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  • Third Depression Looming: Printing U.S. Dollars, Buying Futures and Cranking Up Mainstream Media 0 comments
    Jul 7, 2010 2:52 AM | about stocks: FAZ, FAS, JPM, GS, C, AIG, BAC, QQQ, DRV, TZA
    Ever since the S&P 500 dipped below the landmark support at 1060, it has become increasingly evident that the Federal Reserve, along with hedge funds, institutions and banks have been keen on playing games with retail investors in order to stir up false hopes that a recovery may be on the way. Well, guess what, it’s not. If this was the case, then we wouldn’t have Ben Bernanke intervening with the natural market stabilizers (economic data, earnings, employment to name a few) in order to push demand for Wall Street and in turn delay the inevitable collapse of all major U.S. indices. One by one, thee Nasdaq, S&P 500, Dow Jones and NYSE exchanges will sooner or later fall like dominoes, especially seeing as how they are all engaged in Head and Shoulder patterns with ‘Death Crosses’ that are waiting, or have already happened. With fears of a double-dip recession well en route, it is essential we take a look at the mass inflow of recent news that has bombarded our daily lives  and construct it all nicely into one top-down, tell-all article.

    It should be noted, that it is becoming evidently clear that the powerful compounding effect could send leveraged bear funds skyhigh in this great depression. Exchange traded funds of the likes including: Direxion Daily Financial Bear 3x ETF (NYSE:FAZ), Direxion Daily Small Cap Bear 3x ETF (NYSE:TZA) and Direxion Daily Real Estate 3x ETF (NYSE:DRV) should continue to prosper as we move forward.

    One of the most interesting discoveries that has escaped the mainstream media is the upcoming catalyst for the fallout of Wall Street’s four major exchanges: NYSE, Nasdaq, S&P 500, and Dow Jones, which are all likely to fall over like Moe, Larry and Curly. The next few days will be a rude awakening as deja vu hits retailer investors when the Family Dollar Stores (NYSE:FDO) will report higher than expect earnings, further confirming the economy’s state of flux.

    As you are about to discover going forward, given the rate at which the U.S. is printing money and seeking short-term solutions, you may find yourself using the U.S. dollar as toilet paper rather than a medium of exchange, after-all, heck it might be a cheaper solution to paying $30 for a pack of Charmin. This shouldn’t come as a surprise, especially given the way Obama allocated the US taxpayers’ $787 billion stimulus bill – using your tax dollars as toilet paper to clean up the filthy rich bankers’ mess. See for yourselves this article on ProPublica which goes in-depth on how few of these banks actually ringed in a return, you’d have better luck finding a needle in a haystack or winning the lottery.

    Before we unveil the curtains and get this show started, we highly recommend you read our three previous publications here:

    Financial Armageddon Is Here, Financial 3x ETF Rejoice – A technical perspective on what you can expect from Direxion 3x Financial Bear (NYSE:FAZ) in the short-term

    S&P 500 Will Continue To Crash, While Direxion Bear 3x ETF Surges -Head and Shoulders pattern explained, and how it opens the doors to a new Bear Market

    U.S. Media Is Making A Fool Out Of Financial Traders – Insight on the attempt to control the free-falling markets through the use of printing press, alongside “50 Hard To Believe Statistics of the U.S. Economy”

    Tuesday’s monster rally

    Now, was Tuesday’s monster rally which tested the S&P 500 resistance at 1040 and caused bank stocks, and the overall market to shoot up like a rocket ship justified?

    For entertaining value, let’s use the stimulus bailout plan as the introductory aspect and discuss the outright disgusting mess that the government has gotten America into. Thanks to Barack Obama, the rich banker’s bad assets have been wiped clean. Obama used your tax dollars as toilet paper to clean up the bankers mess knowing that the bankers’ “toxic assets” were worthless. What do you do with paper that has been used to clean up a mess? Do you hold onto it or do you throw it away? Those bad debts are worthless for a reason. No one wanted them. No one saw any value in them. No one was stupid enough to buy those worthless “toxic” assets – no one but Barack Obama. More on this story was reported by the nbGazette.

     

    Fortunately, or unfortunately, we live in a world where Neo can’t come in and out of the Matrix and solve the World’s problems in a the blink of an eye. The facts remain the same: Unemployment stays high, GDP trends lower, Exports are decreasing, Oil spill and other geological disasters are underplayed, Bond rates remain low, Housing data continues to disappoint, and the list goes on and on.” The fundamental outlook is questionable and most of the government policies haven’t been helpful in terms of solving the unemployment problem,” said Derwood Chase, chairman and chief executive of Chase Investment Counsel.” They may have been helpful temporarily to automobiles or selling condos, but we’ve got a lot of serious problems.” Maybe, just maybe the Kool-Aid is finally starting to run out.

    Now wait a second there skippy, wasn’t Obama supposed to be the Godsend that saves America and the rest of the world from perill? In the following video docummentary, you will find striking evidence that gives clear-cut proof that he isn’t even eligible to have been a candidate for office in the first place! Is anything the U.S. government is doing to bring us out of this depression even real anymore?

    The real answer is, probably not, especially given the fact that the U.S. is trapped in a depression which feels like 1932 all over again.

    For those who are into more interactive data, Rosenberg from Business Insider also provided “15 Signs The Economy Is Rolling Over” with fully formed charts and patterns for you to visually gaze upon.

    Printing press scrambling for answers

    Of course, amidst all of this turmoil, you can’t expect Wall Street to fold quickly, can you? As a last stand, it seems that these same credit agencies / departments that were investigated by the SEC as seen with the recent Goldman Sachs trial have begun to once again re-appear. On Tuesday, Bloomberg reported that, “Goldman Sachs Raised to ‘Overweight’ at JPMorgan”, which seemed fishy on its own, especially given the lousy reasons for doing so. “We note that on all the measures we discuss in this report, we conclude Goldman Sach’s risk management could act as a benchmark for investment bank peers,” the report says. “Goldman Sachs might operate with the highest absolute value at risk, but relative to market risk-weighted-assets it is also the most conservative in allocating capital for each unit of value at risk taken.”

    Somebody call Chris Rock, I think some of these Wall Street analysts are giving him a run for his money. I mean, is this a joke? This is an outright insult to any professional day-traders who actually use oscillators, metrics, and market indicators to predict future variables and outcomes. Anyone can run around banging a bucket on their head with a wooden spoon to garner some attention, at least give try a little harder and infuse some substance into your logic when attempting to influence on a mass scale. In the coming weeks, you can expect to see more of these twisted headlines dominating the world’s top investment publications, in order to persuade a distorted future outlook.

    “We’re heading towards a double-dip recession,” said Chris Whalen, a former Fed official and now head of Institutional Risk Analytics. “The party is over from fiscal support. These hard-money men are fighting the last war: they don’t recognise that money velocity has slowed and we are going into deflation. The only default option left is to crank up the printing presses again.”

    China’s ok! Or is it?

    Next on the table is the RBA’s statement about China which was sighted as the source of Tuesday’s bullish sentiment, which caused an ‘epic rebound’ of mass proportions in futures trading, not only in Asia, but Europe as well. Interestingly enough, it seems The Wall  Street Journal is actually attempting to leave behind its peers and deliver quality opinions, I guess they’ve realized the benefits of shorting in a Bear Market as well. “The Reserve Bank of Australia’s comments on China don’t look out-and-out bullish to us,” stated Matt Phillips, writer at WSJ. The official statement Australia’s central bank offered alongside its widely expected decision to leave its key benchmark rate unchanged offered only one direct statement on China:

    “The expansion remains uneven, with the major advanced countries recording only modest growth overall, but growth in Asia and Latin America, to date, very strong. There are indications that growth in China is now starting to moderate to a more sustainable rate.”

    “To us, that doesn’t sound like fist-on-the-table insistence that China’s growth is holding up. Rather, it sounds like an acknowledgement that the People’s Republic is seeing growth cool. But what do we know? The markets seem to be trading on expectations that China’s growth will keep chugging, fueling its seemingly bottomless appetite for commodities.”

    Now, I’m sorry for sounding pessimistic, but this news doesn’t seem all too positive to me, rather similar to the garbage mainstream media is feeding. If anything, these hazy headlines, once analyzed thoroughly and read between the lines, should further reiterate the notion that the U.S. is spiralling out of  control into the Third Depression. When are they going to realize that the market needs to correct itself, undergo hardships, see a fall and a rebound. Economics 101 is the the simple valuation of the economic cycle: investment, excess capacity, devaluation, plant closing and debt defaults, and finally capped off by having the pricing power returning. Now, unless I’m missing something, there is nothing in this theory which has existed since the dawn of time in relation to ‘Stimulus Packages’ and other incentives.

    I guess the U.S. motto shouldn’t be “God save our souls” anymore, rather simply “Gov save our souls.”

    But, but, Super Ben will save us!

    Unfortunately, even Super Ben can’t apply his mystical powers and catapult us out of the growing debt, in fact he’s been kind enough to add to it! In this recent report, Fed Chairman Ben Bernanke admitted the central bank created $1.3 trillion out of thin air to buy mortgage backed securities. This shocking admission came from the Joint Economic Committee hearing on Capital Hill last week. I was dumbfounded when I saw Bernanke shake his head in the affirmative as Representative Ron Paul said, “Well, where did you get the money? You created this money. So you did monetize debt, and that went into the banking system.” I was amazed he admitted this. I looked up the original hearing on C-Span to make sure the clip was not edited. It was not.

    What is even more shocking is I could not find a single mainstream media source that covered this revelation. Congress just finished voting on the bitterly contested Obama health care bill that is supposed to cost nearly a trillion dollars over ten years. (Some contend it will be more than twice that amount.) The mainstream media doesn’t even bat an eye over the Fed creating $1.3 trillion in a little more than a year to buy worthless debt no one else will touch. I do not get it. I guess we could have asked the Fed to print up a trillion dollars to pay for health care and avoided that drawn out battle in Congress.

    Even China has become increasingly alarmed over the U.S. printing money, as detailed by the following article from Telegraph.

    Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to “credit easing”.

    “We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

     

    “If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.

    Have they learned from the Lehman case?

    Indeed, it all seems that Wall Street is now tumbling to its worst quarter since the Lehman fallout, ironically enough, very little coverage was publicized on this matter other than a recent article on Economic Times. “Just pushing all the garbage off the side of the ship,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

    The S&P 500 fell below the 1,040 level that it had held since February, breaking out to the downside from what chartists call a very bearish “head and shoulders” price pattern and suggesting a major fall could come in the next five months.

    To make matters worse, leveraged short ETFs, widely blamed for a portion of Tuesday’s losses, were also cited for the late sell-off as managers piled on bets the market will fall. Those funds shorted the market to keep up with customer demand. It’s no surprise that (NYSE:FAZ), (NYSE:DRV) and (NYSE:TZA) have been seeing mass amounts of volume, far beyond the expect low volumes that the summer session usually brings.

    Wait a minute, employment fell!

    It sure did there skippy, maybe on paper that is, but when it comes to the data and statistics, it’s clearly seen that this was due to people atively seeking employment simply giving up because of the lack of opportunities. The unemployment rate would be well above 10% had the decline of the 350,000 jobs been included in a static valuation from last month.

    You can see this in Employment Situation Summary Table A. Household data table

    net change of unemployed -350,000 vs last month (unemployment => 14,973,000 to now 14,623,000)
    net change of total civ labor force -652,000 vs last month
    net change in not in labor force +842,000 vs last month
    employed to total population ratio declined as a result 58.7% to 58.5%

    All in all, the unemployment rate fell as 652,000 people gave up on their job searches and left the labor force. People who are no longer looking for work aren’t counted as unemployed. Trick’s are for kids, or are they? The Feds dont seem to think so, they were ingenious enough to use “number of people leaving labour force” to keep that unemployment rate showing at 9.5%, causing another typical fake rally to further delay the inevitable collapse of the S&P 500.

    We have employment insurance, we’re okay — right?

    The unemployment insurance system is in crisis due to a combination skyrocketing unemployment and – in some cases – poor planning. A record 20 million Americans collected unemployment benefits last year, and twenty-six states have run out of funds and been forced to borrow from the federal government, raise taxes, or cut benefits. In many other states the situation is deteriorating fast. All data provided by ProPublica.

    Good old real estate: Properties are the safest investments, or not

    The housing market continues to deteriorate. Thursday’s report on May pending home sales was down 30% from the prior month and nearly 16% vs. a year ago.  The market weakness spans the country. Sales in the Northeast, Midwest and South fell more than 30%, the bright spot, the West, only fell 21%.

    The news comes after last week’s record low new home sales in May, which plummeted nearly 33%. Experts say the expiration of the new home-buyer tax credit is to blame for the sudden market softness.

    Unfortunately, the market could get worse and prices could fall further, says Richard Suttmeier of ValuEngine.com.  High unemployment and struggling community banks are two main causes.  Saddled with bad housing and construction loans, local banks will continue to restrict lending.

    Plus, the failure of the Obama administration’s mortgage modification program means a steady flow of short sales. “People are going to be surprised when they see there have been short sales,” which negatively impact appraisals in the local community, says Suttmeier.

    For a complete video interview by Yahoo finance, visit this link.

    A cruel summer that could get even worse

    Gavekal, a Hong Kong based investment research firm, has complied a list of the main events that could ruin your summer by roiling markets.

    –Spain’s bond roll-overs: Likely the biggest event of the summer will be Spain’s ability to roll over more than 20 billion euros in sovereign debt and at least as much in Caixa debt. If Spain is forced to turn to the newly created European/IMF backstop lending facility to meet its obligations, the euro could collapse and rapidly retrenching risk assets may prove to have just been a dress rehearsal.

    –Japan’s monetary policy stance: Will the government’s tighter fiscal policy give the Bank of Japan room to ease monetary policy? If the answer is no, then Japan could once again be heading into a deflationary spiral on the back of an overvalued Yen, tight fiscal policy and tight monetary policy.

    –U.S. economic data: In recent weeks, most economic data releases have disappointed, sparking renewed fears of a ‘double dip’ recession. “Undeniably, this adds another layer of uncertainty for the summer,” Gavekal says.

    –China’s foreign exchange policy: The markets cheered China’s recent decision to provide more flexibility to its currency. But Gavekal’s take is that the yuan’s revaluation will be very modest.

    Technical analysis tells the story

    Interestingly enough, no one has yet to point out that it is not only the S&P 500 that is currently engaged in the ‘Head and Shoulders’ pattern with a ‘Death Cross, but rather all of the U.S. major exchanges. As you can see below, we are on the verge of witnessing a cataclysmic event which will shake not only Wall Street, but the World Markets as a whole.

    NYSE

    S&P 500

    Dow Jones Industrial

    NASDAQ Composite

    So what it comes down to ironically is that while every-one’s attention has was focused on the Atlantic’s first hurricane, Alex, few have given a thought towards the perfect storm thats brewing among the major U.S. indices. The famous ‘Death Cross’ has not only happened on the New York Stock Exchange (NYSE), but the Nikkei exchange as well, a widely used futures trading instrument.

    Back in March, it was reported by Business Insider that a similar ‘Death Cross’ was forming in the Chinese market. This caused technical analysts to becomeawfully worried, especially given the creativity in naming this indicator, especially that this one lives up to the hype.  A rarity which is hardly ever witnessed is now unfolding even in futures markets across the world.

    Focusing simply on bank stocks and the financial sector, with 50% of the trades done over computers, you can bet your bottom dollar that the sell signal is in until the S&P 500 reaches the support near the 970 region, with a possible move lower. For those seeking answers on how low we can go, it remains difficult to forecast the true bottom from here, especially given how swiftly all of these situations have taken place.

    Analysts have tried to state a bounce is here yet Gold, Silver and other precious metals alongside the USD continue to soar, thus so the real question becomes; Which of the three stooges falls first? We’re banking that they will all fall over around the same time, though any one could trigger the next. You see, similar to how the Futures (Asia & Europe markets) are used to dictate tomorrow’s U.S. trading activities due to their
    complementary relationship, so are the three major U.S. indices towards each-other. In essence, they are like joint-twins; When one gets chopped, the others soon follow suit.

    Disclosure: Long FAZ



    Disclosure: Long FAZ
    Stocks: FAZ, FAS, JPM, GS, C, AIG, BAC, QQQ, DRV, TZA
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