Its Chilling- Hussman

Hussman- chilling how vulnerable investors have left themselves. pic.twitter.com/UQtv4ZQq3f

Gold Broke Through $1,400; What's Next?

The following is from Kitco News. I have my own take and I will update you on this later this weekend.

September Seasonal Strength Of Gold

According to Kitco News, gold's seasonal strength occurs in the month of September.

September is usually a seasonally strong period for gold due to buying ahead of a number of major gift-giving holidays around the world.

There is the autumn “wedding season” and Diwali festival in India, followed by Christmas and Hanukah in a number of nations, then the Chinese New Year in early 2014. Further, Indian farmers often look to gold when they sell their crop after the harvest.

All of this is especially significant since India and China are the two largest consumers of gold.

My analysis of the month-over-month returns of gold since January 2000 shows strong seasonal returns in September. More importantly, September returns exhibit the strongest seasonal month-over-month performance relative to other similar periods. Gold has gained by a median return of 3.5% month-over-month in September, which compares to an overall median return of 0.9%. Additionally, the next strongest monthly median return is 2.45 in November.

I would also point out that more times than not, gold prices rise versus the relative prices in August. By my calculation, gold prices have gained in 75% of the observed September periods since 2000. Similar to the median price gains, this batting average, if you will outperforms all other monthly and the total batting average. The next strongest month's (November) batting average appears measures in at 68% while the total batting average comes in at 58%.


The above analysis supports my view that gold prices will rise in the short-term. I intend to hold my gold and precious metal stock positions until the fundamentals turn decidedly negative and/or the timing models I employ point towards a sale.

Rising Bonds Yields Increasing Equity Market Risks- BCA

Via the BCA Research Blog.

The level of yields is not yet economically-damaging, but our U.S. equity team argues that the speed of the advance has reached the point where investors should expect equity volatility.


The speed of the yield jump is unnerving for stock bulls. Bond yields are rising much faster than profit growth. The broad market has run into trouble whenever the growth in yields has surpassed the growth in earnings. More serious equity pullbacks have occurred when this differential is negative 10% or lower, as is currently the case. This scenario has historically been associated with too rapid an increase in inflation expectations, which spells valuation and monetary trouble ahead.

The current signal from this indicator is negative, as the differential is at its widest level in more than 20 years. However, it should be noted that inflation expectations are not problematic at the moment, and the very low starting point in yields reduces the indicator’s efficacy. Still, this gauge has a reliable track record, underscoring that capital preservation should remain of paramount concern.

What the Anemic Air Travel Data Tell Us About the Economy- Peter Schiff

By Peter Schiff

It may not be too controversial to assert that wealthy working people tend to fly much more than poorer underemployed people. When we are employed (especially at high level jobs) we tend to travel more for business. When our jobs pay well, we have the income needed to travel more on long distance vacations. It should come as the least surprising fact ever that citizens of wealthy nations tend to fly much more than residents of poor nations.

As a result of this basic understanding, the number of airline tickets sold on domestic U.S. carriers should provide a decent barometer of overall economic health. The numbers reveal that more people are flying than in the past, but the increase is less than half of what may have been expected based on the official GDP growth figures. 

According to research by the Massachusetts Institute of Technology's Airline Data Center, in 1995 U.S. carriers had a total number of 470.2 million "enplanements" (which is defined by how many times a passenger takes a trip). In 2012 that figure had gone up to 565.1 million, an increase of approximately 20.2%. This doesn't sound too bad.

But over those 18 years, the government reported real GDP expansion (after adjusting for inflation) of 2.9% per year on average. That adds up to 52%of growth. At minimum, you might expect the airline industry to keep pace. Instead, the increase has been less than half that.

The Bureau of Transportation Statistics has another data set that doesn't go back as far but offers a similar trajectory. They report a total of 629.8 million passengers in 2004, and 642.2 million passengers in 2012. This works out to be a 2% increase over nine years. But according to the government, real GDP has risen more than six times that (12.3%) over those nine years. By that yardstick, airline travel is lagging significantly.

Believe it or not, this has happened despite the fact that ticket prices have come down in relative terms. According to the airline industry resource, Airlines.org, the average price for a round-trip domestic ticket was $277.37 (1995 dollars) in 1995. In 2012 that figure had gone up to $355.75 (2012 dollars), an increase of 28% (the U.S. Department of Transportation (DOT) reports a similar figure of 28.4%). In terms of ticket price per passenger mile, the increase is even more modest, just 9% (13.8 cents in 1995 vs. 15.1 cents in 2012). Yet inflation since 1995, as measured by the CPI, is up 55%. This means that in relative terms, the cost of flying on an airplane has actually gone down. The DOT puts the decrease at 14.7% in 2013 dollar terms.

So Americans' air travel has fallen relative to economic growth even while the cost of flying has fallen by a significant margin. This simply makes no sense unless you allow for the possibility that the economy really isn't expanding as rapidly as we are being told.  It is possible that the added security and inconvenience of flying  since 9-11 has deterred people from flying, but I doubt that it's a significant factor. Yes, many carriers now provide fewer amenities to travelers, and baggage charges, change fees, and food charges have certainly increased, but those factors can't be that determinative. I'll go with the simplest explanation: as Americans get poorer, our citizens fly less.

Gene Epstein Discusses Rothbard's legacy

A Precursor to Gold/Wealth Confiscation

As the Indian Rupee collapses......

....... the Indian government is floating an idea to 'buy' gold holdings of individuals and other private parties and divert it to refiners. As Reuters reports- 

India is considering a radical plan to direct commercial banks to buy gold from ordinary citizens and divert it to precious metal refiners in an attempt to curb imports and take some heat off the plunging currency. 

While further still-


The RBI will ask the banks to buy back jewelry, bars and coins for rupees. Lenders will have to offer better rates than pawn shops and jewelers to lure sellers.

Any talk of using the country's gold to help meet India's international obligations revives memories of a 1991 balance of payments crisis - when India flew 67 tonnes of gold to Europe as collateral for a loan to avoid a sovereign debt default.

Earlier on Thursday, India's Trade Minister Anand Sharma said the central bank should look into the possibility of monetizing gold holdings.

Monetizing of gold holdings? The creation of paper is what created the currency crisis and has led people to search out sounder currencies. More paper money will not solve this problem.
 

Volume Off the High- 8/29 Trading Day Edition

Don't go straining yourself looking over all the new (earnings related) volume off the high names.

High Volume Highs- 8/29 Trading Day Edition

Outside of the July quarter ending earnings announcements, which there are a few, both DGLY and CARB moved higher with volume support on no apparent news.

Market Tries to Stage a Rally as Price/Volume Heat Map (8/29) Suggests Demand Remains Weak

Another day and another attempt at a rally in the market after Tuesday's shellacking. Although the S&P 500 gained about 20 basis points in value on the day, it was the second day the market closed closer to the lows of the day, suggesting selling pressure versus buying pressure.

More so, the demand dynamics are weighted more toward the neutral side. This is not what you would expect if the market was going to attempt a rally. That said, the impending labor day holiday could be resulting in lower overall demand, as traders and investors are on vacation.

What About Money Causes Economic Crises? - Peter Schiff Congressional Lecture

Are We All Martians?

The hypothesis seems far-fetched in my mind, but still not out realm of possibility considering what we know of the early Mars climate in conjunction with the sharing of 'materials' between the planets.

Life on Earth may have started millions of miles away on Mars, according to scientists.

An element believed to be crucial to the origin of life would only have been available on the surface of the Red Planet.

These "seeds" of life probably arrived on Earth in meteorites blasted off Mars by impacts or volcanic eruptions, Geochemist Professor Steven Benner claims.

Prof Benner, from The Westheimer Institute for Science and Technology in the US, said: "The evidence seems to be building that we are actually all Martians; that life started on Mars and came to Earth on a rock."

More Here

Start Calling It What It Really Is

Political Calculations (one of the best blogs on the web) presented a great thought piece this morning. I present it below to put into perspective eminent domain, bailouts, QE, and all the other emergency measures put in place to save the economy. 

Have you ever heard of the 70-year cycle in history? Here's an excerpt from an essay by Eric A. that introduces the concept:

Many of you may be familiar with the Foundation series by Issac Asimov. In it, mathematician "Hari Seldon spent his life developing a branch of mathematics known as psychohistory. Using the laws of mass action, it can predict the future, but only on a large scale; it is error-prone on a small scale."
In practice, we can see that this would be theoretically correct: we study history precisely because human nature is relatively the same and the same events recur with the same predictable responses. If history really were chaos--a muddle of events appearing randomly and being resolved in unpredictable ways--there would be no point in studying it.

So what of 70 years? It seems that American politics goes through a roughly 70 year long cycles where it swings from one side of the political pendulum to the other. For example, if we start in 1789, which marks the real beginning of the United States as a single nation with the inauguration of George Washington as the nation's first president under the Constitution, the passage of 70 years suddenly puts us on the cusp of the U.S. Civil War in 1859 as the nation was getting set to try to tear itself apart.
From then, Random Jottings' David Weidel notes a general 70-year cycle in American politics:

The theory says that America became a Republican country starting about the year 2000. (From 1860 Republicans were dominant, and then the Dems starting about 1930.) Each cycle is about two political generations. The 70 years before 1860 don't have today's parties, but they fit otherwise, with the Revolutionary generation and then a follow-on generation stuck in old habits of thought. And then a problem that needed a new political alignment to solve.

But what if it's not just American politics? What if it's really a cycle that's driven by opposing ideologies in conflict?
For example, in 1896, the U.S. Supreme Court made it legal to institutionalize racial segregation in the United States. Almost 70 years later, the U.S. Congress was undoing the damage in the landmark Civil Rights Act of 1964.
This is 2013. What sort of conflict was the U.S. engaged in 70 years ago?
Well, that would put us in 1943. And in 1943, the United States fought and succeeded in forcing fascist Italy to surrender and switch sides in World War 2.
The Concise Encyclopedia of Economics explains what fascism in Italy was all about, emphasis ours:

As an economic system, fascism is socialism with a capitalist veneer. The word derives from fasces, the Roman symbol of collectivism and power: a tied bundle of rods with a protruding ax. In its day (the 1920s and 1930s), fascism was seen as the happy medium between boom-and-bust-prone liberal capitalism, with its alleged class conflict, wasteful competition, and profit-oriented egoism, and revolutionary Marxism, with its violent and socially divisive persecution of the bourgeoisie. Fascism substituted the particularity of nationalism and racialism—“blood and soil”—for the internationalism of both classical liberalism and Marxism.
Where socialism sought totalitarian control of a society’s economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of nominally private owners. Where socialism nationalized property explicitly, fascism did so implicitly, by requiring owners to use their property in the “national interest”—that is, as the autocratic authority conceived it. (Nevertheless, a few industries were operated by the state.) Where socialism abolished all market relations outright, fascism left the appearance of market relations while planning all economic activities. Where socialism abolished money and prices, fascism controlled the monetary system and set all prices and wages politically. In doing all this, fascism denatured the marketplace. Entrepreneurship was abolished. State ministries, rather than consumers, determined what was produced and under what conditions.

Now that you've read what fascism entails, consider the following excerpt from an article yesterday at The Huffington Post, noting how nearly 40% of U.S. CEOs have come to have a very large portion of their income paid for by U.S. taxpayers:

WASHINGTON -- More than one-third of the nation's highest-paid CEOs from the past two decades led companies that were subsidized by American taxpayers, according to a report released Wednesday by the Institute for Policy Studies, a liberal think tank.
"Financial bailouts offer just one example of how a significant number of America's CEO pay leaders owe much of their good fortune to America's taxpayers," reads the report. "Government contracts offer another."
IPS has been publishing annual reports on executive compensation since 1993, tracking the 25 highest-paid CEOs each year and analyzing trends in payouts. Of the 500 total company listings, 103 were banks that received government bailouts under the Troubled Asset Relief Program, while another 62 were among the nation's most prolific government contractors.

Meanwhile, that all would be occurring as American entrepreneurs would appear to be harder and harder to find:

The US entrepreneurial spirit may be faltering. Check out these data points from The Wall Street Journal: a) In 1982, new companies made up roughly half of all US businesses, according to census data. By 2011, they accounted for just over a third; b) from 1982 through 2011, the share of the labor force working at new companies fell to 11% from more than 20%; c) Total venture capital invested in the US fell nearly 10% last year and is still below its prerecession peak, according to PricewaterhouseCoopers.

The United States would appear to be well on its way to adopting fascist Italy's political-economic system, favoring the politically-connected while starving entrepreneurs out of the economy. Although today in America, we call it "crony capitalism". And the people who practice it "progressives".

Do you think we should start calling it what it really is?

Recommended Reading

• Foundation (Foundation Novels)

Elsewhere on the Web

• IPS' report Executive Excess 2013: Bailed Out, Booted, Busted (full PDF version available), plus an Excel spreadsheet with the compensation data for the top 25 highest paid CEOs for each year from 1994 through 2013.
• Barry Ritholtz weighs in on the transfer of wealth from taxpayer to CEOs documented in IPS' report.

Eminent Domain Got More Exciting

I am just starting to get my head wrapped on this issue. That said, the events emanating from Richmond, Ca bear watching. Eminent domain in the U.S. has been around a few years, first causing an uproar when the practice upended private property rights following lawsuits that culminating with a review by the supreme court. Now, the city of Richmond goes one step further...... as detailed in the video below.



But is this use of eminent domain that bad? Commentators at Bloomberg don't seem to think stating....

To judge from the disparaging reaction to its plan to use eminent domain to cope with underwater homes, you'd think the city leaders of Richmond, California, had proposed an outrageous and unprecedented distortion of state power.

Filing suit against Richmond, BlackRock Inc., Pacific Investment Management Co. and other plaintiffs alleged that the city's proposal amounts to an “unconstitutional application of eminent domain” and a “brazen scheme.” The Federal Housing Finance Agency announced that it was considering ceasing to do business in municipalities that pursue this course. Media coverage generally echoed the plaintiffs’ take. USA Today’s headline summed up the conventional wisdom, declaring that Richmond “runs amok with eminent domain.”

In fact, the city's plan relies not on a novel use of eminent domain but on one endorsed by the conservative Supreme Court of 1935. And although there is a long history of excessive use of eminent domain, Richmond's plan has no place in it. Richmond's plan is to seize 624 mortgages valued at more than the homes for which they were written. Relying on a private intermediary, the city would compensate the investor holding a mortgage at a price reflecting the home's current value rather than an inflated bubble value. The city would then sell a more modest loan to the homeowner. Richmond hopes this will induce residents to remain in their homes and pay their mortgages and property taxes. Proponents of the plan also point out that this probably will lower the risk of default, protecting investors holding the mortgages.

Nonetheless, the big players in the bond markets are angry that they’re being forced to accede to the demands of a small city in California. Before they fight city hall, the plaintiffs should appreciate that use of eminent domain to seize intangible assets like mortgages has a solid history. Federal courts have long sanctioned the taking of everything from shares of stock to contract rights, insurance policies and even hunting rights.

Consider a famous Supreme Court case from the Great Depression. During that crisis, banks foreclosed on farmers who fell behind on their mortgage payments. In response, Congress passed the Farm Bankruptcy Act granting farmers five years to negotiate a reduction in the principal of their loans. Farmers were entitled to buy the property at the current appraised value, even if it fell short of the value attached to the original mortgage.

Then, as now, banks didn’t like the policy and went to court, arguing that it violated their property rights, as guaranteed under the Fifth Amendment. In May 1935, the Supreme Court overturned the law in a unanimous decision, the first of several such rulings that made the court into a conservative counterweight to the New Deal. Nevertheless, in the final paragraph of its decision, the court laid out an alternative course for just the kind of remedy the Farm Bankruptcy Act had sought.

The Bloomberg's commentators opinion could not be more wrong. The Great Depression was 'great' because of, and not in spite of' government interventions in the market. By intervening now as then, the pricing mechanism becomes distorted and feedback loop/informational signals inherit in unfettered prices are rendered usable. This dynamic short circuits market forces and prolongs not only the correction but the economic hardships. As Rothbard boldly proclaimed, the depression is the recovery.

High Volume High- 8/29 Trading Day Edition

Another bio-gen related acquisition sending up shares in HITK while SDRL shares popped on announced earnings. Light number of names considering the market was up in trading.

Volume Off the High- 8/28 Trading Day Edition

A few earnings-related names...

Biderman Stops Short of Saying No Fed Taper Until the End of 2014

That date appears somewhat more the September taper expected..... despite what I have stated ad nauseam that the taper is already happening.

Price/Volume Heat Map (8/28) Remains Weak Despite S&P 500 Gain

Although the market gained around 30 basis points in the value in yesterday's trading, the overall price/volume characteristics does not suggest a large demand surge for equities. In fact, the run up in oil prices to year highs and the the subsequent knock off affect on the oil companies appears as the largest contributor to gains. Absent those gains, the S&P 500 might have put in a flat to down performance.

The price/volume map below shows the dynamics I previously described. We see a large a demand-driven gain in the energy sector, but outside of that the supply/demand balance appears more neutral. Futures trading presently indicate a higher opening, but we will have to see what the rest of the day brings and if operators are just pulling in fresh money before another down leg.