back equity exposure to just 60%-70%. That’s a low figure for most Wall Street research firms. ....

:lol: :lol:

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That's exactly why the next major Fed balance sheet explosion is dead ahead.

 

my view is... we will see another deflationary downswing OR TWO before the Fed really panics,

and takes wild and reckless actions that will trigger a move to hyperinflation

 

A question that I ask and keep asking is:

 

HOW will the Fed and Treasury act to get money into people's hands to trigger a rapid rise in inflation?

 

If they do something like had out a milliuon dollar check to every citizen, that would do it,

but we are miles away from that so far

 

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...

HOW will the Fed and Treasury act to get money into people's hands to trigger a rapid rise in inflation?

...

What if they don't have to hand out anything? What if it comes just because what Denninger describes will cause a further major downturn in the Dollar, driving import prices (oil, gadgets) up?

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What if they don't have to hand out anything? What if it comes just because what Denninger describes will cause a further major downturn in the Dollar, driving import prices (oil, gadgets) up?

 

Higher food and energy prices will just force property and stocks lower,

unless more spending money somehow comes into people's hands. But how?

 

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Higher food and energy prices will just force property and stocks lower,

At the beginning.

 

unless more spending money somehow comes into people's hands. But how?

The Dollar goes down, prices go up. Obama decides tax cuts to help the consumer. More Treasuries issued, Dollar goes further down. Inflation takes hold, public sector wages must be increased. And so on.

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Higher food and energy prices will just force property and stocks lower,

unless more spending money somehow comes into people's hands. But how?

Property and stocks will be kept higher by the monetization of debt, more dollars will be printed to buy the treasuries. Who in your mind is going to be buying the additional $2 trillion (or more?) required this year, the chinese? More dollars printed will lead to higher priced assets, some more than others. They can't keep printing and expect prices to go down. America has been living off the rest of the world, they are still increasing their deficits at an ever greater speed. The world is getting sick of their debt, so they are having to buy it themselves now (QE).

 

Seems simple to me, but maybe I am missing something. Precther does not address the monetization of debt, or how it will be paid. If everything gets cheaper, cash becomes more valuable which makes the debt even harder to pay. How can prices of assets go down when they need to QE their own debt?

 

 

 

 

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Fed Repairing Its Balance Sheet: Not Inflationary

A lot of pundits expect inflation due to the Fed's moves to provide liquidity. Since banks aren't lending, this potential high-power money does not come into the money supply. In addition, velocity of money has been slowing. No surprise that we have been in a deflationary environment for a year.

The banks may not be lending now, but they have lent far too much in the past already, the money is in the system. The fed are keeping that money there by propping up the banks, not allowing them to fail for their irresponsible lending.

 

 

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THE FED HAS BEEN CONSERVATIVE - Prechter is right

 

Bob Prechter's interview: http://www.netcastdaily.com/broadcast/fsn2009-0905-3a.mp3

 

== ==

 

Fed Repairing Its Balance Sheet: Not Inflationary

A lot of pundits expect inflation due to the Fed's moves to provide liquidity. Since banks aren't lending, this potential high-power money does not come into the money supply. In addition, velocity of money has been slowing. No surprise that we have been in a deflationary environment for a year.

 

aabitas8.jpg

 

Today the Fed released data on what reserves they hold. As you can see, the overall level of reserves has been flat for a year. Bernanke applied the Bagehot Remedy a year ago to stem the crisis, and in the process swapped solid reserves (Treasuries mostly) for all sorts of questionable paper held in the Maiden Lane structure. Since QE was announced, the Fed has been swapping out of those poor reserves and back into solid reserves (Treasuries again and govt-backed mortgages and agency paper). This chart shows how substantial the reduction has been in the Maiden Lane stuff. But the Monetary Base has remained flat for a year, and you can check out M1 and other money indexes as well. Not inflationary.

 

Rather than being inflationary, this should have the impact of solidifying the quality of the reserves and therefore (eventually) the USD. The DX has bounced for the past two days on increasing volume, which might mark the Dollar Bottom, but it is too soon to confirm that.

 

Providing liquidity after the secondary crisis after a credit bubble ("secondary" means not the stock market crash, but the inevitable banking crisis which comes after, which came in 2008 after the 2007 peak, and in 1931 after the late 1929 peak) is not inflationary; it is necessary to ameliorate the damage of the credit collapse.

 

/YELNICK; http://yelnick.typepad.com/yelnick/2009/09...flationary.html

 

Or put another way, the possibility of a sudden and unexpected outbreak of sound money. What could be worse? Or better? ...depending on how you are positioned.

 

Edit: looking forward to what you say on CW raddio.

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The banks may not be lending now, but they have lent far too much in the past already, the money is in the system. The fed are keeping that money there by propping up the banks, not allowing them to fail for their irresponsible lending.

 

I think it can be argued that the money pumped into the system has simply replaced the money and credit

that was destroyed through writedowns and impairments AT THE PRESENT LEVEL OF VELOCITY, but if money

velocity picks up, and leverage expands back towrds where it was, then there will be more money in general

circulation.

 

I reckon that velocity is now picking up (any one have some data?), but credit will be needed to allow

leverage to expand. Will the Fed provide that? Or will the various deflationary forces that about to undermine

the economy take hold first? I am talking about problems in commercial real estate, continuing job losses,

and enforced shrinking of public jobs at the state and local level, reflecting the shrinking tax base. And at

the national level in the UK, there is already talk about severe cuts in government jobs. The cuts are needed,

since the government is overspending its way into a severe bind, bvut they will certainly have a noticeable

deflationary impact.

 

== ==

The Guillotine and the Sandpaper

cu2r.png

 

More "Lines in the Sand"

 

WTI Crude / WTIC ... update

wti.png

 

Hong Kong's Hang Seng Index ... update

aa2.gif

 

Copper ... update

55116118.png

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Inflation takes hold, public sector wages must be increased. And so on.

 

I think that pushing up Public sector salaries, while the Private sector implodes would be very unpopular.

Bailouts may happen, but the public will not want to see the bailed out companies getting big wage rises

 

The real point of my artticle is that certain areas of the economy need to be allowed to shrink:

Banking and auto manufacturing are two

 

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I think it can be argued that the money pumped into the system has simply replaced the money and credit

that was destroyed through writedowns and impairments AT THE PRESENT LEVEL OF VELOCITY, but if money

velocity picks up, and leverage expands back towrds where it was, then there will be more money in general

circulation.

 

I reckon that velocity is now picking up (any one have some data?), but credit will be needed to allow

leverage to expand. Will the Fed provide that? Or will the various deflationary forces that about to undermine

the economy take hold first? I am talking about problems in commercial real estate, continuing job losses,

and enforced shrinking of public jobs at the state and local level, reflecting the shrinking tax base. And at

the national level in the UK, there is already talk about severe cuts in government jobs. The cuts are needed,

since the government is overspending its way into a severe bind, bvut they will certainly have a noticeable

deflationary impact.

Leverage will never expand back to previous levels, no more consumers being lent ever higher 125% mortgages or investments banking at 40:1.

 

Hyper inflation is a monetary phenomenon as the US has to monetize more and more of it's debt, not issue even more credit. The solution will be gold being allowed to go a lot higher and a return to sound money.

 

 

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Leverage will never expand back to previous levels, no more consumers being lent ever higher 125% mortgages or investments banking at 40:1.

 

Hyper inflation is a monetary phenomenon as the US has to monetize more and more of it's debt, not issue even more credit. The solution will be gold being allowed to go a lot higher and a return to sound money.

 

Article today from Steve Keen - posit that giving money to banks on basis of the 'multiplier effect' was a mistake and that Australia's response of giving money directly to the public has worked better.

 

http://www.debtdeflation.com/blogs/2009/09...t-five-rescued/

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I think that pushing up Public sector salaries, while the Private sector implodes would be very unpopular.

Bailouts may happen, but the public will not want to see the bailed out companies getting big wage rises

 

The real point of my artticle is that certain areas of the economy need to be allowed to shrink:

Banking and auto manufacturing are two

 

It surprises me that there are still many members on here stuck in the old, predictable, way of thinking about the cash cow that is the public services. Some time ago I predicted that public services in the UK would be cut and that it would probably happen at a later stage in the cycle that we are now in. The same thing happened in the 60's, 70's, 80's and 90's and it is only because NuLabour have been living in the dreamworld of the end of boom and bust that it hasn't hit them yet. Well, now it's hitting. Essentially, the political debate has now moved to the stage that it is more about cuts and who will cut the least and preserve front line services the best. Vince Cable in the last few days has been talking about major cuts to come and it would appear that it is the Liberal Democrats who will again come up with the most radical proposals. Of course, they will not get elected. As to the cuts to come, well, I think that a whole host of measures will be on the table from defense, the UK's nuclear deterrent replacement, ID cards, public sector pensions and pay, to name but a few. I see no inflationary pay awards happening in the public sector for years to come. Most of the people that I know who work in the public sector are telling me that cuts and plans to save money are happening now and have been on the table for some time.

 

Everything that is happening now I've expected for some time and whoever gets elected next time, the cutbacks in the public sector budget are likely to be large scale and widespread. It is also my belief that the financial markets will like this, just as they did when Thatcher was elected.

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Thanks for the mention during the Q&A part of the FS newshour.

No call from Puplava & Co. yet.

 

Maybe we should do a little debate ourselves with Mish Shedlock

 

I will certainly listen to that part of the FS podcast with interest this week

 

The Great Deflation/Inflation Debate with Daniel R. Amerman & Michael 'Mish' Shedlock

http://www.netcastdaily.com/broadcast/fsn2009-0919-3a.mp3

 

The CW Podcast was echoed here too:

http://technorati.com/posts/kjaQKBk_uDLPen...C5LfSQpG8WQc%3D

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The Great Deflation/Inflation Debate with Daniel R. Amerman & Michael 'Mish' Shedlock

http://www.netcastdaily.com/broadcast/fsn2009-0919-3a.mp3

 

Mish wipes the floor with his opponent here, I think.

His definition (Money + Credit), whilst the CPI definition just confuses people.

The debate went nowhere, until they tightened up the definition

 

I can't believe I've just googled for "sandpaper drop"

here you go:

 

Due to the massive overbuilding, the housing bubble is correcting via a market crash, which have been described by Russ Winter as typically consisting of two parts -- "guillotine" and "sandpaper" -- by which he means that there is an initial near vertical decline (the guillotine) followed by a long, grinding slow further decline (the sandpaper). Here's an example (Japan's stock market crash) pulled from his blog:

 

aa1k.gif

 

/More: http://www.economicpopulist.org/?q=content...splat-good-news

 

...Let name use the same chart...

 

aa1t.gif

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