Morning Update/ Market Thread 6/17 - Money is Debt – Debt Saturation Equals Structural Unemployment Edition…

Good Morning,

Equity futures are zooming this morning… wish I had a good mainstream explanation, perhaps it is all that “dumb money” that thinks the stock market is a farce? Perhaps it was Research Somewhat in Motion who aroused the animal spirits when they lowered guidance and announced layoffs are coming? Maybe it was just a technical bounce off the SPX 200dma? Or perhaps… just perhaps… it was HFT machines owned by the insolvent debt pumping central banks? Does it matter? Are you in control of your “investment?” Do you trust them, really? Is this the best place for your money? Are there any safe places for your money when private central bankers are in charge? Just questions to ponder as we watch the dollar sink, bonds go lower, oil is drilling a hole in the ground, but magically gold and silver are hanging tough, while food commodities begin their journey back to Earth.

While I’m mentioning food commodities, below is a daily chart of Rice and Wheat. Both have etched out what appears to be a possible Head & Shoulders formation, both are at the neckline, so further selling may confirm those patterns:



Two days ago I showed you a chart of the dollar exactly when it was touching overhead resistance, and now it has pulled back from that point since that time. The direction of break out of this triangle will be the tell for the future of equities and commodities:



As I mentioned, the SPX yesterday perfectly bounced off the 200dma, and the HFTs have been partying ever since:



Despite the bounce yesterday, the VIX continued to rise and closed above the upper Bollinger for the second day in a row. If prices hold higher today and cause the VIX to return inside of the Bollinger range then a short term market buy signal will be generated:



I’ve been watching IYR again as I know that commercial real estate tends to lag residential. It has been descending back towards its 200dma, a break below that line would probably indicate that another wave of deflation is taking root. Regarding real estate, it is usually the second wave of deflation that you want to start thinking about buying – it will be a time when most are giving up. That time is getting closer:



RIMM has lost more than 50% of its value since February. Guidance last night caused it to plunge 18% overnight. I think you’re going to see more companies fall victim to the forces of margin compression and then deflation as QE unwinds. There are rumors the next trick by the “Fed” is already in motion. The problem for them is that they have already saturated the macro economy with debt – new schemes that fail to unsaturated the debt will only lead to failure and more hardship for Americans.

Don’t believe me? Who do you trust more? Bernanke who has been wrong on every single one of his prognostications, or me who at least has been mostly right all along? Want proof? Okay, here’s more proof...

If you look at a chart of Base Money, it's pretty hard to argue that money pumping has not been occurring:



Now, if you look at the Mean Duration of Unemployment, you are going to be startled, and you are certainly not going to see any form of “recovery” or “job creation” here:



Now, if you combine the two charts, and you work in Congress, you should be calling not only for Mr. Bernanke’s resignation, but you should be working on repealing the “Federal (not) Reserve (not there) Act,” and you should be replacing it with something along the lines of Freedom’s Vision:



Not proof enough? Do I need to pull out the “Chart of the Century” showing the clearly diminishing returns of debt?

Just as a kicker, when you pour hot money into a debt saturated environment, something bad happens to the velocity of money. When people, businesses, and governments finally get their hands on private created debt money, because they already carry so much debt they have no choice but to turn that money back around and send it back to the bank (plus interest). Thus velocity goes nowhere, it is a symptom of debt saturation. Below is a chart of the M1 money multiplier – how’s the “Fed” looking so far?



The St. Louis “Fed” finally added velocity to their data base, so now I can make velocity charts. When looking at the MZM velocity (MZM is currently the largest measurement of “money”) something struck me:



Oh yeah, velocity is dead, but doesn’t that chart look just like a chart of interest rates? Okay, let’s combine the Federal Funds rate with MZM Velocity and see what happens:



Hmmm... So what’s happening here? Well, in 1980 then Chairman Volcker raised rates to nearly 20% to kill inflation and rates have been falling ever since. But so has the velocity of money… but at some point velocity fell off a cliff, that point in my opinion, is the point at which macroeconomic debt saturation was reached. It was the same point at which the addition of debt began producing negative returns on the diminishing returns chart. It has lead to structural unemployment, deflation in things you hold as an “asset,” and inflation in things you need to consume.

“Consumer” Sentiment and supposed “Leading” Indicators will be released this morning and will be covered inside of today’s Daily Thread.

Europe and Greece? Same, same. Only we’re far worse off, but simply better at covering it up… so far.

If we want our kids to lead a truly free life, then we need to get busy.

If you haven’t been following the Fukushima situation outside of the mainstream “news,” then you don’t know what’s going on. It is a very dire and very dangerous situation that is affecting the entire globe and will definitely affect your children’s futures. We follow that situation every day inside the Daily thread, I think it’s wise to pay attention.