B4 the Bell Weakend May 15-16, 2004

[Guest yobob1]

Distraction, obfuscation, redirection and misguided focus are all part of the magicians act. Don't watch the right hand, pay attention only to the seductive movements of the left hand.

 

In 2001 - 2002 most minds were focused on what seemed to be impending deflation, but with a wave of the feeds magic wand and a swirl of the cape by the GSEs, those thoughts were quietly put aside. The immaculate recovery was soon upon us with Easy Al's lead foot firmly planted and "Fannie" Raines sawing madly at the wheel. The dollars were being shot out from under the rear tires and sprayed in a haphazard fashion across the globe reinflating old bubbles while simultaneously feeding new and more explosive bubbles. As the bubbles grew, some began to notice that one of the new bubbles, commodities, was beginning to show signs of growing faster than the rest. As a few started to pile in, the bubble grew faster which attracted more speculators and the pace again quickened. By mid to late 2003, the bubble had become large enough that everyone noticed and in unison, all agreed that price inflation was surely our destiny for as far as the eye could see; a "permanently high plateau" if you will. The inflation game was afoot and the story began to spread to other bubbles as the race was on.

 

Bonds and Forex began to react to the new inflation game while equities struggled to find a footing. "Al, you better tap the brakes a bit, we're going to get a speeding ticket if you don't." No one seems to notice that we're in a vehicle without anti-lock brakes, and we're driving on ice that would make a Zamboni proud. When the speedo reads 100, and you're rounding a bend on ice, even a little tap on the brakes is enough to send you spinning into the guard rails. Sadly, this particular road had the guard rails removed some time ago, and instead we are about to go spinning off the cliff edge, followed by a long drop into the abyss where the only sounds heard above the roar of the engine wildly revving are the screams of the occupants. Al tapping the brakes and his right foot still firmly planted on the go pedal will not change the outcome, for you see, there is no traction in space.

 

Everyone agrees that prices are rising. Everyone agrees that interest rates are rising. The insiders on Wank Street know that's a deadly mix for equities when profit growth is slowing as it inevitably will in such an environment, not to mention that once again the comaprables will get harder. Meanwhile Joe & Mary Sheeple are clueless only knowing that the rising necessity prices are eliminating their discretionary spending and the house (car, boat, furniture, vacation) they thought they could "afford" is now just out of reach due to material driven rising costs and interest rates. (My lending rate has jumped .75% in 2 weeks) Inevitably business slows as the Sheeples are forced to withdraw their support since profits are still slim and the Sheeple's employers say no to pay increases and indeed demand that the Sheeples increase their participation in the spiraling out of control health insurance costs.

 

1+1+1+1=4. Simple, isn't it. Then why can't anyone seem to see it? Or did I miss something in math class? The mere act of tapping on the brakes or even the perception of the brakes about to be tapped is going to take us right off the cliff. There will be no survivors. It's too late to jump out. The only remaining life will be found in the few who didn't get in the car; the few debt free.

 

Deflation is dead. Ding, dong, long live inflation. One little problem, deflation is not dead, it was merely taking a short vacation and left Ivan the Inflator to run the store while he was away. As bond prices tumble across all classes and spreads widen, massive amounts of money (more correctly debt) will be and have been vaporized. The same thing will again happen in equities and appears to be well underway despite the rather benign appearances of the indexes. The rising interest rates will have their desired (?) effects as loan demand begins to wither. This leads to shrinkage, something George Castanza will testify is not desireable at all. Bubbles don't like shrinkage. They get all droopy and soft and soon fall to the floor. Once shrikage begins, the ratio of defaults will begin a parabolic climb when the "dumb" loans recently let with incredibly stupid lending standards start popping up like spring dandelions. Given the concentration of debt insurance, those insurers will drop like flies at a Raid party. Hedges will prove to be useless as the untested liquidity will reveal the true value. But I'm getting a little ahead of myself here.

 

As Hyper is quick to point out, the top sucks from the bottom. The bottom has little or nothing left to give. I have never been one to assume you could isolate the financial economy away from the real economy. Somehwere deep in it's core the financial economy is dependent on the real producing economy. We can't all sit by the pool with our lap tops and trade stocks, buy and sell real estate or take turns mowing each other's lawns. Somebody has to do real work and add value to raw materials with their labor and capital. Everything else is built on that structure. The current economy has become so distorted that you have a small percentage of the economy trying to carry the full burden of government, the "entitled", and the enormous swaying tower of the financial economy. The productive portion of the economy can no longer shoulder that burden. It will soon fail and with the failure of the foundation, the towering superstructure of the elite will come tumbling down.

[Guest]

Mornin' YoBob ant Stoolies.........

 

Mostly caught up with my reading backlog last night. Some links that may be of

 

interest to Stoolies.....Test the veracity.

 

http://worldvisionportal.org/WVPforum/view...c.php?p=310#310

THE 4 DERIVATIVE U.S. DICTATORS: SECRETS OF THE PLUNGE PROTECTION TEAM

 

 

http://www.economist.com/finance/displaySt...tory_id=2665771

Buttonwood

The echoes of history

 

 

http://www.frontlinethoughts.com/printarti...sp?id=mwo051404

The Summer Swoon: A Dearth of Value

We Shall Sell Strength Short

The Big Ouch: Rising Rates and Slowing Earnings Growth

Bull's Eye Investing

 

[Guest]

The wheels are coming off this buggy.....politically AND economically.

 

 

http://www.ajc.com/opinion/content/opinion...vich/index.html

 

[Bearbones]

Lacy Hunt and Van Hoisington in a rare interim report, see this economy as vulnerable and hardly a new boom. The key is wage growth, which is not keeping up with the reported inflation numbers.

 

http://www.hoisingtonmgt.com/HIMCo%20InterimUpdate200405.pdf

 

The greatest stimulus program in modern history, both fiscal and monetary, is wearing off. Without wage growth there can be nothing but a slow grind down. Perhaps that what the market is telling us.

[brian4]

link Two very good people turned BEARISH this week first Bernie Schaeffer who went long on day one of the rally, and now Big, Bad John himself!

[Hypertiger]

The Fuel prices are very deadly...Especially to countries dependant on imported energy...

 

Here's some reality...

 

North American Rotary Rig Counts

The U.S. rotary rig count was down 8 rigs to 1,153 for the week of May 7, 2004.

 

The number of rotary rigs drilling for oil was unchanged at 158. Rigs targeting oil drilling are 12 rigs below last year's level of activity. Rigs drilling for oil represent 13.7 percent of total drilling activity.

 

Rigs directed toward natural gas were down 8 to 994. The number of rigs currently drilling for gas is 146 greater than last year's level of 848.

 

Year over year oil exploration in the U.S. is lower by 7.1 percent. Gas exploration is up 17.2 percent. The weekly average of crude oil spot prices is 46.2 percent higher than last year and natural gas spot prices are up 6.56% percent.

 

Canadian rig activity* was up 30 rigs to 185 for the week of May 7, 2004 and is 94 rigs higher than last year's rig count. Canadian drilling falls rapidly in the spring to avoid environmental damage during the spring thaw.

 

*The Canadian drilling industry experiences wide seasonal swings and even year over year comparisons can lead to incorrect conclusions.

 

The Canadian rig count is climbing after the thaw at this point and most of those rigs are also hunting for gas...

 

It is safe to say that 85% of all rig activity (1070 rigs) in North America is devoted to the hunt for Natural Gas...

 

The international rig count (Outside North America) is 832...

 

Now for the punchline...

 

62% of global energy exploration takes place in North America...of that 85% is for Natural Gas...

 

 

The US ran out of oil in the early 70's then massive drilling began and dependance on imports dropped significantly...

 

Now it is runaway...Most of the Exploration in the US is for Natural Gas...The US has to import oil to fuel the rigs drilling for Natural gas...

 

The ratio of dry holes has dropped...in the boom years 30% of the holes drilled were dry...now it is only 16%...

 

Not shown on the chart is depth...the holes being drilled now are 20% deeper then the boom...hint: The deeper you drill the more expensive it becomes almost exponentially.

 

A printing press will not solve this problem...a collapse in economic activity/rationing will...

 

The US should have been working on solving this problem almost 40 years ago when it was first spotted...But the oilmen used their power to prevent this...Instead all it did was borrow and spend until it ran out of gold then imposed a debt backed by debt fractional reserve scheme on the world...and continued borrowing and spending...Inflating debt or dying...

 

The perfect storm is coming...Not only is debt inflation on it's last gasp but energy is running out rapidly to support the system...

 

Now you know why Mad Max is mad.

 

All our supposed leaders and their helpers have destroyed the world...Nothing but lies on top of lies...

 

In the coming months the grim realities which have been denied for decades will start becoming crystal clear...

[PeakOil]

The Fuel prices are very deadly...Especially to countries dependant on imported energy...

 

Here's some reality...

 

...

 

The US ran out of oil in the early 70's then massive drilling began and dependance on imports dropped significantly...

 

Now it is runaway...Most of the Exploration in the US is for Natural Gas...The US has to import oil to fuel the rigs drilling for Natural gas...

 

The ratio of dry holes has dropped...in the boom years 30% of the holes drilled were dry...now it is only 16%...

 

Not shown on the chart is depth...the holes being drilled now are 20% deeper then the boom...hint: The deeper you drill the more expensive it becomes almost exponentially.

 

A printing press will not solve this problem...a collapse in economic activity/rationing will...

 

The US should have been working on solving this problem almost 40 years ago when it was first spotted...But the oilmen used their power to prevent this...Instead all it did was borrow and spend until it ran out of gold then imposed a debt backed by debt fractional reserve scheme on the world...and continued borrowing and spending...Inflating debt or dying...

 

The perfect storm is coming...Not only is debt inflation on it's last gasp but energy is running out rapidly to support the system...

 

Now you know why Mad Max is mad.

 

All our supposed leaders and their helpers have destroyed the world...Nothing but lies on top of lies...

 

In the coming months the grim realities which have been denied for decades will start becoming crystal clear...

BINGO Hyper.

 

What an UFB mess.

[brian4]

Schaeffer-from last nights commentary-( a good read on his website) "The Blue Chips will by no means be a safe-haven should this market begin to head south in earnest." In his Commentary he makes the point that the Big Boys in past declines have the place to "hide" but not this time.

[Guest]

Gary North: NASDAQ Nation

[Hypertiger]

Schaeffer-from last nights commentary-( a good read on his website) "The Blue Chips will by no means be a safe-haven should this market begin to head south in earnest." In his Commentary he makes the point that the Big Boys in past declines have the place to "hide" but not this time.

The PPT can see where the breakdowns will occur...That is where the fire power is concentrated...Their real name should be the crash prevention team...Ultimately all they can do is postpone reality...and they do zero for the real underlying economic system...They can not turn a lie into truth...the truth will eventually flood out and overwelm all the lies...The psychology will cave then no amount of action will accomplish anything... There will have to be some covering event...like an oil embargo or other staged smoke and mirrors...

 

This whole recovery/reflation show was fueled by collapsing rates and the shoveling of debt out the back of C-130's when the economic system took the hit it did in 2000-2001 people turned to credit to survive...all the Fed and banks did was give them as much as they could gobble (Facilitate it)...that is how it works...

 

Those who are calling for helicopters of money just saw it happen...I don't see how rising rates is going to benefit the situation...and it is a sign that debt inflationary potential is weakening.

 

If real estate cracks then that is all she wrote...consumers have a finite ability to consume debt

[Hypertiger]

Gary North: NASDAQ Nation

Another one asleep at the wheel...blaming Al Green...

 

This debt inflationary bubble began 50 years ago...50 years ago is when it needed to be stopped...By the time Al Green showed up the jig was already up for decades...Inflate debt or die...is all that matters...Inflate debt or implode.

 

That is all the system is designed to do.

 

The countdown started 50 years ago...

[Bearbones]

Schaeffer-from last nights commentary-( a good read on his website) "The Blue Chips will by no means be a safe-haven should this market begin to head south in earnest." In his Commentary he makes the point that the Big Boys in past declines have the place to "hide" but not this time.

If the increase in interest rates were to fuel the next decline then I might argue that the blue chips will be a very poor place to hide. Earnings visibility is higher there making these leviathans more bond-like than ever. Furthermore, these big companies have been generating increasing amounts of profit from the progressively cheaper dollar and from financing activities. Higher rates would further strengthen the dollar while increasing rates make financing activities less attractive to consumers and businesses.

 

The portfolio managers can run there, but the bear will seek them out.

[Drano]

How will the big oils be affected in a crash or grinding bear market? Will money flee to them, or will they, er, tank, along with the rest of the market? How does the increasing price of oil affect their propects? I'd hate to dump them and see them take off, which is what usually happens as soon as I dump a position.

 

TIA.

[Bearbones]

As Hyper is quick to point out, the top sucks from the bottom. The bottom has little or nothing left to give. I have never been one to assume you could isolate the financial economy away from the real economy. Somehwere deep in it's core the financial economy is dependent on the real producing economy. We can't all sit by the pool with our lap tops and trade stocks, buy and sell real estate or take turns mowing each other's lawns. Somebody has to do real work and add value to raw materials with their labor and capital. Everything else is built on that structure. The current economy has become so distorted that you have a small percentage of the economy trying to carry the full burden of government, the "entitled", and the enormous swaying tower of the financial economy. The productive portion of the economy can no longer shoulder that burden. It will soon fail and with the failure of the foundation, the towering superstructure of the elite will come tumbling down.

The U.S. is sucking capital from the rest of the world. Some 80%-90% of the world's savings is shoveled at us. The real producing economy exists elsewhere, notably in China, India, and even Japan. We are sucking their labor and their savings.

 

Can we exist as the world's financial economy while the remainder produces the stuff that we suck up? If you take the view that we have annexed these countries economically then the answer is yes.

 

Our legal and military systems assure that capital is safe here. That money is safe here. The financing economy always lives better. ( Wages are higher in New York than in Mississippi even though New Yorkers need the cotton)

 

This is a much more integrated world than it was even a decade ago. Breakdowns in the interdepedence are what will break this. Watch for currency and political problems that threaten our economic colonialism. Watch for military and moral failures that shed light on our weaknesses.

 

I write this as a resident of New York, the "Empire State".

[brian4]

Economic Colonialism or as Hyper puts it "the top sucking from the bottom" is a fact. In todays National Post there is an interview with an Al Queda member based in Pakistan who ticks off the reasons why they hate Canada, the U.S., Britain and the Europeans in a nutshell "its because WE keep them in the stone age." Without boring you with the fanatical ideology it is about how they remain poor and we remain rich, how we take their oil but they remain poor, how when they fight back we send in the Armies. Now these people are zealots without question and when you mix religion with zealots you have terrorism. BUT the irony is there is truth in what he says. In India a progressive, middle class backed Government that had made great strides in raising living standards for the middle class was just tossed out by the poor who form the majority in India because nothing was coming to them. Sad!